Visteon Engineering Center (India) P. Ltd., Pune V. Assistant Commissiner of Income-tax,

ITA 331/PUN/2014

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 1997 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 1 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-04-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 09-02-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 21-02-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: REENA JHA TRIPATI
• Assessee Lawyers: KETAN K VED
• Keywords: Transfer pricing; Opportunity of being heard; Principle of natural justice; International transaction; Initiation of penalty proceedings
• Section: 143(3); 234B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A , PUNE , , BEFORE MS. SUSHMA CHOWLA, JM AND SHRI PRADIP KUMAR KEDIA , A M . / ITA NO. 331 /PN/201 4 / ASSESSMENT YEAR : 20 0 9 - 1 0 VISTEON ENGINEERING CENTER (INDIA) PVT. LTD., A - 205/206, A WING, 2 ND FLOOR, ICC TRADE TOWER, 403/A, SENAPATI BAPAT ROAD, PUNE 411016 . / APPELLANT PAN: AA CC T2585N VS. THE DY . COMMISSIONER OF INCOME TAX, CIRCLE - 7 , PUNE . / RESPONDENT / APPELLANT BY : SHRI KETAN K. VED / RESPONDENT BY : S MT. REENA JHA TRIPATI, CIT / DATE OF HE ARING : 09 . 0 2 .201 6 / DATE OF PRONOUNCEMENT: 11 . 0 4 .201 6 / ORDER PER SUSHMA CHOWLA, JM: TH IS APPEAL FILED BY THE ASSESSEE IS AGAINST ORDER OF D CIT , CIRCLE 7 , PUNE , DATED 2 0 . 0 1 .201 4 RELATING TO ASSESSMENT YEAR 200 9 - 1 0 PASSED U NDER SECTION S 143(3) R.W.S. 144C OF THE INCOME - TAX ACT, 1961 (IN SHORT THE ACT) . 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: - ITA NO. 331 /PN/201 4 VISTEON ENGG. CENTER (INDIA) PVT. LTD . 2 1. TRANSFER PRICING ADJUSTMENT THE LEARNED DCIT PURSUANT TO THE DIRECTIONS OF THE LEARNED DRP ERRED IN LA W AND ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE IN MAKING AN ADJUSTMENT AMOUNTING TO RS.38,004,052 TO THE VALUE OF INTERNATIONAL TRANSACTIONS ENTERED AMOUNTING TO RS.38,004,052 TO THE VALUE OF INTERNATIONAL TRANSACTIONS ENTERED INTO BY THE APP E LLANT WITH ITS ASSOCIATED ENTERPRISE IN RESPECT OF PROVISION OF ENGINEERING DESIGN SER V ICES. 2. ERRONEOUS REJECTION OF SEGMENTAL PROFITABILITY OF THE APPELLANT THE LEARNED DCIT PURSUANT TO THE DIRECTIONS OF THE LEARNED DRP ERRED IN LAW AND ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE IN REJECTING THE SEGMENTAL PROFITABILITY OF THE APPELL ANT IN RESPECT OF PROVISION OF ENGINEERING DESIGN SERVICES TO ITS ASSOCIATED ENTERPRISES. 3. ERRONEOUS COMPUTATION OF ADJUSTMENT IN RESPECT OF PROVISION OF ENGINEERING DESI G N SERVICES TO ASSOCIATED ENTERPRISES THE LEARNED DCIT PURSUANT TO THE DIRECTIONS OF THE LEARNED DRP ERRED IN LAW AND ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE IN NOT COMPUTING THE TRANSFER PRICING ADJUSTMENT ON INTERNATIONAL TRANSACTIONS PERTAINING TO PROVISION OF ENGINEERING DESIGN SERVICES TO ITS ASSOCIATED ENTERPRISES ONLY. 4. SEARCH MATRIX AND FAR ANALYSIS FOR FRESH SEARCH CARRIED OUT BY LEARNED TPO NOT SHARED THE LEARNED DCIT PURSUANT TO THE DIRECTIONS OF THE LEARNED DRP ERRED IN LAW AND ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE IN NOT SHARING THE SEARCH MATRIX AND FAR AN ALYSIS FOR FRESH SEARCH CARRIED OUT BY LEARNED TRANSFER PRICING OFFICER ('TPO'). 5. ERRONEOUS SELECTION OF COMPARABLE COMPANY THE LEARNED DCIT PURSUANT TO THE DIRECTIONS OF LEARNED DRP HAS ERRED IN LAW AND ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE IN SELECTING THE FOLLOWING COMPANIES AS COMPARABLE COMPANIES: ACROPETAL TECHNOLOGIES LIMITED GENESYS INTERNATIONAL CORPORATION LIMITED E4E HEALTHCARE BUSINESS SOLUTIONS PRIVATE LIMITED COSMIC GLOBAL LIMITED 6. ERRONEOUS APPLICATION OF EXPORT FILTER IN S ELECTION OF COMPARABLE 6. ERRONEOUS APPLICATION OF EXPORT FILTER IN S ELECTION OF COMPARABLE COMPANIES THE LEARNED DCIT PURSUANT TO THE DIRECTIONS OF LEARNED DRP HAS ERRED IN LAW AND O N THE FACTS AND IN CIRCUMSTANCES OF THE CASE IN ERRONEOUS APPLICATION OF EXPORT FILTER I N SELECTION OF COMPARABLE COMPANIES. 7 . ERRONEOUS REJEC TION OF COMPARABLE COMPANIES THE LEARNED DCIT PURSUANT TO THE DIRECTIONS OF LEARNED DRP HAS ERRED IN LAW AND ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE IN REJECTING ICRA TECHNO ANALYTICS LIMITED AS A COMPARABLE COMPANY. 8. ERRONEOUS COMPUTATION OF OPE RATING MARGINS OF COMPARABLE COMPANIES ITA NO. 331 /PN/201 4 VISTEON ENGG. CENTER (INDIA) PVT. LTD . 3 THE LEARNED DCIT PURSUANT TO THE DIRECTIONS OF LEARNED DRP HAS ERRED IN CON SIDERING THE OPERATING MARGIN OF MICROGENETIC SYSTEMS LIMITED AT 1.28% INSTEAD OF CORRECT OPERATING MARGIN OF - 0.33%. 9. BENEFIT OF THE RISK ADJUSTMENT THE LEARNED DCIT PURSUANT TO THE DIRECTIONS OF LEARNED DRP HAS ERRED IN LAW AND ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE IN NOT GRANTING THE RISK ADJUSTMENT. 1 0. BENEFIT OF THE VARIATION / REDUCTION OF 5 PERCENT FROM THE ARITHMETIC ME AN THE LEARNED DCIT PURSUANT TO THE DIRECTIONS OF LEARNED DRP HAS ERRED IN LAW AND ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE IN NOT GRANTING THE BENEFIT OF +/ - 5 PERCENT AS PER PROVISO TO SECTION 92C(2) OF THE ACT. 11. ERRONEOUS COMPUTATION OF DEDU CTION UNDER SECTION 10 A OF INCOME TAX ACT, 1961 THE LEARNED DCIT PURSUANT TO THE DIRECTIONS OF LEARNED DRP HAS ERRED IN LAW AND ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE IN THE COMPUTATION OF DEDUCTION UNDER SECTION 10 A OF INCOME TAX ACT, 1961. 12. INITIATION OF PENALTY PROCEEDINGS THE LEARNED DCIT ERRED ON THE FACTS AND IN LAW IN INITIATING PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) OF THE ACT. 13. LEVY OF INTEREST OBLIGATION ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT ADJUSTMENT THE LEARNED DCIT HAS ERRED ON THE FACTS AND IN LAW WHILE LEVYING INTEREST UNDER SECTION 234B OF THE ACT, ON ACCOUNT OF THE UNANTICIPATED TRANSFER PRICING ADJUSTMENTS. 14. EACH ONE OF THE ABOVE GROUNDS OF APPEAL IS WITHOUT PREJUDICE TO THE OTHER. 3. BRIEFLY, IN THE FACTS OF THE PR ESENT CASE, THE ASSESSEE IS A JOINT VENTURE COMPANY BETWEEN TATA AUTOCOMP SYSTEM LIMITED (TACO) WITH VISTEON INTERN ATIONAL HOLDINGS, USA (VISTEON). THE ASSESSEE WAS IN THE BUSINESS OF RENDER ING DESIGNING AND DEVELOPING SERVICES RELATING TO PRODUCTS IN CAD / CAM OF AUTO PARTS AND ALSO CUSTOMER SUPPORT SERVICING AND TECHNO MARKETING SERVICES TO ITS ASSOCIATE ENTERPRISE S I.E. TACO AND VISTEON INTERNATIONAL HOLDINGS, USA. SINCE THE ASSESSEE HAD ENTERED INTO INTERNATIONAL TRANSACTION, THE ASSESSING OFFICER MAD E A REFERENCE TO THE TRANSFER PRICING OFFICER (TPO) UNDER SECTION 92CA OF THE ACT. THE ASSESSEE HAD SELECTED TNMM METHOD AS ITA NO. 331 /PN/201 4 VISTEON ENGG. CENTER (INDIA) PVT. LTD . 