M/s. Rolls Royce India Pvt. Ltd., New Delhi V. DCIT, New Delhi

ITA 1042/DEL/2014

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 5432 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 2 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-05-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I1
• Next Hearing Date: 29-05-2017
• Assessment Year: 2009-2010
• Appeal Filed On: 21-02-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SANJAY I BARA
• Assessee Lawyers: R K KAPOOR
• Keywords: Related party transaction; Transfer pricing; Principle of natural justice; International transaction; Rule of consistency
• Section: 143(3); 142(1); 10B

Judgement Text

1 ITA NO. 1042/DEL/2014 IN THE INCOME TAX APPELLA TE TRIBUNAL DELHI BENCH: I-1 NEW DELHI BEFORE SHRI R. K. PANDA, ACCOUNTANT ME MBER AND MS SUCHITRA KAMBLE, JUDI CIAL MEMBER I.T.A .NO. 1042/DEL/20 14 (A.Y 2009-10) ROLLS ROYCE INDIA PVT. LTD. 2 ND FLOOR, BIRLA TOWER WEST, 25, BARAKHAMBA ROAD NEW DELHI AABCR5277Q (APPELLANT) VS DCIT CIRCLE-15(1) NEW DELHI (RESPONDENT) APPELLANT BY SH. R. K. KAPOOR, CA RESPONDENT BY SH. SANJAY. I. BARA, CIT DR ORDER PER SUCHITRA KAMBLE, JM THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE AS SESSMENT ORDER DATED 31/01/2014 PASSED BY THE ASSESSING OFFICER U/S 143 (3) READ WITH SECTION 144C OF THE INCOME TAX ACT, 1961. 2. THE GROUNDS OF APPEAL ARE AS UNDER:- 1) 1. THAT THE LD. TPO AND CONSEQUENTLY DRP/AO HAS ERR ED IN LAW AND ON FACTS IN THE CIRCUMSTANCES OF THE CASE IN CONFIR MING THE ADDITION ON ACCOUNT OF ARMS LENGTH PRICE UNDER SECTION 92CA(3) OF THE INCOME-TAX ACT DATE OF HEARING 06.02.2018 DATE OF PRONOUNCEMENT 02.05.2018 2 ITA NO. 1042/DEL/2014 AMOUNTING TO RS. 49,35,603/- ON WHOLLY ILLEGAL, ERR ONEOUS AND UNTENABLE GROUNDS. 2) THE ORDER OF ASSESSMENT IS BAD IN LAW. 3) THE LEARNED AOS ORDER BASED ON THE FINDINGS OF THE LEARNED TRANSFER PRICING OFFICER AND THE DIRECTIONS OF THE LEARNED D ISPUTE RESOLUTION PANEL U/S,144C(5) OF THE INCOME-TAX, IS ERRONEOUS, UNTENA BLE IN LAW AND ON FACTS FOR THE VARIOUS REASONS AND NOT LIMITED TO TH E FOLLOWING: - A) THE TPO AS WELL AS THE DRP AND CONSEQUENTLY THE AO HAVE GROSSLY ERRED IN LAW AND ON FACTS AND IN THE CIRCUMSTANCES OF THE CASE IN ERRONEOUSLY ADJUSTING THE ALP OF THE INTERNATIONAL TRANSACTIONS OF THE ASSESSEE RELATED TO PROJECT MANAGEMENT SERVICES (PM S) AND MARKETING SUPPORT SERVICES (MSS) BY TREATING THE ASSESSEE AS A HIGH-END SERVICE PROVIDER UNDER THESE SEGMENTS. B) WITHOUT PREJUDICE TO GROUND (A), THE LD. TPO AN D CONSEQUENTLY DRP/AO HAVE GROSSLY ERRED ON THE FACTS AND CIRCUMST ANCES OF THE ASSESSEES CASE IN TAKING CONTRARY STANDS BY FIRST TREATING THE PROJECT MANAGEMENT SERVICES AND MARKETING SUPPORT SERVICES OF A DIFFERENT NATURE FROM THE TECHNICAL SERVICES RENDERED BY THE ASSESSEE AND THEN FINALLY TREATING THE PMS & MSS AS TECHNICAL SERVICE S FOR CHOICE OF COMPARABLES AND BENCHMARKING. C) THE TPO AS WELL AS THE DRP AND CONSEQUENTLY TH E AO HAVE ERRED IN LAW AND ON FACTS AND IN THE CIRCUMSTANCES OF THE CA SE IN EXCLUDING FOREIGN EXCHANGE INCOME FROM THE CALCULATION OF OPE RATING PROFIT D) THAT WITHOUT PREJUDICE TO THE GROUND (C), THE T PO AS WELL AS THE DRP AND CONSEQUENTLY THE AO HAS ERRED ON FACTS IN E XCLUDING FOREIGN EXCHANGE GAIN TWICE WHILE CALCULATING OPERATING PRO FIT OF THE ASSESSEE. E) THE TPO AS WELL AS THE DRP AND CONSEQUENTLY THE AO HAVE ERRED IN 3 ITA NO. 1042/DEL/2014 LAW AND ON FACTS AND IN THE CIRCUMSTANCES OF THE CA SE IN APPLYING SAFE HARBOR RULES TO AY 2010-11. F) THE LD. TPO AS WELL AS THE DRP AND CONSEQUENTLY THE AO HAVE ERRED IN LAW AND ON FACTS AND IN THE CIRCUMSTANCES OF THE CASE IN REJECTING THE COMPARABLE COMPANIES SELECTED BY THE ASSESSEE THROUGH A PROCESS DRIVEN SEARCH, WHICH WERE THEN AN ALYZED FOR THEIR FUNCTIONS, ASSETS AND RISKS BEFORE THE FINAL SET OF COMPARABLES WAS ACCEPTED. G) THE LD. TPO AS WELL AS THE DRP AND CONSEQUENTLY THE AO HAVE ERRED IN LAW AND ON FACTS AND IN THE CIRCUMSTANCES OF THE CASE IN, I. RETENTION OF COMPARABLES REJECTED BY THE ASSESS EE IN ITS TP STUDY II THE SELECTION OF NEW COMPARABLES FOR THE COMPUTATION OF ALP FOR THE INTERNATIONAL TR ANSACTION OF PMS AND MSS SEGMENTS, WHICH ARE NOT IN CONSONANCE WITH THE PROVISIONS OF RULE 10B(2), SINCE: I. THEY RENDER DIFFERENT SERVICES AS COMPARED TO T HE ASSESSEE ; AND II ALSO UNDERTAKE DIFFERENT FUNCTIONS, ASSETS AND RISKS (H) THE TPO AS WELL AS THE DRP AND CONSEQUENTLY THE A.O HAVE ERRED IN LAW AND ON FACTS AND IN THE CIRCUMSTANCES OF THE CA SE IN NOT ALLOWING A RISK ADJUSTMENT ON ACCOUNT OF MATERIAL DIFFERENCES IN RISKS BORNE BY THE COMPARABLE COMPANIES CHOSEN BY LD. TPO AND THE ASSESSEE. 4) THAT EACH GROUND IS INDEPENDENT OF AND WITHOUT P REJUDICE TO THE OTHER GROUNDS RAISED HEREIN. 