Appeal details
Counselvise Citation
[2016] 131 COUNSELVISE.COM (IT) 0355 (ITAT-PUNE)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
3 year(s) 7 month(s) 13 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
14-12-2016
Appeal Filed By
Department
Order Result
Dismissed
Bench Allotted
B
Next Hearing Date
18-08-2016
Assessment Year
2005-2006
Appeal Filed On
01-05-2013
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, PUN E , , !'!! # , $ % BEFORE SHRI R.K. PANDA, AM AND SHRI VIKAS AWASTHY, JM / ITA NO. 945/PN/2013 $& ' !(' / ASSESSMENT YEAR : 2005-06 DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 4, PUNE ....... / APPELLANT )& /VS. PTC SOFTWARE INDIA PVT. LTD., SURVEY NO. 15, MARISOFT-II, VADGAONSHERI, KALYANI NAGAR, PUNE 411014 PAN : AABCC1268J / RESPONDENT ASSESSEE BY : DR. RAKESH GUPTA WITH SHRI ROSHAN REVENUE BY : SHRI SUHAS S. KULKARNI / DATE OF HEARING : 03-10-2016 / DATE OF PRONOUNCEMENT : 14-12-2016 * / ORDER PER VIKAS AWASTHY, JM : THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS)-IT/TP, PUNE DATED 22 -02-2013 FOR THE ASSESSMENT YEAR 2005-06. 2 ITA NO. 945/PN/2013, A.Y. 2005-06 2. THE REVENUE HAS RAISED FOLLOWING GROUNDS OF APPEAL ASS AILING THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) : (1) THE LEARNED COMMISSIONER OF INCOME-TAX (APPEAL S) ERRED IN DELETING THE ADJUSTMENT MADE TO THE VALUE OF INTERNA TIONAL TRANSACTIONS OF BOTH THE SEGMENTS I.E. INFORMATION TECHNOLOGY SERVICES AND INFORMATION TECHNOLOGY ENABLED SERVICE S. (2) THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS ) ERRED IN EXCLUDING COMPANIES HAVING PROFIT MORE THAN 75% FRO M THE LIST OF COMPARABLES IN IT SEGMENT AND ITES SEGMENT WITHOUT APPRECIATING THE FACT THAT ONCE A COMPANY IS FOUND TO BE COMPARABLE TAKING INTO CONSIDERATION THE FUNCTIONS ASSETS AND RISKS (FAR) THERE IS NO APPARENT REASON TO EXCLUDE SUCH COMPANIES ON ACCOUNT OF HIGH MARGINS AND THERE IS NO DEFINITI ON UNDER THE ACT ABOUT SUPER NORMAL PROFIT. (3) THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS ) ERRED IN EXCLUDING VISHAL INFORMATION TECHNOLOGIES LTD. FROM THE LIST OF COMPARABLE COMPANIES CITING THE CASE OF MAPRO INDUS TRIES LTD. WITHOUT APPRECIATING THE FACT THAT THE MAPRO INDUST RIES LTD. WAS EXCLUDED FROM THE LIST OF COMPARABLES ON ACCOUNT OF MULTIPLE REASONS. (4) THE APPELLANT CRAVES LEAVE TO ADD, ALTER OR AME ND ANY OR ALL THE GROUNDS OF APPEAL. 3. THE BRIEF FACTS OF THE CASE AS EMANATING FROM RECORDS ARE: THE ASSESSEE IS A WHOLLY OWNED SUBSIDIARY OF PARAMETRIC TECHN OLOGY CORPORATION, US. THE ASSESSEE IS ENGAGED IN PROVIDING INFO RMATION TECHNOLOGY (IT) SERVICES AND INFORMATION TECHNOLOGY ENABLE D SERVICES (ITES) TO ITS PARENT COMPANY IN USA. THUS, THE ASSESSEE IS A CAPTIVE SERVICE PROVIDER OF ITS HOLDING COMPANY. TWO UNITS OF THE A SSESSEE COMPANY ARE REGISTERED UNDER THE SOFTWARE TECHNOLOGY P ARK (STP) SCHEME AS 100% EXPORT ORIENTED UNIT. THE ASSESSEE APP LIED TRANSACTIONAL NET MARGIN METHOD (TNMM) AS THE MOST APPR OPRIATE 3 ITA NO. 945/PN/2013, A.Y. 2005-06 METHOD FOR BENCHMARKING INTERNATIONAL TRANSACTION WITH ITS AE. THE ASSESSEE ADOPTED OP/TC AS PROFIT LEVEL INDICATOR (PLI). THE PLI OF THE ASSESSEE FOR THE ASSESSMENT YEAR 2005-06 IS 14.76% FOR IT SEGME NT AND 14% FOR ITES SEGMENT. THE ASSESSEE IN TP STUDY ORIGINALL Y SELECTED 87 COMPARABLES UNDER IT SEGMENT. THE TPO ACCEPTED 48 CO MPANIES AS COMPARABLES. THE TPO REJECTED SOME OF THE COMPANIES FRO M THE LIST OF COMPARABLES FURNISHED BY THE ASSESSEE PRIMARILY ON TWO G ROUNDS, EITHER THE DATA WAS NOT AVAILABLE WITH THE TPO OR THE CO MPANIES WERE FUNCTIONALLY DIFFERENT. SIMILARLY, IN RESPECT OF ITES SEGMENT T HE ASSESSEE SELECTED 22 COMPANIES AS COMPARABLES IN TP STU DY AND THE TPO ACCEPTED 16 COMPANIES AS COMPARABLES AND DELETED T HE REMAINING COMPANIES EITHER ON THE GROUND OF FUNCTIONAL DIFFERENCE OR O N ACCOUNT OF NON-AVAILABILITY OF DATA. AS REGARDS THE METHOD APPLIED B Y THE ASSESSEE FOR DETERMINING ARMS LENGTH PRICE (ALP) THE TPO ACCEPTED TNMM AS MOST APPROPRIATE METHOD APPLIED BY THE ASSESS EE. THE TPO DETERMINED PLI OF THE COMPARABLES AS 29.05% FOR IT SERVIC ES AND 36.67% FOR ITES. ACCORDINGLY, THE TPO MADE ADJUSTMENT OF ` 7,97,97,106/- IN COMPUTING ALP FOR IT SEGMENT AND ` 1,05,12,011/- FOR ITES SEGMENT. ON THE BASIS OF ORDER OF TRANSFER PRICIN G OFFICER (TPO) U/S. 92CA(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTE R REFERRED TO AS THE ACT) THE ASSESSING OFFICER MADE ADDITION OF ` 9,03,09,117/- IN THE INCOME RETURNED BY THE ASSESSEE. AGGRIEVED BY THE ASSESSMENT ORDER DATED 06-12-2008 P ASSED U/S. 143(3) R.W.S. 92CA(4) OF THE ACT, THE ASSESSEE CARRIED THE M ATTER IN APPEAL BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS) ASSA ILING THE ACTION OF TPO INTER ALIA REJECTING TRANSFER PRICING DOCUMENT ATION FOR IT AND ITES SEGMENT. 