Income Tax Appellate Tribunal - Pune
M/S. Ocwen Financial Solutions Private ... vs Assistant Commissioner Of Income-Tax, ... on 21 January, 2019
आयकर अपील य अ धकरण "बी" यायपीठ पण
ु े म ।
IN THE INCOME TAX APPELLATE TRIBUNAL "B" BENCH, PUNE
BEFORE SHRI ANIL CHATURVEDI, AM AND
SHRI PARTHA SARATHI CHAUDHURY, JM
आयकर अपील सं. / ITA No.2669/PUN/2016
नधा रण वष / Assessment Year : 2012-13
M/s. Ocwen Financial Solutions
Private Limited.
Pritech Park, Block 12, Unit-2,
5B & 6A Floors, Bellandur Village,
Sarjapur, Marathahalli Ring Road,
Bangalore-560 103
PAN : AAACO3764E
.......अपीलाथ / Appellant
बनाम / V/s.
The Assistant Commissioner of Income Tax,
Circle-11, Pune.
...... यथ / Respondent
Assessee by : Shri Nikhil Pathak
Revenue by : Smt. Nandita Kanchan
सन
ु वाई क तार ख / Date of Hearing : 08.01.2019
घोषणा क तार ख / Date of Pronouncement : 21.01.2019
आदे श / ORDER
PER PARTHA SARATHI CHAUDHURY, JM :
This appeal preferred by the assessee emanates from the order of the Assessing Officer/DRP passed u/s.143(3) r.w.s.144C(13) of the Income Tax Act, 1961 (hereinafter referred to as 'the Act') as per grounds of appeal on record.
2ITA No. 2669/PUN/2016
A.Y.2012-13
2. At the time of hearing, the Ld. AR of the assessee submitted that if the ground Nos. 4, 6 and 8 are adjudicated then other grounds becomes academic in nature.
3. The brief facts in this case are that the assessee-company, M/s. Homeward Residential Corporation India Private Limited, Pune e-filed its return of income for assessment year 2012-13 on 26.10.2012 declaring total income at Rs.15,15,19,230/-. The case was selected for scrutiny through CASS. Accordingly, statutory notice u/s. 143(2) of the Act was issued and served on the assessee along with questionnaire for compliance. Simultaneously, the case was referred to the Transfer Pricing Officer for determining Arm Length Price (ALP) after obtaining the approval of the Commissioner of Income Tax-1, Pune.
4. During the course of assessment proceedings, it was explained by the Ld. AR of the assessee that the assessee-company is engaged in providing Information Technology enabled services (ITes), Web enabled services and Business Process Outsourcing services to its Group company in nature of call centre and back office support (BPO) services. It also provides in-house software support services and knowledge process outsourcing services to its Group Company. The assessee company is a captive unit remunerated at cost plus mark up to 15% by its Group Company. The assessee-company had maintained books of account for its business activities relevant to assessment year 2012-13 and the books of account were duly audited. The assessee furnished the copy of Audit report in Form No. 3CA/3CD as per provisions of section 44AB of the Act along with Profit & Loss Account, Balance Sheet and all annexure thereto. Further, the report relating to international transaction(s) was also furnished as required u/s.92E of the Act in Form 3 ITA No. 2669/PUN/2016 A.Y.2012-13 No.3CEB, Statement of total income and other enclosures were also filed during the course of assessment proceedings. The assessment was finally completed u/s.143(3) r.w.s. 144C(13) of the Act with assessed income at Rs.25,48,22,860/- with book profit/loss after adjustment at Rs.14,55,74,030/- and computed returned income at Rs.15,15,19,236/-.
5. Thereafter, the matter was carried before the DRP. With regard to ground No.4, it is the inappropriate acceptance of certain non-comparable companies as comparable to the assessee for assessment year 2012-13. The grievance of the assessee as per para 5.2.2 of DRP's order at page 48 to 49 of Appeal Memo/internal page 31 to 32 of DRP directions that :
(i) The DRP accepted Universal Print Systems Limited citing that the company is functionally comparable to the assessee since the nomenclature of the segment "Prepress BPO" indicates that it deals with BPO activities in relation to pre-press component of the broad activity or printing and publishing.
(ii) The entire export earnings are solely related to the Prepress BPO activity.