4 ITA NO. 1042/DEL/2014 3. THE ASSESSEE IS ENGAGED PRIMARILY IN THE POWER G ENERATION AND OIL AND GAS MARKETS, SUPPORTING A RANGE OF RECIPROCATING ENGINE S COVERING GAS ENGINES, HFO ENGINES AND CRUDE OIL ENGINES. THE ASSESSEE, I. E. M/S ROLLS ROYCE INDIA PVT. LTD HAS ENTERED INTO THE FOLLOWING INTERNATION AL TRANSACTIONS WITH ITS ASSOCIATE ENTERPRISES (AES):- S. NO. INTERNATIONAL TRANSACTIONS METHOD USED BY ASSESSEE AMOUNT (IN RS.) 1 PURCHASE OF FINISHED GOODS TNMM 27,03,15,517/ - 2 RENDERING OF TECHNICAL SERVICES CUP 2,61,72,059/ - 3 PROVISION OF TECHNICAL SERVICES CUP 48,11,560/ - 4 PROVISION OF PROJECT MANAGEMENT SERVICES TNMM 85,70,872/ - 5 PROVISION OF MARKETING SUPPORT SERVICES TNMM 1,35,76,496/ - 6 PAYMENT OF INTEREST ON LOAN CUP 24,23,420/ - 7 PAYMENT FOR PAYROLL ADMINISTRATION SERVICES CHARGES CUP 1,30,854/ - 8 REIMBURSEMENT FOR EXPENSES INCURRED BY A.E NOT BENCHMARKED BY THE ASSESSEE 2,14,09,240/ - 9 PAYMENT FOR TRAINING EXPENSES NOT BENCHMARKED BY THE ASSESSEE 8,75,948/ - 10 COST INCURRED FOR MACHINE RECEIVED FOC CUP 1,95,47,802/ - 11 LOAN TAKEN CUP 2,66,32,000/ - 12 COST RECHARGE CUP 3,19,12,700/ - TOTAL 34,82,85,966/- THE ASSESSEE, M/S ROLLS ROYCE INDIA PVT. LTD., HAD FILED DETAILS OF 5 ITA NO. 1042/DEL/2014 INTERNATIONAL TRANSACTIONS IN FORM NO. 3CEB UNDER S ECTION 92E. THE MATTER OF ARM'S LENGTH PRICE COMPUTATION BY M/S ROLLS ROYC E INDIA PVT. LTD. WAS REFERRED TO TPO, NEW DELHI U/S 92CA(1). THE TRANSFE R PRICING OFFICER VIDE ORDER DATED 28.01.2013, COMPUTED ARM'S LENGTH PRICE OF ABOVE MENTIONED INTERNATIONAL TRANSACTIONS, AND RECOMMENDED ADJUSTM ENTS AS PER THE DETAILS GIVEN HEREINBELOW:- THE ASSESSEE HAD E-FILED ITS RETURN FOR A.Y. 2009- 10 AT AN INCOME OF RS. 22,19,12,960/- ON 30.09.2009 WHICH WAS PROCESSED U/ S 143(1) OF THE ACT. THE CASE WAS SELECTED FOR SCRUTINY UNDER CASS. STATUARY NOTICES U/S 143(2) & 142(1) WERE ISSUED. IN RESPONSE TO THE STATUTORY NO TICE ISSUED, CHARTERED ACCOUNTANT/AUTHORISED REPRESENTATIVE ATTENDED THE P ROCEEDINGS FROM TIME TO TIME. THE DETAILS AND INFORMATION FILED WAS CONSIDE RED AND PLACED ON RECORD BY THE ASSESSING OFFICER. 4. DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSEE WAS PROVIDED AN OPPORTUNITY TO OFFER ITS EXPLANATION THAT WHY THE A RM'S LENGTH PRICE DETERMINED BY THE TPO AT RS. 49,35,603/- ON THE VARIOUS TRANSA CTIONS ENTERED INTO BY IT WITH ITS AE NOT BE ADDED TO THE TOTAL INCOME. THERE AFTER, A DRAFT ASSESSMENT ORDER U/S 144C R.W.S, 143(3) OF THE ACT, BASED ON T HE ORDER OF THE TPO'S ORDER DATED 25.10.2011 WAS PASSED AND SERVED UPON THE ASS ESSEE VIDE ORDER DATED 13.03.2013 PROPOSING AN ADDITION OF RS.49,35,603/-. THE ASSESSEE FILED OBJECTIONS AGAINST THE DRAFT ASSESSMENT ORDER BEFOR E THE DRP-II. THE DRP-II PARTICULARS AMOUNT (IN RS.) OPERATING COST 2,08,73,550/ - OP/OC 26.00/ - MARGIN 54,27,123/ - ARMS LENGTH PRICE 2,63,00,673/ - PRICE CHARGED BY THE ASSESSEE 2,13,65,070/ - DIFFERENCE 49,35,603/ - 6 ITA NO. 1042/DEL/2014 PASSED DIRECTIONS ON 20.12.2013. CONSEQUENT UPON TH E DIRECTIONS OF DRP THE TPO VIDE LETTER DT. 06.01.2014 STATED THAT AS PER T HE DIRECTIONS OF THE DRP THE FILTER OF INTEREST COST MORE IS THAN 25% WAS SEEN A ND IT WAS FOUND THAT NO COMPANY IS GETTING REJECTED ONLY ON THE BASIS OF TH IS FILTER IF THEY ARE QUALIFYING ALL OTHER FILTERS APPLIED BY THE TPO. THUS, NO CHAN GE IS BEING MADE TO THE ORDER OF THE TPO. THUS THE ADDITION MADE ON HIS ACCOUNT W AS UPHELD. THUS, THERE WAS AN ADDITION OF RS.49,35,603/- BY THE ASSESSING OFFICER . 5. BEING AGGRIEVED BY THE SAME, THE ASSESSEE IS BEF ORE US. 6. THE LD. AR SUBMITTED THAT THE ASSESSEE DURING TH E YEAR HAD UNDERTAKEN VARIOUS INTERNATIONAL TRANSACTIONS WITH ITS AES. THE TRANSACTIONS INCLUDE PROVISION OF TECHNICAL SERVICES, PROJECT MANAGEMENT SERVICES & MARKETING SUPPORT SERVICES. THERE IS NO DISPUTE IN OTHER INT ERNATIONAL TRANSACTIONS AND PROVISION OF TECHNICAL SERVICES. THE DISPUTE IS ON LY WITH REGARD TO INTERNATIONAL TRANSACTION PERTAINING TO PROJECT MAN AGEMENT SERVICES AND MARKET SUPPORT SERVICES. THE LD. AR SUBMITTED THAT THE ADDITION OF RS.49,35,603/- WAS MADE BY WAY OF ALP ADJUSTMENT IN THE INTERNATIONAL TRANSACTIONS UNDERTAKEN BY THE ASSESSEE WITH ITS AE S IN RESPECT OF MARKETING SUPPORT SERVICES AND PROJECT MANAGEMENT SUPPORT SEG MENT. THE VALUE OF INTERNATIONAL TRANSACTIONS WERE RS. 1,35,76,496/- A ND RS.70,872/- RESPECTIVELY TOTALING TO RS.2,21,47,368/-. THE ASS ESSEE IN ITS TRANSFER PRICING STUDY REPORT ALWAYS BENCHMARKED ITS INTERNATIONAL T RANSACTION WITH THE A.E FOR BOTH TECHNICAL AND SUPPORT SERVICES TO COMBINED SERVICE SEGMENT TREATING THEM TO BE ONE SERVICE AND ACCORDINGLY CLAIMED THE SAME TO BE AT THE ARMS LENGTH PRICE. THE LD. AR FURTHER SUBMITTED THAT TH E ITAT IN THE ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2010-11 BEING ITA NO. 1310 /DEL/2015 ORDER DATED 