4 ITA NO. 945/PN/2013, A.Y. 2005-06 3.1 THE ASSESSEE RAISED VARIOUS PLEAS BEFORE THE COMMISS IONER OF INCOME TAX (APPEALS). ONE OF THE PLEA BEFORE COMMISSIONER OF INCOME TAX (APPEALS) WAS THAT THE TPO HAS REJECTED SOME OF THE COMPANIES FROM THE LIST OF COMPARABLES IN IT SEGMENT BEING LOSS MAKING COMPANIES. THE CONTENTION OF THE ASSESSEE WAS THAT THE TPO SHOULD HAVE REJECTED COMPANIES EARNING SUPER NORMAL PROFITS SO AS TO ARRIVE AT REALISTIC RESULTS. SIMILARLY, IN RESPECT OF ITES SEGMENT THE ASSESSEE ASSAILED EXCLUSION OF COMPANIES EARNING SUPER NORMAL PROFITS FROM THE LIST OF COMPARABLES. THE COMMISSIONER OF INCOME TAX (APPEALS ) ACCEPTED THE CONTENTIONS OF THE ASSESSEE AND EXCLUDED COMPANIES EARNING SUPER NORMAL PROFITS FROM THE LIST OF COMPARABLES U NDER IT SEGMENT AND ITES SEGMENT. AGAINST THE FINDINGS OF COMMIS SIONER OF INCOME TAX (APPEALS), THE DEPARTMENT IS IN APPEAL BEFORE THE TRIBUNA L. 4. SHRI SUHAS S. KULKARNI REPRESENTING THE DEPARTMENT SU BMITTED THAT THE ASSESSEE COMPANY HAD APPLIED FOLLOWING FILTERS/CRITE RIA FOR SELECTING THE COMPANIES AS COMPARABLES : I. COMPANIES WHICH ARE FUNCTIONALLY DIFFERENT; II. COMPANIES INCURRING LOSSES DURING F.Y. 2004-05; III. COMPANIES HAVING RELATED PARTY TRANSACTIONS; IV. COMPANIES WITH SALES < ` 1 CRORE; V. COMPANIES HAVING SMALLER ASSET BASE AS COMPARED TO THE ASSET BASE OF THE ASSESSEE; VI. COMPANIES EARNING INCOME FROM DOMESTIC OPERATIONS; VII. COMPANIES WITH NEGATIVE NET WORTH; VIII. COMPANIES OWNING INTELLECTUAL PROPERTY; IX. COMPANIES NOT SERVING THE GEOGRAPHIC MARKETS SIMILAR TO T HOSE SERVED BY THE ASSESSEE; 5 ITA NO. 945/PN/2013, A.Y. 2005-06 X. COMPANIES FOR WHICH DATA FOR F.Y. 2004-05 WAS NOT AVAILABLE. 4.1 THE TPO DID NOT APPLY ANY NEW FILTER FOR EXCLUDING THE COMPANIES FROM THE LIST OF COMPARABLES. THE TPO REJECTED THE COMPA NIES ONLY ON THE BASIS OF FILTERS APPLIED BY THE ASSESSEE. FURTHER, THE TPO DID NOT SELECT ANY NEW COMPANY IN THE LIST OF COMPARABLES. SIMILARLY , IN ITES SEGMENT THE TPO NEITHER APPLIED NEW FILTER NOR SELECTED NE W COMPANIES FOR COMPARISON. THE TPO VIDE DETAILED AND WELL REASONED OR DER HAS REJECTED THE COMPANIES EITHER DUE TO NON-AVAILABILITY OF DA TA OR ON ACCOUNT OF FUNCTIONAL DIFFERENCES. HOWEVER, THE COMMISSIONE R OF INCOME TAX (APPEALS) HAS ERRED IN REJECTING HIGH PROFIT MAK ING COMPANIES IN AN UNJUSTIFIED MANNER. THERE IS NO DEFINITION O F SUPER NORMAL PROFITS UNDER THE ACT. THE COMMISSIONER OF INCOME TAX (APPEALS) HAS FAILED TO TAKE INTO CONSIDERATION THAT THE CO MPANIES REJECTED ON THE GROUND OF SUPER NORMAL PROFITS WERE IN FA CT INCLUDED IN THE LIST OF COMPARABLES BY THE ASSESSEE. SIMILARLY, IN THE C ASE OF ITES SEGMENT THE COMMISSIONER OF INCOME TAX (APPEALS) HAS DIRE CTED TO EXCLUDE CERTAIN COMPANIES FROM THE LIST OF COMPARABLES ON T HE GROUND OF SUPER NORMAL PROFITS WHEREAS THE SAID COMPANIES WERE SELECTED BY THE ASSESSEE IN TP STUDY. THE LD. DR VEHEMENTLY SUPPOR TED THE FINDINGS OF TPO AND PRAYED FOR SETTING ASIDE THE IMPUGNED O RDER PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS). 5. PER CONTRA, DR. RAKESH GUPTA WITH SHRI ROSHAN APPEAR ING ON BEHALF OF THE ASSESSEE VEHEMENTLY DEFENDED THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) IN REJECTING THE COMPANIES HAVING S UPER NORMAL PROFITS. THE LD. AR SUBMITTED THAT THE COMMISSIONER OF INCOME 6 ITA NO. 945/PN/2013, A.Y. 2005-06 TAX (APPEALS) HAS EXCLUDED 4 COMPANIES FROM THE LIST OF COMP ARABLES UNDER IT SEGMENT AND 2 COMPANIES FROM ITES SEGMENT. THE COMP ANIES REJECTED BY THE COMMISSIONER OF INCOME TAX (APPEALS) FOR THE REASON THAT THE COMPANIES HAVE SUPER NORMAL PROFITS UNDER IT SEGMENT AR E : NAME OF THE COMPANY OP/TC CONTINENTAL CONTROLS LTD. (SOFTWARE DIVISION) 222.22% TANLA SOLUTIONS LTD. 171.76% GEODESIC INFORMATION SYSTEMS LTD. 95.24% ONE COMPANY TRIDENT INFOTECH CORPORATION LIMITED WAS EXC LUDED FROM THE LIST OF COMPARABLES BY COMMISSIONER OF INCOME TAX (APPEALS) ON ACCOUNT OF VERY HIGH RATE OF RELATED PARTY TRANSACTIO N I.E. 89.53%. THE LD. AR CONTENDED THAT APART FROM SUPER NORMAL PROFIT COMPANIES, THE AFORESAID COMPANIES FAIL ON OTHER CRITERION/FILTERS APPLIED BY THE ASSESSEE. THE TPO IN SHOW CAUSE NOTICE HAS SUMMARIZED THE SAME BUT WHILE PASSING THE ORDER HAS RESORTED TO CHERRY PICKING IN REJECTING/SELECTING THE COMPANIES IN THE FINAL LIST OF COMPARABLES. 