(iii) The Ld. TPO has not applied the employee cost filter. Further, in absence of employee cost data pertaining to the Prepress BPO segment, the claim of the assessee of low employee cost ratio cannot be substantiated. Majority of the company's total employee cost will be attributable to the ITes/BPO industry since the same is a workforce-
intensive industry.
6. The contention of the Ld. AR of the assessee at the time of hearing before us was that Universal Print Systems Limited should be excluded as comparable with the assessee-company since the function is absolutely different. As evident from the web-site description, Universal is engaged in 4 ITA No. 2669/PUN/2016 A.Y.2012-13 Print Industry/Sector and does not have any relation with the ITes sector. In support of this, Page 144 of the paper book for the web-site description of Universal Print Systems Limited has been provided before us. 'Prepress BPO segment" of this company is considered as comparable to the ITes-BPO services provided by the assessee. This is due to mere usage of the term "BPO" in the nomenclature of this segment. The term Prepress is used in the Printing and publishing industries for the processes that occur between the creation of a print layout and the final printing. Hence, the Prepress segment is by no way functionally comparable to the ITes-BPO business of the assessee. This contention is duly supported by the decision of Co-ordinate Bench of the Tribunal, Bangalore in the case of XL Health Corporation India Pvt. Ltd. Vs. ACIT, in ITA No.2311/Bang/2016 dated 09.02.2018 which also pertains to assessment year 2012-13. Further, contention with regard to the Universal Print Systems Limited by the Ld. AR was that the entity level employee cost to turnover ratio of universal is 18.56% vis-à-vis 56.59% in case of the assessee. The segment level employee cost relating to Prepress BPO segment is not available and hence, the assessee without prejudice to the above contention relying on the entity level statistics contented that since the ratio is lower than 25%, Universal Print Systems Limited cannot be considered as a comparable company. This contention is supported by the decision of Co-ordinate Bench of Tribunal, Pune in the case of Emerson Climate Technologies (India) Pvt. Ltd. Vs. DCIT, in ITA No.359 and 2847/PN/2016 dated 25th April,2018 which pertains to the assessment year 2012-13 and is placed in para 19 at page 405 of paper book.
7. With regard to Excel Infoways Limited, reference is made para 5.2.1 of DRP directions at page 45 to 47 of Appeal memo/ internal page 28-30 of DRP directions. The DRP accepted Excel Infoways Limited citing that: 5 ITA No. 2669/PUN/2016
A.Y.2012-13
(i) The company is functionally comparable to the assessee since it is a BPO/ITes provider and segmental information of BPO/ITes segment has been provided.
(ii) Super normal profit earning companies or companies having steep fall in profits cannot be excluded.
(iii) Accounts of the company are found reliable.
(iv) The entire export earnings are solely related to the ITes/BPO activity.
(v) The TPO has not applied the employee cost filter. Further, in absence of employee cost data pertaining to the IT/BPO segment, the claim of the assessee of low employee cost ratio cannot be substantiated. Majority of the company's total employee cost will be attributable to the ITes/BPO industry since the same is a workforce-
intensive industry.
8. To this count, the Ld. AR of the assessee submitted that Excel Infoways Limited cannot be a comparable company since the Excel Infoways Limited shows wide abnormality in profit and therefore, it cannot be considered as comparable company. The abnormal trend of profitability of Excel Infoways Limited is as under:
Assessment 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 Year Operating 364.14% 301.13% 41.27 60.07% 22.65% 0.43% Margin Additionally, Excel Infoways Limited had shut down its BPO operations during Financial Year 2011-12 being under consideration. This fact is referred in item No.6, Page 311 of the paper book filed. This contention is duly supported and covered by the decision of Co-ordinate Bench of the Tribunal, Pune in the case of Emerson Climate Technologies (India) Pvt. Ltd.6 ITA No. 2669/PUN/2016
A.Y.2012-13 Vs. DCIT, in ITA No. 359 and 2847/PN/2016 dated 25th April,2018 which pertains to the assessment year 2012-13 and also Emerson Climate Technologies (India ) Pvt. Ltd. Vs. DCIT, in ITA No.2432/PN/2010 dated 6th June, 2018 ( refer para 18-19 of the order page 415 to 416 of the paper book.
