Microchip Technology (India) Private Limited, Bangalore V. Asst.C.I.T., Bangalore

ITA 497/BANG/2016

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 7205 (ITAT-BANGALORE)
• Duration Of Justice: 4 year(s) 5 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-09-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 13-08-2020
• Assessment Year: 2011-2012
• Appeal Filed On: 18-03-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MUZAFFAR HUSSAIN BENGALURU
• Keywords: Transfer pricing; Opportunity of being heard; International transaction
• Section: 92CA

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, VICE PRESIDENT AND SHRI B R BASKARAN , ACCOUNTANT MEMBER IT (TP) A NO. 4 9 7/BANG/2016 ASSESSMENT YEAR : 2011 - 12 MICROCHIP TECHNOLOGY (INDIA) PRIVATE LTD., NO.149 B, EPIP, I PHASE, INDUSTRIAL AREA, WHITEFIELD, BANGALORE 560 066. PAN: AABCM 9868J VS. THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 4(1)(2), BANGALORE. APPELLANT RESPONDENT APPELLANT BY : SHRI DARPAN KIRPALANI, ADVOCATE RESPON DENT BY : SHRI MUZAFFAR HUSSAIN, CIT(DR)(ITAT), BENGALURU. DATE OF HEARING : 01 .0 9 .2020 DATE OF PRONOUNCEMENT : 04 .0 9 .2020 O R D E R PER N.V. VASUDEVAN, VICE PRESIDENT THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE ORD ER DATED 28.01.2016 OF ITO, WARD-4(1)(2), BANGALORE (HEREINA FTER REFERRED TO AS THE ASSESSING OFFICER, AO IN SHORT) PASSED U/S.143(3) READ WITH SECTION 144C(13) OF THE INCOME TAX ACT, 1961 (ACT) IN RELAT ION TO ASSESSMENT YEAR 2011-12. 2. THE ASSESSEE IN ENGAGED IN THE BUSINESS OF PRO VISION OF SOFTWARE DEVELOPMENT SERVICES (SWD SERVICES), AND MARKETING AND SALES SUPPORT SERVICES (MSS) TO ITS WHOLLY OWNED HOLDING COMPANY. IN TERMS OF THE PROVISIONS OF SEC.92-A OF THE ACT, THE ASSESSEE AND ITS WHOLLY OWNED IT(TP)A NO.497/BANG/2016 PAGE 2 OF 11 HOLDING COMPANY WERE ASSOCIATED ENTERPRISES ('AES') . IN TERMS OF SEC.92B(1) OF THE ACT, THE TRANSACTION OF PROVIDING SWD SERVICES AND MSS WERE INTERNATIONAL TRANSACTION I.E., A TRANSACTIO N BETWEEN TWO OR MORE ASSOCIATED ENTERPRISES, EITHER OR BOTH OF WHOM ARE NON-RESIDENTS, IN THE NATURE OF PURCHASE, SALE OR LEASE OF TANGIBLE OR IN TANGIBLE PROPERTY, OR PROVISION OF SERVICES, OR LENDING OR BORROWING MONE Y, OR ANY OTHER TRANSACTION HAVING A BEARING ON THE PROFITS, INCOME , LOSSES OR ASSETS OF SUCH ENTERPRISES, AND SHALL INCLUDE A MUTUAL AGREEM ENT OR ARRANGEMENT BETWEEN TWO OR MORE ASSOCIATED ENTERPRISES FOR THE ALLOCATION OR APPORTIONMENT OF, OR ANY CONTRIBUTION TO, ANY COST OR EXPENSE INCURRED OR TO BE INCURRED IN CONNECTION WITH A BENEFIT, SERVICE O R FACILITY PROVIDED OR TO