5.1 THE LD. AR SUBMITTED THAT CONTINENTAL CONTROLS LIMITED (S OFTWARE DIVISION) HAD TURNOVER OF ` 29 LAKHS IN FINANCIAL YEAR 2004-05. SINCE, THE TURNOVER OF THE COMPANY WAS LESS THAN ` 1 CRORE THE COMPANY FAILED IN TURNOVER FILTER APPLIED BY THE ASSESSEE. THE LD. AR REFE RRED TO ORDER OF TPO TO SHOW THAT THE TPO HAS REJECTED CHOICE INTER NATIONAL LTD. AND SAT INVESTECK LTD. FROM THE LIST OF COMPARABLES BY APPLY ING TURNOVER FILTER, AS BOTH THE COMPANIES HAVE SALES/TURNOVER LESS THA N ` 1 CRORE. THE LD. AR FURTHER POINTED THAT THE COMPANY CONTINENTAL C ONTROLS LTD. HAD SUPER NORMAL PROFITS DURING FINANCIAL YEARS 2004-05, 200 5-06 AND 7 ITA NO. 945/PN/2013, A.Y. 2005-06 2006-07 AS THE COMPANY HAS EARNED PROFITS OF 222.22%, 1 70% AND 70%, RESPECTIVELY. 5.2 IN RESPECT OF TANLA SOLUTIONS LTD. THE LD. AR SUBMITTED THAT THE SAID COMPANY APART FROM HAVING ABNORMAL HIGH PROFITS IS ALSO FUNCTIONALLY DIFFERENT. THE SAID COMPANY IS ENGAGED IN PRODU CT DEVELOPMENT. THE LD. AR REFERRED TO ANNUAL REPORT OF THE SAID COMPANY AT PAGE 266 OF THE PAPER BOOK TO SHOW THE PRODUCTS D EVELOPED BY THE COMPANY. TANLA SOLUTIONS LTD. IS ENGAGED IN SOFTWARE PRODU CTS. THE PRODUCT RANGE INCLUDES SHORT MESSAGE SERVICE CENTRE PLA TFORM, GSM- CDMA GATEWAY, CDMA SMSC, VOICE MAIL SERVICE, CALLER RING BAC K TONES, AUTOMATED METER READING AND MAXIM - WORK FORCE MANAGEMENT PRODUCT. THE LD. AR CONTENDED THAT TANLA SO LUTIONS LTD. IS ALSO LIABLE TO BE REJECTED ON THE GROUND OF SMALLER ASSE T BASE AS COMPARED TO THE ASSET BASE OF THE ASSESSEE. ONE OF T HE FILTERS APPLIED BY THE ASSESSEE FOR REJECTING THE COMPARABLES IS SMALLER ASSET BASE. THE ASSET BASE OF THE ASSESSEE IS ` 33 CRORES, WHEREAS THE ASSET BASE OF TANLA SOLUTIONS LTD. IS MERELY ` 2.60 CRORES. THE LD. AR FURTHER POINTED THAT THE TPO EXCLUDED ZENITH GLOBAL CONSULTANTS LTD. FROM THE LIST OF COMPARABLES ON ACCOUNT OF LOW ASSET BASE. THE LD. AR FURT HER POINTED THAT THERE WERE EXTRAORDINARY EVENTS VIZ. ACQUISITIONS BY TANLA SOLUTIONS LTD. DURING THE FINANCIAL YEAR UNDER CONSIDERATION. THE COMPANY HAD ACQUIRED 100% STAKE IN SMARTNET COMMUNICAT ION SYSTEMS PRIVATE LIMITED AND TECHSERV TELESERVICES (UK) LTD . WHERE SUCH EXTRAORDINARY EVENTS HAVE TAKEN PLACE SUCH COMPA NIES ARE TO BE EXCLUDED FROM THE LIST OF COMPARABLES. IN SUPPORT OF HIS S UBMISSIONS THE LD. AR PLACED RELIANCE ON THE FOLLOWING DECISIONS OF THE TRIBUNAL : 8 ITA NO. 945/PN/2013, A.Y. 2005-06 I. CUMMINS TURBO TECHNOLOGIES LTD., UK VS. DY. DIRECTOR OF INCOM E TAX IN ITA NO. 784/PN/2014 FOR ASSESSMENT YEAR 2009-10 DECIDED ON 30-03-2016; II. PETRO ARALDITE PVT. LTD. VS. DY. CIT IN ITA NO. 6217/MUM/2 012 FOR ASSESSMENT YEAR 2008-09 DECIDED ON 18-01-2013; III. BNY MELTON INTERNATIONAL OPERATIONS (INDIA) PVT. LTD. VS. ACI T IN ITA NO. 2380/PN/2012 FOR ASSESSMENT YEAR 2008-09 DECID ED ON 10-10-2014. 5.3 IN RESPECT OF GEODESIC INFORMATION SYSTEMS LTD. THE LD. AR SUBMITTED THAT THE SAID COMPANY APART FROM HAVING ABNO RMAL PROFITS IS FUNCTIONALLY DIFFERENT. THE SAID COMPANY IS ENGAGED IN PRODU CT DEVELOPMENT. THE COMPANY HAS DEVELOPED VARIOUS SOFTWAR ES LIKE MUNDU WEB CONTENT AGGREGATOR, MUNDU INTERNET RADIO FOR THE PALM, MUNDU UNIVERSAL INSTANT MESSENGER FOR PALM DEVISES ETC. I N SUPPORT OF HIS CONTENTIONS THE LD. AR REFERRED TO ANNUAL REPORT OF T HE COMPANY FOR FINANCIAL YEAR 2004-05 AT PAGE 308 OF THE PAPER BOOK. TH E LD. AR FURTHER REFERRED TO THE FINANCIAL RESULTS OF THE COMPANY AT PAGE 362 OF THE PAPER BOOK. REFERRING TO SCHEDULE 9, THE LD. AR POINTE D THAT THE COMPANY HAS INCOME FROM PRODUCTS AND SERVICES. HOWEVER , THERE IS NO SEGMENTAL DIVISION OF PRODUCT INCOME AND INCOME FROM SERVICES. 5.4 IN RESPECT OF TRIDENT INFOTECH CORPORATION LIMITED TH E LD. AR POINTED THAT THE SAID COMPANY IS HAVING RELATED PARTY T RANSACTIONS TO THE TUNE OF 89.53% ALMOST ENTIRE SALE OF THE COMPANY IS M ADE TO THE RELATED PARTY M/S. ABHISHEK INDUSTRIES LTD. THEREFORE, TH E COMPANY FAILS IN RPT FILTER. 9 ITA NO. 945/PN/2013, A.Y. 2005-06 6. IN RESPECT OF ITES SEGMENT THE LD. AR SUBMITTED THAT THE COMMISSIONER OF INCOME TAX (APPEALS) HAS EXCLUDED FOLLOWING COMPANIES FROM THE LIST OF COMPARABLES : I. ULTRAMARINE & PIGMENTS LIMITED AND II. VISHAL INFORMATION TECHNOLOGIES LIMITED. 6.1 IN RESPECT OF ULTRAMARINE & PIGMENTS LIMITED, THE LD. AR POINTED THAT THE SAID COMPANY IS SUPER MAKING PROFIT COMPANY. DU RING THE FINANCIAL YEARS 2004-05, 2005-06 AND 2006-07 THE COMPANY HAS EARNED SUPER PROFITS OF 155.77%, 92.40% AND 108.06%, RESPEC TIVELY. IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2006-07, THE TRIBUNAL IN ITA NO. 1346/PN/2010 DECIDED ON 30-04-2013 HAS REJECTED T HE COMPANY ON THE GROUND OF FUNCTIONAL DISPARITY. THUS, THE COMPANY IS LIABLE TO BE EXCLUDED FROM THE LIST OF COMPARABLES ON ACCOUNT OF FUNCTION AL DIFFERENCE AND ABNORMAL SUPER PROFITS. 