9. The Ld. AR of the assessee further submitted that Excel Infoways Limited fails the diminishing revenue filter as applied by the Ld. TPO and DRP for diminishing revenue filter to exclude the companies from the comparable set. Reference is being made in para 3.2.4 at Page 29 to 30 of Appeal Memo for DRP directions. The revenue of Excel Infoways Limited demonstrated diminishing revenue trend as under:
Assessment 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 Year Revenue (in 20.42 20.35 7.91 7.61 5.28 2.30 Crores) crore crore crore crore crore crore This contention is duly supported by the decision of Co-ordinate Bench of Tribunal, Delhi in the case of Baxter India Pvt. Ltd. Vs. ACIT, in ITA No.6158/Delhi/2016 dated 6th August 2017. Reference is being made in Para 24 of the order at Page 435 to 436 of the paper book.
10. We have perused the case record and heard the rival contentions and analyzed the facts and circumstances in this case. That Universal Print Systems Limited being non-comparable company as pointed out by the assessee, the issue came up before the Co-ordinate Bench of the Tribunal, Bangalore in the case of XL Health Corporation India Pvt. Ltd. Vs. ACIT (supra.). The question came up before the Tribunal was that Universal Print Systems Limited was objected by the assessee company before the TPO on the grounds of functional difference as it is engaged in the business activities 7 ITA No. 2669/PUN/2016 A.Y.2012-13 such as printing and allied activities, high profit making company and also fails the employees cost filter. The Tribunal has taken following view:
"iii) We heard the rival submissions and perused the material on record.
We have perused the Annual Report of this company placed at pages 352 to 463 of paper book. From the page no. 354 it is stated as under.
"In 2011-12, Your Company faced many challenges ranging from historically steep fuel price increases, non-availability of power throughout the year and high raw material costs. The Labels and Offset divisions in particular were negatively impacted due to non-availability of power. Tamil Nadu on the whole, faced drastic power outages and restrictions, which were mainly directed at industries in order to keep the vote banks happy. The two divisions saw as much as 6 hours of power cuts in a day in addition to two days of "power holidays" in a week. Although this situation is expected to ease in the coming months, it has had an adverse impact on operations in 2011-12. The periodic fuel price increases through our 2011-12 not just ensured high inflation cutting across every input element, but also adversely affected our cost of captive power generation which became the only source of power during certain periods in 2011-
12. In addition, procurement cost of raw materials such as paper, film and ink rose IT(TP)A No. 2311/Bang/2016 substantially along with market expectation regarding price reduction of printed products."
From this it is very clear that this company is into the business of printers whereas the assessee-company is into the Business Process Outsourcing. Therefore by no structure of imagination these two companies can be considered to be functionally similar and therefore we direct the AO / TPO to exclude this company from the list of comparables."
11. The facts and circumstances in this case are also similar and the company as non comparable in question is Universal Print Systems Limited. Therefore, following the decision of Co-ordinate Bench of the Tribunal, this company cannot be considered to be functionally similar and therefore, Assessing Officer/ TPO is directed to exclude this company from the list of comparables.
12. With regard to Excel Infoways Limited, we find that the Co-ordinate Bench of the Tribunal in the case of Emerson Climate Technologies (India) 8 ITA No. 2669/PUN/2016 A.Y.2012-13 Pvt. Ltd. Vs. DCIT (supra.) has decided whether Excel Infoways Limited can be comparable company or not by observing as under:
"18. We have heard rival contentions and perused the record. The limited issue which arises is against benchmarking of ALP of the international transactions on account of provisions of Oracle Support Services (IT- enables services) by assessee to its associated enterprise and for benchmarking of ALP of the international transactions to the said concern i.e. Excel Infoways Ltd. which has been finally selected by the DRP, is to be excluded since it is showing fluctuating margins. It is further observed that the operating margin of the company had shown drastic fluctuations ranging from 247.74% in F.Y. 2008-09 to 2% in FY 2014-15. The assessee has pointed out the margins shown by the said concern were as under:
Financial Year OP/TC margin
2008-09 247.74%
2009-10 267.31%
2010-11 238.71%
2011-12 41.48%
2012-13 75.70%
2013-14 30%
2014-14 2%
19. We find that the Tribunal in assessee's own case in assessment years 2011-12 & 2012-13 vide Para 16 & 17 of the order of Tribunal has excluded Excel Infoways Ltd. because of its fluctuating margins shown by the said concern. The Tribunal held that the said concern i.e. Excel Infoways Limited which is in the process of closing down its ITES segment and also because of the factum of fluctuating margins, could not be selected as functionally comparable to the assessee. Following the same parity of the reasons, we hold that the said concern i.e. Excel Infoways Limited, because of different factors and also fluctuating margins is to be excluded from final set of comparables. Accordingly, we hold so. The Assessing Officer is directed to recompute mean margin of the comparables and determine ALP of the international transactions of provision of Oracle support services (ITes) by the assessee to its AEs after affording reasonable opportunity of hearing to the assessee. Thus, ground No. 3 raised in appeal by assessee is allowed."
