TaxTMI 
TaxTMI 
TaxTMI 
2019 (8) TMI 543
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.... software, manufacture/supply of hardware, electronic components and systems, networking and providing advice, consultation and software technology solutions inter alia in relation to embedded operating system etc. It filed a return declaring total income of Rs. 10,31,24,860/-. The assessee also filed Form 3CEB declaring five international transactions. The AO referred the matter of determination of the ALP of the international transactions to the Transfer Pricing Officer (TPO). 4. The grounds challenging the transfer pricing addition are based only on the first international transaction of "Provision of Design Engineering Services" with transacted value of Rs. 58,51,42,829/-. The assessee applied the Transactional Net Marginal Method (TNMM) as the most appropriate method for demonstrating that this transaction was at ALP. The assessee computed its own Profit Level Indicator (PLI) of OP/OC at 14.93%. Five comparables were initially chosen out of which Acropetal Technologies Ltd. (Segment) was shown as `Not applicable' and Rolta India Ltd. (Consolidated segmental) was shown as `Not comparable'. Thus, in effect, the assessee had three comparables with average PLI of 2.50%. This is ....
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.... TPO in his original order dated 19-08-2016 included Acropetal Technologies Ltd. Thereafter, he rectified his order on 15-11-2016, inter alia, excluding Acropetal Technologies Ltd. from the set of comparables, a copy of which has been placed at page 183 onwards of the paper book. In para 5 of this order, the TPO acknowledged the inclusion of Acropetal Technologies Ltd. in his earlier order. However, in para 6 he observed that "it is noted that the PLI of the Acropetal Technologies Ltd. is taken wrongly.............. As this office has also applied the filter of exceptionally high/low profit making companies, the said company could not be considered as comparable". In the calculation of the profit margin of the comparables, the TPO, in his rectification order, excluded Acropetal Technologies Ltd. from the list of comparables for benchmarking the international transactions of "Provision of Design Engineering Services". The assessee raised objections before the DRP but did not contest the exclusion of Acropetal Technologies Ltd. The DRP gave directions accordingly and did not touch the comparability or otherwise of the Acropetal Technologies Ltd. It was, however, when the direction of....
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....riation in the income or loss returned which is prejudicial to the interest of such assessee.' Sub-section (2) of section 144C states that the assessee shall either file his acceptance to the AO on the variations proposed in the draft order or file his objections, if any, with the DRP. Sub-section (3) states that : `The Assessing Officer shall complete the assessment on the basis of the draft order, if- (a) the assessee intimates to the Assessing Officer the acceptance of the variation; or (b) no objections are received within the period specified in sub-section (2). A conjoint reading of first three subsections of section 144C deciphers that the draft order attains finality, inter alia, on the assessee accepting the variation and the assessment has to be necessarily completed on the basis of the draft order. It means that unless the assessee raises objection before the DRP, the AO in the assessment order has to obey and follow the income computation in his draft order. He cannot alter any aspect of the draft order in passing the assessment order u/s 144C(3). Now, we come to the second scenario of the assessee aggrieved by the draft order. If the assessee is not satisfied with the ....
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....d. attained finality as the same did not figure in the draft order. The AO/TPO, while giving effect to the directions of the DRP, were devoid of any power to again include Acropetal Technologies Ltd. in the list of comparables for enhancing the amount of transfer pricing adjustment. Having himself excluded Acropetal Technologies Ltd. up to the stage of passing the draft order, the TPO ceased to exercise any jurisdiction to re-examine his earlier view and include it in the list of comparables at the time of giving effect to the direction of the DRP, when it was not a part of the direction. Under such circumstances, we direct to exclude Acropetal Technologies Ltd. from the list of comparables for benchmarking the international transaction of provision of design engineering services. 9. The assessee has also assailed the inclusion of Eclerx Services Ltd. in the final set of comparables for benchmarking the same international transaction of provision of design engineering services. The facts apropos this issue are that the TPO proposed to include this company in the list of comparables, which was objected to by the assessee on the ground that it was functionally different. The TPO ob....
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....providing KPO services, such as, geographic information system or human resource services or business analytics services or financial services, would per se become comparable. The further comparability within the KPO services is also required to be separately established to treat a company as comparable. 11. Reverting to the facts of the instant case, we find that the assessee's functional profile under this segment has been summarily discussed by the TPO on page 2 of his order by observing it as "Design Engineering Services". Now we turn to the Annual report of Eclerx Services Ltd., a copy of which has been placed at page 380 onwards of the paper book. It has been recorded in the Annual report that this company rendered Financial services; Sales and marketing services; and Cable and telecommunication services. No separate segmental information is available. When we consider the nature of services provided by Eclerx Services Ltd. on entity level in juxtaposition to the services rendered by the assessee, we find that there is a lot of difference. Notwithstanding that, it is still further found from page 10 of the Annual report of this company that there happened certain extraordina....