6.2 IN RESPECT OF VISHAL INFORMATION TECHNOLOGIES LTD. THE LD. AR POINTED THAT THE TRIBUNAL IN ASSESSEES OWN CASE FOR AS SESSMENT YEAR 2006-07 HAS REJECTED VISHAL INFORMATION TECHNOLOGIES LTD. ON ACCOUNT OF FUNCTIONAL TEST. AGAIN IN ASSESSMENT YEAR 2007-08 IN AS SESSEES OWN CASE IN ITA NO. 1605/PN/2011, THE CO-ORDINATE BENCH OF T HE TRIBUNAL HAS EXCLUDED VISHAL INFORMATION TECHNOLOGIES LTD. FROM THE LIS T OF COMPARABLES ON ACCOUNT OF FUNCTIONAL DIFFERENCE. 7. THE LD. AR SUBMITTED THAT ALTHOUGH THESE COMPANIES W ERE INITIALLY SELECTED BY THE ASSESSEE AT THE TIME OF TP STUDY . HOWEVER, THERE IS NO ESTOPPEL THAT THESE COMPANIES CANNOT BE EX CLUDED FROM THE LIST OF COMPARABLES EVEN IF THEY ARE NOT SUITABLE. THERE IS NO RESTRICTION 10 ITA NO. 945/PN/2013, A.Y. 2005-06 IN EXCLUDING SUCH COMPANIES WHICH WERE ONCE SELECTED BY T HE ASSESSEE AT THE TIME OF TP STUDY. IN SUPPORT OF HIS SUBMISSIONS TH E LD. AR PLACED RELIANCE ON THE DECISION OF SPECIAL BENCH OF THE TRIB UNAL IN THE CASE OF DCIT VS. QUARK SYSTEMS LTD. REPORTED AS 132 TT J 1 : 30 SOT 307. 8. REBUTTING THE SUBMISSIONS MADE BY THE LD. AR, THE LD. DR SUBMITTED THAT THERE ARE SOME OTHER COMPANIES IN THE FI NAL LIST OF COMPARABLES WHICH ARE PRODUCT DEVELOPMENT COMPANIES AND AS SUCH HAVE TO BE EXCLUDED FROM THE LIST OF COMPARABLES. SINCE, TH E ASSESSEE HAS AGREED FOR EXCLUSION OF PRODUCT DEVELOPMENT COMPANIES SUCH COMPANIES SHOULD ALSO BE EXCLUDED FROM THE LIST OF COMPARAB LES. THE CASE MAY BE REMITTED BACK TO ASSESSING OFFICER FOR RE-APPRECIATION. 9. WE HAVE HEARD THE SUBMISSIONS MADE BY THE REPRESEN TATIVES OF RIVAL SIDES AT LENGTH AND HAVE PERUSED THE ORDERS OF THE AUTHORITIES BELOW. THE ASSESSEE IS ENGAGED IN PROVIDING IT SERVICES AND ITES. THE ASSESSEE IS PROVIDING ITS SERVICES UNDER BOTH THE SEGME NTS TO ITS HOLDING COMPANY PTC, USA ONLY. UNDISPUTEDLY, THE ASSESSE E SELECTED 87 COMPANIES AS COMPARABLES UNDER IT SEGMENT AND 22 C OMPANIES AS COMPARABLES UNDER ITES SEGMENT. DURING THE COURSE OF A SSESSMENT PROCEEDINGS THE TPO HAS REJECTED SOME OF THE COMPANIES FROM THE LIS T OF COMPARABLES ON ACCOUNT OF PRODUCT DIFFERENCE, LOSS MAKING COMPANIES AND THE COMPANIES FOR WHICH THE DATA IS NOT AVAILABLE. WITH EXCLUSION OF CERTAIN COMPANIES, THE MEAN PLI OF THE COMPARABLES INCR EASED FROM 14.76% TO 29.05% IN IT SEGMENT AND FROM 14% TO 36.67% IN ITES SEGMENT. WITH THE RESULT OF CHANGE IN PLI OF THE COMPA RABLES THERE WAS UPWARD ADJUSTMENT OF ` 9,03,09,117/- ( ` 7,97,97,106/-+ ` 1,05,12,011/-) 11 ITA NO. 945/PN/2013, A.Y. 2005-06 IN THE INTERNATIONAL TRANSACTIONS OF THE ASSESSEE. DURING FIRST APPELLATE PROCEEDINGS, THE ASSESSEE PRAYED FOR EXCLUDING SOME MORE COMPANIES FROM THE LIST OF COMPARABLES ON ACCOUNT OF SUPER NORMAL PR OFITS UNDER IT AND ITES SEGMENT. THE COMMISSIONER OF INCOME TAX (APPEALS) EXCLUDED CONTINENT AL CONTROLS LIMITED (SOFTWARE DIVISION), TANLA SOLUTIONS LIMITED, GEOD ESIC INFORMATION SYSTEMS LIMITED AND TRIDENT INFOTECH CORPORAT ION LIMITED FROM THE LIST OF COMPARABLES IN IT SEGMENT. ULTRAMARINE & PIGMENTS LIMITED AND VISHAL INFORMATION TECHNOLOGIES LIMITED IN ITES SE GMENT. THE DEPARTMENT HAS OBJECTED TO EXCLUSION OF SAID COMPAN IES FROM THE LIST OF COMPARABLES ON THE GROUND THAT THESE COMPARABLES WERE SELECTED BY THE ASSESSEE DURING TP STUDY. THE TPO HAS NOT APP LIED ANY NEW FILTER OR HAS NOT SELECTED ANY NEW COMPANY IN THE FINAL LIST OF COMPARABLES. THE LD. DR HAS FURTHER OBJECTED TO THE FINDIN GS OF COMMISSIONER OF INCOME TAX (APPEALS) IN EXCLUDING THE COMPA NIES ON THE GROUND THAT IF HIGH PROFIT MAKING COMPANIES HAVE BEEN REMOVED FROM THE LIST OF COMPARABLES THEREFORE LOSS MAKING COMPANIES SHOULD ALSO BE REMOVED FROM THE LIST OF COMPARABLES. IT HAS BEE N CONTENDED THAT THE COMPANIES WHICH ARE CONSISTENT LOSS MAKING COMPANIES SH OULD BE REMOVED FROM THE LIST OF COMPARABLES. THEREFORE, AS SUC H THERE IS NO PARITY FOR REMOVAL OF COMPANY FROM THE LIST OF COMPARABLES B ETWEEN COMPANIES HAVING ABNORMAL HIGH PROFITS AND LOSS MAKING COMPANIES. 10. WE FIND THAT THE COMMISSIONER OF INCOME TAX (APPEALS) HAS EXCLUDED 4 COMPANIES I.E. CONTINENTAL CONTROLS LIMITED (SOFTWAR E DIVISION), TANLA SOLUTIONS LIMITED, GEODESIC INFORMATION SYSTEMS LIMITED AND TRIDENT INFOTECH CORPORATION LIMITED FROM THE LIS T OF 12 ITA NO. 945/PN/2013, A.Y. 2005-06 COMPARABLES ON ACCOUNT OF SUPER NORMAL PROFIT MAKING COM PANIES. TRIDENT INFOTECH CORPORATION LIMITED HAS BEEN EXCLUDED FRO M THE LIST OF COMPARABLES ON ACCOUNT OF RELATED PARTY TRANSACTIONS. T HE LD. AR OF THE ASSESSEE POINTED THAT THE SAID COMPANIES WERE NOT ONLY LIABLE TO BE EXCLUDED FROM THE LIST OF COMPARABLES ON ACCOUNT OF HIGH PR OFIT BUT ALSO ON ACCOUNT OF OTHER FACTORS SUCH AS PRODUCT DIFFERENCE, LO W ASSET BASE, EXTRAORDINARY EVENTS, TURNOVER FILTER, ETC. THE ASSESSEE FOR SELECTION OF COMPANIES AS COMPARABLES HAS APPLIED CERTAIN FILTER/CRITERIA WHICH INTER ALIA INCLUDES; (I) FUNCTIONAL DIFFERENCE; (II) LOSS MAKING ENTITY DURING FINANCIAL YEAR 2004-05; (III) RELATED PARTY TRANSACTIONS; (IV) TURNOVER FILTER OF LESS THAN ` 1 CRORE, AND (V) ASSET BASE FILTER. THE COMPANIES WHICH HAVE BEEN REJECTED BY THE COMMISS IONER OF INCOME TAX (APPEALS) FROM THE LIST OF COMPARABLES, IF TESTED A GAINST AFORESAID FILTERS, WE OBSERVE THAT THEY FAIL UNDER ONE CRITER IA OR THE OTHER. 