In the case of Excel Infoways Limited, a chart provided before us wherein we have seen that there is fluctuating profit margins and following the same parity of reasoning, Excel Infoways Limited because of fluctuating profit margin, is to be excluded from the final set of comparables.
13. Further, the TPO has applied diminishing revenue filter to exclude the companies from the comparable set whereas, the revenue of Excel Infoways 9 ITA No. 2669/PUN/2016 A.Y.2012-13 Limited also clearly demonstrated diminishing revenue trend. In such situation, we refer to the decision of Co-ordinate Bench of the Tribunal, Delhi in the case of Baxter India Pvt. Ltd. Vs. ACIT (supra.) where the Tribunal has held as follows:
"24. So far as exclusion of Excel Infoways Ltd. is concerned, we also find merit in the submissions of the ld. counsel for the assessee that the above company should be excluded from the list of comparables. This company fails TPO's own filter of diminishing revenue and abnormal volatility in revenue and margins. We find from the order of the TPO at para 7.5 (page 24 - 25 of the TPO order) where the TPO has observed that the department has applied consistent diminishing revenue/ loss making filter wherein the companies with losses/ diminishing revenue for the last three years upto and including the financial year 2010-11 were rejected as comparables. The department has excluded such companies with consistent losses/ diminishing revenue in an environment where Indian economy is growing at consistent rate. Having held so, the Assessing Officer included Excel Infoways Ltd. as a comparable without considering the fact that the said company does not pass the diminishing ITA No.6158/Del/2016 revenue filter. From the submissions of the assessee before the TPO (at page 232 of Volume - I of the Paper Book) we find the details of the operating margin of the company from financial years 2009-10 to 201-15 are as under :-
Particulars Financial Year
2009-10 2010-11 2011-12 2012-13 2013-14 2014-15
(INR' 000) (INR'000) (INR'000) (INR'000) (INR'000 (INR'00 ) 0) Revenue 204,161. 203,526. 76,096.9 76,098. 53,792. 22,994.
34 39 5 54 12 38 Operating 43,986.9 50,751.2 55,991.5 47,539. 41,355. 22,895.
cost 9 4 7 99 78 57
Operating 160,174. 152,775. 23,105.3 28,558. 11,436. 98.81
Profit 35 14 8 55 34
OP/OC (%) 364.14% 301.30% 41.27% 60.07% 22.65% 0.43%
25. From the above, it is clear that above company does not pass the diminishing revenue filter as adopted by the TPO himself since its revenue has decreased consistently from financial years 2009-10 to 2011-12 i.e. including the year under consideration. Further, the above company has super normal profits. We further find the submissions of the assessee that Excel Infoways Ltd. has super normal profits during the current year has not been controverted by the Revenue. We find the Mumbai Bench of the Tribunal the case of DCIT vs. Willis Processing Services (India) Pvt. Ltd. vide ITA No.2152/Mum/2014 has upheld the order of the DRP rejecting Excel Infoways Ltd. as comparable company on the ground that the company has a super normal profit of 203.80% and low employee cost 10.02%. We, therefore, find merit in the submissions of the ld. counsel for the assessee that Excel Infoways Ltd. should be excluded from the list of comparable on account of super normal profit of the said company in the preceding year.10 ITA No. 2669/PUN/2016
A.Y.2012-13 25.1 Further, from the order of the TPO we find he has obtained the employee cost and the sale for the ITES segment by exercise of his powers u/s.133(6), wherein the said company has allocated entire employee cost to IT - BPO segment with no allocation to Infra Activity segment which accounts to 49% of Excel's total revenue. In our opinion, it is highly impractical that no employee has been hired by Excel for Infra Activity segment. We, therefore, find merit in the argument of the ld. counsel for the assessee that the information provided as per section 133(6) by Excel Infoways Ltd. is unreliable and should not be used to compute employee cost for ITES segment. The Delhi Bench of the Tribunal in the case of Motorola Solutions India Private Limited vide ITA No.5637/Del/2011 has held that a company should be rejected as comparable in case there is contradiction in the facts or data sourced from annual report and as per the information gathered u/s.133(6). In view of above discussion, we hold that Excel Infoways Ltd. cannot be considered as comparable and should be excluded from the list of comparables. We hold and direct accordingly."