3/12/2015 CONFIRMED THE STAND OF THE ASSESSEE. THE LD. AR FURTHER SUBMITTED THAT THE TPO IN ALL THE SUBSEQUENT YEARS I.E. 2010- 11 & 2011-12 ONWARDS AGGREGATED BOTH TECHNICAL SUPPORT SERVICE SEGMENT I NTO ONE SEGMENT AND HAS CHOSEN HIGH END COMPARABLES FOR THE PURPOSE OF BENC H MARKING WITH COMBINED 7 ITA NO. 1042/DEL/2014 SERVICE SEGMENTS. THE TRIBUNAL CATEGORICALLY HELD T HAT THE ASSESSEE IS A LOW END AND RISK FREE SERVICE PROVIDER AND THE COMPARABLES SHOULD ACCORDINGLY BE CHOSEN. ACCORDINGLY, THE HIGH END COMPARABLES WERE REJECTED. THE APPROACH OF CLUBBING BOTH TECHNICAL AND SUPPORT SERVICE AND THE N BENCH MARKING WITH THE LOW END SERVICE PROVIDER HAS NOT BEEN FOLLOWED BY THE TPO. DURING THE YEAR UNDER CONSIDERATION, THE TPO HAD CHOSEN ONLY THE MA RKETING SUPPORT SERVICES AND PROJECT MANAGEMENT SERVICES SEGMENT WHICH IS LO W END RISK FREE SERVICE SEGMENT AND COMPARED THE SAME WITH THE HIGHLY TECH NICAL COMPARABLES WHICH IS COMPLETELY DIFFERENT FROM THE ACCEPTED HISTORY O F THE ASSESSEES CASE. 7. THE LD. AR RELIED UPON THE DECISION OF THE HON'B LE DELHI HIGH COURT IN CASE OF EXCEL INDUSTRIES LTD. VS. CIT 358 ITR 295. THIS APPROACH OF CLUBBING TECHNICAL SUPPORT SERVICES WAS UPHELD BY THE DRP IN SUBSEQUENT YEARS AND NOT DISTURBED EVEN BY THE TRIBUNAL IN THE ASSESSMEN T YEARS 2010-11 & 2011- 12. THE LD. AR SUBMITTED THAT IF THE SAME METHOD O F BENCH MARKING AND CLUBBING BOTH THE SERVICE SEGMENT AS HAS BEEN DONE AND ACCEPTED IN THE PAST AS ADOPTED THEN THE ASSESSEES PLI FOR THE A.E SERV ICE SEGMENT WOULD WORK OUT TO BE 37.51% AND ENTITY PLI OF THE TOTAL SERVI CE SEGMENT I.E. A.E AND NON A.E TRANSACTION WOULD BE WORKED OUT TO BE 55.26%. ANY SET OF COMPARABLES AND EVEN THE COMPARABLES CHOSEN BY THE TPO IN HIS O RDER WOULD REVEAL THAT THE AVERAGE PLI OF THE COMPARABLES WAS WORKED OUT BY TH E TPO IS 26%. THUS, THE LD. AR SUBMITTED THAT THE INTERNATIONAL TRANSACTION OF THE ASSESSEE PERTAINING TO THE SUPPORT SERVICE SEGMENT MAY BE HELD TO BE AT ALP AND NO ADJUSTMENT WHATSOEVER IS WARRANTED BASED ON THE PAST HISTORY A ND FOLLOWING THE RULE OF CONSISTENCY. 8. THE LD. AR FURTHER SUBMITTED THAT AS REGARDS THE AGGREGATION OF TRANSACTION THE TPO IN THE SUBSEQUENT YEARS HAS FOL LOWED THE CORRECT APPROACH OF CLUBBING THE TRANSACTION OF TECHNICAL AND SERVIC E WHICH IS AS PER RULE 10A(D) OF THE INCOME TAX RULES AND NO DISPUTE WHATSOEVER H AS ARISEN IN THE PAST OF AGGREGATION OF THESE TWO SERVICES AS OBSERVED BY TH E TRIBUNAL IN THE ASSESSEES 8 ITA NO. 1042/DEL/2014 OWN CASE FOR ASSESSMENT YEAR 2010-11 AND FOLLOWED B Y THE TRIBUNAL IN ASSESSMENT YEAR 2011-12. THE LD. AR RELIED UPON TH E DECISION OF THE TRIBUNAL, DELHI BENCH IN CASE OF TECH BOOKS INTERNA TIONAL PVT. LTD VS. ACIT (ITA NO. 722/DEL/2014). 9. AS REGARDS, GROUND NOS. 3(A) TO 3(G), THE LD. AR SUBMITTED THAT THE ASSESSEE IS RELYING ON AGGREGATION APPROACH AS HAS BEEN UPHELD BY THE TRIBUNAL IN SUBSEQUENT YEARS AND FOR THAT THE ALTER NATIVE SUBMISSIONS PRESENTED BY THE LD. AR THAT THE ASSESSEE IS NOT SE RVICE PROVIDER IN RESPECT OF PROJECT MANAGEMENT SERVICES AND MARKETING SUPPORT S ERVICES WHICH IS NOW ACCEPTED BY THE EARLIER ORDERS OF THE TRIBUNAL IN T HE ASSESSEES OWN CASE IN THE ASSESSMENT YEAR 2007-08 AND 2010-11. THE LD. AR SU BMITTED THAT THE TRIBUNAL HAS ANALYSED THE AGREEMENTS PROVIDING THES E SERVICES FOR ASSESSMENT YEAR 2007-08 AND 2010-11. THEREFORE, SO FAR AS, TH E RISK PROFILE OF THE ASSESSEE IS CONCERNED FOR RENDERING THESE SERVICES WHICH WAS ACCEPTED THAT THE ASSESSEE IS A LOW END NON RISK SERVICE PROVIDER AND ACCORDIN GLY THE COMPARABLES HAVE TO BE FOUND WHICH HAVE SIMILAR RISK PROFILE FOR ADJUDI CATING UPON ISSUE AS TO WHETHER THE INTERNATIONAL TRANSACTION UNDERTAKEN BY THE ASSESSEE ARE AT ARMS LENGTH OR NOT. THE TPO HAS REPRODUCED AGREEMENT CL AUSES AND HELD THAT SERVICES PROVIDED BY THE ASSESSEE ARE HIGH END. THE LD. AR SUBMITTED THAT THE TPO IGNORED THE DECISION OF THE TRIBUNAL FOR ASSESS MENT YEAR 2010-11. THE LD. AR SUBMITTED THAT THE ASSESSEE HAD BENCH MARKED THESE TRANSACTIONS IN ITS TP STUDY BY APPLYING TNMM AS THE MOST APPROPRIATE M ETHOD AND AFTER CARRYING OUT ITS DETAIL QUANTITATIVE AND QUALITATIVE ANALYSI S FOUND OUT THREE COMPARABLES NAMELY PROJECT AND DEVELOPMENT INDIA LTD., RAUNAQ INTERNATIONAL AND UN ENGINEER WHOSE AVERAGE PLI BASED AS A PERCENTAGE OF TOTAL COST WAS 11.90% AS AGAINST WHICH THE ASSESSEES PROFITABILITY FOR ON T HE SIMILAR BASIS WAS DETERMINED AT 55.58% FOR SERVICE SEGMENT AND THEREF ORE, THE TRANSACTION OF PROJECT MANAGEMENT SERVICES AND MARKETING SUPPORT S ERVICES WAS CONCLUDED TO BE AT ARM S LENGTH. THE LD. AR FURTHER SUBMITT ED THAT THE TPO REJECTED THE AGGREGATION APPROACH OF THE ASSESSEE OF AGGREGATING SUPPORT AND TECHNICAL 9 ITA NO. 1042/DEL/2014 SERVICE SEGMENT AND PROCEEDED TO EXAMINE THE