4 MOST APPROPRIATE METHOD TO BENCHMARK ITS INTERNATIONAL TRANSACTIONS RELATING TO PROVISION OF ENGINEERING DESIGN SERVICES, RECEIPT O N ACCOUNT OF DESK UTILIZATION CHARGE, PAYMENT OF FEES MANAGERIAL AND TECHNICAL FEES. IN RESPECT OF R EIMBURSEMENT OF EXPENSES TO ASSOCIATE ENTERPRISES AND REIMBURSEMENT OF EXPENSES FROM ASSOCIATE ENTERPRISES, NO METHOD WAS SELECTED. FURTHER, I N TNMM ANALY SIS , THE OPERATING PROFITS EARNED BY COMPARABLES HAVE BEEN COMPUTED ON OPERATING COST. THE ASSESSEE HAD IDENTIFIED COMPARABLE COMPANIES ON THE BASIS OF FAR ANALYSIS AND HAD REFERRED PROWESS AND CAPITALINE PLUS DATABASE TO GET THE INFORMATION OF COMPARABLE COMPANIES . THE ASSESSEE IN ITS TP STUDY REPORT HAD SELECTED 9 COMPANIES AS COMPARABLE S FOR BENCHMARKING THE INTERNATIONAL TRANSACTION AND HAD ARRIVED AT AVERAGE PLI OF COMPARA BLES AT 18.91% BASED ON THE DATA OF FINANCIAL YEAR 2008 - 09 AS AGAINST PLI MARGI NS OF ASSESSEE ITSELF OF 19.84% , HENCE CLAIM OF THE ASSESSEE WAS THAT ITS INTERNATIONAL TRANSACTIONS WERE AT ARM'S LENGTH PRICE. THE TPO DURING THE COURSE OF TP PROCEEDINGS NOTED THAT THE INTERNATIONAL TRANSACTIONS IN RESPECT OF COURSE OF TP PROCEEDINGS NOTED THAT THE INTERNATIONAL TRANSACTIONS IN RESPECT OF COST ALLOCATION EXPENSES W ERE NOT AT ARM'S LENGTH PRICE AND THE TPO ISSUED SHOW CAUSE NOTICE TO THE ASSESSEE AND PROPOSED ADDITIONAL / MODIFIED FILTERS OR CRITERIA FOR SELECTION OF APPROPRIATE COMPARABLES AND FRESH SET OF 9 COMPANIES WERE SELECTED BY THE TPO AS ENLISTED AT PAGES 15 AND 16 OF THE TPOS ORDER. THE TPO FURTHER NOTED THAT AFTER THE DISPUTE RESOLUTION PANEL (DRP) DIRECTIONS FOR ASSESSMENT YEAR 2008 - 09, FINAL SET OF COMPARABLES WERE 6 AND AFTER APPLYING THE DATA AND FROM ACCEPT / REJECT MATRIX OF THE ASSESSEE, NOTED THAT CERTAIN COMPANIES WHICH WERE FOUND TO BE NOT COMPARABLE BY THE ASSESSEE WERE COMPARABLE WITH THE ASSESSEE AFTER APPLYING THE MODIFIED FILTERS. THE TPO AFTER VERIFYING ALL THOSE PICKED UP 5 COMPARABLES WHOSE ARITHMETIC MEAN WORKED OUT TO 37.49% . THE LIST OF COMPARABLES AT PAGE 19 OF TPOS ORDER IS AS UNDER: - ITA NO. 331 /PN/201 4 VISTEON ENGG. CENTER (INDIA) PVT. LTD . 5 S.NO. NAME OF THE COMPARABLE COMPANY PLI (OP/OC) 1 COSMIC GLOBAL LTD. 43.11 2 GENESYS INTERNATIONAL CORP. LTD. 59.99 3 E4E HEALTHCARE SOLUTIONS LTD. (NITTANY OUTSOURCING SERVICES PVT. LTD.) 33 .31 4 MICROGENETICS SYSTEMS LTD. 10.43 5 ACROPETAL TECHNOLOGIES LTD. 40.62 ARITHMETIC MEAN (187.46/5) 37.49% 4. THE TPO NOTED THAT THE PLI OF THE ASSESSEE ON ACCOUNT OF OPERATING REVENUE, OPERATING EXPENSES AND OPERATING PROFIT WORKED OUT TO 19.84% AND SINCE THE ARITHMETIC MEAN PLI OF COMPARABLES OF 37.49% , AS TO WHY ADJUSTMENTS OVER OPERATING INCOME SHOULD NOT BE MADE TO THE EXTENT OF RS.5,14,79,621/ - . IN RESPONSE, THE ASSESSEE FURNISHED OBJECTIONS TO THE PROPOSAL MADE BY THE TPO AND POINTED OUT TH AT THERE WAS NO MERIT IN REJECTION OF FILTERS APPLIED BY THE ASSESSEE AND APPLYING DIFFERENT TURNOVER FILTER AND OTHER FILTERS AND OBJECTED TO THE SELECTION OF COMPARABLES BY THE TPO. AFTER ANALYZING THE REPLY OF ASSESSEE ON EACH OF ACCOUNT, THE TPO FOUND THAT THERE WERE CERTAIN ERRORS IN CO MPUTATION OF PLI BY HIM AND CERTAIN ERRORS IN THE COMPUTATION OF PLI OF ASSESSEE ALSO. THE OF PLI BY HIM AND CERTAIN ERRORS IN THE COMPUTATION OF PLI OF ASSESSEE ALSO. THE TPO THUS, RE - COMPUTED PLI MARGINS OF 5 COMPARABLES SELECTED BY HIM AND ARITHMETIC MEAN WORKED OUT AT 34.86%. 5. WITH REGARD T O THE OBJECTION REGARDING PLI COMPUTATION OF THE ASSESSEE THAT ONLY SEGMENTAL PROFITABILITY IN RESPECT OF EXPORT TO ASSOCIATE ENTERPRISES SHOULD BE CONSIDERED AS PROFITABILITY OF THE ASSESSEE SINCE THE PROFITS EARNED BY DOMESTIC SALES DO NOT REFLECT PROFIT S EARNED FROM ANY INTERNATIONAL TRANSACTION , WAS NOT ACCEPTED BY THE TPO, IN VIEW OF THE DRP REJECTING THE SAID CLAIM OF ASSESSEE IN ASSESSMENT YEAR 2008 - 09. THE ASSESSEE ALSO REQUESTED THAT WORKING CAPITAL ADJUSTMENT SHOULD BE RE - WORKED, BUT THE TPO NOTE D THAT CERTAIN FIGURES OF PLI MARGINS WERE INCORRECT AND THE TPO RE - WORKED THE WORKING CAPITAL ADJUSTMENT. ACCORDINGLY, PLI OF THE COMPARABLES WERE COMPUTED AFTER WORKING CAPITAL ADJUSTMENT AND THE ARITHMETIC MEAN WORKED OUT TO 32.87%. AS AGAINST ITA NO. 331 /PN/201 4 VISTEON ENGG. CENTER (INDIA) PVT. LTD . 6 THIS, P LI MARGINS OF ASSESSEE WAS 19.84% AND AN ADJUSTMENT OF RS.3,80,04,052/ - WAS PROPOSED TO THE ARM'S LENGTH PRICE OF INTERNATIONAL TRANSACTION OF THE ASSESSEE. THE ASSESSING OFFICER PROPOSED DRAFT ASSESSMENT ORDER, AGAINST WHICH THE ASSESSEE FILED OBJECTIONS BEFORE THE DRP, PUNE, WHO IN TURN, DISMISSED THE CLAIM OF THE ASSESSEE SINCE THE TPO HAD AL READY CONSIDERED ALL THE ISSUES. THE ASSESSING OFFICER THEREAFTER, IN ORDER PASSED UNDER SECTION 143(3) R.W.S. 144C OF THE ACT MADE AN ADDITION OF RS.3,80,04,052/ - IN RESPECT OF TRANSFER PRICING ADJUSTMENT. 6. THE ASSESSEE IS IN APPEAL AGAINST THE ORDER OF ASSESSING OFFICER AND HAS RAISED SEVERAL GROUNDS OF APPEAL BEFORE US. 7. THE ISSUE IN GROUND OF APPEAL NO.1 RAISED BY THE ASSESSEE IS GENERAL AND HENCE, THE S AME IS DISMISSED. 8. THE ISSUE IN GROUND OF APPEAL NO.2 IS AGAINST REJECTION OF SEGMENTAL PROFITABILITY OF THE ASSESSEE IN RESPECT OF PROVISION OF ENGINEERING DESIGN SERVICES TO ITS ASSOCIATE ENTERPRISES. 9. THE LEARNED AUTHORIZED REPRESENTATIVE FOR TH E ASSESSEE POINTED OUT THAT DETAILED SEGMENTAL PROFITABILITY WAS FILED BEFORE THE TPO, WHICH IS PLACED AT PAGES 553 AND 554 OF THE PAPER BOOK AND FURTHER SEGMENTAL PROFITABILITY DETAILS WERE ALSO FILED BEFORE THE DRP, WHICH ARE PLACED AT PAGES 115 TO 117 O F THE PAPER BOOK. HOWEVER, BOTH THE AUTHORITIES HAVE REJECTED THE CLAIM OF ASSESSEE, IN VIEW OF SIMILAR CLAIM BEING REJECTED IN EARLIER YEARS. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT THE ISSUE IS COVERED IN FAVOUR OF THE A SSESSEE BY THE DECISION OF PUNE BENCH OF TRIBUNAL IN ASSESSEES OWN CASE RELATING TO ASSESSMENT YEAR 2008 - 09 IN ITA NO.358/PN/2013 , WHEREIN IT HAS BEEN HELD THAT WHILE COMPUTING THE PLI OF ASSESSEE, ONLY SEGMENTAL ITA NO. 331 /PN/201 4 VISTEON ENGG. CENTER (INDIA) PVT. LTD . 7 PROFITABILITY PERTAINING TO THE INTERNATIO NAL TRANSACTION WITH ITS ASSOCIATE ENTERPRISES SHOULD BE CONSIDERED. 10. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE PLACED RELIANCE ON THE ORDERS OF ASSESSING OFFICER AND DRP. 11. WE FIND THAT THE ISSUE VIDE GROUND OF APPEAL NO.2 IS IN RELAT ION TO THE ADJUSTMENT MADE TO THE INTERNATIONAL TRANSACTION OF THE PROVISION OF IT BASED ENGINEERING SERVICES PROVIDED BY THE ASSESSEE TO ITS ASSOCIATE ENTERPRISES , BY CONSIDERING THE OPERATING MARGINS OF WHOLE ENTITY AT 19.84% . THE CLAIM OF THE ASSESSEE BEFORE THE TPO / ASSESSING OFFICER AND THE DRP WAS THAT ONLY SEGMENTAL PROFITABILITY OF DIVISION OF EXPORT TO ITS ASSOCIATE ENTERPRISES SHOULD BE CONSIDERED SINCE THE PROFITABILITY OF DOMESTIC SALES DOES NOT REFLECT ANY PROFITS EARNED FROM ANY INTERNATIONA L TRANSACTIONS. THE ASSESSEE ALSO SUBMITTED BEFORE THE AUTHORITIES THAT THERE WERE DIFFERENCES IN OPERATING MARGINS EARNED BY THE ASSESSEE IN THESE TWO SEGMENTS BECAUSE OF DIFFERENT BILLING RATES AS WELL AS DIFFERENCE IN SKILL SETS OF EMPLOYEES, WHO PROVI DES SERVICES IN THE RESPECTIVE SEGMENTS. IT WAS STRESSED BY THE ASSESSEE THAT THE TRANSFER PRICING PROVISIONS WERE APPLICABLE ONLY TO THE INTERNATIONAL TRANSACTIONS FOR WORKING OUT THE ARM'S LENGTH PRICE OF PROVIDING SERVICES TO ITS ASSOCIATE ENTERPRISES. CONSEQUENTLY, THE ECONOMIC ANALYSIS AND FUNCTIONAL COMPARABILITY SHOULD BE MADE ONLY FOR THE INTERNATIONAL TRANSACTIONS AND NOT FOR THE WHOLE ENTITY. 12. WE FIND THAT SIMILAR ADJUSTMENT OF THE PLI BY ONLY CONSIDERING THE SEGMENTAL PROFITABILITY OF EXP ORTS MADE BY THE ASSESSEE TO ITS ASSOCIATE ENTERPRISES TO BE CONSIDERED FOR WORKING OUT THE PLI OF ASSESSEE COMPANY, AROSE BEFORE PUNE BENCH OF TRIBUNAL IN ASSESSEES OWN CASE IN ASSESSMENT YEAR 2008 - 09 AND THE TRIBUNAL VIDE ORDER DATED 21.10.2015 HELD AS UNDER: - ITA NO. 331 /PN/201 4 VISTEON ENGG. CENTER (INDIA) PVT. LTD . 8 17. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES, PERUSED THE ORDERS OF THE TPO/AO/DRP AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIOUS DECISIONS CITED BEFORE US. WE FIND THE TPO IN THE INS TANT CASE MADE AN ADJUSTMENT TO THE ASSESSEES INTERNATIONAL TRANSACTION OF THE PROVISION OF IT BASED ENGINEERING SERVICES CONSIDERING THE OPERATING MARGIN OF 11.67% OF THE WHOLE ENTITY. WHILE DOING SO, HE REJECTED THE CONTENTION OF THE ASSESSEE THAT ADJU STMENT SHOULD BE MADE ONLY ON SEGMENTAL PROFITABILITY OF EXPORTS TO AES AS PROFITABILITY OF DOMESTIC SALES DOES NOT REFLECT PROFITS EARNED FROM ANY INTERNATIONAL TRANSACTIONS. WE FIND THE DRP AGREED IN PRINCIPLE THAT PLI SHOULD BE COMPUTED ONLY ON INTER NATIONAL TRANSACTION AND ACCORDINGLY HELD THAT IT SHOULD BE COMPUTING ACCORDING TO THE SEGMENT CONSISTING OF THE INTERNATIONAL TRANSACTIONS WITH THE AES. ACCORDINGLY, THEY DIRECTED THE AO TO WORK OUT PLI OF THE SEGMENT CONSISTING OF THE INTERNATIONAL TRAN SACTIONS ONLY IF SUCH SEGMENTAL DATA IS AVAILABLE. 18. IT IS THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT HE HAS FILED SUCH SEGMENTAL PROFITABILITY BEFORE DRP, COPIES OF WHICH ARE PLACED AT PAGES 73 TO 80 OF THE PAPER BOOK. FROM PAGES 73 TO 80 OF THE APPEAL MEMO WE FIND THE ASSESSEE HAS GIVEN SEGMENTAL PROFITABILITY BASED ON SCIENTIFIC AND CONSISTENT METHODOLOGY. NO MISTAKES HAVE BEEN POINTED OUT BY THE DRP/TPO. THE VARIOUS BENCHES OF THE TRIBUNAL ARE CONSISTENTLY TAKING THE VIEW THAT PLI SHO ULD BE CONSIDERED ONLY FOR THE SEGMENT PERTAINING TO INTERNATIONAL TRANSACTIONS WITH AES. WE ACCORDINGLY HOLD THAT THE TPO SHOULD NOT HAVE REJECTED THE SEGMENTAL PROFITABILITY OF THE ASSESSEE IN RESPECT OF PROVISION OF ENGINEERING DESIGN SERVICES TO ITS AES. SINCE THE SEGMENTAL PROFITABILITY AS SUBMITTED BY THE ASSESSEE HAS NOT BEEN EXAMINED EITHER BY THE TPO OR THE DRP AND SINCE THE DRP HAD ALSO DIRECTED THE AO TO WORK OUT THE PLI OF THE SEGMENT CONSISTING OF THE INTERNATIONAL TRANSACTIONS IF SUCH SEGME NTAL DATA IS AVAILABLE, THEREFORE, WE, IN THE INTEREST OF JUSTICE, DIRECT THE AO TO WORK OUT PLI OF THE SEGMENT CONSISTING OF THE INTERNATIONAL TRANSACTIONS ONLY. THE GROUND RAISED BY THE ASSESSEE IS ACCORDINGLY ALLOWED FOR STATISTICAL PURPOSES. ACCORDINGLY ALLOWED FOR STATISTICAL PURPOSES. 13. SIM ILAR ISSUE HAS BEEN DECIDED BY CHENNAI BENCH OF TRIBUNAL IN 3I INFOTECH LTD. VS. ITO (2013) 35 TAXMANN.COM 582 AND HONEYWELL ELECTRICAL DEVICES & SYSTEMS INDIA LTD. VS. ACIT (2014) 64 SOT 118. FOLLOWING THE SAME PARITY OF REASONING, WE HOLD THAT SEGMENTAL PROFITABILITY IN RESPECT OF PROVISION OF ENGINEERING DESIGN SERVICES BY THE ASSESSEE TO ITS ASSOCIATE ENTERPRISES, SHOULD BE CONSIDERED TO WORK OUT THE PLI OF INTERNATIONAL TRANSACTIONS UNDERTAKEN BY THE ASSESSEE. THE ASSESSING OFFICER / TPO IS THUS, DIR ECTED TO RE - WORK THE PLI OF SEGMENT CONSISTING OF INTERNATIONAL TRANSACTIONS AND WE DIRECT THE ASSESSING OFFICER TO WORK OUT THE SAME AFTER AFFORDING REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE. THE GROUND OF APPEAL NO.2 RAISED BY THE ASSESSEE IS AL LOWED FOR STATISTICAL PURPOSES. ITA NO. 331 /PN/201 4 VISTEON ENGG. CENTER (INDIA) PVT. LTD . 9 14. THE ISSUE IN GROUND OF APPEAL NO.3 RAISED BY THE ASSESSEE IS AGAINST COMPUTATION OF ADJUSTMENT IN RESPECT OF PROVISION OF ENGINEERING DESIGN SERVICES TO ITS ASSOCIATE ENTERPRISES AT ENTITY LEVEL. 15. THE ASSESSING OFFIC ER / TPO WHILE COMPUTING TRANSFER PRICING ADJUSTMENT HAD COMPUTED THE SAME IN RESPECT OF ALL THE TRANSACTIONS OF ASSESSEE AND NOT LIMITED ITSELF TO THE TRANSACTIONS WITH ASSOCIATE ENTERPRISES. UNDER SECTION 92C(1) OF THE ACT, ANY INCOME ARISING FROM AN IN TERNATIONAL TRANSACTION IS TO BE COMPUTED HAVING REGARD TO THE ARM'S LENGTH PRICE. THE OBJECTIVE OF COMPUTING ARM'S LENGTH PRICE IS TO DETERMINE INCOME ARISING FROM ANY INTERNATIONAL TRANSACTION UNDERTAKEN BY THE PERSON, HENCE WHILE WORKING OUT THE ADJUST MENT REQUIRED TO BE MADE, THE SAME IS LIMITED TO THE INTERNATIONAL TRANSACTIONS WITH ASSOCIATE ENTERPRISES AND NOT TO THE ENTITY LEVEL TRANSACTIONS. ACCORDINGLY, WHERE SEPARATE DATA IS NOT AVAILABLE, THEN THE PRINCIPLE OF PROPORTIONALITY IS TO BE APPLIED AND WHERE THE DATA RELATING TO CONTROL AND UNCONTROLLED COST PRICE IS NOT APPLIED AND WHERE THE DATA RELATING TO CONTROL AND UNCONTROLLED COST PRICE IS NOT AVAILABLE, THEN PROPORTIONATE SALES RELATABLE TO INTERNATIONAL TRANSACTIONS WITH ITS ASSOCIATE ENTERPRISES I.E. CONTROLLED COST HAS TO BE WORKED OUT AND THE ADDITION, IF ANY, IS TO B E CONFINED TO THE COMPONENT OF INTERNATIONAL TRANSACTION S WITH ITS ASSOCIATE ENTERPRISES ALONE AND NOT TO THE ENTIRE SEGMENTAL ENTITY. 16. WE FIND THAT SIMILAR ISSUE AROSE BEFORE PUNE BENCH OF TRIBUNAL IN ASSESSEES OWN CASE RELATING TO ASSESSMENT YEAR 2008 - 09 (SUPRA), WHICH IN TURN, HAD FOLLOWED THE DECISION OF TRIBUNAL IN DEMAG CRANES & COMPONENTS (INDIA) (P.) LTD. VS. DCIT (2012) 49 SOT 610 AND IN SAND V IK ASIA PVT. LTD. VS. ACIT IN ITA NO.2545/PN/2012, RELATING TO ASSESSMENT YEAR 2008 - 09 , ORDER DATED 27.09.2013 . THE RELEVANT FINDINGS OF THE TRIBUNAL ARE AS UNDER: - 19. ON THE OTHER HAND, THE LEARNED CIT(DR) APPEARING FOR THE REVENUE HAS POINTED OUT THAT THE ASSESSEE HAD RAISED OBJECTIONS BEFORE THE DRP AND THE PLI ADOPTED IN THE TP STUDY HAS NOT BEEN ACCEPTED BY THE DRP. ITA NO. 331 /PN/201 4 VISTEON ENGG. CENTER (INDIA) PVT. LTD . 10 20. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS. AT THE LEVEL OF AO/TPO IT IS QUITE EVIDENT THAT WITH REGARD TO THE ALTERING OF PLI FROM THE RETURN OF SALES, AS ADOPTED BY THE ASSESSEE TO THE RETURN ON COST DONE BY THE TPO , NO OPPORTUNITY WAS ALLOWED TO THE ASSESSEE. IN - FACT, IT IS ALSO PERTINENT TO NOTE FROM THE ORDERS OF THE TPO/AO THAT NO REASONS HAVE ASSIGNED FOR CHANGING THE PLI AS USED BY THE ASSESSEE IN THE TP STUDY. IN OUR CONSIDERED OPINION, SUCH AN APPROACH IMPING ES ON THE PRINCIPLES OF NATURAL JUSTICE AND THE ASSESSEE IS RIGHTFULLY AGGRIEVED. IN SO FAR AS THE OPPORTUNITY OF RAISING OBJECTIONS BEFORE THE DRP IS CONCERNED, IN OUR VIEW, THE SAME CANNOT TAKE THE PLACE OF AN OPPORTUNITY THAT WAS REQUIRED TO BE ALLOWED BEFORE THE TPO/AO. THE ASSESSEE HAD AN OPPORTUNITY BEFORE THE DRP IS OF NO CONSEQUENCE FOR IT IS THE FAIRNESS AND REASONABLENESS OF FURNISHING OF AN EXPLANATION BEFORE THE TPO/AO WHICH IS THE ISSUE. IN - FACT, IN A SOMEWHAT SIMILAR SITUATION THE HONBLE SUPR EME COURT IN THE CASE OF TIN BOX COMPANY VS. CIT (2001) 249 ITR 216 (SC) HELD THAT ONCE IT IS ESTABLISHED THAT THE ASSESSING OFFICER HAD NOT GIVEN TO THE ASSESSEE AN APPROPRIATE OPPORTUNITY OF BEING HEARD, THAT THE ASSESSEE HAD AN OPPORTUNITY BEFORE THE HI GHER APPELLATE AUTHORITIES WAS REALLY OF NO CONSEQUENCE, FOR IT WAS THE ASSESSMENT ORDER THAT COUNTED INASMUCH AS THE ASSESSMENT ORDER WAS REQUIRED TO BE MADE ONLY AFTER THE ASSESSEE HAD BEEN ALLOWED A REASONABLE OPPORTUNITY OF BEING HEARD. CONSIDERED IN T HE AFORESAID LIGHT, IN THE PRESENT CASE IT IS AXIOMATIC THAT SO FAR AS THE ISSUE OF THE PLI ADOPTED BY THE ASSESSEE IN RESPECT OF TOOLS MANUFACTURING SEGMENT OF OPERATING PROFIT/OPERATING REVENUE IS CONCERNED, THE SAME HAS BEEN ALTERED BY THE TPO WITHOUT G IVING THE ASSESSEE ANY OPPORTUNITY OF BEING HEARD AND THEREFORE IN OUR VIEW THE MATTER OUGHT TO BE REMANDED BACK TO THE AO/TPO FOR CONSIDERATION AFRESH. WE HOLD SO. THUS, ON THIS ASPECT ALSO ASSESSEE SUCCEEDS. 21. BY WAY OF GROUND OF APPEAL NOS. 7 AND 8, ASSESSEE HAS ASSAILED THE ADDITION OF RS.30,70,02,006/ - MADE BY THE ASSESSING OFFICER BY HOLDING THAT INTERNATIONAL TRANSACTIONS OF THE TOOLS MANUFACTURING SEGMENT WERE NOT AT ARMS LENGTH. THE APPELLANT - COMPANY HAS ASSAILED THE SAID ADDITION ON THREE ASP ECTS. LENGTH. THE APPELLANT - COMPANY HAS ASSAILED THE SAID ADDITION ON THREE ASP ECTS. THE FIRST ASPECT IS THAT THE ASSESSING OFFICER ERRED IN REJECTING THE SEGMENTAL RESULTS OF RAJASTHAN UDYOG & TOOLS LIMITED AND HITTCO TOOLS LIMITED, WHICH HAVE BEEN ADOPTED BY THE ASSESSEE AS COMPARABLE CASES. ON THE SAID ASPECT, PLEA OF THE ASSESSEE IS THAT OUT OF THE FIVE COMPARABLES CASES CONSIDERED BY IT IN ITS TP STUDY, ASSESSING OFFICER ACCEPTED THREE OF THEM AND EXCLUDED TWO, NAMELY, RAJASTHAN UDYOG & TOOLS LIMITED AND HITTCO TOOLS LIMITED. A COMMON POINT RAISED AGAINST THE EXCLUSION OF THE TWO COMPANIES FROM THE LIST OF COMPARABLES IS THAT THE SAID COMPANIES WERE ADOPTED BY THE ASSESSEE AS COMPARABLES IN THE TP STUDY FOR THE EARLIER TWO ASSESSMENT YEARS OF 2006 - 07 AND 2007 - 08 IN RESPECT OF TOOLS MANUFACTURING SEGMENT AND THE SAME WAS ACCEPTED B Y THE REVENUE IN THE SAID YEARS. IT WAS, THEREFORE, CONTENDED THAT THE ASSESSING OFFICER ERRED IN REJECTING THE SAID CONCERNS FROM THE LIST OF COMPARABLES IN THIS YEAR. APART FROM THE AFORESAID WITH REGARD TO THE M/S RAJASTHAN UDYOG & TOOLS LIMITED, THE LE ARNED COUNSEL POINTED OUT THAT THE REASONS ADVANCED BY THE ASSESSING OFFICER TO REJECT THE SAME ON THE GROUND OF CONTINUOUS LOSSES AND LACK OF FUNCTIONAL COMPARABILITY WAS FACTUALLY INCORRECT. WITH REGARD TO THE EXCLUSION OF HITTCO TOOLS LIMITED, THE LEARN ED COUNSEL POINTED OUT THAT THE REASONS ADVANCED BY THE ASSESSING OFFICER FOR THE SAME WERE ALSO UNJUSTIFIED. THE SEGMENTAL RESULTS OF THE SAID CONCERN HAVE BEEN REFERRED IN THE PAPER BOOK TO POINT OUT THAT THE CONCERN WAS DECLARING PROFITS AND WAS NOT A C ONSISTENTLY LOSS - MAKING CONCERN AS OBSERVED BY THE TPO. IN SUM AND SUBSTANCE, THE PLEA OF THE ASSESSEE IS THAT THE TWO CONCERNS HAVE BEEN UNJUSTLY EXCLUDED FROM THE LIST OF COMPARABLES. 17. THE ISSUE ARISING BEFORE US IS SQUARELY COVERED BY THE ORDER OF TRIBUNAL IN ASSESSEES OWN CASE. ACCORDINGLY, WE DIRECT THE ASSESSING OFFICER / TPO TO ITA NO. 331 /PN/201 4 VISTEON ENGG. CENTER (INDIA) PVT. LTD . 11 COMPUTE THE ADJUSTMENT IN RESPECT OF PROVISION OF ENGINEERING RELATED SERVICES TO THE ASSOCIATE ENTERPRISES I.E. INTERNATIONAL TRANSACTIONS AND NOT TO THE ENTIRE TRANSA CTIONS IN THE SEGMENT, WHICH INCLUDE THE TRANSACTIONS WITH NON - ASSOCIATE ENTERPRISES ALSO. IN OTHER WORDS, THE ADDITION IS TO BE CONFINED ONLY TO THE COMPONENT OF TRANSACTIONS WITH ASSOCIATE ENTERPRISES ALONE AND NOT TO THE ENTIRE SEGMENTAL RESULTS. THE GROUND OF APPEAL NO.3 RAISED BY THE ASSESSEE IS THUS, ALLOWED. 18. THE ISSUE IN GROUNDS OF APPEAL NO.4 AND 5 RAISED BY THE ASSESSEE IS AGAINST SELECTION OF COMPARABLE COMPANIES. 19. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT THE TPO HAD REVISED THE FILTERS TO BE APPLIED AND PICKED UP NEW SET OF COMPARABLES IN ORDER TO BENCHMARK THE INTERNATIONAL TRANSACTIONS OF THE ASSESSEE WITH ITS ASSOCIATE ENTERPRISES. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE FURTHER POINTED OUT THAT THE CONCERN ACROPETAL TECHNOLOGIES LTD. SELECTED BY THE TPO WAS FUNCTIONALLY DIFFERENT AND THERE WAS DIFFEREN CE IN BUSINESS MODEL. THE SAID COMPANY WAS SHOWING SUPER NORMAL PROFITS AND FURTHER, THERE WAS LOW EMPLOYEE COST. IT WAS FURTHER POINTED OUT BY THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE THAT THE CONSIDERATION OF ONLY ENGINEERING DESIGN SERVICES SEGMENT FOR PLI COMPUTATION OF ACROPETAL TECHNOLOGIES LTD. WAS DIRECTLY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2008 - 09. 20. ON PERUSAL OF ORDER OF TRIBUNAL IN ASSESSMENT YEAR 2008 - 09 , WE FIND THAT THE TRIBUNAL HAD HELD THAT THE SAID CONCERN ACROPETAL TECHNOLOGIES LTD. WAS FUNCTIONALLY COMPARABLE TO THE ASSESSEE. HOWEVE R, SINCE THE TPO HAD CONSIDERED ENTITY LEVEL PROFIT MARGINS OF THE COMPARABLE COMPANY IN RESPECT OF ITA NO. 331 /PN/201 4 VISTEON ENGG. CENTER (INDIA) PVT. LTD . 12 ENGINEERING DESIGN SERVICES SEGMENT WHICH WAS COMPARABLE, DIRECTIONS WERE GIVEN TO THE TPO / ASSESSING OFFICER TO CONSIDER ONLY THE PROFIT MARGINS OF ENGINE ERING DESIGN SERVICES SEGMENT. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE FAIRLY CONCEDED THAT SIMILAR DIRECTIONS BE GIVEN IN THE PRESENT CASE FOR THE TPO TO CONSIDER ONLY SEGMENTAL PROFITS OF ENGINEERING DIVISION SERVICES SEGMENT TO BE APPLIED . WE FIND MERIT IN THE CLAIM OF ASSESSEE AND FOLLOWING THE REASONING OF TRIBUNAL IN ASSESSEES OWN CASE IN ASSESSMENT YEAR 2008 - 09, WE DIRECT THE ASSESSING OFFICER / TPO TO CONSIDER PROFIT MARGINS OF ONLY EN GINEERING DESIGN SERVICES SEGMENT AND THE SAME B E APPLIED TO BENCHMARK THE INTERNATIONAL TRANSACTIONS ENTERED INTO BY THE ASSESSEE WITH ITS ASSOCIATE ENTERPRISES. 