Therefore, it is examined that both, Universal Print Systems Limited and Excel Infoways Limited cannot be considered as comparable companies with that of the assessee company. Hence, ground No.4 is, thus, allowed.
14. Ground No.6 refers that the TPO/DRP erred in considering foreign exchange fluctuations as non operating item while computing operating margins tested party as well as for comparable companies thereby charging the operating profit margin of tested party from 15.16% to 13.91%. The DRP directed to consider foreign exchange gain/loss as non operating by relying on Rule 10TA of Safe Harbour Rules.
15. At the time of hearing, the Ld. AR submitted that the foreign exchange gain/loss is arising out of normal business operation of the assessee and hence, it needs to be considered for computation of operating margins of the assessee. Safe Harbour Rules, relied upon by the DRP were introduced on 18th September, 2013 and are prospective in nature ( i.e. applicable from assessment year 2014-15) and does not apply to the assessment year under consideration i.e. 2012-13. The Ld. AR has placed reliance on the decision of 11 ITA No. 2669/PUN/2016 A.Y.2012-13 the Co-ordinate Bench of Tribunal, Pune in the case of Imerys Newquest (India) Pvt. Ltd. Vs. DCIT, in ITA No. 590/PUN/2015 dated 23rd May, 2018.
16. We have perused the case record and considered the judicial pronouncement placed before us. The similar issue had come up for consideration before the Pune Bench of the Tribunal in ITA No. 590/PUN/2015 (supra.). The relevant part of the order of the Tribunal is as under:
"14. In ground No. 4 of the appeal, assessee has assailed assessment order in treating foreign exchange gain/loss as non-operating in nature. The DRP has formed such opinion on the basis of Section 10TA of Safe Harbour Rules. As has been pointed earlier, 'Safe Harbour Rules' came into existence from September, 2013. They do not apply retrospectively and hence, have no application in the assessment year 2010-11. In the case of Approva System Pvt. Ltd Vs. CIT(A)- IT/TP (supra.), the Co-ordinate Bench of Tribunal has held that foreign exchange gain/loss is part of operating income. The relevant extract of findings of the Tribunal on this issue is as under:
"22. We have considered the rival arguments made by both the sides. As reproduced above in para 20 in the arguments advanced by the Ld. Counsel for the assessee, we find the Delhi Bench of the Tribunal in the case of Westfalia Separtator India Pvt. Ltd., (Supra) following various decisions has held that foreign exchange loss/gain is a part of the operating revenue/cost. In the following decisions also (filed in the paper book by the assessee), it has been held that foreign exchange fluctuation cannot be excluded from the computation of the operating margin of the assessee company:
