AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2018 (10) TMI 1902
X X X X Extracts X X X X
X X X X Extracts X X X X
....., as the comparable. 1.3 The Ld.TPO has erred by considering only the margin of the segment "Engineering Design Services" of M/s. Tata Eixsi as the comparable. ITeS Segment 2.1 The Ld.TPO has erred in treating M/s. Infosys BPO Limited as the comparable company when it is functionally dissimilar and having huge turnover. 2.2 The Ld.TPO has erred in treating M/s. MPS Limited as comparable company which is a high end service provider in a different line of business and hence not functionally comparable. 2.3 The Ld.TPO has erred in treating M/s. Hartron Communications as the comparable company which is functionally dissimilar. 2.4 The Ld.TPO has erred in not treating M/s. Caliber Point Business Solution as comparable company on the ground that the financial year of the company ends on a different date. Assembly Segment 3.1 The Ld.TPO has erred in treating M/s. Cenlub Industries as comparable company when it is functionally dissimilar. 3.2 The Ld.TPO has erred in treating M/s. Dembla Valves Ltd., as comparable company when it is functionally dissimilar. 3.3 The Ld.TPO has erred in treating M/s. SE....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... EDS segment, we restrain from adjudicating the issue with respect to Vama Industries and Tata Elxsi as comparable companies. Accordingly Ground No.1.1 to 1.3 cited in Para 2 herein above are disposed off in favour of the assessee. 5. Ground No.2.1: M/s. Infosys BPO Limited as the comparable company:- The Ld.AR submitted before us that the export turnover of M/s. Infosys BPO Limited is quite high which is approx. Rs. 1356 crores while as the export turnover of the assessee company is only around Rs. 14.50 crores; hence M/s. Infosys BPO Limited cannot be taken as a comparable company with that of the assessee company. We find merit in the submission of the Ld.AR. When there is wide gap between the size and turnover of the company which is not dispute, they cannot be taken as comparable company. Hence we hereby direct the Ld.TPO to exclude M/s. Infosys BPO Limited as comparable company while computing the ALP in the ITeS Segment. 6. Ground No.2.2: M/s. MPS Limited as comparable company The Ld.AR submitted before us that the Ld.TPO has treated M/s. MPS Limited as comparable company without addressing to the objections raised by the assessee and the Ld. Members ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....olated. Therefore though it is a company with different financial year, it can be treated as a comparable company. The Ld.AR further submitted that the Ld.TPO without examining these facts has excluded the company as comparable company. Though we find the arguments of the Ld.AR justifiable, the manner in which such extrapolation of profit is worked out is not brought out before us. Therefore in the interest of justice, we hereby remit the matter back to the Ld.TPO for de-nova consideration. 9. Ground No.3.1: M/s. Cenlub Industries as comparable company:- The Ld.AR submitted before us that the company is engaged in activities such as designing, engineering, manufacturing, supply, installation and erection of lubricating systems. Further the company had also undertaken research & development with respect to specific areas such as development of grease dispensing system for commercial vehicle and wind turbine. It was further submitted that the Ld.TPO himself had applied the functionality dissimilar filter in the case of M/s. Cenlub Industries and observed that under TNMM only broad functional comparability is required hence it was treated as comparable. Therefore it w....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... When there is a clear cut finding that the company is functionally dissimilar, the Ld.TPO ought to have restrained from accepting the company as a comparable company. Therefore we hereby direct the Ld.TPO to exclude M/s. SE Electricals Ltd., as comparable company. 12.Ground No.4: Not granting any adjustment towards working capital and risk between the assessee company and comparable company:- The Ld.AR submitted before us that the Ld.Revenue Authorities have not taken into consideration with respect to adjustment towards working capital and risk between the assessee company and the comparable companies. It was further submitted that the adjustment towards working capital and risk ought to be taken in to consideration while arriving at the operating margin of the comparables. Reliance was placed in the following decisions:- (i) Order of the Chennai Bench of the Tribunal in the case of M/s. R. Stahl Private Limited in ITA No.2745/Mds/2016 vide order dated 19.04.2017. (ii) Order of the Chennai Bench of the Tribunal in the case of M/s. Doowon Automotive Systems India Pvt. Ltd., in ITA No.692/Mds/2016 vide order dated 25.01.2017. (iii) Order....
X X X X Extracts X X X X
X X X X Extracts X X X X
....observation of the Ld.TPO that the assessee has failed to demonstrate the requirements as per the ratio laid down in the case M/s. Mobies India Ltd. Further with respect to risk adjustment, the Ld.Members of the DRP relied on the observation of the Ld.TPO which is extracted herein below for reference: "11.5 TP study and the arguments of the assessee are examined. On examination, it is found that a) The taxpayer bears 'single customer risk' as it is totally dependent on the AE for business. b) The agreement with the AE does not guarantee sufficient volume of business nor period. c) The AE is exposed to the market risk and any fluctuation in the business conditions of the AE affect the contractual terms between the AE and the taxpayer. d) There are many captive service providers operating in the same environment as the taxpayer and still earning much better margins than independent risk bearings enterprises and vice versa. e) There is no direct correlation between the margins earned and risks taken by the assessee and similar cost plus entities. f) Many business studies have shown that the MNCs are actually distributing t....