21. THE NEXT CONCERN REFERRED TO BY THE ASSESSEE WAS GENESYS INTERNATIONAL CORPORATION LTD. 22. THE CLAIM OF THE ASSESSEE WAS THAT THE SAID CONCERN WAS FUNCTIONALLY DIFFERENT AND HAD SHOWN SUPER NORMAL PROFITS AND FURTHER, THE SAID CONCERN WAS ENGAGED IN R&D AND ALSO OWNED INTANGIBLES. IT WAS POINTED OUT THAT THE SAID CONCERN WAS EXCLUDED FROM THE FINAL LIST OF COMPARABLES BY THE TRIBUNAL IN ASSESSEES OWN CASE IN ASSESSMENT YEAR 2008 - 09 AND THERE WAS NO CHANGE OF BUSINESS PROFILE OF GENESYS INTERNATIONAL CORPORATION LTD. IN ASSESSMENT YEAR 200 9 - 1 0 . FURTHER, RELIANCE WAS PLACED ON THE RATIO LAID DOWN BY HYDERABAD BENCH OF TRIBUNAL IN HYUNDAI MOTORS INDIA ENGINEERING (P.) LTD. VS. DCIT IN ITA NO.255/HYD/ 2014, RELATING TO ASSESSMENT YEAR 2009 - 10 , ORDER DATED 31.07.2014. 23. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE PLACED RELIANCE ON THE ORDERS OF AUTHORITIES BELOW. ITA NO. 331 /PN/201 4 VISTEON ENGG. CENTER (INDIA) PVT. LTD . 13 24. WE FIND T HAT SELECTION OF GENESYS INTERNATIONAL CORPORATION LTD. AS A COMPARABLE FOR BENCHMARKING THE INTERNATIONAL TRANSACTIONS OF THE ASSESSEE WAS OBJECTED TO BY THE ASSESSEE IN ASSESSMENT YEAR 2008 - 09. THE TRIBUNAL VIDE PARA 31 NOTED THAT THE SAID COMPANY WAS N OT CONSIDERED AS COMPARABLE BY THE TPO IN ASSESSMENT YEARS 2010 - 11 AND 2011 - 12 . DURING THE COURSE OF PROCEEDINGS FOR ASSESSMENT YEAR 2010 - 11, SPECIFIC SHOW CAUSE NOTICE WAS GIVEN TO THE ASSESSEE AND THE SAME WAS EXCLUDED AFTER CONSIDERING THE DETAILED REP LY FILED BY THE ASSESSEE. IN ASSESSMENT YEAR 2011 - 12 , THE SAID COMPANY WAS NOT INCLUDED AS COMPARABLE COMPANY EVEN IN THE SHOW CAUSE NOTICE. FURTHER, RELIANCE WAS PLACED ON THE RATIO LAID DOWN BY HYDERABAD BENCH OF TRIBUNAL IN HYUNDAI MOTORS INDIA ENGINE ERING P. LTD. VS. ITO IN ITA NO.1850/HYD/2012, RELATING TO ASSESSMENT YEAR 2008 - 09, ORDER DATED 21.02.2014 . IT WAS NOTED THAT THE SAID COMPANY WAS A GEOSPATIAL SERVICES CONTENT PROVIDER SPECIALIZING IN LAND BASED TECHNOLOGIES. FURTHER, THE SAID COMPANY A LSO CARRIED OUT R&D SERVICES AND OWNED INTANGIBLES. THE FUNCTIONAL COMPANY A LSO CARRIED OUT R&D SERVICES AND OWNED INTANGIBLES. THE FUNCTIONAL PROFILE OF THE SAID COMPANY IS SAME IN ASSESSMENT YEAR 2009 - 10 ALSO. FURTHER, THE HYDERABAD BENCH OF TRIBUNAL IN ASSESSMENT YEAR 2009 - 10 IN HYUNDAI MOTORS INDIA ENGINEERING (P.) LTD. VS. DCIT (SUPRA) HAS REJECTED THE SAID CONCERN BEING FUNCTIONALLY DIFFERENT, FIRST ON ACCOUNT OF ITS TECHNICAL SOFTWARE SERVICES BEING PROVIDED AND ALSO HAVING SUPER NORMAL PROFITS. FOLLOWING THE SAME LINE OF REA SONING AS IN THE EARLIER YEAR AND SINCE THE SAI D CONCERN FUNCTIONALLY IS NOT COMPARABLE TO THE ASSESSEE, WE DIRECT THE ASSESSING OFFICER / TPO TO REJECT THE SAME FROM FINAL SET OF COMPARABLES. WE HOLD SO. 25. THE NEXT CONCERN TO WHICH OBJECTIONS HAVE BEEN RAISED BY THE LEARNED AUTHORIZED REPRESENTATI VE FOR THE ASSESSEE IS EXCLUSION OF COSMIC GLOBAL LTD. BEING FUNCTIONALLY NOT COMPARABLE AND HAVING SUPER NORMAL PROFITS. ITA NO. 331 /PN/201 4 VISTEON ENGG. CENTER (INDIA) PVT. LTD . 14 26. IN THIS REGARD, THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT PUNE BENCH OF TRIBUNAL IN MAXIMIZE LEARNI NG PVT. LTD. VS. ACIT IN ITA NO.267/PN/2014, RELATING TO ASSESSMENT YEAR 2009 - 10, ORDER DATED 29.04.2015 HAD DIRECTED THAT THE SAID CONCERN COSMIC GLOBAL LTD. IS TO BE REJECTED. FURTHER, RELIANCE WAS PLACED ON THE DECISION OF HONBLE DELHI HIGH COURT IN R AMPGREEN SOLUTIONS PVT. LTD. VS. CIT IN ITA NO.102/2015 , JUDGMENT DATED 10.08.2015 FOR ASSESSMENT YEAR 2008 - 09. 27. WE FIND THAT THE TRIBUNAL IN MAXIMIZE LEARNING PVT. LTD. VS. ACIT (SUPRA) HAS NOTED THAT THE SAID CONCERN COSMIC GLOBAL LTD. WAS OPERATING IN A DIFFERENT BUSINESS MODEL THAN THE ASSESSEE AND THE SAME WAS DIRECTED TO BE EXCLUDED. THE RELEVANT FINDINGS OF THE TRIBUNAL ARE AS UNDER: - 16. SIMILARLY, THE THIRD CONCERN I.E. COSMIC GLOBAL LTD. WAS HELD TO BE NOT COMPARABLE BY THE TRIBUNAL IN ITS O RDER DATED 02.02.2015 (SUPRA) IN THE HANDS OF THE ASSESSEE BECAUSE THE SAID CONCERN WAS OPERATING IN A DIFFERENT BUSINESS MODEL. THE RELEVANT FINDINGS OF THE TRIBUNAL ARE AS UNDER : - 21. THE THIRD CONCERN, WHICH IS SOUGHT TO BE EXCLUDED BY THE ASSESSEE IS COSMIC GLOBAL LTD.. THE ASSESSEE HAS CONTENDED BEFORE THE TPO THAT THE SAID CONCERN NEEDS TO BE REJECTED ON THE GROUND THAT IT WAS ENGAGED IN BPO AND TRANSLATION SERVICES WHEREAS ASSESSEE WAS AN ITES PROVIDER, AND THEREFORE CONCERN WAS FUNCTIONALLY DIS SIMILAR. HOWEVER, THE TPO REJECTED THE PLEAS OF THE ASSESSEE AND CONSIDERED THE SAID CONCERN AS A COMPARABLE ON THE GROUND THAT EXPORT INCOME OF THE SAID CONCERN WAS MORE THAN 50%. 22. BEFORE US, LD. REPRESENTATIVE FOR THE ASSESSEE REFERRED TO THE OBJECTI ONS RAISED BEFORE THE DRP TO POINT OUT THAT THE SAID CONCERN WAS LIABLE TO BE EXCLUDED FROM THE FINAL SET OF COMPARABLES. FIRSTLY, IT IS POINTED OUT THAT THE SAID CONCERN WAS OFFERING ACCOUNTS PROCESSING SERVICES AND TRANSCRIPTION SERVICES AND WAS NOT COM PARABLE TO THE ACTIVITIES OF THE ASSESSEE AS THE SAID CONCERN WAS INTO BPO AND TRANSLATION SERVICES. IT WAS ALSO POINTED OUT BY REFERRING TO THE WEBSITE OF THE SAID CONCERN THAT IT WAS ENGAGED IN THE DIVERSIFIED BUSINESS ACTIVITY. IT WAS ALSO POINTED OUT THAT THOUGH THE ACTIVITIES OF THE SAID CONCERN ARE IN MEDICAL TRANSCRIPTION, CONSULTANCY, TRANSLATION AND ACCOUNTS BPO SERVICES BUT THERE WAS NO SEGMENTAL INFORMATION AVAILABLE IN THE ANNUAL ACCOUNTS OF THE SAID CONCERN. APART THEREFROM, IT HAS BEEN POIN TED OUT THAT THE SAID CONCERN HAS INCURRED A SUBSTANTIAL EXPENDITURE OF RS.2,86,29,348/ - TOWARDS TRANSLATION CHARGES AS IS EVIDENT FROM THE ANNUAL REPORT OF THE SAID CONCERN. THE SAID TRANSLATION CHARGES ARE APPROXIMATELY 60.17% OF THE TOTAL COST INCURRED BY THE SAID ITA NO. 331 /PN/201 4 VISTEON ENGG. CENTER (INDIA) PVT. LTD . 15 CONCERN AND THE EMPLOYEE COST COMPRISES OF MERELY 17.32% OF THE TOTAL COST. IT WAS THEREFORE CONTENDED THAT THE AFORESAID FACTS JUSTIFY AN INFERENCE THAT THE SAID CONCERN WAS NOT ADOPTING THE NORMAL AND ROUTINE BUSINESS MODEL FOR AN OTHERWISE NORMAL ITES PROVIDER. THE PROPORTION OF EXPENDITURE INCURRED ON OUTSOURCING AND EMPLOYEE COSTS SHOW THAT THE SAID CONCERN SEEMS TO HAVE OUTSOURCED THE FUNCTIONS TO DIFFERENT VENDORS. THE AFORESAID WAS HIGHLIGHTED TO POINT OUT THAT THE OPERATING BUSINESS MODEL OF COSMIC GLOBAL LTD. WAS TOTALLY DIFFERENT FROM THAT OF THE ASSESSEE. IN THIS CONTEXT, THE LD. REPRESENTATIVE POINTED OUT THAT THE TPO HAD REJECTED THE ACE SOFTWARE EXPORTS LIMITED FROM THE LIST OF COMPARABLES AND ONE OF THE REASONS ASCRIBED WAS T HAT THE SAID CONCERN WAS INCURRING MAJOR EXPENDITURE ON SOFTWARE SOURCING CHARGES. THE TPO IN THE CONTEXT OF ACE SOFTWARE EXPORTS LIMITED CAME TO CONCLUDE THAT THE SAID CONCERN WAS NOT A SERVICE PROVIDER BUT A RECIPIENT OF THE SERVICES AND THEREFORE IT WA S REJECTED AS A COMPARABLE. THE LD. REPRESENTATIVE EMPHASIZED THAT IF ACE SOFTWARE EXPORTS LIMITED WAS REJECTED BY THE TPO FOR HAVING SUBSTANTIAL SOFTWARE OUTSOURCING CHARGES THEN M/S COSMIC GLOBAL LTD. ALSO NEEDS TO BE REJECTED FOR INCURRING A HIGH PROPO RTION OF EXPENDITURE ON OUTSOURCED TRANSLATION CHARGES. 