TaxTMI 
TaxTMI 
2021 (10) TMI 1298
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.... law, the Hon'ble DRP and Ld. Transfer Pricing Officer (Ld. TPO) erred in rejecting the transfer pricing documentation maintained by the Appellant in accordance with the provisions of the Act read with the Income Tax Rules, 1962 ("Rules") Consequently, the Hon'ble DRP and the Ld. TPO also erred in conducting fresh search for identification of comparable companies. In connection with rejection of TP study of Appellant the Hon'ble DRP/Ld. TPO erred in * Rejecting the search conducted (for comparable companies) by appellant without giving any cogent reasons; * Rejecting the TP study prepared by the Appellant merely on the basis of difference in opinion with respect to certain filters applied by the Appellant. In this regard, - The Ld. TPO considered certain quantitative filters i.e. i. Net Fixed Asset (NFA) more than 200% of sales and ii. R & D cost of 3% of sales as inappropriate filters without providing cogent reasons - The Ld. TPO assumed that quantitative filter of ITes service income 75% can be applied and incorrectly stated that Appellant's quantitative filter of service income 75% is incorrect. Moreover, even after rejecting the Appellant's TP....
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.... set of comparable companies in the TP order even though these companies are not appearing in the search (population) undertaken by the Ld. TPO for fresh search of comparables. Thus, the Hon'ble DRP/Ld. TPO erred by adopting cherry picking approach to consider these high profit making companies as comparable companies. * Not selecting Digicall Global Pvt. Ltd. and Sutherland Global Services Pvt. Ltd. as comparable companies despite the Appellant providing detailed submissions explaining functional similarity of these companies with some of the other companies selected by the Ld. TPO as comparable during the fresh search. 4. Risk Adjustment not granted The Hon'ble DRP erred and the Ld. TPO erred in not granting any risk adjustments for differences in risk borne by the comparable companies vis-a-vis. the Appellant. 5. Working capital adjustment not granted The Hon'ble DRP erred and the Ld. TPO erred in not granting working capital adjustment to the Appellant which could have nullified the impact of different level of working capital (deployed by the Appellant and comparable companies) on the benchmarking analysis and in disregarding the fact that working capital....
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.... provide after-market analytical services and only related software support. Meaning thereby, what the assessee was doing in 2004, was essentially providing software services which got amended from April, 2013 for the financial year 2014-15 and after that the assessee is providing analytical services and only related software and technical support services. These agreements are annexed at Pages 1500 and 1520 in the paper book filed before us. 4.1. The Ld. Counsel also brought to our notice the functional analysis of the assessee company which is annexed in the paper book at Pages 29 onwards wherein at Para 7.2, it is specifically mentioned that Entercoms Group focuses exclusively on aftermarket/post-sales service chain operations. There is detailed discussion of the functions performed by Entercoms US and Entercoms India. That taking us through these detailed functional analysis, the Ld. Counsel demonstrated what essentially Entercoms India does is to provide aftermarket analytical services through its COPS teams. The analytical services are performed using software developed and owned by Entercoms US. This discussion finds place from Para's 7.14 onwards in the functional anal....
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.... amalgamation taking place in respect of SPI Technologies India Pvt. Ltd. during relevant assessment year was also brought to the notice of the Ld. DRP at the time of objections raised before it by the assessee and the relevant submissions before the Ld. DRP have been annexed before us in the paper book 1 page 516 onwards. However, the Ld. DRP has not given any findings on this aspect. 8. We find the Hon'ble Jurisdictional High Court in the case of Pr. Commissioner of Income Tax Vs. PTC Software (I) (P) Ltd. (2019) 101 taxmann.com 117 (Bombay) has held that in case the assessee rendering ITES services to AE, a company in whose case extraordinary event of amalgamation took place during relevant year, could not be accepted as comparable and was decided in favour of the assessee. Similarly in the case of Pr. Commissioner of Income Tax Vs. J.P. Morgan India (P) Ltd. (2019) 102 taxmann.com 335 (Bombay), the Hon'ble Jurisdictional High Court on the same issue has held as follows: "(iv) Mr. Percy Pardiwalla, learned senior counsel appearing on behalf of the respondent invited our attention to the final decision of this Court in Pr. CIT v. Aptara Technology (P.) Ltd. [2018] 92 t....
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.... for the assessee has pointed out that though the CIT (A) says that there is no such amalgamation but his finding is totally incorrect. In this regard, reliance was placed on the ratio laid down by Pune Bench of Tribunal in Dover India (P.) Ltd. v. Dy. CIT [2017] 88 taxmann.com 115 (Pune - Trib.), wherein for assessment year 2010-11 itself, the said concern Accentia Technologies Ltd. was excluded being high end KPO service provider. Further, the Tribunal in BNY Mellon International Operations (India) (P.) Ltd. (supra) have noted the extraordinary event of acquisition and also amalgamation of another concern and held that the said concern could not be selected as comparable. The relevant findings of Tribunal are in paras 12 and 13, which read as under:-- '12. The next concern against which the assessee has raised objections is Accentia Technologies Ltd. on the ground of extraordinary events during the year under consideration. The said concern had acquired IQ group of companies in the United Kingdom and there was amalgamation of Asscent Infoserve Pvt. Ltd. with the said concern and because of these extraordinary events, the margins of said companies should not be included in t....
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....he very same assessment year, the Bangalore Bench of the Tribunal in the case of Symphony Marketing Solutions India Pvt. Ltd. v. ITO, (2013) 38 taxmann.com 55 (Bang.) has excluded the said concern from the list of comparables in a similar situation following the decision of the Hyderabad Bench of the Tribunal in the case of Capital IQ Information Systems (India) Private Limited v. DCIT, (2013) 32 taxmann.com 21 (Hyd.). 15. We have considered the submissions of the Ld. Representative for the assessee and also the stand of the Revenue as emerging from the order of the TPO. In our view, the ratio laid down by the Hyderabad Bench of the Tribunal in the case of Capital IQ Information Systems (India) Private Limited (supra) and by the Bangalore Bench of the Tribunal in the case of Symphony Marketing Solutions India Pvt. Ltd. (supra) is squarely applicable to the present case also. The aforesaid Benches of the Tribunal found that during the year under consideration there were extraordinary events that took place in the said concern which warranted exclusion of this company as a comparable. We therefore hold that the said concern cannot be considered as a comparable." 15. Further, simi....
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....t. Ltd., it had earned 100% of its revenue from related party during financial year 2014-15. That it is very clear thus, AGS Health Private Limited is not clearing the filter of "companies that have transactions with related parties are greater than 25% are eliminated" which was applied by the assessee and upheld by the Ld. TPO. In view of this, assessee prayed that AGS Health Private Limited should be rejected as comparable company as the same is not clearing the RPT filter. 14. The Ld. DR conceded to the fact of TPO's observation at para 7.2 of his order wherein the TPO has accepted assessee's contention that companies which have transactions with related parties are greater than 25%, they are eliminated and it has been held by the TPO as an appropriate filter. That on further examination of the Annual Report of AGH Health Private Limited, we find that it is far beyond 25% that AGS Health Private Limited has earned its revenue from related parties transactions and when the assessee in its TP study report has eliminated this company and it has been held as an appropriate filter by the TPO then there remains no basis for revenue again to include this company in the final s....