SERVI CE INCOME PERTAINING TO PROJECT MANAGEMENT SERVICES AND MARKETING SUPPORT S ERVICES ON STAND ALONE BASIS. IN THE FRESH SEARCH BY THE ASSESSEE, THE AS SESSEE FOUND OUT THREE COMPARABLES ON THE BASIS OF FAR ANALYSIS WHOSE PLI WAS DETERMINED AT 0.82% AS AGAINST WHICH THE ASSESSEES PLI WAS DETERMINED AT 9.85%. THE LD. AR SUBMITTED THAT THE TPO APPRECIATED THAT PROJECT MAN AGEMENT SERVICES/MARKETING SUPPORT SERVICES SEGMENT & TECHN ICAL SERVICES ARE FUNCTIONALLY DIFFERENT THAT IS WHY TPO ASKED FOR SE PARATE SEARCH PROCESS FOR PROJECT MANAGEMENT SERVICES/MARKETING SUPPORT SERVI CES WHICH WAS DULY FURNISHED BY THE ASSESSEE. HOWEVER, THE TPO ISSUED A SHOW CAUSE NOTICE IN WHICH HE PROPOSED 9 COMPARABLES WITH AN AVERAGE OF 28.53% BASED ON OP/OC AND REQUIRED THE ASSESSEE TO EXPLAIN ITS SUBMISSION ON THE SAME. IN RESPONSE TO SHOW CAUSE NOTICE, THE ASSESSEE FILED ITS DETAIL S AND OBJECTED TO VARIOUS COMPARABLES PROPOSED BY THE TPO. THE PROJECT MANA GEMENT SERVICES SEGMENT APART FROM POINTING OUT VARIOUS FACTUAL ERRORS MADE BY THE TPO IN SHOW CAUSE NOTICE, VARIOUS OTHER OBJECTIONS WERE FILED BY THE ASSESSEE AND EVEN THE SEARCH PROCESS APPLIED BY THE TPO WERE CHALLENGED BY THE A SSESSEE. HOWEVER, TPO CHOSE TO RETAIN MOST OF SUCH COMPARABLES WHICH WERE PROPOSED BY HIM IN HIS SHOW CAUSE NOTICE AND PROCEED TO DETERMINE THE ALP BY SUGGESTING AND ENHANCEMENT OF RS.49,35,603/- IN ITS ORDER DATED 28 /1/2013. 10. AS REGARDS GROUND NO. 3(1) REGARDING FOREX GAI N AS OPERATING INCOME, THE LD. AR SUBMITTED THAT THE FIGURES TAKEN UP BY T HE TPO WHILE MAKING ADJUSTMENT PERTAINING TO THE FOREIGN EXCHANGE GAIN ARE ERRONEOUS. TOTAL INCOME AS PER TPO ORDER AT RS.2,21,47,368/- WAS FURTHER RE DUCED BY THE TPO BY THE FOREIGN EXCHANGE GAIN OF RS. 7,82,358/- AND TOTAL O PERATING INCOME OF THE ASSESSEE HAS BEEN DETERMINED BY THE TPO AT RS.2,13, 65,070/-. HOWEVER, THE TOTAL INCOME OF RS.2,21,47,368/- DOES NOT INCLUDE F OREIGN EXCHANGE GAIN WHERE THE SEGMENTAL ACCOUNT WAS FURNISHED BY THE TPO. TH E LD. AR SUBMITTED THAT THE ASSESSEE SUBMITTED BEFORE THE DRP THIS CALCULAT ION ERROR BY THE TPO ITSELF AND IF CORRECTED WOULD RESULT IN REVISED PLI OF THE ASSESSEE AT 6.10%. 10 ITA NO. 1042/DEL/2014 MOREOVER, THE TRIBUNAL IN THE ASSESSEES OWN CASE I N ASSESSMENT YEAR 2010-11 & 2011-12 HELD THAT THE FOREX GAIN TO BE TREATED AS OPERATING INCOME AS THE SAME IS RELATED TO THE MAIN BUSINESS OF THE ASSESS EE. THE TRIBUNAL ALSO HELD THAT THE SAFE HARBOR RULES APPLICABLE FROM 18/9/201 3 ARE NOT APPLICABLE FOR ANY YEAR PRIOR TO THE SAID DATE. THE LD. AR RELIED UPON THE TRIBUNAL DECISION IN CASE OF WESTFALIA SEPARATOR PVT. LTD. VS. ACIT (TS -220-ITAT-2014 (DEL)-TP). THE LD. AR SUBMITTED THAT THE DRP HAS NOT AGREED WI TH ANY OF THESE SUBMISSIONS AND HELD THAT TPO WAS RIGHT IN EXCLUDIN G FOREX ITEMS FOR CALCULATION OF PROFITS. IN THIS REGARD, THE LD. AR SUBMITTED THAT THE FOREIGN EXCHANGE IS NOT ADJUSTED FROM THE INCOME SINCE IT D OES NOT FORM PART OF THE INCOME. THE REVISED WORK OUT AS FOLLOWS:- IN THIS REGARD, IT IS SUBMITTED THAT IF THE FOREIG N EXCHANGE GAIN IS NOT ADJUSTED FROM THE INCOME, SINCE IT DOES NOT FORM PA RT OF THE INCOME, THE REVISED WORKING WOULD BE AS FOLLOWS: TOTAL INCOME 2,21,47,368/ - OPERATING INCOME 2,21,47,368/ - OPERATING EXPENSES 2,08,73,550/ - OPERATING PROFIT 12,73,818/ - OP/OC 6.10% ALTERNATIVELY, IF THE FOREIGN EXCHANGES INCOME WAS TREATED AS OPERATING THEN THE TABLE WOULD BE RE-WORKED AS FOLLOWS:- TOTAL INCOME 2,21,47,368/ - ADD: FOREIGN EXCHANGE GAIN (AS PER ITAT IN A.Y 2010-11 (PB373) 7,82,358/ - OPERATING INCOME 2,29,29,726/ - OPERATING EXPENSES 2,08,73,550/ - OPERATING PROFIT 20,56,176 OP/OC 9.85% 11 ITA NO. 1042/DEL/2014 11. THUS, THE LD. AR SUBMITTED THAT THE FOREX GAIN OF RS.7,82,358/- WITH DETAILED AS OPERATING ITEM AND INCLUDED WHILE COMP UTING PLI OF THE ASSESSEE. 12. AS REGARDS THE OBJECTION ON TPOS COMPARABLE, T HE LD. AR SUBMITTED THAT FROM THE EARLIER ORDERS OF THE ITAT IN THE ASSESSE ES OWN CASE IT IS PERTINENT TO NOTE THAT THE ASSESSEE IS LOW RISK BEARING ENTITY A ND ACCORDINGLY ONLY SUCH COMPARABLES WHICH ARE LOW RISK BEARING ENTITIES ARE REQUIRED TO BE FOUND AND COMPARED, IF SO DONE THEN THE FOLLOWING COMPARABLES HAVE TO BE EXCLUDED AS THESE COMPARABLES ARE RENDERING HIGH END SERVICES W HICH ARE TECHNICAL IN NATURE AND ARE FULL FLEDGED RISK BEARING ENTITIES AND FUNCTIONALLY DIFFERENT. A. APITCO LTD. ON THE BASIS OF THE BUSINESS DESCRIPTION OF THIS COMPARABLE SELECTED BY THE TPO, THIS COMPARABLE HAS BEEN EXCLUDED IN THE EARLIER YEARS ALSO BY THE ITAT IN ASSESSEES OWN CA SE FOR A. Y. 2010-11 AND AY 2011-12 BEING NOT COMPARABLE TO PMS/MSS SEGMENT OF THE ASSESSEE. B. BASIZ FUND SERVICE (P) LTD.: THE BUSINESS DESCRIPTION OF THIS COMPARABLE WHICH IS A HIGH END SERVICE PROVIDER AND NOT DISPUTED