BE PROVIDED TO ANY ONE OR MORE OF SUCH ENTERPRISES. I N TERMS OF SEC.92(1) OF THE ACT, THE ANY INCOME ARISING FROM AN INTERNATION AL TRANSACTION SHALL BE COMPUTED HAVING REGARD TO THE ARMS LENGTH PRICE. I N THIS APPEAL BY THE ASSESSEE, THE DISPUTE IS WITH REGARD TO DETERMINATI ON OF ARMS LENGTH PRICE (ALP) IN RESPECT OF THE AFORESAID TWO INTERNATIONAL TRANSACTION OF (I) RENDERING SWD SERVICES TO THE AE AND (II) RENDERING OF MSS TO THE AE. WE SHALL DEAL EACH OF THE INTERNATIONAL TRANSACTIONS S EPARATELY. SOFTWARE DEVELOPMENT SERVICES SEGMENT 3. AS FAR AS THE PROVISION OF SOFTWARE DEVELOPMENT SERVICES ARE CONCERNED, THE ASSESSEE FILED A TRANSFER PRICING ST UDY (TP STUDY) TO JUSTIFY THE PRICE PAID IN THE INTERNATIONAL TRANSACTION AS AT ALP BY ADOPTING THE TRANSACTION NET MARGIN METHOD (TNMM) AS THE MOST AP PROPRIATE METHOD (MAM) OF DETERMINING ALP. THE ASSESSEE SELECTED OPE RATING PROFIT/OPERATING COST (OP/OC) AS THE PROFIT LEVEL I NDICATOR (PLI) FOR THE PURPOSE OF COMPARISON. THE OP/TC OF THE ASSESSEE W AS ARRIVED AT 14.87% BY THE ASSESSEE IN ITS TP STUDY. THE OPERAT ING INCOME WAS RS.46,30,16,681/- AND THE OPERATING COST WAS RS.40, 31,58,812/-. THE OPERATING PROFIT (OPERATING INCOME OPERATING COST WAS RS.5,98,57,869/-. IT(TP)A NO.497/BANG/2016 PAGE 3 OF 11 THUS THE OP/OC WAS ARRIVED AT 14.87%. THE ASSESSEE CHOSE COMPANIES WHO ARE ENGAGED IN PROVIDING SIMILAR SERVICES SUCH AS THE ASSESSEE FROM THE PROWESS AND CAPITALINE PLUS DATA BASE. THE ASS ESSEE IDENTIFIED 8 COMPANIES WHOSE AVERAGE ARITHMETIC MEAN OF PROFIT M ARGIN WAS LESS THAN AND COMPARABLE THE OPERATING MARGIN OF THE ASSESSEE . THE ASSESSEE THEREFORE CLAIMED THAT THE PRICE IT CHARGED IN THE INTERNATIONAL TRANSACTION SHOULD BE CONSIDERED AS AT ARMS LENGTH. 4. THE TPO TO WHOM THE DETERMINATION OF ALP WAS REF ERRED TO BY THE AO, ACCEPTED TNMM AS THE MAM AND ALSO USED THE SAME PLI FOR COMPARISON I.E., OP/OC. HE ALSO SELECTED COMPARABL E COMPANIES FROM THE SAME DATABASE FROM WHICH THE ASSESSEE HAD CHOSEN CO MPARABLE COMPANIES, VIZ., PROWESS AND CAPITALINE PLUS. THE TPO REJECTED 6 OUT OF THE 8 COMPANIES CHOSEN BY THE ASSESSEE AS COMPARABL E COMPANIES. THE TPO ON HIS OWN IDENTIFIED 11 COMPANIES AS COMPARABL E WITH THE ASSESSEE COMPANY AND WORKED OUT THE AVERAGE ARITHMETIC MEAN OF THEIR PROFIT MARGINS AS FOLLOWS:- IT(TP)A NO.497/BANG/2016 PAGE 4 OF 11 5. THE TPO COMPUTED THE ADDITION TO TOTAL INCOME O N ACCOUNT OF ADJUSTMENT TO ALP AS FOLLOWS:- COMPUTATION OF ARM'S LENGTH PRICE BY TPO AND THE AD JUSTMENT MADE ARM'S LENGTH MEAN MARGIN ON COST 24.82% LESS: WORKING CAPITAL ADJUSTMENT -2.71% ADJUSTED MEAN MARGIN