23. THE LD. CIT - DR APPEARING FOR THE REVENUE HAS PRIMARILY REITERATED THE STAND OF THE TPO WHEREIN THE SAID CONCERN WAS REJECTED ON THE GROUND THAT ITS EXPORT INCOME WAS MORE THAN 50%. THE LD. CIT - DR REITERATED THAT PRIMARILY THE SAID CONCERN WAS ALSO ENGAGED IN ITES ACTIVITIES AND THE TPO WAS JUSTIFIED IN INCLUDING THE SAME IN THE LIST OF COMPARABLES. 24. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS. THE PERTINENT POINT MADE OUT BY THE LD. RE PRESENTATIVE FOR THE ASSESSEE IS PERTINENT POINT MADE OUT BY THE LD. RE PRESENTATIVE FOR THE ASSESSEE IS THAT THE SAID CONCERN IS OPERATING IN A DIFFERENT BUSINESS MODEL WHEREIN MUCH OF ITS ACTIVITIES ARE OUTSOURCED WHEREAS THE BUSINESS MODEL OF THE ASSESSEE IS DIFFERENT. IN AN OUTSOURCING BUSINESS MODEL OBVIOUSLY THE EXPEND ITURE INCURRED ON EMPLOYEE COSTS WOULD BE LOW IN COMPARISON TO THE EXPENDITURE INCURRED ON OUTSOURCING. OSTENSIBLY, WHERE IT ENABLED SERVICES ARE OUTSOURCED TO A THIRD PARTY VENDOR THEN THE MARGIN DERIVED BY THE SAID CONCERN WOULD BE ATTRIBUTABLE TO SERVI CES RENDERED BY THE OUTSOURCED VENDOR. PER CONTRA, WHERE IT ENABLED SERVICES ARE BEING RENDERED BY A CONCERN THROUGH ITS OWN EMPLOYEES, THE MARGINS FROM RENDERING OF SERVICES BY THE SAID CONCERN WOULD BE ATTRIBUTABLE TO ITS OWN EMPLOYEES. OBVIOUSLY, THE LEVEL OF MARGINS IN THE TWO BUSINESS MODELS WOULD NOT BE COMPARABLE. THE HYDERABAD BENCH OF THE TRIBUNAL IN THE CASE OF CAPITAL IQ INFORMATION SYSTEMS (INDIA) PRIVATE LIMITED (SUPRA) HAS HELD THAT CONCERNS WHO ACT AS INTERMEDIATERIES HAVING OUTSOURCED IT ACTIVITY CANNOT BE SAID TO BE COMPARABLE WITH A CONCERN WHO IS RENDERING SERVICES THROUGH ITS OWN EMPLOYEES. THE SAID PROPOSITION HAS ALSO BEEN UPHELD BY THE HYDERABAD BENCH OF THE TRIBUNAL IN THE CASE OF BRIGADE GLOBAL SERVICES PRIVATE LIMITED (SUPRA). HAVING REGARD TO THE AFORESAID DISCUSSION, IN OUR VIEW, THE SAID CONCERN IS NOT A GOOD COMPARABLE TO BE INCLUDED FOR THE PURPOSES OF COMPARABILITY ANALYSIS AS IT OPERATES UNDER A DIFFERENT BUSINESS MODEL WHICH IMPACTS OPERATING MARGINS. AS A CONSEQUENCE, WE DIRECT THE ASSESSING OFFICER TO EXCLUDE THE SAID CONCERN FROM THE FINAL SET OF COMPARABLES. ITA NO. 331 /PN/201 4 VISTEON ENGG. CENTER (INDIA) PVT. LTD . 16 17. WE FURTHER FIND THAT THE TRIBUNAL IN PTC SOFTWARE (INDIA) PRIVATE LIMITED VS. DCIT (SUPRA) AND BNY MELLON INTERNATIONAL OPERATIONS (INDIA) PRIVATE LIMITED VS. DCIT (SUPRA) AND ALSO IN M/S CAPITAL IQ INFORMATION SYSTEMS (INDIA) PVT. LTD. VS. ADDL.CIT (SUPRA) WHILE DECIDING THE APPEALS OF THE RELEVANT ASSESSEES IN ASSESSMENT YEARS 2009 - 10 HAD HELD THAT M/S COSMIC GLOBAL LTD. IS NOT TO BE CONSIDERED AS A COMPAR ABLE. THE RELEVANT OBSERVATIONS OF THE TRIBUNAL IN BNY MELLON INTERNATIONAL OPERATIONS (INDIA) PRIVATE LIMITED VS. DCIT (SUPRA) ARE AS UNDER : - 16. THE THIRD CONCERN, WHICH IS SOUGHT TO BE EXCLUDED BY THE ASSESSEE IS COSMIC GLOBAL LTD.. BEFORE THE TPO ALSO, ASSESSEE HAD CANVASSED THAT THE SAID CONCERN WAS FUNCTIONALLY NOT COMPARABLE TO THE ASSESSEE. IT WAS POINTED OUT THAT THE SAID CONCERN IS ENGAGED INTO TRANSLATION, TRANSCRIPTION OF DATA WHICH IS ENTIRELY DIFFERENT FROM THE FUNCTIONS BEING PERFORMED BY THE ASSESSEE. THE TPO HAS REJECTED THE PLEA OF THE ASSESSEE BY MERELY NOTICING THAT IN THE PRECEDING ASSESSMENT YEAR 2008 - 09, THE STATED CONCERN WAS SELECTED BY THE ASSESSEE AS A COMPARABLE CONCERN. 17. BEFORE US, THE LD. REPRESENTATIVE FOR THE ASSESSE E POINTED OUT THAT THE PLEA OF THE ASSESSEE FOR EXCLUSION OF COSMIC GLOBAL LTD. IS SUPPORTED BY THE DECISION OF THE PTC SOFTWARE (INDIA) PRIVATE LIMITED (SUPRA), WHICH HAS ALSO BEEN RENDERED IN THE CONTEXT OF A CONCERN RENDERING SIMILAR SERVICES AS THE ASS ESSEE. THE FOLLOWING DISCUSSION IN THE ORDER OF THE TRIBUNAL DATED 31.10.2014 IS RELEVANT IN THIS REGARD : - 50. THE NEXT COMPANY AS PER THE ASSESSEE WHICH SHOULD NOT BE TAKEN AS COMPARABLE IS COSMIC GLOBAL LTD. ADMITTEDLY, THE ASSESSEE HAD NOT OBJECTED TO ITS INCLUSION EITHER ADMITTEDLY, THE ASSESSEE HAD NOT OBJECTED TO ITS INCLUSION EITHER BEFORE THE TPO OR DRP. HOWEVER, THE ASSESSEE CHALLENGED THE EXCLUSION OF THE SAID COMPANY AS COMPARABLE BEFORE THE TRIBUNAL. 51. WE FIND THAT THE SPECIAL BENCH OF CHANDIGARH TRIBUNAL IN THE CASE OF QUARK SYSTEMS PVT. LTD. (SUPRA) HAD HELD THAT EVEN IF THE ASSESSEE HAD NOT CHALLENGED THE INCLUSION OF THE COMPARABLE BEFORE THE AUTHORITIES BELOW, THE SAME COULD BE CHALLENGED BEFORE THE TRIBUNAL FOR THE FIRST TIME. ACCORDINGLY, WE HOLD THAT THE ASSESSEE AT THIS POINT CAN RAISE THE SA ID ISSUE. NOW, THE SECOND PART OF THE OBJECTION WAS THAT THE COMPANY HAD OUTSOURCED ITS VENDOR AND WAS MAKING HIGH VENDOR PAYMENTS AS COMPARED TO THE SALES AND HENCE WAS NOT COMPARABLE. WHILE ADJUDICATING THE EXCLUSION OF M/S. VISHAL INFORMATION TECHNOLO GIES LTD., WE HAVE IN PARAS HEREINABOVE ALREADY CONSIDERED THIS ASPECT OF THE COMPANIES OUTSOURCING TO VENDORS AND HELD M/S. VISHAL INFORMATION TECHNOLOGIES LTD. TO BE NOT FUNCTIONALLY COMPARABLE. FOLLOWING THE SAME PARITY OF REASONING, WE HOLD THAT M/S. COSMIC GLOBAL LTD. IS NOT FUNCTIONALLY COMPARABLE. 18. APART FROM THE DECISION IN THE CASE OF PTC SOFTWARE (INDIA) PRIVATE LIMITED (SUPRA), THE DECISION OF HYDERABAD BENCH OF THE TRIBUNAL IN THE CASE OF M/S CAPITAL IQ INFORMATION SYSTEMS (INDIA) PVT. LTD. VS. ADDL.CIT VIDE ITA NO.124/HYD/2014 DATED 31.07.2014 HAS ALSO BEEN ITA NO. 331 /PN/201 4 VISTEON ENGG. CENTER (INDIA) PVT. LTD . 