BY TPO/DRP. WHEREAS, ASSESSEE IS ADMITTEDLY A LOW END NON-RISK BEARER SERVICE PROVIDER. THEREFORE, FINANCIAL PROFILE OF THIS COMP ARABLE IS TOTALLY DIFFERENT AND THE SAME IS PRAYED TO BE EXCLUDED FROM THE FINAL LI ST OF COMPARABLES. IN COMPANY PROFILE, IT IS MENTIONED THAT THE COMPANY HAS PROCESSED MORE THAN 9000 FINANCIAL STATEMENTS WITH HIGH LEVEL OF COMPLE XITIES, HAVE AN EXTENSIVE KNOWLEDGE POOL CAPABLE OF HANDLING EVEN THE MOST CH ALLENGING SITUATIONS. THUS IT IS EVIDENT THAT BASIZ FUND IS HIGH END TECHNICAL SERVICE PROVIDER WHICH CANNOT BE COMPARED WITH THE PMS/MSS SEGMENT OF THE ASSESSEE. THUS THE LD. AR SUBMITTED TO EXCLUDE THIS COMPARABLE FROM FINAL LIST OF COMPARABLES. C. GLOBAL PROCUREMENT CONSULTANT LTD.: THE COMPANY IS AN INDEPENDENT PROCUREMENT CONSULTANT WHICH IS ENGAGED IN PROCUREM ENT OF SERVICES WHICH MAKES THE COMPANY RESPONSIBLE FOR QUALITY OF GOODS/ SERVICES PROCURED. IT INCLUDES PREPARATION & REVIEWING TECHNICAL SPECIFIC ATIONS, ESTIMATION OF COST, 12 ITA NO. 1042/DEL/2014 SELECTION OF VENDORS, INSPECTION AND EXPEDITING AND QUALITY CONTROL & TIME MANAGEMENT. THUS CONSIDERING THE BUSINESS PROFILE O F THIS COMPANY, IT IS FUNCTIONALLY DIFFERENT FROM THE ASSESSEE WHICH IS P ROVIDING COORDINATION AND SUPPORT SERVICES TO ITS AES WHICH ARE LOW END NON-R ISK BEARING. THUS THE LD. AR SUBMITTED TO EXCLUDE THIS COMPARABLE FROM FINAL LIST OF COMPARABLES. THE LD. AR RELIED ON THE DECISION OF DELHI ITAT IN CASE OF HYUNDAI ROTEM COMPANY VS. ACIT [TS-609-ITAT-2016-DEL-TP] WHEREIN IT IS HE LD AS UNDER: GLOBAL PROCUREMENT CONSULTANTS LTD. 8. THIS COMPANY HAS BEEN CHOSEN BY THE TPO AS A COM PARABLES. THIS COMPANY IS MAINLY ENGAGED IN RENDERING SERVICES TO GOVERNMENT BODIES AND INTERNATIONAL ORGANIZATION. IT IS ENGAGED IN PROVID ING VARIED SERVICES INCONSISTENCY SEGMENT LIKE BIT SUPPORT SERVICES, PE RFORMANCE REVIEW, VALUATION ASSIGNMENTS, FINANCIAL ADVISORY SERVICES ETC. WHEREAS ROTEM RS 1 PO IS PERFORMING FUNCTIONS LIKE LICENSING, COORDINA TION MAINTENANCE AND TROUBLESHOOTING AND MARKETING AND CONTRACTING ACTIV ITIES, CONTRACT EXECUTION, TESTING AND COMMISSIONING, LIES INNING/INTERFACING WITH THE DMRC CARRIED ON BY ROTEM RS 3 PO, WITHOUT ANY RISK BEING BONE BY TH E ASSESSEE. THUS THIS COMPANY IS NOT FUNCTIONALLY SIMILAR TO THE ACTIVITI ES CARRIED ON BY THE ASSESSEE AND MORE SO WHEN IT HAS BEEN REJECTED BY T HE LD. TPO IN THE EARLIER ASSESSMENT YEAR AS WELL AS IN THE SUCCEEDING ASSESS MENT YEAR. THE LD. DR DOES NOT DISPUTE REGARDING THE REJECTION OF THIS CO MPANY BY THE LD. TPO IN THE EARLIER AS WELL AS SUCCEEDING ASSESSMENT YEAR. THUS FOLLOWING THE RULE OF CONSISTENCY WE DIRECT THE LD. TPO TO EXCLUDE THIS C OMPANY IN THE LIST OF COMPARABLES. D. HCCA BUSINESS SERVICE (P) LTD. : THIS IS A COMPANY THAT OFFERS SERVICES LIKE PAYROLL PROCESSING AND COMPENSATION S TRUCTURING, MANAGEMENT OF LABOUR AND LEGAL COMPLIANCES, PAYROLL LEGS REGULATO RY COMPLIANCES, EMPLOYEE REIMBURSEMENT PROCESSING AND ACCOUNTING SERVICES. I N A NUTSHELL THIS COMPANY IS A LEADING SERVICE PROVIDER IN THE ENTIRE GAMUT OF HR OPERATIONS AND ADMINISTRATION. THUS CONSIDERING THE BUSINESS PROFI LE OF THIS COMPANY, IT IS FUNCTIONALLY DIFFERENT FROM THE ASSESSEE WHICH IS P ROVIDING CO-ORDINATION AND SUPPORT SERVICES TO ITS AES WHICH ARE LOW END NON-R ISK BEARING. THUS THE LD. 13 ITA NO. 1042/DEL/2014 AR SUBMITTED TO EXCLUDE THIS COMPARABLE FROM FINAL LIST OF COMPARABLES. THE LD. AR RELIED UPON THE DECISION OF THE DELHI ITAT I N CASE OF HYUNDAI ROTEM COMPANY VS. ACIT [TS-609-ITAT-2016-DEL-TP] WHEREIN IT IS HELD ABOUT HCCA BUSINESS SERVICE (P) LTD. THAT THIS COMPANY IS NOT FUNCTIONALLY SIMILAR TO THE ACTIVITIES CARRIED ON BY THE ASSESSEE. THE ASSESSEE IN THIS CASE WAS ENGAGED IN PERFORMING FUNCTIONS LIKE LICENSING, COO RDINATION MAINTENANCE AND TROUBLESHOOTING AND MARKETING AND CONTRACTING ACTIV ITIES WITHOUT ANY RISK BORNE BY THE ASSESSEE. E. KILLICK AGENCIES & MARKETING LTD.: THIS COMPANY IS ACTING AS AGENT FOR VARIOUS FOREIGN PRINCIPALS FOR SALE OF DREDGERS , DREDGING EQUIPMENT, STEERABLE RUDDER PROPULSIONS AND OTHER EQUIPMENTS A ND MACHINERIES. THE NATURE OF SERVICES PROVIDED BY THIS COMPARABLE IS T OTALLY DIFFERENT AS IT PROVIDES ASSISTANCE TO VARIOUS FOREIGN PRINCIPALS FOR SALE O F HIGHLY TECHNICAL EQUIPMENTS AND ALSO PROVIDES ASSISTANCE FOR COMMISSIONING AND REPAIRS OF SUCH EQUIPMENTS. THUS CONSIDERING THE BUSINESS PROFILE O F THIS COMPANY, IT IS FUNCTIONALLY DIFFERENT FROM THE ASSESSEE WHICH IS P ROVIDING CO-ORDINATION AND SUPPORT SERVICES TO ITS AES WHICH ARE LOW END NON-R ISK BEARING. THUS THE LD. AR SUBMITTED TO EXCLUDE THIS COMPARABLE FROM THE FI NAL LIST OF COMPARABLES. THE LD. AR RELIED UPON THE DECISION OF BANGLORE ITA T IN CASE OF INTERWOVEN SOFTWARE SERVICES [ITA 461/BANG/2015] IN WHICH KILLICK AGENCIES