OF THE COMPARABLES 27.53% OPERATING COST RS. 33,77,24,506/- ARM'S LENGTH PRICE (127.53% OF OPERATING COST) RS. 4 3,07,00,063/- PRICE RECEIVED RS. 39,04,51,674/ - SHORT FALL BEING ADJUSTMENT U/S. 92CA RS.4,02,48,389/- THUS A SUM OF RS.4,02,48,389/- WAS ADDED TO THE TOT AL INCOME OF THE ASSESSEE ON ACCOUNT OF DETERMINATION OF ALP FOR PRO VISION OF SWD SERVICES BY THE ASSESSEE TO ITS AE. 6. THE ASSESSEE FILED OBJECTIONS BEFORE THE DISPUTE S RESOLUTION PANEL (DRP) AGAINST THE DRAFT ASSESSMENT ORDER PASSED BY THE AO WHEREIN THE ADDITION SUGGESTED BY THE TPO AS ADJUSTMENT TO ALP WAS ADDED TO THE TOTAL INCOME OF THE ASSESSEE BY THE AO. THE DRP EX CLUDED 6 COMPARABLE COMPANIES VIZ.,(I) INFOSYS LTD., (II) LARSEN & TOUB RO LTD., (III) MINDTREE LTD., (IV) PERSISTENT SYSTEMS LTD., (V) SASKEN COMMUNICAT ION TECHNOLOGIES LTD., AND (VI) TATA ELXSI LTD., ON THE APPLICATION OF TUR NOVER FILTER OF MORE THAN RS.200 CRORES. THE DRP DID NOT AGREE TO PLEA OF TH E ASSESSEE FOR EXCLUSION OF ACROPETAL TECHNOLOGIES LTD., E-INFOCHI PS LTD., ICRA TECHNO ANALYTICS LTD., PERSISTENT SYSTEMS & SOLUTIONS LTD. , AND E-ZEST SOLUTIONS LTD., TO THE EXTENT THE ASSESSEE DID NOT GET RELI EF FROM THE DRP, THE ASSESSEE HAS PREFERRED APPEAL BEFORE THE TRIBUNAL. THE SPECIFIC GROUNDS OF CHALLENGE ARE CONTAINED IN GRD.NO.3(B) OF THE GR OUNDS OF APPEAL FILED BEFORE THE TRIBUNAL. THE GROUNDS RELATING TO SWD S ERVICES SEGMENT THAT WERE PRESSED FOR ADJUDICATION WERE GROUND NO. 3(B) IN WHICH THE ASSESSEE IT(TP)A NO.497/BANG/2016 PAGE 5 OF 11 HAS PROJECTED GRIEVANCE WITH REGARD TO NON-EXCLUSIO N OF THE FOLLOWING FIVE COMPANIES BY THE DRP VIZ., OF ACROPETAL TECHNOLOGIE S LTD., E-INFOCHIPS LTD., ICRA TECHNO ANALYTICS LTD., AND E-ZEST SOLUTI ONS LTD. 7. THE LEARNED COUNSEL FOR THE ASSESSEE BROUGHT TO OUR NOTICE DECISION OF BANGALORE ITAT IN THE CASE OF M/S. LG SOFT INDIA PVT. LTD. VS. DCIT IT(TP)A O.52/BANG/2016 FOR AY 2011-12 ORDER DATED 5 .8.2020. IN THE AFORESAID DECISION THE ASSESSEE WAS ALSO A SWD SERV ICE PROVIDER AND THE VERY SAME COMPARABLE COMPANIES WERE CHOSEN AS COMPA RABLE COMPANIES IN THAT CASE. THE TRIBUNAL RULED ON THE COMPARABIL ITY OF 7 COMPANIES WITH A SWD SERVICE PROVIDER SUCH AS THE ASSESSEE IN WHICH THE AFORESAID 5 COMPANIES SOUGHT TO BE EXCLUDED IN THIS APPEAL BY T HE ASSESSEE WAS ALSO A PART. THE FOLLOWING WERE THE RELEVANT OBSERVATIO NS OF THE TRIBUNAL FOR EXCLUDING THE AFORESAID 5 COMPANIES LISTED IN PARAG RAPH-6 ABOVE :- 10. WITH REGARD TO THE OTHER 7 COMPARABLE COMPANI ES, WHOSE EXCLUSION IS CHALLENGED BY THE REVENUE IN GROUND NO .2 OF ITS APPEAL, WE FIND THAT EXCLUSION OF THESE COMPARABLES