TaxTMI 
TaxTMI 
2019 (5) TMI 1690
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.... Rs. 52,40,01,000/-. During the TP study, the assessee considered the TNM Method as the most appropriate method. The assessee's PLI is OP/OC at 16.11%. The assessee considered five comparables for the single year and the PLI of these comparables is 2.87%. Since the assessee's PLI is much higher, no suo-motu adjustments were made by the assessee. However, during the proceedings before the TPO, 3 comparables out of 5 comparables were rejected by the TPO. Further, the TPO included four other comparables considering the total six comparables (2 comparables of the assessee and 4 comparables of the TPO). The PLI of these comparables at this point of time is 23.57% after allowing the adjustment on account of working capital. This PLI is computed after the adjustment on account of 'working capital' is allowed by the TPO. This PLI being much higher than the assessee's PLI, the TPO suggested the addition of Rs. 3,40,02,747/- as per the computation given in paras 5.11 and 5.12 of the order of the TPO and the same are extracted hereunder :- "5.11 Computation of Arms Length Price: The arithmetic mean of the Profit Level Indicators of comparables is taken as the arms length mar....
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.... 5, 7, 8, 9 & 10 being premature/consequential in nature, they were not pressed. Therefore, these grounds do not require any specific adjudication. Accordingly, the ground nos.1, 2, 3, 5, 7, 8, 9 & 10 are dismissed as consequential, not pressed and premature etc. That leaves only ground nos.4 and 6 for adjudication and the same are extracted as under :- "Ground No.4 - Inappropriately selecting companies which are not comparable to the Appellant. Erred in inappropriately selecting additional companies (which are not comparable to the Appellant) as comparable to the Appellant. Ground No.6 - Inappropriately rejecting risk adjustment. Erred in comparing the full-fledged risk bearing entities with the Appellant's captive operations without making any risk adjustment for differences between the functional and risk profile of comparable vis-à-vis the Appellant." 7. We shall now deal with each of these grounds in the following paragraphs. 8. Ground no.4 relates to the inappropriate selection of comparables which are functionally different from that of the assessee. In this regard, ld. Counsel for the assessee brought our attention to the fun....
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....jection of the assessee is not accepted." 10. From the above, it is evident that the data analysis function of (i) E-clerx Services Ltd. are loss making company and (ii) Genesys International Corporation Ltd. are not comparable that of the assessee. It is also a fact that the TPO never granted any adjustments to the functional differences. 11. Further, bringing our attention to the order of the DRP, ld. Counsel submitted that the reasoning given by the TPO was approved without application of mind to the actual functions of the comparables qua the assessee. Further, referring to the persistent of this issue, ld. Counsel brought our attention to the various decisions to demonstrate that the data analysis as function is no way comparable to the function of engineering designs reported by the assessee. The ld. Counsel for the assessee brought our attention to the decision of the Hon'ble Delhi High Court in the case of Actis Global Services Pvt. Ltd. vs. PCIT vide ITA 417/2016 dated 05.08.2016 (page 648 of the Paper Book) and submitted that E Clerx Services Limited being a KPO services company, was considered as a good comparable in that case with KPO functions. In this case, the ....
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....s and both were catering to high-end clients. 6. The above submission overlooks what ITAT itself has noted in its impugned order, that the function profile of the two companies were different. While the Assessee is catering to the capital and financial services markets, ESL works in the area of sales, marketing and supporting financial services. The financial profile could not be said to be similar from the point of v ioefw tohfe thtwe ot yKpeP Oosf businesses they were catering to." 12. Explaining the above said principle laid down by the Hon'ble Delhi High Court, ld. Counsel brought our attention to the various other decisions to demonstrate that mere grouping of KPO companies will not sufficient for identifying a good comparable by the TPO. 13. Further, referring to the Genesys International Corporation Limited, ld. Counsel for the assessee brought our attention to various decisions such as : (i) Vistcon Engineering Center (India) Pvt. Ltd. v. ACIT (ITA No.358/PN/2013 (AY 2008-09) (Pune ITAT) (21 October 2015). (ii) Vistcon Engineering Center (India) Pvt. Ltd. v. ACIT (ITA No.331/PN/2014 (AY 2009-10) (Pune ITAT) (11 April 2016). (iii) Jo....
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....alf of the assessee. We have also considered the various decisions cited before us. As regards the selection of Genesys International Corporation Ltd. as comparable company is concerned we find the said company has not been considered as comparable by the TPO himself in A.Y. 2010-11 and 2011-12. During A.Y. 2010-11 a specific show cause notice was given to the assessee and the same was excluded after considering the detailed reply filed thereto. In A.Y. 2011-12, the said company was not included as comparable company even in the show cause notice. .......... 33. Since the assessee company is engaged in providing Engineering Design Services and since the Hyderabad Bench of the Tribunal in the case of Hyundai Motors India Engg. Pvt. Ltd. (Supra) has excluded Genesys International Corporation Ltd. from the list of comparables on the ground that the company is functionally different, therefore, following the decision cited (Supra) and further considering the fact that Genesys International Corporation Ltd. was not included as comparable company in A.Yrs. 2010-11 and 2011-12 by the AO himself in assessee's own case, we direct the TPO to exclude Genesys International Lt....
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..... Bringing our attention to the order of the DRP, ld. Counsel submitted that the matter was discussed by the DRP in para 7 at internal page 44 of the DRP's order. Relying on various decisions including the decision in the case of Sony India Pvt. Ltd. vs. DCIT (2008) 118 TTJ 865 (Del), ld. Counsel sought for grant of risk adjustments. The assessee made written submissions and the same are extracted in para 7.1 of the order of the DRP. Eventually, the DRP decided the issue against the assessee and refused to interfere with the order of TPO in not granting the risk adjustments. In this regard, ld. Counsel submitted that the granting of adjustments towards risk factor is now settled law and relied heavily on the large number of decisions. Bringing our attention to the decision of the Pune Bench of the Tribunal in assessee's own case vide ITA No.1250/PUN/2015 dated 24.11.2017, copy of which is placed at page 312 of the Paper Book, ld. Counsel for the assessee submitted that the Tribunal allowed the claim of the assessee towards risk adjustments. The Tribunal while deciding this issue relied on the similar another decision of the Tribunal in the case of Sony India Pvt. Ltd. (supra). 1....