TaxTMI 
TaxTMI 
2019 (2) TMI 1957
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....Briefly stated, the facts of the case are as under: 2.1 The assessee is a wholly owned subsidiary of Customer Focus Services LLC USA and provides back office operations for its Associated Enterprises ('AE') i.e., in the nature of IT Enabled Services ('ITES'). For Assessment Year 2011-12, the assessee filed its return on 31.03.2012 declaring income of Rs. 1,79,52,549/-. The case was taken up for scrutiny for this Assessment Year and the Assessing Officer ('AO') made a reference u/s 92CA of the Act to the Transfer Pricing Officer (TPO) for determination of the arms length price (ALP) of the international transactions entered into by the assessee with its AE, as mentioned in the 92CE Report. After examining the assessee's TP documenta....
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....ue filter" without appreciating the fact that the function carried out is "Software Development" irrespective of whether onsite or offshore. iii) The Hon'ble DRP erred in excluding M/s Acropetal Technologies on the ground that they have significant onsite revenue without appreciating the fact that onsite development of software entails more cost and thereby results in lower profit margins. iv) The Hon'ble DRP erred in seeking exact comparability while searching for comparable companies of the assessee under TNMM method whereas requirement of law and international jurisprudence require seeking similar comparable companies. 2. M/s. Jeevan Scientific Technology Limited. a) The Hon'ble DRP erred i....
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....'s comparability was considered to drive home its point that revenue's grounds/averments were misplaced; as the DRP had excluded Acropetal on grounds on functional comparability; for the reason that 'Acropetal' performs engineering design services, and therefore it is not comparable with the assessee in the case on hand who performs only ITES/BPO functions. It was prayed that in the light of the above, Revenue's ground No.1 (i to iv) be dismissed. 4.3.1 We have heard the rival contentions and perused and carefully considered the material on record regarding the comparability of 'Acropetal' to the assessee in the case on hand. The DRP in its order, while deciding the comparability of 'Acropetal' to the assessee in the case on hand, a....
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....TP) A No. 1316/Bang/2012), held that Acropetal cannot be considered as comparable as it performs engineering design services accordingly we direct the assessing officer to exclude the company from the comparables." 4.3.2 On a careful appraisal of material on record and the DRP's order (supra), we find that the DRP has excluded 'Acropetal' from the list of comparables on the grounds of it being functionally not comparable to the assessee in the case on hand and not on the ground of application of 'on-site' filter as alleged by Revenue in the grounds raised (supra). We also find that Revenue in this appeal has neither challenged DRP's action in excluding 'Acropetal' from the list of comparables on grounds of not being functionally comparab....
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....ly because of the assessee's failing the revenue earning filter of 75% applied by the TPO, but also (ii) because of huge fluctuations in the margins of the company over many years and (iii) also because there is no foreign earning in respect of the ERP segment, and there would be less than 32.28% revenue ratio even if the BPO segment is considered. It is submitted that this company 'Jeevan' has also been excluded by DRP on account of (i) huge fluctuation in the profit margins of the company in the last few years and (ii) for failure on the 75% revenue earning filter applied by the TPO which have not been challenged by Revenue and therefore this company, 'Jeevan' has to remain excluded from the list of comparables to the assessee. 5.3.1 W....
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....,89%, which indicate that certain peculiar circumstances influencing the profit margin of the company and the company fails the revenue earning filter of 75% applied by the TPO, in view of the above differences, we direct the A.O. to exclude the above company from the comparables." 5.3.2 On a careful consideration of the DRP's order and the facts on record, we find that Revenue has challenged the exclusion of 'Jeevan' from the list of comparables to the assessee by the DRP on grounds of application of service income filter of 75%; which was infact a filter applied by the TPO. Apart from raising this ground (supra), Revenue has not placed on record any factual material evidence to controvert the DRP's finding that this company 'Jeevan' ha....