WAS HELD TO BE NOT COMPARABLE TO MARKET SUPPORT SERVICE SEGM ENT OF THE ASSESSEE (PARA 27) AND INTERNATIONAL SOS SERVICES INDIA (P.) LTD. VS DCIT [2016] 67 TAXMANN.COM 73 (DELHI - TRIB.) IN WHICH KILLICK AGENCIES WAS EXCLUDED AS NOT COMPARABLE TO SUPPORT SERVICES PROVIDED BY THE ASSE SSEE. ALSO THE COMPANY HAS RELATED PARTY TRANSACTIONS OF 64.12% DURING THE YEAR UNDER CONSIDERATION, AS ALSO STATED IN DELHI ITAT RULING IN CASE OF METSO MINERALS INDIA PVT LTD VS DCIT. [TS-405-ITAT-2015(DEL)-TP] FOR AY 2009-10. F. ORIENT ENGINEERING AND COMMERCIAL CO. LTD.: THE COMPANY IS ENGAGED IN THE BUSINESS OF SALE OF PAINTS, MACHINE TOOLS AND ACTING AS 14 ITA NO. 1042/DEL/2014 COMMISSION AGENT AND IS PROVIDING TECHNICAL SERVICE S . THUS CONSIDERING THE BUSINESS PROFILE OF THIS COMPANY, IT IS FUNCTIONALL Y DIFFERENT FROM THE ASSESSEE WHICH IS PROVIDING CO-ORDINATION AND SUPPORT SERVIC ES TO ITS AES WHICH ARE LOW END NON-RISK BEARING. THUS THE LD. AR SUBMITTED TO EXCLUDE THIS COMPARABLE FROM THE FINAL LIST OF COMPARABLES. THE LD. AR RELI ED UPON THE DECISION OF DELHI ITAT IN CASE OF INTERNATIONAL SOS SERVICES INDIA (P.) LTD. VS DCIT [2016] 67 TAXMANN.COM 73 (DELHI - TRIB.) AND STEELCASE ASIA P ACIFIC HOLDINGS INDIA LTD [408/DEL/2014] IN WHICH ORIENT ENGINEERING AND COMMERCIAL CO. LTD WAS EXCLUDED FROM THE FINAL LIST OF COMPARABLES AS NOT COMPARABLE TO ASSESSEE PROVIDING SUPPORT SERVICES. G. TSR DARASHAW: THIS COMPANY HAS BEEN FOUND TO BE ONE OF INDIA'S LEADING BUSINESS PROCESS OUTSOURCING ORGANIZATION. THIS COMPANY HAS WELL- TRAINED HR PERSONNEL THIS WHICH ARE THE KEY REQUIRE MENTS FOR HANDLING BPO ACTIVITIES CARRIED ON BY THIS COMPANY. BASICALLY TH IS COMPANY IS INTO RENDERING SPECIFIC PAYROLL SERVICES TO ITS CLIENTS. THUS CONS IDERING THE BUSINESS PROFILE OF THIS COMPANY, IT IS FUNCTIONALLY DIFFERENT FROM THE ASSESSEE WHICH IS PROVIDING CO-ORDINATION AND SUPPORT SERVICES TO ITS AES WHICH ARE LOW END NON-RISK BEARING. THUS THE LD. AR SUBMITTED TO EXCLUDE THIS COMPARABLE FROM FINAL LIST OF COMPARABLES. THE LD. AR RELIED UPON THE DECISION OF DELHI ITAT IN CASE OF HYUNDAI ROTEM COMPANY VS. ACIT [TS-609- ITAT-2016(D EL)-TP] AND MICROSOFT CORPORATION P. LTD. VS. DCIT IN ITA NO.5766/DEL/2011. THE HONBLE DELHI HIGH COURT IN THE CASE OF RAMPGREEN SOLUTIONS PVT. LTD. 2015- TII-33-HC- DELHI-TP, HAS ALSO PRESSED THE FUNCTIONAL COMPARABILITY AS P RIME IMPORTANCE IN SELECTING COMPARABLES. THUS THE LD. A R SUBMITTED TO EXCLUDE THIS COMPARABLE FROM THE FINAL LIST OF COMPARABLES AS THEY ARE NOT FUNCTIONALLY COMPARABLE TO THE ASSESSEES BUSINESS. 13. THE LD. AR FURTHER SUBMITTED THAT THERE IS INCO RRECT PLI OF ICRA MANAGEMENT ONLINE. THE TPO HAS INCLUDED ICRA MANAGEMENT IN FINAL LIST OF COMPARABLE WITH PLI OF 4.3% AND THE CALCULATION OF WHICH IS NOT PROVIDED TO 15 ITA NO. 1042/DEL/2014 THE ASSESSEE. THE ASSESSEE FILED DETAILED CALCULATI ON OF PLI OF ICRA MANAGEMENT VIDE SUBMISSION DATED 04.01.2013 IN WHIC H PLI IS (4.12). THUS THE LD. AR SUBMITTED THAT THE PLI OF (4.12) MAY PLE ASE BE CONSIDERED FOR COMPUTING AVERAGE PLI. 14. THE LD. AR FURTHER SUBMITTED THAT FOR INCLUSION OF ASSESSEES COMPARABLES THOUGH FURNISHED THROUGH REVISED SEARCH , T HE TPO HAD ASKED THE ASSESSEE TO FURNISH SEPARATE SEARCH PROCESS FOR PMS/MSS SEGMENT OF THE ASSESSEE. THE ASSESSEE VIDE LETTER DATED 04.01.2013 FILED SEPARATE SEARCH PROCESS OBTAINING ICRA MANAGEMENT FOR PMS SEGMENT AND 3 COMPARABLES NAMELY- CROWN TOURS, PL WORLDWAYS AND TRADE WINGS FOR MSS S EGMENT. THE COMPANY ICRA MANAGEMENT WAS INCLUDED IN FINAL L IST OF COMPARABLES, BUT TPO/DRP HAS NOT GIVEN ANY COMMENTS ON BALANCE 3 COMPARABLES. THE LD. AR SUBMITTED THAT THESE COMPARABLES ARE COMPARABLE TO ASSESSEES MSS SEGMENT IN WHICH ASSESSEE IS PROVIDING MARKET SUPPORT FUNCT ION TO THE AE WHICH IS LOW END SERVICE. A. CROWN TOURS- THE COMPANY IS ENGAGED IN THE BUSINESS OF ORGANIZIN G HOLY TOURS, HOLIDAY PACKAGES, HOTEL RESERVATION ETC . THE ASSESSEE IN ITS MSS SEGMENT IS ALSO ENGAGED IN COORDINATION ACTIVITIES, ORGANIZING AND SUPPORT FOR MAIN BUSINESS OF THE AE. THUS CROWN TOURS IS FUNCTI ONALLY COMPARABLE TO THE ASSESSEE AS IT IS RISK FREE LOW END SERVICE PROVIDE R WHICH IS AKIN TO ASSESSEE FUNCTIONAL PROFILE. B. PL WORLDWAYS- THE COMPANY PROVIDES TOURS AND TRAVEL PACKAGES, TRA VEL INSURANCE ETC. TO BUILD A CUSTOMIZED BUSINESS TRAVE L PROGRAM TARGETING SPECIFIC OBJECTIVES INCLUDING ONGOING PROGRAM IMPROVEMENT, C OST REDUCTION AND EFFICIENCY, ACCOUNT MANAGEMENT SUPPORT AND EXPERTIS E, AND EXECUTIVE SUPPORT. THUS FUNCTIONALLY SIMILAR TO MSS SEGMENT OF THE ASS ESSEE AS IT IS RISK FREE LOW END SERVICE PROVIDER WHICH IS AKIN TO ASSESSEE FUNC TIONAL PROFILE. C. TRADE WINGS- TRADE WINGS IS A COMPANY OPERATING IN TRAVEL, TOUR ISM 16 ITA NO. 1042/DEL/2014 INDUSTRY AND ALSO LOGISTIC SERVICES HAVING OUTLETS ACROSS THE COUNTRY. THUS THIS COMPANY IS HAVING SIMILAR PROFILE AS THAT OF THE AS SESSEE OF ORGANIZING AND CO- ORDINATION OF THINGS. THUS SHOULD BE INCLUDED AS CO MPARABLE BEING FUNCTIONALLY SIMILAR AS IT IS RISK FREE LOW END SER VICE PROVIDER WHICH IS AKIN TO ASSESSEE FUNCTIONAL PROFILE. 