FROM THE LIST OF COMPANIES SELECTED BY THE TPO HAD COME UP FOR CO NSIDERATION BEFORE THE BANGALORE ITAT IN THE CASE OF ELECTRONIC FOR IMAGING (I) PVT. LTD. V. DCIT [2017] 85 TAXMANN.COM 124 [B ANG. TRIB]. ; SYMANTECH SOFTWARE & SERVICES (I) PVT. LTD. V. DCIT , ITA NO.614/MDS/2016; DCIT V. IKANOS COMMUNICATION PVT. LTD. IN ITA 137/BANG/2015; NESS TECHNOLOGIES (I) PVT. LTD. V. DCIT IN ITA NO.696/MUM/2016 WHICH ARE ALSO DECISIONS RENDERED IN RELATION TO AY 2011-12 IN THE CASE OF A COMPANIES P ROVIDING SWD SERVICES SUCH AS THE ASSESSEE IN THE PRESENT AP PEAL. IT IS ALSO RELEVANT TO POINT OUT THAT THE VERY SAME COMPA RABLE COMPANIES CHOSEN BY THE TPO IN THE PRESENT APPEAL H AD BEEN CHOSEN BY THE TPO AS COMPARABLE COMPANIES IN THE CA SE OF ELECTRONIC FOR IMAGING (I) PVT. LTD. (SUPRA) . THE TRIBUNAL IN ITS ORDER DATED 14.7.2017 IN THE AFORESAID CASE DEALT W ITH THE COMPARABILITY OF THESE COMPANIES. IT(TP)A NO.497/BANG/2016 PAGE 6 OF 11 11. AS FAR AS ACROPETAL TECHNOLOGIES LTD. IS CONCERNED, VIDE PARA 8 OF THE ORDER OF TRIBUNAL IN ELECTRONICS FOR IMAGING (I) PVT. LTD. (SUPRA), EXCLUSION OF ACROPETAL WAS UPHELD ON THE GROUND THAT THIS COMPANY WAS INTO DEVELOPMENT OF COMPUTER PRODUCTS. THE TRIBUNAL ALSO HELD THAT L&T INFOTECH LTD. HAD R PT AT 18.66% AND SINCE THE RPT WAS BEYOND THE THRESHOLD L IMIT OF 15%, THIS COMPANY WAS DIRECTED TO BE EXCLUDED FROM THE LIST OF COMPARABLE COMPANIES. THE TRIBUNAL FURTHER EXCLUDE D TATA ELXSI LTD. FROM THE LIST OF COMPARABLES ON THE GROUND THAT TH IS COMPANY WAS ENGAGED IN DIVERSIFIED ACTIVITIES AND W AS NOT A PURE SWD SERVICES PROVIDER SUCH AS THE ASSESSEE. IN PA RA 9 OF THE AFORESAID ORDER, THE TRIBUNAL HELD E-INFOCHIPS LTD., WAS EARNING REVENUE BOTH FROM THE SOFTWARE SERVICES AND SOFTWAR E PRODUCTS AND THOUGH THE BREAK-UP OF REVENUE FROM THE TWO SEG MENTS WERE AVAILABLE, BUT THE BREAK-UP OF OPERATING COST AND N ET OPERATING REVENUE AND SEGMENTAL DETAILS WERE NOT AVAILABLE. 12. AS REGARDS E-ZEST SOLUTIONS LTD. , IN THE CASE OF SYMANTECH SOFTWARE & SERVICES (I) PVT. LTD. V. DCIT , ITA NO.614/MDS/2016, THIS COMPANY WAS HELD TO BE ENGAGED IN KNOWLEDGE PROCESS OUTSOURCING (KPO) AND CANNOT BE R EGARDED AS A SWD SERVICES COMPANY. 13. THE TRIBUNAL IN THE CASE OF DCIT V. IKANOS COMMUNICATION PVT. LTD. IN ITA 137/BANG/2015 EXCLUD ED THE COMPANY, ICRA TECHNO ANALYTICS LTD., ON THE GROUND THAT IT WAS ENGAGED IN ENGINEERING AND CONSULTING SERVICES, BESIDES LICENSING AND SUB-LICENSING AND NO SEGMENTAL INFORM ATION WAS AVAILABLE TO COMPARE THE MARGINS OF SWD SERVICES SE GMENT. 