11. CONTINENTAL CONTROLS LIMITED (SOFTWARE DIVISION) : THE SAID COMPANY IS HAVING TURNOVER OF 29 LAKHS (UNDER SOFTWARE SE GMENT) DURING FINANCIAL YEAR 2004-05. THUS, THE COMPANY FAILS TO Q UALIFY TURNOVER FILTER. APART FROM THAT THE COMPANY HAS EARNED HUGE PROFIT OF 222.22% DURING FINANCIAL YEAR 2004-05. UNDER SUCH CIRCUMST ANCES WE ARE OF THE CONSIDERED VIEW THAT CONTINENTAL CONTROLS LIMITE D HAS BEEN RIGHTLY EXCLUDED FROM THE LIST OF COMPARABLES BY THE COMM ISSIONER OF INCOME TAX (APPEALS). 13 ITA NO. 945/PN/2013, A.Y. 2005-06 12. TANLA SOLUTIONS LTD. : THE SAID COMPANY IS ENGAGED IN PRODUCT DEVELOPMENT APART FROM RENDERING IT SERVICES. A PERUSA L OF ANNUAL REPORT OF THE COMPANY FOR FINANCIAL YEAR 2004-05 AT PAGE 248 OF THE PAPER BOOK SHOWS THAT THE COMPANY HAS DEVELOPED VARIO US PRODUCTS SUCH AS SHORT MESSAGE SERVICE CENTRE PLATFORM, GSM-CDMA GATEWAY, CDMA SMSC, VOICE MAIL SERVICE, CALLER RING BACK TONES, AUTOMA TED METER READING AND MAXIM - WORK FORCE MANAGEMENT PROD UCT. THE SAID COMPANY IS FUNCTIONALLY DIFFERENT FROM THE ASSESSEE. I T HAS ALSO BEEN POINTED THAT DURING FINANCIAL YEAR 2004-05 THE COMPA NY HAS ACQUIRED TWO COMPANIES I.E. SMARTNET COMMUNICATION SYSTEMS PRIVATE LIMITED AND TECHSERV TELESERVICES (UK) LIMITED. SUCH ACQUISIT IONS ALSO RESULT IN ABERRATIONS OF THE FINANCIAL RESULTS OF THE COMPANY. THE LD . AR OF THE ASSESSEE HAS POINTED THAT DURING THE FINANCIAL YEAR S 2003-04, 2004-05 AND 2005-06 THE COMPANY HAS SUBSTANTIALLY HIG H OPERATING PROFIT RATIO I.E. 101.76%, 171.76% AND 194.87%, RESPECTIVELY. THUS, UNDER SUCH CIRCUMSTANCES THE COMPANY CANNOT BE CONSID ERED AS GOOD COMPARABLE. THE CO-ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF M/S. CUMMINS TURBO TECHNOLOGIES LTD., UK (SUPRA) HAS HELD THAT COMPANY HAVING EXTRAORDINARY CIRCUMSTANCES SUCH AS AMALGAMATION SHOULD BE EXCLUDED FROM THE FINAL LIST OF COMPARABLES. SIMILAR VIEW HAS B EEN TAKEN BY THE TRIBUNAL IN VARIOUS OTHER CASES. THEREFORE, WE CONCUR WITH THE VIEW OF COMMISSIONER OF INCOME TAX (APPEALS) TO EXC LUDE THE COMPANY FROM LIST OF COMPARABLES. 13. GEODESIC INFORMATION SYSTEMS LTD. : THE SAID COMPANY IS ENGAGED IN PRODUCT DEVELOPMENT. THE COMPANY HAS DEVELO PED VARIOUS SOFTWARES LIKE MUNDU WEB CONTENT AGGREGATOR, MUNDU INTER NET RADIO FOR THE PALM, MUNDU UNIVERSAL INSTANT MESSENGER FOR PALM DEVISE S ETC. 14 ITA NO. 945/PN/2013, A.Y. 2005-06 THE LD. AR ALSO BROUGHT OUR ATTENTION TO THE FINANCIAL RESU LTS OF THE COMPANY FOR IN FINANCIAL YEAR 2004-05 AT PAGE 362 OF THE P APER BOOK. A PERUSAL OF SCHEDULE 9 GIVING THE DETAILS OF INCOME FROM OPE RATIONS SHOW THAT THE COMPANY IS HAVING INCOME FROM CONSULTANCY SERVICES AND PRODUCT SERVICES. HOWEVER, THERE IS NO FURTHER SEGMENT AL CLASSIFICATION OF THE INCOME. THUS, THE COMPANY IS LIABLE TO BE REJECTED ON FUNCTIONAL FILTER. FURTHER, THE TREND OF OPERATING PROFIT OF THE COMPAN Y DURING FINANCIAL YEARS 2003-04, 2004-05 AND 2005-06 SHOW THAT T HE COMPANY HAS EARNED HIGH MARGIN OF 85.85%, 95.24% AND 86.79%, RESPE CTIVELY. THEREFORE, FOR THE REASONS STATED ABOVE, WE ARE OF THE CONSIDERED VIEW THAT THE SAID COMPANY DOES NOT FIT IN THE PARAMETERS TO BE CONSIDERED AS GOOD COMPARABLE. 14. TRIDENT INFOTECH CORPORATION LIMITED : THE SAID COMPANY IS EXCLUDED FROM THE LIST OF COMPARABLES ON ACCOUNT OF HIGH RATIO OF RELATED PARTY TRANSACTIONS. THE SAID COMPANY HAS SUBSTANTIAL TR ANSACTION, TO THE TUNE OF 89.53% WITH RELATED PARTY M/S. ABHISHEK INDUS TRIES LTD. HENCE, THE COMPANY FAILS TO QUALIFY AS COMPARABLE ON ACCOU NT OF RPT FILTER. 