1. SAP Labs India P. Ltd. Vs. ACIT - 44 SOT 156 (bang)
2. Prakash I Shah reported in (2008) 115 ITD 167 (Mum) (SB)
3. Smt. Sujata Grover Vs. Dy.CIT (2002) 74 TTJ (Del) 347
4. M/s. S. Narendra Vs. Addl.CIT - ITA No.6839/Mum/2012 -
Mumbai Tribunal
5. M/s. Mercedes Benz Research & development India Pvt.
Ltd. Vs. DCIT (IT/TP A.No.1222/Bang/2011 -Bangalore Tribunal
6. M/s. Trilogy E-Business Software India Private Ltd., Vs. DCIT, ITA No.1054/Bang/2011 - Bangalore Tribunal
7. Sumit Diamond (India) Pvt. Ltd. Vs. ACIT - ITA No.7148/Mum/2012 - Mumbai Tribunal
8. M/s. Foursoft Ltd. Vs. The Dy.CIT - ITA No.1495/Hyd/2010
9. Techbooks International Pvt. Ltd. Vs. ACIT - ITA No.722 -
Delhi Tribunal
10. M/s. CISCO Systems (India) Private Ltd. Vs. The Dy.CIT-
IT/TP A.No.271/Bang/2014 - Bangalore Tribunal
11. M/s. Midteck (India) Ltd. Vs. The Dy.CIT-IT(TP) A.No.70/Bang/2014 - Bangalore Tribunal 12 ITA No. 2669/PUN/2016 A.Y.2012-13
12. M/s. Petro Araldite Pvt. Ltd. The Dy.CIT - ITA No.1538/Mum/2014 - Mumbai Tribunal
13. ACIT Vs. NGC Network India Pvt. Ltd. - ITA No.5307/M/2008 22.1 Respectfully following the decisions of the different Benches of the Tribunal, we set aside the order of the CIT(A) on this issue and direct the Assessing Officer to consider foreign exchange fluctuation gain as part of the operating income of the assessee."
Respectfully following the same, we direct the Assessing Officer to treat foreign exchange gain/loss as part of operating income of the assessee. Accordingly, ground No. 4 raised in appeal by assessee is allowed." Respectfully following the same, we direct the TPO/ Assessing Officer to treat the foreign exchange gain/loss as part of operating income of the assessee. Thus, ground No.6 raised in appeal by assessee is allowed.
17. Ground No.8 refers to the Ld. TPO/DRP erred by comparing full- fledged risk bearing entities with the assessee's captive operations without making any risk adjustment on account of differences between the functional and risk profile of comparable companies vis-à-vis the risk profile of the assessee. In Para 10.2 of DRP directions, the DRP denied risk adjustment stating that the assessee is not a risk free entity and the DRP has relied on the various judgments as appearing in its order.
18. The arguments of the Ld. AR of the assessee before us was that the assessee functions under limited risk environment vis-à-vis entrepreneurial risk borne by comparable companies who are independent service providers. Accordingly, financial data needs to be adjusted to account for functional and risk level differences in order to improve the reliability of analysis. The fact that the assessee is risk mitigated entity is duly noticed and appreciated by the learned TPO in his order at page 84 of the Appeal memo. The Ld. AR further submitted that risk adjustment should be allowed. The Ld. AR has 13 ITA No. 2669/PUN/2016 A.Y.2012-13 placed reliance on the decision of Pune Bench of the Tribunal in the case of Starnet Networks (India) Pvt. Ltd. Vs. ACIT, in ITA No.164/PUN/2013 dated 09.02.2018.
19. We have perused the case record and considered the judicial pronouncements placed before us. In ITA No. 164/PUN/2013 (supra.), the Tribunal has observed on this issue as follows:
"34. Now, coming to the last issue in respect of economic adjustment on account of risk differences. The case of the assessee is that the assessee being remunerated on cost plus basis where it is providing services to its associated enterprises, it is risk free and adjustment for differences between functional and risk profile of the comparable companies is to be allowed in the hands of assessee.
35. We find that similar issue has been raised in DCIT Vs. Applied Micro Circuits India Pvt. Ltd. (supra), wherein it was held as under:-
"18. The next issue raised vide ground of objection No.2.2 is against the claim of risk adjustment. The plea of assessee that risk adjustment should have been granted to the assessee for differences between functional and risk profile of comparable companies vis-à-vis assessee. The learned Authorized Representative for the assessee in this regard pointed out that the assessee was risk mitigated entity, whereas the comparables were risk bearing. He further stated that the assessee had furnished the working as per the decision of Bangalore Bench of Tribunal in Philips Software Centre Pvt. Ltd. Vs. ACIT reported in 26 SOT 226 and the Delhi Bench of Tribunal in the case of Sony India Pvt. Ltd. reported in 114 ITD 448. The learned Authorized Representative for the assessee in this regard placed reliance on the ratio laid down by the Pune Bench of Tribunal in MSC Software Corporation India Pvt. Ltd. Vs. ACIT in ITA No.46/PUN/2013, relating to assessment year 2008-09, order dated 22.03.2017.