14. THE MUMBAI TRIBUNAL IN THE CASE OF NESS TECHNOLOGIES (I) PVT. LTD. V. DCIT IN ITA NO.696/MUM/2016 HELD INFOSYS LTD. TO BE NOT COMPARABLE FOR THE REASON THAT THIS COMPANY WAS ENGAGED IN MANUFACTURING OF SOFTWARE PRODUCTS AND WAS A GIA NT COMPANY ASSUMING VARIOUS RISKS. AS FAR AS LARSEN & TOUBRO INFOTECH LTD., IS CONCERNED, VIDE PARAGRAPH-8 PAGE-16 OF THE ORDE R IN THE CASE OF ELECTRONICS FOR IMAGING INDIA PVT. LTD., (S UPRA) THIS TRIBUNAL EXCLUDED THIS COMPANY ON THE GROUND OF PRE SENCE OF ONSITE REVENUE OF MORE THAN 50% AND THAT THE RELATE D PARTY TRANSACTION WAS MORE THAN 15% (18.66%). IT(TP)A NO.497/BANG/2016 PAGE 7 OF 11 15. RESPECTFULLY FOLLOWING THE AFORESAID DECISIONS , WE UPHOLD THE EXCLUSION OF THE AFORESAID 7 COMPANIES FROM THE LIST OF COMPARABLE COMPANIES AND GROUND NO.2 RAISED BY THE ASSESSEE TO THIS EXTENT IS DISMISSED. WE MAY ADD THAT THE OTHE R GROUNDS RAISED BY THE REVENUE IN ITS APPEAL ARE PURELY SUPP ORTIVE OF GROUND NO.2 AND ARE GENERAL GROUNDS WITH NO SPECIFI C REFERENCE TO INSTANCES OF COMPARABLES EXCLUDED AND HENCE DISM ISSED. 8. RESPECTFULLY FOLLOWING THE AFORESAID DECISION, WE DIRECT EXCLUSION OF THE AFORESAID 5 COMPARABLE COMPANIES FROM THE LIST OF COMPARABLE COMPANIES. NO OTHER SPECIFIC GROUNDS WERE ARGUED OR PRESSED. 9. THE TPO IS DIRECTED TO COMPUTE THE ALP IN ACCORD ANCE WITH THE DIRECTIONS CONTAINED INT IS ORDER AFTER AFFORDING A SSESSEE OPPORTUNITY OF BEING HEARD. MARKETING SUPPORT SERVICES SEGMENT (MSS) 10. AS FAR AS THE PROVISION OF MSS IS CONCERNED, TH E ASSESSEE FILED A TRANSFER PRICING STUDY (TP STUDY) TO JUSTIFY THE PR ICE PAID IN THE INTERNATIONAL TRANSACTION AS AT ALP BY ADOPTING THE TRANSACTION NET MARGIN METHOD (TNMM) AS THE MOST APPROPRIATE METHOD (MAM) OF DETERMINING ALP. THE ASSESSEE SELECTED OPERATING PROFIT/OPERATI NG COST (OP/OC) AS THE PROFIT LEVEL INDICATOR (PLI) FOR THE PURPOSE OF COMPARISON. THE OP/OC OF ASSESSEE WAS 10.90%. THE ASSESSEE CHOSE A SET O F COMPARABLE COMPANIES WHOSE AVERAGE PROFIT MARGIN WAS 9.83%. S INCE THE ASSESSEES PROFIT MARGIN WAS MUCH MORE THAN THAT OF THE COMPAR ABLE COMPANIES, THE ASSESSEE CLAIMED THAT THE PRICE CHARGED IN THE INTE RNATIONAL TRANSACTION WAS AT ARMS LENGTH. THE TPO TO WHOM THE DETERMINA TION OF ALP WAS REFERRED TO BY THE AO, ACCEPTED TNMM AS THE MAM AND ALSO USED THE SAME PLI FOR COMPARISON I.E., OP/OC. THE TPO REJEC TED ALL COMPANIES CHOSEN AS COMPARABLE COMPANY BY THE ASSESSEE AND ON HIS OWN CHOSE IT(TP)A NO.497/BANG/2016 PAGE 8 OF 11 THREE COMPANIES AND WORKED OUT THE AVERAGE ARITHMET IC MEAN OF THEIR PROFIT MARGINS AND ADJUSTMENT TO ALP AS FOLLOWS: 11. THE TPO COMPUTED ALP AND CONSEQUENT ADDITION TO THE TOTAL INCOME AS