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Income Tax Appellate Tribunal, ‘D’ BENCH, CHENNAI
Before: SHRI N.R.S. GANESAN & SHRI A. MOHAN ALANKAMONY
आदेश /O R D E R
PER N.R.S. GANESAN, JUDICIAL MEMBER:
This appeal of the assessee is directed against the order of the Assessing Officer dated 29.09.2017, consequent to the direction of the Dispute Resolution Panel dated 23.08.2017.
Shri Sriram Seshadri, the Ld. representative for the assessee, submitted that the only issue arises for consideration before this Tribunal is with regard to comparable companies selected by the assessee.
According to the Ld. representative, the assessee claimed itself as a software company. However, the Assessing Officer determined the assessee as an engineering design service provider. The assessee, in fact, accepted the determination of TPO as engineering design service provider. The TPO has rejected all the comparable companies selected by the assessee. According to the Ld. representative, the Transfer Pricing Officer selected four companies by herself. One of the companies is M/s Acropetal Technologies Ltd. The operating profit of M/s Acropetal Technologies Ltd. is 61.11%. According to the Ld. representative, this Tribunal in the case of M/s Bloom Energy India Pvt. Ltd. in dated 20.06.2018, considered the case of M/s Acropetal Technologies Ltd. and found that the operating profit of M/s Acropetal Technologies Ltd. was significantly high and not consistent with other comparable companies. Therefore, according to the Ld. representative, the Tribunal found that the statement of accounts of M/s Acropetal Technologies Ltd. cannot be relied upon. The Ld. representative further submitted that Security Exchange Board of India also found that there were some malpractices by M/s Acropetal Technologies Ltd. and enquiry was going on. In those circumstances, according to the Ld. representative, M/s Acropetal Technologies Ltd. cannot be considered to be a comparable company. If M/s Acropetal Technologies Ltd. was removed from comparable companies, according to the Ld. representative, then there may not be any necessity for transfer pricing adjustment.
On the contrary, Shri Srinivasa Rao, the Ld. Departmental Representative, submitted that M/s Acropetal Technologies Ltd. is also in the business of engineering design services. Therefore, according to the Ld. D.R., the Transfer Pricing Officer has rightly selected the said company as comparable company. Referring to the grounds of appeal, the Ld. D.R. submitted that that assessee has raised so many grounds.
One among them is violation of principles of natural justice. The assessee has also raised consideration of foreign exchange fluctuation as a non-operating item while computing operating margins. The DRP after considering all the grounds raised by the assessee, according to the Ld. D.R., confirmed the order of the Transfer Pricing Officer.
We have considered the rival submissions on either side and perused the relevant material available on record. Even though the assessee has raised so many grounds in the grounds of appeal, the characterization of the assessee’s business as engineering design service provider is not challenged by the assessee. The assessee is now contesting only the comparable case before this Tribunal. The Ld. representative for the assessee clarified that if the comparable company selected by the TPO, namely, M/s Acropetal Technologies Ltd. was removed from comparison, there is no need for any transfer pricing adjustment. It is a fact that the assessee claimed before the Assessing Officer that it is a software development service provider. In fact, this claim of the assessee was rejected by the Dispute Resolution Panel and confirmed the classification as engineering design service provider.
Since the assessee is not contesting the characterization of the business, this Tribunal is of the considered opinion that the assessee- company has to be considered as in the business of engineering design service. The assessee had no occasion to provide TP documentation in respect of engineering design service. Since the assessee claims that it is a software development service provider, it selected the comparable companies which provide software development services. Therefore, the TPO rejected the comparable companies selected by the assessee and selected the companies which provide engineering design service.
As rightly submitted by the Ld. representative for the assessee, this Tribunal in the case of Bloom Energy India Pvt. Ltd. (supra) found that M/s Acropetal Technologies Ltd. discloses significantly high profit and it is also not declaring profit regularly. Therefore, this Tribunal found that it has to be excluded. In those factual circumstances, this Tribunal is of the considered opinion that the matter needs to be re-examined by the TPO. In other words, the assessee shall file transfer pricing documentation with regard to engineering design service. The Assessing Officer shall refer the matter to the TPO for reconsideration. Accordingly, the orders of all the authorities below are set aside and the entire issue is remitted back to the file of the Assessing Officer. The Assessing Officer shall refer the matter to the TPO once again. The TPO shall re-examine the matter after considering the TP documentation that may be filed by the assessee with regard to engineering design service and thereafter decide the issue afresh in accordance with law, after giving a reasonable opportunity to the assessee. It is open to the assessee to file objection to the draft assessment order that may be passed by the Assessing Officer and follow the procedure laid down under the I.T. Act.