15. AS REGARDS GROUND NO. 3(H) REGARDING RISK ADJUS TMENT, THE LD. AR SUBMITTED THAT THE ASSESSEE IS LOW END NON RISK BE ARING SERVICE PROVIDER WHERE AS THE COMPARABLES ARE FULL FLEDGED RISKS BEARING. THESE COMPANIES ARE BEARING SEVERAL RISK LIKE MARKET RISK, BUSINESS RISK ETC. W HEREAS THE ASSESSEE IS NO RISK BEARING ENTITY. THE TRIBUNAL IN ASSESSMENT YE AR 2011-12 IN THE ASSESSEES OWN CASE HAS STATED THAT THE RISK ADJUSTMENT BE GIV EN TO THE ASSESSEE FOR THE DIFFERENCE IN THE RISK BORNE BY THE ASSESSEE AS WEL L AS COMPARABLES. THUS, WITHOUT PREJUDICE TO THE EARLIER SUBMISSIONS THE LD . AR SUBMITTED THAT ADJUSTMENT SHOULD BE ALLOWED TO THE ASSESSEE TO FUL FILL THE CRITERIA LAID DOWN IN RULE 10B (2) (B) READ WITH RULE 10B(3) OF THE INCOM E TAX RULES FOR THE DIFFERENCE IN RISK BORNE BY THEM. THE RISK ADJUSTM ENT CAN BE CALCULATED TAKING THE MARKET RATE OF RETURN AT 12.25% AND THE AVERAGE RISK FREE RATE OF RETURN FOR INDIAN TREASURY BILLS OF 7.52%. PARTICULARS PERCENTAGE MARKET INTEREST RATE (SBI PLR RATE) 12.25% RISK FREE INTEREST (B) 7.52% RISK PREMIUM (C=A - B) 4.73% PROPORTION OF RISK PREMIUM RATE TO TOTAL MARKET INT EREST (D=C/A) 38.61% THE LD. AR SUBMITTED THAT THE TOTAL RISK PREMIUM IN MARKET RATE OF RETURN AS 38.61% AS PER THE ABOVE CALCULATION WHICH WOULD BE UNLOADED FROM THE MARKET RETURN TO GET THE RISK FREE RATE OF RETURN. SIMILA RLY, THE RISK PREMIUM NEED TO BE UNLOADED FROM PLI OF COMPARABLES TO OBTAIN THE R ISK FREE PLI TO COMPARE IT 17 ITA NO. 1042/DEL/2014 WITH THE PLI OF THE ASSESSEE. THUS, THE LD. AR SUB MITTED THAT THE RISK ADJUSTMENT BE GIVEN TO THE ASSESSEE TO ENABLE FAIR COMPARABILITY. THE LD. AR WHILE CONCLUDING HIS ARGUMENT SUBMITTED THAT THE TE CHNICAL AND SUPPORT SERVICE SEGMENT SHOULD BE TREATED AS ONE SEGMENT AN D BENCH MARKING BE DONE ACCORDINGLY. ALTERNATIVELY, THE LD. AR FURTHER SUB MITTED THAT THE ASSESSEES COMPARABLES WHICH WERE SUBMITTED TO THE TPO BASED O N SEGMENTAL PROVIDED IN SUBMISSIONS HAS TO BE RETAINED AND THE COMPARABLES SELECTED BY THE TPO AS OBJECTED ABOVE MAY BE REJECTED. THE LD. AR FURTHER SUBMITTED THAT THE PLI OF THE ASSESSEE HAS TO BE RE-COMPUTED BY CORRECTING TH E CALCULATION GIVEN IN TPO ORDER AND THE FOREX GAIN MAY BE TREATED AS OPERATIN G ITEM AS HELD BY THE TRIBUNAL IN ASSESSEES OWN CASE IN ASSESSMENT YEAR 2010-11 RELYING ON TRIBUNAL DECISION IN CASE OF WEST FALIA SEPARATOR I NDIA PVT. LTD VS. ACIT. THE LD. AR FURTHER SUBMITTED THAT RISK ADJUSTMENT BE PR OVIDED TO THE ASSESSEE AS ALSO HELD BY THE TRIBUNAL IN ASSESSMENT YEAR 2011-1 2 IN THE ASSESSEES OWN CASE. 16. THE LD. DR SUBMITTED THAT THERE IS NO BIFURCATI ON GIVEN BY THE ASSESSEE REGARDING MARKETING SUPPORT SERVICES AND PROJECT MA NAGEMENT SERVICES. THE TPO HAS RIGHTLY CALCULATED AN ADJUSTMENT OF RS.49,3 5,603/- IN MARKETING SUPPORT SERVICES BEING THE DIFFERENCE BETWEEN THE A RMS LENGTH PRICE AND THE PRICE CHARGED BY THE ASSESSEE FOR ITS A.ES FOR TH E SERVICES OF SOFTWARE DEVELOPMENT. THE LD. DR FURTHER SUBMITTED THAT THE TPO HAS RIGHTLY TAKEN ALL THE FINAL SET OF COMPARABLES BASED ON FUNCTIONAL PR OFILE. THE TPO WAS RIGHTLY CALCULATED THE FOREX GAIN AND ADJUSTED IT INTO THE ADJUSTMENT. THUS, THE LD. DR SUBMITTED THAT THE TPO HAS RIGHTLY MADE CLUBBING . THE LD. AR OPPOSED THE CONTENTIONS OF THE LD. DR. 17. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. AS REGARDS THE PROJECT MANAGEMENT SERVICES AND MARKETING SUPPORT SERVICES THOUGH STATED BY THE LD. AR THAT IT IS DIF FERENT IN THIS YEAR AND IT WOULD BE TAKEN AS ONE SEGMENT AS HELD IN SUBSEQUENT YEARS BY THE TRIBUNAL FOR 18 ITA NO. 1042/DEL/2014 ASSESSMENT YEAR 2010-11 AND 2011-12, WHILE MAKING T HESE SUBMISSIONS, THE ASSESSEE HAS NOT GIVEN ANY PLAUSIBLE EXPLANATION AS TO WHY THESE SEGMENTS SHOULD BE TREATED ONE MERELY RELYING ON THE SUBSEQU ENT YEARS ORDER. THE ASSESSEES CONTENTION IS THAT IT IS ONE SEGMENT ONL Y. BUT TO DISCARD THIS PROPOSITION, NEITHER THE TPO NOR THE DRP HAS GIVEN ELABORATION TO THAT EFFECT OR THERE IS NO MENTION WHILE THE ASSESSEE ALSO BEF ORE THESE AUTHORITIES AS TO HOW THESE TWO SEGMENTS BE TREATED AS ONE SEGMENT I T WILL BE APPROPRIATE TO LOOK INTO THIS ASPECT AND THEN TAKEN A DECISION. T HE ITAT IN THE ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2010-11 BEING ITA NO. 1310/DEL/2015 ORDER DATED 3/12/2015 CONFIRMED THE STAND OF THE ASSESSEE . THE LD. AR FURTHER SUBMITTED THAT THE TPO IN ALL THE SUBSEQUENT YEARS I.E. 2010-11 & 2011-12 ONWARDS AGGREGATED BOTH TECHNICAL SUPPORT SERVICE S