FOLLOWS:- COMPUTATION OF ARM'S LENGTH PRICE BY TPO AND THE AD JUSTMENT MADE ARM'S LENGTH MEAN MARGIN ON COST 18.25% OPERATING COST B RS. 6,54,34,308/ - ARM'S LENGTH PRICE (118.25% OF OPERATING COST) C=B*118.25% RS. 7,73,76,069/ - PRICE RECEIVED D RS. 7,25,65,007/ - SHORT FALL BEING ADJUSTMENT U/S. 92CA E=C - D RS. 48,11,062/- 12. THE ASSESSEE FILED OBJECTION BEFORE THE DRP AGA INST THE DRAFT ORDER OF ASSESSMENT WHEREIN THE ADDITION SUGGESTED BY THE TPO WAS ADDED TO THE TOTAL INCOME OF THE ASSESSEE. THE DRP HOWEVER CONFIRMED THE ORDER OF THE AO. BEFORE THE TRIBUNAL, THE ASSESSEE SEEKS EXCLUSION OF TWO OUT OF THE THREE COMPARABLE COMPANIES CHOSEN BY THE TPO VI Z., ASIAN BUSINESS IT(TP)A NO.497/BANG/2016 PAGE 9 OF 11 EXHIBITION & CONFERENCES LTD., AND ICC INTERNATIONA L AGENCIES LTD. IN GR.NO.2.7 WHICH READS AS FOLLOWS:- 13. AT THE TIME OF HEARING THE LEARNED COUNSEL FOR THE ASSESSEE PRESSED FOR ADJUDICATION OF EXCLUSION OF ICC INTERNATIONAL AGENCIES LTD., ALONE. IT WAS BROUGHT TO OUR NOTICE BY THE LEARNED COUNSEL FO R THE ASSESSEE THAT IN THE CASE OF AMD INDIA PVT. LTD. VS. ACIT IN IT(TP) A.NO.1487 & 1496/BANG/2015 ORDER DATED 6.4.2017 ITAT BANGALORE BENCH FOR THE VERY SAME SEGMENT FOR AY 2011-12 WAS PLEASED TO HOLD THA T THIS COMPANY WAS WITH MS SERVICES PROVIDING COMPANY. THE RELEVANT O BSERVATIONS ARE AS FOLLOWS:- 2. ICC INTERNATIONAL AGENCIES LTD : THE ASSESSEE SUBMITTED BEFORE THE DRP THAT THIS COM PANY IS FUNCTIONALLY NOT COMPARABLE SINCE IT IS ENGAGED IN TRADING ACTIVITY AND THEREBY FUNCTIONALLY DIFFERENT. THE DRP REJECTE D THIS COMPANY FOR THE REASON THAT THIS COMPANY IS FUNCTIO NALLY DISSIMILAR AND FOR INCORRECT MARGIN COMPUTATION MAD E BY THE TPO. THE REVENUE IS ON APPEAL . THE ASSESSEE PLEADE D THAT THIS IS FUNCTIONALLY DIFFERENT AND RELIES ON THIS TRIBUNAL DECISION IN ITO V INTERWOVEN SOFTWARE SERVICES(INDIA) P LTD [TS -72 3-ITAT - 2016 -BANG-TP AY 2010-11. THE RELEVANT PORTION OF T HE ORDER IT(TP)A.1487 & 1496/BANG/2015 PAGE - 36 FROM ITO V INTERWOVEN SOFTWARE SERVICES (INDIA) P LTD [IT(TP)A.NO.461/BANG/2015 DT 26.8.2016 FOR A Y 2010 -11 IS EXTRACTED AS UNDER : '28. FOR THIS SEGMENT, THE ASSESSEE IS SEEKING EXCL USION OF TWO COMPARABLES I.E. M/S ACENTIA TECHNOLOGIES LTD., AND M/S ICC INTERNATIONAL AGENCIES LTD., THE CLAIM OF ASSESSEE REGARDING EXCLUSION OF M/S ACENTIA TECHNOLOGIES LTD. IS ALSO COVERED IN FAVOUR OF THE ASSESSEE BY THE SAME TRIBUNAL ORDER R ENDERED IN THE CASE OF M/S ELECTRONICS FOR IMAGING INDIA (P)LTD.,( SUPRA) AND RESPECTFULLY FOLLOWING THE SAME TRIBUNAL ORDER, WE DIRECT THE AO/TPO TO EXCLUDE THIS COMPANY FROM THE LIST OF FIN AL