17 RELIED UPON BY THE ASSESSEE TO JUSTIFY THE EXCLUSION OF M/S COSMIC GLOBAL LTD. FROM THE FINAL SET OF COMPARABLES. THE HYDERABAD BENCH OF THE TRIBUNAL CONSIDERED AN EARLIER DECISION OF T HE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF M/S MERCER CONSULTING (INDIA) P. LTD. VS. DCIT VIDE ITA NO.966/DEL/2014 DATED 06.06.2014 WHEREIN ALSO THE SAID CONCERN WAS FOUND TO BE INCOMPARABLE WITH AN ITES PROVIDER. THE FOLLOWING DISCUSSION IN THE ORDER OF THE HYDERABAD BENCH OF THE TRIBUNAL IS WORTHY OF NOTICE : - 19. THE MAIN OBJECTION OF ASSESSEE WITH REFERENCE TO THE INCLUSION OF THIS COMPANY IS WITH REFERENCE TO OUTSOURCING OF ITS MAIN ACTIVITY. EVEN THOUGH THIS COMPANY IS IN ASSESSEE'S TP STUDY, IT HAS RAISED OBJECTION BEFORE THE TPO THAT THIS COMPANY'S EMPLOYEE COST IS LESS THAN 21.30% AND MOST OF THE COST IS WITH REFERENCE TO THE OUTSOURCING CHARGES OR TRANSLATION CHARGES, AND AS SUCH THIS IS NOT A COMPARABLE COMPANY. THE TPO, THOUGH CONSIDERED THE SE SUBMISSIONS, REJECTED THE SAME, ON THE REASON THAT THIS DOES NOT IMPACT THE PROFIT MARGIN OF THE COMPANY. OPPOSING THE VIEW TAKEN BY THE TPO, IT IS SUBMITTED THAT THIS COMPANY CANNOT BE SELECTED AS COMPARABLE, AS SIMILAR ISSUE WAS DISCUSSED BY THE COORD INATE BENCH OF THE TRIBUNAL(DELHI) IN THE CASE OF MERCER CONSULTING (INDIA) P. LTD. (SUPRA), VIDE PARAS 13.2 TO 13.3 WHICH READ AS UNDER - '13.2. NOW COMING TO THE FACTUAL MATRIX OF THIS CASE, WE FIND FROM THE MATERIAL ON RECORD THAT OUTSOURCING CHARGES OF THIS CASE CONSTITUTE 57.31% OF THE TOTAL OPERATING COSTS. THIS DOES NOT APPEAR TO US TO BE A VALID REASON FOR ELIMINATING THIS CASE FROM THE LIST OF COMPARABLES. ON GOING THROUGH THE ANNUAL ACCOUNTS OF THE LIST OF COMPARABLES. ON GOING THROUGH THE ANNUAL ACCOUNTS OF COSMIC GLOBAL LIMITED, A COPY OF WHICH HAS BEEN PLACED ON RECORD, WE FIND THAT ITS TOTAL REVENUE FROM OPERATIONS ARE AT RS.7.37 CRORE DIVIDED INTO THREE SEGMENTS, NAMELY, MEDICAL TRANSCRIPTION AND CONSULTANCY SERVICES AT RS.9,90 LACS, TRANSLATION CHARGES AT RS.6.99 CRORE AND ACCOUNTS BPO AT RS.27.76 LAC. THE ID. AR HAS MADE OUT A CASE THAT OUTSOURCING ACTIVITY CARRIED OUT BY THIS COMPANY CONSTITUTES 57% OF TOTAL EXPENSES. THE REASON FOR WHICH WE ARE NOT AGREEABLE WITH THE ID. AR IS THAT WE HAVE TO EXAMINE THE REVENUE OF THIS CASE ONLY FROM ACCOUNTS BPO SEGMENT AND NOT ON THE ENTITY LEVEL, BEING ALSO FROM MEDICAL TRANSCRIPTION AND TRANSLATION CHARGES. WHEN WE ARE EXAMINING THE RESULTS OF THIS COMPANY FROM THE ACCOUNTS BPO SEGMENT ALONE, THERE IS NO NEED TO EXAMINE THE POSITION UNDER OTHER SEGMENTS. THE ENTIRE OU TSOURCING IS CONFINED TO TRANSLATION CHARGES PAID AT RS.3.00 CRORE, WHICH IS STRICTLY IN THE REALM OF THE TRANSLATION SEGMENT, REVENUES FROM WHICH ARE TO THE TUNE OF RS.6.99 CRORE. IF THIS SEGMENT OF TRANSLATION IS NOT UNDER CONSIDERATION FOR DECIDING AS T O WHETHER THIS CASE IS COMPARABLE OR NOT, WE CANNOT TAKE RECOURSE TO THE FIGURES WHICH ARE RELEVANT FOR SEGMENTS OTHER THAN ACCOUNTS BPO. THUS IT IS HELD THAT THIS CASE CANNOT BE EXCLUDED ON THE STRENGTH OF OUTSOURCING ACTIVITY, WHICH IS ALIEN TO THE RELEV ANT SEGMENT. 13.3. HOWEVER, WE FIND THIS CASE TO INCOMPARABLE ON THE ALTERNATIVE ARGUMENT ADVANCED BY THE ID. AR TO THE EFFECT THAT ITA NO. 331 /PN/201 4 VISTEON ENGG. CENTER (INDIA) PVT. LTD . 18 TOTAL REVENUE OF THE ACCOUNTS BPO SEGMENT OF COSMIC GLOBAL LIMITED IS VERY LOW AT RS.27.76 LACS. WE HAVE DISCUSSED THIS ASPE CT ABOVE IN THE CONTEXT OF CG - VAK'S CASE AND HELD THAT A CAPTIVE UNIT CANNOT BE COMPARED WITH A GIANT CASE AND THUS EXCLUDED CG - VAK WITH TURNOVER FROM ACCOUNTS BPO SEGMENT AT RS.86.10 LACS. AS THE SEGMENTAL REVENUE OF BPO SEGMENT OF COSMIC GLOBAL LIMITED A T RS.27.76 LAC IS STILL ON MUCH LOWER SIDE, THE REASONS GIVEN ABOVE WOULD FULLY APPLY TO HOLD COSMIC GLOBAL LIMITED AS INCOMPARABLE. THIS CASE IS, THEREFORE, DIRECTED TO BE EXCLUDED FROM THE LIST OF COMPARABLES. ' IN VIEW OF THE DETAILED ANALYSIS OF THE CO ORDINATE BENCH OF THE TRIBUNAL IN THE ABOVE REFERRED CASE, IN THIS CASE ALSO WE ACCEPT THE CONTENTIONS OF ASSESSEE AND DIRECT THE ASSESSING OFFICER/TPO TO EXCLUDE THIS COMPARABLE FOR THE SAME REASONS. 19. THE AFORESAID DISCUSSION MADE BY THE RESPECTIVE BE NCHES OF THE TRIBUNAL REVEALS THAT IN RELATION TO THE FINANCIAL YEAR UNDER CONSIDERATION, THE BUSINESS MODEL IN WHICH M/S COSMIC GLOBAL LTD. HAS FUNCTIONED IS QUITE DISSIMILAR TO THE BUSINESS MODEL OF THE ASSESSEE WHILE CARRYING OUT THE ACTIVITY OF AN ITES PROVIDER. MOREOVER, NONE OF THE OBJECTIONS RAISED BY THE ASSESSEE HAVE BEEN MET BY THE TPO ON THE BASIS OF ANY COGENT REASONING. ON THAT COUNT ALSO, WE FIND THAT THE PLEA OF THE ASSESSEE TO EXCLUDE M/S COSMIC GLOBAL LTD. FROM THE FINAL SET OF COMPARABLE S IS JUSTIFIED. THE OBJECTION OF THE TPO THAT THE SAID CONCERN WAS FOUND COMPARABLE BY THE ASSESSEE IN EARLIER YEAR CANNOT BE THE SOLE BASIS TO INCLUDE THE SAID CONCERN IN THE LIST OF COMPARABLES, IN VIEW OF THE AFORESAID DISCUSSION. THUS, ASSESSEE SUCCE EDS ON THIS ASPECT. 18. SINCE THE SAID CONCERN, M/S COSMIC GLOBAL LTD. WAS OPERATING IN DIFFERENT BUSINESS MODEL THAN THE ASSESSEE IN THE YEAR UNDER CONSIDERATION ALSO, THE SAME NEEDS TO BE EXCLUDED FROM THE FINAL SET OF COMPARABLES AND ACCORDINGLY WE DI RECT THE ASSESSING OFFICER TO EXCLUDE THE SAME FROM THE FINAL SET OF COMPARABLES. FOLLOWING THE SAME PARITY OF REASONING, WE HOLD THAT M/S COSMIC GLOBAL LTD. IS TO BE EXCLUDED FROM THE FINAL SET OF COMPARABLES. 28. THE ISSUE BEFORE US IS SIMILAR AND IN VIEW OF THE FUNCTIONALITY BEING DIFFERENT AND THE SAID CONCERN EARNING SUPER NORMAL PROFITS FOR THE YEAR UNDER CONSIDERATION, WE DIRECT THE ASSESSING OFFICER / TPO TO EXCLUDE THE SAID CONCERN FROM THE FINAL SET OF COMPARABLES AND RE - COMPUTE THE ARM'S LENGT H PRICE OF INTERNATIONAL TRANSACTIONS OF THE ASSESSEE WITH ITS ASSOCIATE ENTERPRISES. 29. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE FURTHER HAS NOT RAISED ANY ARGUMENTS IN RESPECT OF BALANCE CONCERNS AND HENCE, THE SAME ARE ITA NO. 331 /PN/201 4 VISTEON ENGG. CENTER (INDIA) PVT. LTD . 19 TO BE INCLUDED AS PART OF FINAL LIST OF COMPARABLES FOR COMPUTING ARM'S LENGTH PRICE OF INTERNATIONAL TRANSACTIONS OF THE ASSESSEE WITH ITS ASSOCIATE ENTERPRISES. 30. THE GROUNDS OF APPEAL NO.6, 7, 8 AND 10 RAISED BY THE ASSESSEE ARE NOT PRESSED AND HENCE, THE SAME ARE DIS MISSED AS NOT PRESSED. 31. THE ISSUE IN GROUND OF APPEAL NO.9 IS AGAINST THE COMPUTATION OF PLI OF THE CONCERN WITHOUT ALLOWING RISK ADJUSTMENT. 32. THE CASE OF THE ASSESSEE BEFORE US WAS THAT S INCE IT WAS A RISK FREE CONCERN AND WHERE THE TPO HAS NOT GI VEN ANY FINDING THAT THE CONCERN SELECTED BY IT WAS RISK MITIGATING, THEN THE RISK ADJUSTMENT IS TO BE ALLOWED IN THE HANDS OF SET OF COMPARABLES PICKED UP BY THE TPO, FOR WORKING OUT THE PLI OF THE SAID CONCERN S , IN ORDER TO WORK OUT THE ARM'S LENGTH PRIC E OF INTERNATIONAL TRANSACTIONS ENTERED INTO BY THE ASSESSEE OF PROVIDING ENGINEERING DESIGN SERVICES TO ITS ASSOCIATE ENTERPRISES. 33. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT THE ASSESSEE WAS PROVIDING ALL THE SERVICES TO SINGLE CUSTOMER AND DOMESTIC SALES WERE ALSO MADE TO THE RELATED PARTY, HENCE, THE RISK ADJUSTMENT IS TO BE ALLOWED. HE FURTHER REFERRED TO THE DECISION OF TRIBUNAL IN ASSESSEES OWN CASE IN ASSESSMENT YEAR 2008 - 09 , UNDER WHICH THE ISSUE WAS SET - ASIDE TO THE FILE OF ASSESSING OFFICER WITH DIRECTION TO ALLOW RISK ADJUSTMENT TO THE ASSESSEE. 34. ON PERUSAL OF THE ORDER OF TRIBUNAL IN ASSESSEES OWN CASE RELATING TO ASSESSMENT YEAR 2008 - 09 , WE FIND THAT SIMILAR ISSUE OF DENIAL OF RISK ADJUSTMENT BENEFIT AR OSE BEFORE THE TRIBUNAL. THE TRIBUNAL AFTER CONSIDERING THE ISSUE, DIRECTED THE ASSESSING OFFICER TO ALLOW RISK ADJUSTMENT TO THE ASSESSEE AND DECIDE THE ISSUE IN ACCORDANCE WITH LAW BY OBSERVING AS UNDER: - ITA NO. 331 /PN/201 4 VISTEON ENGG. CENTER (INDIA) PVT. LTD . 