EGMENT INTO ONE SEGMENT AND HAS CHOSEN HIGH END COMPARABLES FOR THE PURPOSE OF BENCH MARKING WITH COMBINED SERVICE SEGMENTS. THE TRIBUNAL HELD THAT T HE ASSESSEE IS A LOW END AND RISK FREE SERVICE PROVIDER AND THE COMPARABLES SHOULD ACCORDINGLY BE CHOSEN. ACCORDINGLY, THE HIGH END COMPARABLES WERE REJECTED. THE APPROACH OF CLUBBING BOTH TECHNICAL AND SUPPORT SERVICE AND THE N BENCH MARKING WITH THE LOW END SERVICE PROVIDER HAS NOT BEEN FOLLOWED BY THE TPO. DURING THE YEAR UNDER CONSIDERATION, THE TPO HAD CHOSEN ONLY THE MA RKETING SUPPORT SERVICES AND PROJECT MANAGEMENT SERVICES SEGMENT WHICH IS LO W END RISK FREE SERVICE SEGMENT AND COMPARED THE SAME WITH THE HIGHLY TECH NICAL COMPARABLES WHICH IS COMPLETELY DIFFERENT FROM THE ACCEPTED HISTORY O F THE ASSESSEES CASE. ALL THESE CONTENTIONS OF THE ASSESSEE WAS NOT LOOKED IN TO BY THE TPO/AO. THEREFORE, THIS ISSUE IS REMANDED BACK TO THE FILE OF THE TPO/ASSESSING OFFICER FOR MAKING AN INVESTIGATION AS TO WHETHER THESE SEG MENTS ARE ACTUALLY ONE SEGMENT OR TWO SEPARATE SEGMENTS AND ACCORDINGLY MA KE THE ADJUSTMENT, IF NECESSARY. NEEDLESS TO SAY, THE ASSESSEE BE GIVEN OPPORTUNITY OF HEARING AS PER FOLLOWING PRINCIPALS OF NATURAL JUSTICE. 18. AS REGARDS FOREX GAIN ADJUSTMENT, PRIMA FACIE I T APPEARS THAT THE TPO HAS NOT MADE OUT AS TO HOW THE FOREIGN EXCHANGE FLU CTUATION IN ASSESSEES CASE 19 ITA NO. 1042/DEL/2014 HAS TO BE TREATED AS NON OPERATING INCOME OF THE AS SESSEE AND ALSO IN CASE OF THE COMPARABLE. THE TPO HAS ONLY GIVEN THE TWO CIRC UMSTANCES WHICH OCCURS FOR FOREIGN EXCHANGE FLUCTUATION GAIN OR LOSS, BUT FAILED TO DISCUSS AS TO HOW THE SAME HAS OCCURRED IN THE PRESENT ASSESSEES CASE. THE FIGURES TAKEN UP BY THE TPO WHILE MAKING ADJUSTMENT PERTAINING TO THE FOREI GN EXCHANGE GAIN ARE ERRONEOUS. TOTAL INCOME AS PER TPO ORDER AT RS.2,21 ,47,368/- WAS FURTHER REDUCED BY THE TPO BY THE FOREIGN EXCHANGE GAIN OF RS. 7,82,358/- AND TOTAL OPERATING INCOME OF THE ASSESSEE HAS BEEN DETERMINE D BY THE TPO AT RS.2,13,65,070/-. HOWEVER, THE TOTAL INCOME OF RS. 2,21,47,368/- DOES NOT INCLUDE FOREIGN EXCHANGE GAIN WHERE THE SEGMENTAL ACCOUNT WAS FURNISHED BY THE TPO. THE TRIBUNAL IN THE ASSESSEES OWN CASE IN ASSESSMENT YEAR 2010-11 & 2011-12 HELD THAT THE FOREX GAIN TO BE TREATED AS OPERATING INCOME AS THE SAME IS RELATED TO THE MAIN BUSINESS OF THE ASSESS EE. THE TRIBUNAL ALSO HELD THAT THE SAFE HARBOR RULES APPLICABLE FROM 18/9/201 3 ARE NOT APPLICABLE FOR ANY YEAR PRIOR TO THE SAID DATE. THEREFORE, THIS IS SUE IS ALSO RESTORED BACK TO THE FILE OF THE ASSESSING OFFICER /TPO. NEEDLESS TO SA Y, THE ASSESSEE BE GIVEN OPPORTUNITY OF HEARING BY FOLLOWING PRINCIPALS OF N ATURAL JUSTICE. 19. AS REGARDS THE COMPARABLES CHOSEN BY THE ASSESS EE AND FINALLY SELECTED BY THE TPO, IT APPEARS THAT THE COMPARABLES WHICH W ERE INCLUDED BY THE TPO HAS NOT BEEN ELABORATELY STUDIED BY THE TPO REGARDI NG THE FUNCTIONAL DIFFERENCE BETWEEN THE ASSESSEE COMPANYS PROFILE AND THE COMP ARABLE COMPANIES PROFILE. AS REGARDS TO INCLUSION OF THE COMPARABLES GIVEN BY THE ASSESSEE, THE SAME WAS ALSO NOT DISCUSSED BY THE TPO. THEREFORE, IT WILL BE APPROPRIATE TO REMIT ALL THE COMPARABLE TO THE FILE OF THE TPO/A.O. AND ACCORDIN GLY, TPO/AO WILL DECIDE WITH THE REASONS WHY PARTICULAR COMPARABLE IS EXCLU DED AND WHY PARTICULAR COMPARABLE IS INCLUDED AFTER FOLLOWING THE FUNCTION ALITY FILTER BETWEEN THE COMPARABLES AND ASSESSEE. NEEDLESS TO SAY, THE ASS ESSEE BE GIVEN OPPORTUNITY OF HEARING BY FOLLOWING PRINCIPALS OF NATURAL JUSTI CE. 20 ITA NO. 1042/DEL/2014 20. AS REGARDS RISK ADJUSTMENT THE SAME ALSO NEEDS TO BE LOOKED INTO BY THE TPO/A.O. AS IN THE SUBSEQUENT A.Y. 2011-12 IN ASSES SEES OWN CASE THE SAME WAS ALLOWED TO THE ASSESSEE BY THE TRIBUNAL. AFTER LOOKING INTO ALL THE ASPECTS REGARDING RISK ADJUSTMENT THE TPO SHOULD TAKE COGNI ZANCE FOR ARRIVING AT THE CONCLUSION. THEREFORE, THIS ISSUE IS ALSO REMITTED BACK TO THE FILE OF THE TPO/A.O. NEEDLESS TO SAY, THE ASSESSEE BE GIVEN OPP ORTUNITY OF HEARING BY FOLLOWING PRINCIPALS OF NATURAL JUSTICE. 21. IN RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALL OWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 02 ND MAY, 2018 . SD/- SD/- (R. K. PANDA) (SUCHITRA KAMBLE) ACCOUNTANT MEMBER JUDICIAL MEM BER DATED: 02/05/2018 R. NAHEED * COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI 21 ITA NO. 1042/DEL/2014 DATE 1. DRAFT DICTATED ON 01/05/2018 PS 2. DRAFT PLACED BEFORE AUTHOR 01/05/2018 PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER .2018 JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS .05.2018 PS/PS 6. KEPT FOR PRONOUNCEMENT ON PS 7. FILE SENT TO THE BENCH CLERK .05.2018 PS 8. DATE ON WHICH FILE GOES TO THE AR 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 10. DATE OF DISPATCH OF ORDER.