COMPARABLE BECAUSE THE LD. DR OF THE REVENUE COULD NOT POINT OUT ANY DIFFERENCE IN FACTS. IT(TP)A NO.497/BANG/2016 PAGE 10 OF 11 29. REGARDING EXCLUSION OF SECOND COMPANY, IT WAS S UBMITTED BY THE LEARNED AR OF THE ASSESSEE THAT I.E. M/S ICC IN TERNATIONAL AGENCIES LTD., (SUPRA) THIS IS THE CLAIM OF THE ASS ESSEE THAT ANNUAL REPORT OF THIS COMPANY AVAILABLE ON PAGE-110 0 & 1104 OF THE PAPER BOOK. AS PER THE SAME, WE FIND THAT THIS COMPANY IS DERIVING INCOME FROM TRADING ACTIVITY AND ALSO MAIN TAINING INVENTORIES. BOTH THESE ARGUMENTS ARE SUPPORTED BY ANNUAL REPORT OF THIS COMPANY AVAILABLE ON PAGE-1100 & 1104 OF TH E PAPER BOOK. SINCE THE ASSESSEE IS NOT ENGAGED IN TRADING ACTIVITY, IN OUR CONSIDERED OPINION, THIS COMPANY CANNOT BE CONSIDER ED AS GOOD COMPARABLE IN THE PRESENT CASE AND HENCE, WE DIRECT THE AO/TPO TO EXCLUDE HIS COMPANY FROM THE LIST OF FINAL COMPA RABLE. 14. FOLLOWING THE SAID DECISION, WE DIRECT EXCLUSIO N OF THE AFORESAID COMPANY ICC INTERNATIONAL AGENCIES LTD., FROM THE L IST OF COMPARABLE COMPANIES. THE LEARNED DR SUBMITTED THAT ICC INTERN ATIONAL AGENCIES LTD., WAS ACCEPTED BY ASSESSEE HIMSELF AS COMPARABLE BEFO RE THE TPO. WE FIND THAT BEFORE THE DRP IN THE OBJECTIONS THE ASS ESSEE HAS OBJECTED TO INCLUSION OF ICC INTERNATIONAL AGENCIES LTD., AS CO MPARABLE COMPANY ON SEVERAL COUNTS AT PAGE-5 OF THE WRITTEN SUBMISSION FILED BEFORE THE DRP ON 4.12.2015. THE SPECIAL BENCH OF THE HONBLE TRIBUNAL IN THE CASE OF DCIT V. QUARK SYSTEMS (P.) LTD. ( [2010] 38 SOT 307 (CHD.) (SB)) HAS HELD THAT AN ASSESSEE CANNOT BE PRECLUDED FROM SEEKING EXCLUSION OF A COMPANY SELECTED BY IT IN ITS TP STUDY, WHEN THE COMPANY IS OTHERWISE N OT COMPARABLE TO THE ASSESSEE. WE THEREFORE REJECT THAT ARGUMENT OF THE LEARNED DR IN THIS REGARD. 15. WE DIRECT THE TPO TO COMPUTE THE ALP IN ACCORDA NCE WITH THE DIRECTIONS CONTAINED IN THIS ORDER AND ALLOW WORKIN G CAPITAL ADJUSTMENT AFTER EXAMINATION OF THE CLAIM OF THE ASSESSEE IN THIS RE GARD IN THE TP STUDY AND ALLOW OPPORTUNITY OF BEING HEARD BEFORE DECIDING ON THE QUANTUM OF ADJUSTMENT TO BE GIVEN ON ACCOUNT OF WORKING CAPITA L ADJUSTMENT. 16. NO OTHER GROUNDS WERE PRESSED FOR ADJUDICATION IN THE MSS SEGMENT. IT(TP)A NO.497/BANG/2016 PAGE 11 OF 11 17. IN THE RESULT, APPEAL BY THE ASSESSEE IS PARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON THIS 4 TH DAY OF SEPTEMBER, 2020. SD/- SD/- ( B R BASKARAN ) ( N V VASUDEVAN ) ACCOUNTANT MEMBER VICE PRESIDENT BANGALORE, DATED, THE 4 TH SEPTEMBER, 2020. / DESAI S MURTHY / COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. BY ORDER ASSISTANT REGISTRAR ITAT, BANGALORE.