20 50. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES. THE BANGALORE BENCH OF THE TRIBUNAL IN THE CASE OF INTELLINET TECHNOLOGIES INDIA PVT. LTD. (SUPRA) AT PARA 7.1 OF THE ORDER HAS OBSERVED AS UNDER : 7.1 AS SEEN FROM THE RECORDS, THE ASSESSEE HAD ACQUIRED THE BUSINESS AND ALSO EARNED INCOME OUT OF THE SAID TRANSACTION BY COST PLUS BASIS. THUS, IT CAN BE SEEN THAT THE ASSESSEE HAS NOT ENCOUNTERED THE RISK OF HAVING A SINGLE CUSTOMER, WHEREAS THE SAME CANNOT BE SAID AS REGARDS THE COMPARABLES. AS POINTED OUT BY THE LEARNED COUNSEL FOR T HE ASSESSEE, THE COMPARABLES WERE DEALING IN OPEN MARKET AND THEREFORE, THEY WERE PRONE TO THE MARKETING AND TECHNICAL RISKS. THEY WOULD HAVE INCURRED CERTAIN EXPENDITURE ON MARKETING SERVICES AND ALSO TO SAFEGUARD THE TECHNICAL USE BY THEM. IN SUCH A CASE , THE RISK ENCOUNTERED BY THE ASSESSEE CANNOT BE SAID TO BE THE EQUIVALENT RISKS ATTACHED TO THE COMPARABLES. THE RISK ATTRIBUTED TO THE ASSESSEE BY THE TPO IS AN ANTICIPATED RISK WHEREAS THE RISK ATTRIBUTED BY THE ASSESSEE TO THE COMPARABLES IS AN EXISTIN G RISK. IN SUCH SITUATION, THE TPO OUGHT TO HAVE GIVEN THE RISK ADJUSTMENT TO THE NET MARGIN OF THE COMPARABLES FOR BRINGING THEM ON PAR WITH THE ASSESSEE COMPANY. THE ASSESSEE'S CONTENTION THAT THE RISK ADJUSTMENT SHOULD BE AT 5.5% OR AT THE DIFFERENCE OF PRIME LENDING RATE OF THE RBI AND THE BANKS IS NOT ACCEPTABLE TO US. THEREFORE, WE DIRECT THE TPO TO CONSIDER ALL THE CONTENTIONS OF THE ASSESSEE AND AFTER TAKING INTO ACCOUNT ALL THE RELEVANT MATERIAL DECIDE THE PERCENTAGE OF RISK ADJUSTMENT TO BE MADE I N ACCORDANCE WITH LAW. THIS GROUND IS ACCORDINGLY, ALLOWED FOR STATISTICAL PURPOSES. 51. THE COORDINATE BENCHES OF THE TRIBUNAL ARE ALSO ALLOWING RISK ADJUSTMENT TO THE ASSESSEE SUBJECT TO FULFILLMENT OF VARIOUS OTHER CONDITIONS. IN VIEW OF THE ABOVE D ISCUSSION AND RELYING ON THE DECISION OF THE BANGALORE BENCH OF THE TRIBUNAL, WE RESTORE THE ISSUE TO THE FILE OF THE AO WITH A DIRECTION TO CONSIDER THE ALLOWABILITY OF RISK ADJUSTMENT TO THE ASSESSEE. THE AO IS DIRECTED TO DECIDE THE ISSUE IN ACCORDANCE WITH LAW AFTER GIVING DUE OPPORTUNITY DIRECTED TO DECIDE THE ISSUE IN ACCORDANCE WITH LAW AFTER GIVING DUE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. WE HOLD AND DIRECT ACCORDINGLY. GROUND OF APPEAL NO.9 RAISED BY THE ASSESSEE IS ACCORDINGLY ALLOWED FOR STATISTICAL PURPOSES. 35. THE FACTS AND ISSUE IN GROUND OF APPEAL NO.9 ARE S IMILAR TO THE ISSUE BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE IN ASSESSMENT YEAR 2008 - 09 AND IN VIEW OF IDENTICAL FACTS, WE DEEM IT FIT TO RESTORE THIS ISSUE BACK TO THE FILE OF ASSESSING OFFICER / TPO TO CONSIDER THE CLAIM OF ASSESSEE AND DECIDE THE SAME IN LINE WITH THE DIRECTIONS OF TRIBUNAL IN ASSESSMENT YEAR 2008 - 09 AND IN ACCORDANCE WITH LAW. THE ASSESSING OFFICER / TPO SHALL AFFORD REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE. 36. NOW, COMING TO THE LAST GROUND OF APPEAL I.E. ERRONEOUS COMPUT ATION OF DEDUCTION UNDER SECTION 10A OF THE ACT, WHEREIN THE ASSESSEE WAS AGGRIEVED WITH THE CALCULATION OF EXPORT TURNOVER FOR THE PURPOSE OF COMPUTING THE SAID DEDUCTION UNDER SECTION 10A OF THE ACT. ITA NO. 331 /PN/201 4 VISTEON ENGG. CENTER (INDIA) PVT. LTD . 21 37. THE ASSESSING OFFICER IN THE DRAFT ASSESSMENT ORDE R HAD REDUCED THE AMOUNT OF EXPENDITURE IN FOREIGN CURRENCY AMOUNTING TO RS.8.43 CRORES FROM THE TOTAL TURNOVER AS WELL AS EXPORT TURNOVER AND HAD WORKED OUT THE EXCESS BENEFIT AMOUNTING TO RS. 10,14,115/ - UNDER SECTION 10A OF THE ACT. THE CLAIM OF THE ASS ESSEE BEFORE THE ASSESSING OFFICER WAS THAT THE SAID EXPENDITURE OF RS.8.43 CRORES WAS INCURRED ON SALARY, TRAVELLING, DEPUTATION COST, INTEREST ON OTHER EXPENDITURE IN RELATION TO ON - SITE DEVELOPMENT OF ENGINEERING DESIGN SERVICES. THE ASSESSEE FURTHER C LAIMED THAT SINCE IT WAS ENGAGED IN THE BUSINESS OF PROVIDING ENGINEERING AND DESIGN SERVICES FOR AUTO SECTOR, INVOICES WERE RAISED ON THE CUSTOMERS ONLY IN RESPECT OF ENGINEERING DESIGN PROVIDED TO THEM AND NO SEPARATE CHARGE WAS MADE ON ACCOUNT OF SALARY AND TRAVELLING EXPENDITURE INCURRED FOR THE COMPANY. SINCE THESE ITEMS WERE NOT INCLUDED IN THE TURNOVER, THERE WAS NO QUESTION OF REDUCING THE SAME FROM EXPORT OF TOTAL TURNOVER. THE CLAIM OF THE ASSESSEE WAS NOT ALLOWED BY THE ASSESSING OFFICER OR DRP . 38. WE FIND THAT SIMILAR ISSUE OF COMPUTATION OF DEDUCTION UNDER SECTION 10A OF THE ACT WAS RAISED BY THE ASSESSEE BEFORE THE TRIBUNAL IN ASSESSMENT YEAR 2008 - 09 . THE SAID CLAIM OF THE ASSESSEE WAS REJECTED, IN VIEW OF THE ASSESSEE BEING AGREE D TO EXCL UDE THE EXPENDITURE INCURRED IN FOREIGN CURRENCY FROM EXPORT TURNOVER AND TOTAL TURNOVER. HOWEVER, BEFORE THE DRP, THE ASSESSEE RAISED THE PLEA AGAINST THE SAME, WHICH WAS NOT ACCEPTED BY DRP. BEFORE THE TRIBUNAL, THE ASSESSEE CLAIMED THAT IN VIEW OF THE RATIO LAID DOWN BY THE HONBLE BOMBAY HIGH COURT IN CIT VS. PRUTHVI BROKERS & SHAREHOLDERS PVT. LTD. (2012) 349 ITR 336 (BOM) , THE APPELLATE AUTHORITIES HAD POWER TO CONSIDER THE CLAIM NOT MADE IN THE RETURN OF INCOME. THE TRIBUNAL IN TURN, FOLLOWING THE SAME DIRECTED THE ASSESSING OFFICER TO COMPUTE THE DEDUCTION UNDER SECTION 10A OF THE ACT AS PER LAW AFTER GIVING AN OPPORTUNITY OF HEARING TO THE ASSESSEE. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT DURING THE ITA NO. 331 /PN/201 4 VISTEON ENGG. CENTER (INDIA) PVT. LTD . 22 ASSESSMENT PRO CEEDINGS RELATING TO THE INSTANT ASSESSMENT YEAR I.E. 2009 - 10 , THIS PLEA WAS RAISED BEFORE THE ASSESSING OFFICER . HOWEVER, FOLLOWING THE CONSISTENCY, SINCE THE ISSUE HAS BEEN SET - ASIDE TO THE FILE OF ASSESSING OFFICER IN THE PRECEDING YEAR, WE DIRECT THE ASSESSING OFFICER TO COMPUTE THE DEDUCTION UNDER SECTION 10A OF THE ACT IN ACCORDANCE WITH LAW AND IN LINE WITH THE DIRECTIONS OF TRIBUNAL IN ASSESSMENT YEAR 2008 - 09 . THE ASSESSING OFFICER SHALL AFFORD REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE. T HE GROUND OF APPEAL NO.11 RAISED BY THE ASSESSEE IS THUS, ALLOWED FOR STATISTICAL PURPOSES. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE ARE PARTLY ALLOWED. 39 . IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER P RONOUNCED ON THIS 11 TH D AY OF APRIL , 201 6 . SD/ - SD/ - SD/ - SD/ - (PRADIP KUMAR KEDIA) (SUSHMA CHOWLA) / ACCOUNTANT MEMBER / JUDICIAL MEMBER / PUNE ; DATED : 11 TH APRIL , 201 6 . GCVSR / COPY OF THE ORDER IS FORWARDED TO : 1. THE APPELLANT ; 2. THE RESPONDENT; 3. THE DIT (INTL. TAXATION), PUNE ; 4. THE DRP, PUNE ; 5. THE DR A , ITAT, PUNE; 6. GUARD FILE . / BY ORDER , // TRUE COPY // / SR. PRIVATE SECRETARY , / ITAT, PUNE