15. UNDER ITES SEGMENT THE DEPARTMENT HAS ASSAILED EX CLUSION OF TWO COMPANIES VIZ. ULTRAMARINE & PIGMENTS LIMITED AND VISHA L INFORMATION TECHNOLOGIES LIMITED. A PERUSAL OF THE IMPUGNED ORDER SHOWS THAT THE COMMISSIONER OF INCOME TAX (APPEALS) HAS E XCLUDED ULTRAMARINE & PIGMENTS LIMITED ON ACCOUNT OF SUPER PROFIT M AKING COMPANY AS WELL AS BY APPLYING RPT FILTER. THE COMMISSIONER OF INCOME TAX (APPEALS) HAS POINTED THAT THE COMPANY IS HAV ING PLI OF 155.77%. FURTHER, THE COMPANY IS HAVING SUBSTANTIAL BUSINE SS WITH 15 ITA NO. 945/PN/2013, A.Y. 2005-06 DATAMATICS TECHNOLOGIES LIMITED (51.73%), HINDUJA TMT LIMITED (44.51%) AND TRICOM INDIA LIMITED (56.30%). SINCE, SUBSTANTIAL PA RT OF ASSESSEES TRANSACTIONS ARE WITH RELATED PARTIES, THE CO MPANY FAILS TO QUALIFY RPT FILTER. THE LD. AR HAS ALSO DRAWN OUR ATTENTION TO THE DECISION OF CO-ORDINATE BENCH OF THE TRIBUNAL IN ASSESSEE S OWN CASE IN ASSESSMENT YEAR 2006-07 IN ITA NO. 1346/PN/2010 DECIDE D ON 30-04-2013, WHEREIN THE COMPANY WAS EXCLUDED FROM THE LIS T OF COMPARABLES ON ACCOUNT OF FUNCTIONAL DISPARITY. THE RELEVAN T EXTRACT OF THE FINDINGS OF TRIBUNAL ARE AS UNDER : 20. THE LAST POINT MADE BY THE ASSESSEE IS WITH RE GARD TO THE INCLUSION OF M/S.ULTRA MARINE AND PIGMENTS LTD. (SE GMENT) FOR THE PURPOSES OF COMPARABILITY ANALYSIS. ON THIS ASPECT THE POINT MADE OUT BY THE ASSESSEE IS THAT THE SAID CONCERN IS FUNCTIO NALLY NON-COMPARABLE AS IT IS ENGAGED IN RENDERING ENGINEERING AND TECHN ICAL SERVICES IN ADDITION TO THE BUSINESS PROCESS OUTSOURCING (BPO) SERVICES. THE POINT MADE OUT BY THE ASSESSEE IS THAT THE ASSESSEES IT- ENABLED SERVICES SEGMENT IS ENGAGED IN RENDERING ROUTINE CUSTOMER SU PPORT SERVICES AND THE SAME CANNOT BE COMPARED WITH THE SPECIALIZED EN GINEERING AND TECHNICAL SERVICES BEING RENDERED BY THE SAID CONCE RN AS THE SAME CANNOT BE EQUATED. IN THIS CONNECTION, REFERENCE H AS BEEN MADE TO THE ANNUAL REPORT OF THE SAID CONCERN, A COPY OF WHICH HAS BEEN PLACED IN THE PAPER BOOK ALSO. IT WAS THEREFORE CONTENDED TH AT THE TPO WAS NOT JUSTIFIED IN INCLUDING THE SAID CONCERN FOR THE PUR POSES OF COMPARABILITY ANALYSIS. 21. THE LD. CIT(DR) APPEARING FOR THE REVENUE HAS R EFERRED TO THE DISCUSSION MADE BY THE TPO IN PARA 8.3.22 OF THE OR DER TO JUSTIFY THE INCLUSION OF THE SAID CONCERN AND IT IS SUBMITTED T HAT THE ACTIVITIES OF THE SAID CONCERN ARE IN THE OVERALL FILED OF IT-ENABLED SERVICES WHICH IS FUNCTIONALLY COMPARABLE TO THAT OF THE ASSESSEE. 22. IN OUR CONSIDERED OPINION, THE PRIME PURPOSE FO R CARRYING OUT THE COMPARABILITY ANALYSIS IS TO BENCHMARK THE INTERNAT IONAL TRANSACTIONS OF AN ASSESSEE WITH UNCONTROLLED TRANSACTIONS WHICH HA VE TAKEN PLACE BETWEEN UNRELATED PARTIES IN SIMILAR CIRCUMSTANCES. WHILE IT WOULD BE CORRECT TO ASSERT THAT IT IS DIFFICULT TO BRING OUT IDENTICAL SITUATIONS LIKE A 16 ITA NO. 945/PN/2013, A.Y. 2005-06 MIRROR IMAGE, SO HOWEVER, WHILE SELECTING COMPARABL ES REGARD SHOULD BE MADE FOR THE QUALITATIVE DIFFERENCES BETWEEN THE TE STED PARTY AND THE COMPARABLES SELECTED. IN THE PRESENT CASE, AS POIN TED OUT BY THE ASSESSEE, THE CALL CENTRE SERVICES RENDERED IN ITS IT-ENABLED SERVICES SEGMENT INVOLVE PROVISION OF ROUTINE BACK OFFICE SE RVICES TO THE CUSTOMERS OF PTC USA. THE SUPPORT SERVICES INVOLVE RESPONDIN G TO CUSTOMER NEEDS AS PER THE INSTRUCTIONS PROVIDED FROM TIME TO TIME BY PTC USA. QUITE CLEARLY, SO FAR AS THE IT-ENABLED SERVICES SEGMENT OF M/S.ULTRA MARINE AND PIGMENTS IS CONCERNED, AS PER THE ANNUAL REPO RT FOR THE RELEVANT FINANCIAL YEAR, IT IS EMERGING THAT IT IS ALSO ENGA GED IN PROVIDING ENGINEERING SERVICES TO ELITE OVERSEAS AND DOMESTIC CUSTOMERS. THE PROVIDING OF ENGINEERING SERVICES TO ELITE CUSTOMER S, INVOLVE A MUCH QUALITATIVELY HIGHER LEVEL OF HUMAN RESOURCES AND, THEREFORE, SAID ACTIVITY WOULD STAND ON A QUALITATIVELY DIFFERENT PLATFORM T HAT THE ROUTINE BACK-OFFICE SERVICES RENDERED BY THE ASSESSEE IN IT S IT-ENABLED SERVICES SEGMENT. THEREFORE, THE MARGINS OF THE TWO CONCERN S CANNOT BE SAID TO BE COMPARABLE AND, THEREFORE, IN OUR VIEW THE ASSES SEE IS CORRECT IN ASSERTING THAT THE SAID CONCERN BE EXCLUDED FOR THE PURPOSES OF CARRYING OUT COMPARABILITY ANALYSIS. THUS, IN VIEW OF THE FORGOING REASONS, WE DO NOT FIND ANY INFIR MITY IN THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) IN EXC LUDING ULTRAMARINE & PIGMENTS LIMITED FROM THE LIST OF COMPARABLES. 16. THE COMMISSIONER OF INCOME TAX (APPEALS) HAS EXCLUDED VISHAL INFORMATION TECHNOLOGIES LTD. ON ACCOUNT OF SMALL ASSET BAS E. THE SAID COMPANY IS HAVING FIXED ASSETS BASE OF ` 2.54 CRORES AS AGAINST ` 10.93 CRORES OF THE ASSESSEE. WE FIND THAT VISHAL INFORMATION T ECHNOLOGIES LTD. WAS EXCLUDED BY THE CO-ORDINATE BENCH OF THE TRIBUN AL IN ASSESSEES OWN CASE FOR ASSESSMENT YEARS 2006-07 AND 2007-08. IN ITA NO. 1605/PN/2011 FOR ASSESSMENT YEAR 2007-08 THE COMPANY WAS REJECTED ON ACCOUNT OF FUNCTIONAL DIFFERENCE. THE RELEVANT EXTRACT OF FINDINGS OF TRIBUNAL IN THIS REGARD ARE AS UNDER : 17 ITA NO. 945/PN/2013, A.Y. 2005-06 30. THE NEXT POINT RAISED BY THE ASSESSEE IS AGAIN ST THE INCLUSION OF VISHAL INFORMATION TECHNOLOGIES LTD., APPEARING AT ITEM (10) IN THE TABULATION IN PARA 25 AS A COMPARABLE CASE. THE TP O HAS DISCUSSED THE ISSUE IN PARA 6.9.6. OF THE ORDER. AS PER THE