19. We find that the issue is squarely covered by earlier decisions of the Pune Bench of Tribunal in MSC Software Corporation India Pvt. Ltd. Vs. ACIT (supra), wherein the said concern was also captive service provider to its associated enterprises and had claimed to be risk free. It had asked for risk adjustment in the margins of finally selected comparables and the Tribunal vide order dated 22.03.2017 held as under:-
"34. Following the said ratio, we direct the Assessing Officer to allow the risk adjustment and re-compute the margins of comparables by applying the ratio laid down by Delhi Bench of Tribunal in the case of Sony India Pvt. Ltd. (supra) and compute the TP adjustment, if any, in the hands of assessee.
35. The ground of appeal No.10 raised by the assessee is against applicability of +/- 5% and the benefit can be allowed if the adjustment is within such range and hence, 14 ITA No. 2669/PUN/2016 A.Y.2012-13 no adjustment is to be made in case it is not more than 5% from the arm's length price. We hold so."
20. The issue arising before us is similar and following the same parity of reasoning, we direct the Assessing Officer to allow risk adjustment and re-work the margins of comparables, in turn, relying on the ratio laid down by the Delhi Bench of Tribunal in the case of Sony India Pvt. Ltd. (supra) and compute the TP adjustment, if any, in the hands of assessee. The ground of objection No.2.2 is thus, allowed."
36. Following the same parity of reasoning, we direct the Assessing Officer to allow risk adjustment in turn relying on the proposition laid down by the Delhi Bench of Tribunal in the case of Sony India Pvt. Ltd. (supra), wherein it was allowed @ 20%, and compute the TP adjustment, if any, in the hands of assessee. The ground of appeal Nos.3 to 8 are thus, allowed."
That basically, the proposition laid down by the Delhi Bench of the Tribunal in the case of Sony India Pvt. Ltd. reported in 114 ITD 448 wherein it was allowed @20% and thereafter, the Assessing Officer was directed to compute TP adjustment in the hands of the assessee, if any. Respectfully, following the decision of our own Co-ordinate Bench, we allow this ground of appeal. Hence, ground No. 8 raised in appeal by assessee is, thus, allowed.
20. That as submitted by the Ld. AR of the assessee that in the grounds of appeal, if ground Nos. 4, 6 and 8 are adjudicated, rest grounds become academic in nature. Therefore, after adjudication of the said grounds i.e. Ground Nos. 4, 6 and 8, the remaining grounds herein becomes academic.
21. In the combined result, appeal of the assessee is allowed.
Order pronounced on 21st day of January, 2019.
Sd/- Sd/- ANIL CHATURVEDI PARTHA SARATHI CHAUDHURY ACCOUNTANT MEMBER JUDICIAL MEMBER पण ु े / Pune; दनांक / Dated : 21st January, 2019. SB 15 ITA No. 2669/PUN/2016 A.Y.2012-13
आदे श क! " त$ल%प अ&े%षत / Copy of the Order forwarded to :
1. अपीलाथ / The Appellant.
2. यथ / The Respondent.
3. The CIT(Appeals)-13, Pune.
4. The Pr. CIT-5, Pune.
5. "वभागीय %त%न&ध, आयकर अपील य अ&धकरण, "बी" ब*च, पण ु े / DR, ITAT, "B" Bench, Pune.
6. गाड- फ़ाइल / Guard File.
// True Copy // आदे शानुसार / BY ORDER, %नजी स&चव / Private Secretary आयकर अपील य अ&धकरण, पण ु े / ITAT, Pune.
16ITA No. 2669/PUN/2016 A.Y.2012-13 Date 1 Draft dictated on 09.01.2019 Sr.PS/PS 2 Draft placed before author 10.01.2019 Sr.PS/PS 3 Draft proposed and placed JM/AM before the second Member 4 Draft discussed/approved by AM/JM second Member 5 Approved draft comes to the Sr.PS/PS Sr. PS/PS 6 Kept for pronouncement on Sr.PS/PS 7 Date of uploading of order Sr.PS/PS 8 File sent to Bench Clerk Sr.PS/PS 9 Date on which the file goes to the Head Clerk 10 Date on which file goes to the A.R 11 Date of dispatch of order