TPO, THE SAID CONCERN IS FUNCTIONALLY COMPARABLE TO THE IT-ENABLED SERVICES SEGMENT OF THE ASSESSEE AND FOR THAT REASON, THE SAID CONCERN HAS BEEN INCLUDED AS A COMPARABLE FOR THE PURPOSES OF COMPARABILITY ANALYS IS. IN THIS CONNECTION, THE PLEA SET UP BY THE ASSESSEE IS THAT THE SAID CONCERN IS ENGAGED IN NOT ONLY IT-ENABLED SERVICES, BUT ALSO I N PROVIDING QUALITY PRODUCTS AND IN THE CREATION OF ANIMATED FILMS AND BOOKS. IT HAS ALSO BEEN ASCERTAINED BY REFERRING TO THE ANNUAL REPORT OF THE SAID CONCERN THAT IT IS ENGAGED IN PROVIDING AGENCY SERVICES BY WAY OF OUTSOURCING THE SERVICES TO THIRD PARTY VENDORS AND ACTING AS AN IN TERMEDIARY BETWEEN THE FINAL CUSTOMER AND THE VENDOR. THE ASSESSEE FU RNISHED DETAILED SUBMISSIONS IN THIS REGARD BEFORE THE LOWER AUTHORI TIES, COPIES OF WHICH HAVE BEEN PLACED IN THE PAPER BOOK AT PAGES 420.8 T O 420.31. BY REFERRING TO THE WRITTEN SUBMISSIONS, IT IS ALSO SO UGHT TO BE POINTED OUT THAT THE INTERMEDIARY FUNCTIONS PERFORMED BY THE SA ID CONCERN CAN BE COMPARED TO THAT OF A DISTRIBUTOR WHICH TAKES TITLE TO SERVICE/PRODUCT FOR RESALE TO THE CUSTOMERS. THE AFORESAID ASSERTION I S SOUGHT TO BE SUBSTANTIATED BY THE DETAILS OF PAYMENTS MADE BY TH E SAID CONCERN FOR DATA ENTRY AND VENDOR PAYMENTS, PERSONNEL COSTS AND SALES. IT IS, THEREFORE, CONTENDED THAT THE SAID CONCERN IS FUNCT IONALLY DISSIMILAR TO THAT OF THE IT-ENABLED SERVICES SEGMENT OF THE ASSE SSEE. IT HAS ALSO BEEN ARGUED THAT THE SAID CONCERN HAS EARNED SUPERNORMAL PROFITS AS HIGH AS 59.19% AND THEREFORE, THE SAME IS NOT INCLUDIBLE IN THE LIST OF COMPARABLES SO AS TO AVOID SKEWING OF THE COMPARABI LITY ANALYSIS. ON THE OTHER HAND, THE STAND OF THE REVENUE AS BROUGHT OUT BY THE TPO IN PARA 6.9.6. OF THE ORDER IS TO THE EFFECT THAT THE SAID CONCERN BEING CATEGORIZED AS AN IT-ENABLED SERVICES CONCERN, THE SAME IS LIABLE TO BE INCLUDED. 31. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS ON THIS ASPECT. AT THE OUTSET, WE MAY REFER TO PAGE 810 OF THE PAPE R BOOK, WHEREIN THE NOTES TO ACCOUNTS FOR THE YEAR ENDED 31.3.2007 OF T HE SAID CONCERN HAVE BEEN PLACED. AS PER THE AVAILABLE INFORMATION, THE SAID CONCERN HAS RELATED PARTY TRANSACTIONS AS REPORTED BY THE CONCE RN AT PARA 7 OF THE SAID NOTES AT 86.92%, WHICH BREACHES THE RPT FILTER . FURTHERMORE, THE FUNCTIONAL PROFILE OF THE SAID CONCERN BROUGHT OUT BY THE ASSESSEE ALSO REVEALS DIFFERENTIATION IN THE ACTIVITY PROFILE. THE TPO, IN OUR VIEW, HAS 18 ITA NO. 945/PN/2013, A.Y. 2005-06 NOT APPRECIATED THE QUALITATIVE DIFFERENCE IN THE F UNCTIONS PERFORMED BY THE SAID CONCERN AS SOUGHT OUT TO BE BROUGHT OUT BY THE ASSESSEE. CONSIDERING THE AFORESAID, WE THEREFORE, FIND THAT THE ASSESSEE WAS JUSTIFIED IN ASCERTAINING THAT THE SAID CONCERN BE EXCLUDED FROM THE LIST OF COMPARABLES FOR THE REASONS CANVASSED. THUS, ON TH IS ASPECT ASSESSEE SUCCEEDS. THUS, WE CONCUR WITH THE FINDINGS OF COMMISSIONER OF INCOME TAX (APPEALS) IN EXCLUDING VISHAL INFORMATION TECHNOLOGIES LTD. FROM THE LIST OF COMPARABLES. 17. THE LD. DR HAS OBJECTED TO THE EXCLUSION OF COMPANIES FROM THE LIST OF COMPARABLES ON ACCOUNT OF SUPER NORMAL PROFITS. THE QUESTION WHETHER THE COMPANIES HAVING ABNORMALLY HIGH PROFITS SHOU LD BE EXCLUDED FROM THE LIST OF COMPARABLES WAS CONSIDERED BY T HE SPECIAL BENCH OF THE TRIBUNAL IN CASE OF MAERSK GLOBAL CENTRE (IND IA) PVT. LTD. VS. ACIT REPORTED AS 31 ITR (TRIB.) 1 (MUM-SB) : 147 ITD 8 3(MUM-SB). THE SPECIAL BENCH HELD : 100. .IN GENERALITY, WE ARE OF THE VIEW THAT TH E ANSWER TO THIS QUESTION WILL DEPEND ON THE FACTS AND CIRCUMSTANCES OF EACH CASE INASMUCH AS POTENTIAL COMPARABLE EARNING ABNORMALLY HIGH PROFIT MARGIN SHOULD TRIGGER FURTHER INVESTIGATION IN ORDER TO ES TABLISH WHETHER IT CAN BE TAKEN AS COMPARABLE OR NOT. SUCH INVESTIGATION SHOU LD BE TO ASCERTAIN AS TO WHETHER EARNING OF HIGH PROFIT REFLECTS A NORMAL BUSINESS CONDITION OR WHETHER IT IS THE RESULT OF SOME ABNORMAL CONDITION S PREVAILING IN THE RELEVANT YEAR. THE PROFIT MARGIN EARNED BY SUCH ENT ITY IN THE IMMEDIATELY PRECEDING YEAR/S MAY ALSO BE TAKEN INTO CONSIDERATI ON TO FIND OUT WHETHER THE HIGH PROFIT MARGIN REPRESENTS THE NORMA L BUSINESS TREND. THE FAR ANALYSIS IN SUCH CASE MAY BE REVIEWED TO ENSURE THAT THE POTENTIAL COMPARABLE EARNING HIGH PROFIT SATISFIES THE COMPAR ABILITY CONDITIONS. IF IT IS FOUND ON SUCH INVESTIGATION THAT THE HIGH PROFIT MARGIN MAKING COMPANY DOES NOT SATISFY THE COMPARABILITY ANALYSIS AND OR THE HIGH PROFIT MARGIN EARNED BY IT DOES NOT REFLECT THE NOR MAL BUSINESS CONDITION, WE ARE OF THE VIEW THAT THE HIGH PROFIT MARGIN MAKI NG ENTITY SHOULD NOT 19 ITA NO. 945/PN/2013, A.Y. 2005-06 BE INCLUDED IN THE LIST OF COMPARABLE FOR THE PURPO SE OF DETERMINING THE ARM'S LENGTH PRICE OF AN INTERNATIONAL TRANSACTION. OTHERWISE, THE ENTITY SATISFYING THE COMPARABILITY ANALYSIS WITH ITS HIGH PROFIT MARGIN REFLECTING NORMAL BUSINESS CONDITION SHOULD NOT BE REJECTED SO LELY ON THE BASIS OF SUCH ABNORMAL HIGH PROFIT MARGIN. QUESTION NO. 2 RE FERRED TO THIS SPECIAL BENCH IS ANSWERED ACCORDINGLY. THUS, WHERE THE COMPANY HAS TO BE EXCLUDED ON ACCOUN T OF ABNORMALLY HIGH PROFITS SOLELY FURTHER INVESTIGATION IS REQUIR ED TO ASCERTAIN THE REASONS FOR SUCH ABNORMAL HIGH PROFITS. TH E TRIBUNAL HAS APPLIED THIS PRINCIPLE IN SEVERAL CASES AND HAS THEREAFTER EXCLUDED THE COMPANIES WITH SUPER NORMAL PROFITS FROM THE LIST OF COMPARA BLES. THEREFORE, EXCLUSION OF COMPANIES ON ACCOUNT OF ABNORMAL HIG H PROFITS IS WELL ACCEPTED PRINCIPLE. IN THE PRESENT CASE WE OBSERV E THAT THE COMPANIES WHICH HAVE BEEN REJECTED BY COMMISSIONER OF IN COME TAX (APPEALS) AS COMPARABLES ON ACCOUNT OF SUPER NORMAL PROFITS WERE LACKING ON OTHER FILTERS AS WELL. THUS, INCLUSION OF SAID COMPAN IES IN THE FINAL LIST OF COMPARABLES WOULD NOT HAVE LEND CREDIBILITY TO THE COMPARABILITY ANALYSIS. OUR VIEW IS FURTHER FORTIFIED BY THE D ECISION OF BANGALORE BENCH OF THE TRIBUNAL IN THE CASE OF GOLDMAN SAC HS SERVICES (P.) LTD. VS. DCIT REPORTED AS 63 TAXMANN.COM 9. 18. A PERUSAL OF THE ORDER PASSED BY TPO SHOWS THAT T HE TPO HAS BEEN INCONSISTENT IN SELECTING/REJECTING THE COMPANIES WHILE FORMULATING THE FINAL LIST OF COMPARABLES. THE TPO ON ONE HAN D WHILE APPLYING FUNCTIONAL TEST FILTER HAS REJECTED SOME OF THE CO MPANIES, ON THE OTHER HAND HAS RETAINED THE COMPANIES WHICH HAVE FU NCTIONAL DIFFERENCE FROM THAT OF THE ASSESSEE UNDER IT/ITES SEGME NT. THE LD. DR HAS RAISED AN OBJECTION THAT THESE COMPANIES WERE S ELECTED BY THE 20 ITA NO. 945/PN/2013, A.Y. 2005-06 ASSESSEE IN ITS TP STUDY, THEREFORE, THE ASSESSEE CANNOT NOW RAISE AN OBJECTION THAT THE COMPANIES ARE FUNCTIONALLY DIFFERENT OR DO NOT QUALIFY THE FILTERS WHICH WERE SET BY THE ASSESSEE FOR SELECTING T HE COMPARABLES. WE DO NOT CONCUR WITH THIS SUBMISSION OF THE LD. DR. THE P URPOSE OF SELECTING THE COMPARABLES IS TO BENCHMARK THE INTERNATION AL TRANSACTIONS OF THE ASSESSEE WITH UNCONTROLLED TRANSACTIO NS BETWEEN UNRELATED PARTIES UNDER SIMILAR CIRCUMSTANCES. THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF DCIT VS. QUARK SYSTEMS LTD. ( SUPRA) HAS HELD THAT TAXPAYER IS NOT ESTOPPED FROM POINTING OUT A M ISTAKE IN THE ASSESSMENT THOUGH SUCH MISTAKE IS THE RESULT OF EVIDENC E ADDUCED BY THE TAXPAYER. 19. UNDOUBTEDLY, DURING THE PERIOD RELEVANT TO THE ASSE SSMENT YEAR 2005-06 THE CONCEPT OF TRANSFER PRICING WAS IN NASCENT STAGE. THE ASSESSEE AS WELL THE DEPARTMENT WAS NOT WELL CONVERSANT TO THE NEWLY INTRODUCE PROVISIONS AND METHODOLOGY TO BE ADOPTED FOR T RANSFER PRICING STUDY. IT IS OVER THE PERIOD OF TIME THAT THE PROVISIONS OF TRANSFER PRICING AND THE METHOD FOR BENCHMARKING INTERNATIONAL TRAN SACTIONS AND DETERMINING ALP HAVE EVOLVED AND ATTAINED MATURITY. THIS FACT IS EVIDENT FROM THE NUMBER OF COMPANIES SELECTED BY THE ASS ESSEE AS COMPARABLES. EVEN THOUGH THE ASSESSEE HAD APPLIED CERT AIN FILTERS YET THE ASSESSEE AS WELL AS TPO COMMITTED ERRORS IN SELECTING THE COMPARABLES FOR BENCHMARKING INTERNATIONAL TRANSACTIONS. T HE ASSESSMENT YEAR UNDER APPEAL IS 2005-06, MUCH WATER HA S FLOWN SINCE THE TIME TRANSFER PRICING PROVISIONS WERE INTRODUCED TILL DAT E. THE LD. DR HAS PRAYED FOR REMITTING THE MATTER BACK FOR FRESH AD JUDICATION. WE DO NOT FIND ANY REASON TO REMIT THIS ISSUE BACK TO THE FILE OF ASSESSING OFFICER AFTER LAPSE OF MORE THAN 10 YEARS. MOREOVER, IN APP EAL THE 21 ITA NO. 945/PN/2013, A.Y. 2005-06 DEPARTMENT HAS ASSAILED THE FINDINGS OF COMMISSIONER OF INC OME TAX (APPEALS) IN DELETING SOME OF THE COMPANIES FROM THE LIST OF COMPARABLES AND HAS NOT OBJECTED TO THE FINDINGS OF TPO IN RETAINING THE COMPANIES WHICH ARE FUNCTIONALLY DIFFERENT. IN SUCH CIR CUMSTANCES, WE ARE NOT INCLINED TO ACCEPT THE LATER PLEA OF LD. DR. 20. IN VIEW OF OUR ABOVE FINDINGS, WE DO NOT FIND ANY MERIT IN APPEAL FILED BY THE DEPARTMENT AND THE SAME IS DISMISSED. 21. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED ON WEDNESDAY, THE 14 TH DAY OF DECEMBER, 2016. SD/- SD/- ( . . / R.K. PANDA) ( ! ' / VIKAS AWASTHY) #' / ACCOUNTANT MEMBER $ % #' / JUDICIAL MEMBER / PUNE; &# / DATED : 14 TH DECEMBER, 2016 RK *+,$-.'/'(- / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. ' () / THE CIT(A)-IT/TP, PUNE 4. ' / THE CIT-II, PUNE 5. !*+ %%,- , ,- , A ./0 , / DR, ITAT, 1 BENCH, PUNE. 6. + 2 34 / GUARD FILE. // ! % // TRUE COPY// #5 / BY ORDER, %6 ,0 / PRIVATE SECRETARY, ,- , / ITAT, PUNE
