M/S. PANASONIC INDUSTRIAL ASIA PTE LTD.,GURGAON vs. ACIT (INTERNATIONAL TAXATION), NEW DELHI

O R D E R PER ANADI N MISHRA. A.M.

This appeal filed by the assessee is directed against the order of the DRP-2, New Delhi dated 20.02.2015. The grounds of appeal are as under :- i

1. “That Id. AO/ Transfer Pricing Officer ("TPO")/ DRP have erred in law and in facts of the present case in making transfer pricing adjustment of INR 1,02,84,118. In the facts and circumstances of Appellant's case proposed adjustment is invalid and bad in law for the following grounds which are without prejudice to each other:

2. Action of Id. TPO/AO/DRP in not excluding ICC as a comparable to Appellant for purposes of Transfer pricing regulations is not in accordance with provisions of law. 2.1 Ld. AO/ TPO/ DRP have erred in adopting irrelevant, unlawful and even self­ contradictory justifications to avoid exclusion of company like ICC which is clearly not comparable as per provisions of law. 2.2 Ld. AO/ TPO/ DRP have erred in law and in facts and circum stances of the present case in not appreciating that ICC is operating in textile industry which is benefitted by a Government scheme as against the appellant which does not have benefit of such government scheme which renders the com parability of these two com panies invalid. Ld. AO / TPO / DRP have erred in not understanding the fact of the case and in not taking cognizance of the relevant submissions / information produced on record by the Appellant. 2.3 Ld. AO/ TPO/ DRP have erred in law and in facts and circum stances of the present case in not appreciating that ICC falls short of the 75% support service revenue filter applied by the TPO himself for selection of comparables. Further erroneously even the fact that ICC has been rejected as a comparable by DRP for AY 2010-11 for sim ilar reasons has been rejected.

3. Ld. AO/ TPO/ DRP have erred in rejecting 4 additional companies identified by the Appellant merely stating that they are ' not functionally comparable without producing any material on record to substantiate such claims. Further, Id. AOI TPOI DRP have erred in citing invalid and unlawful reasons to an extent even contradicting themselves.

4. Ld. AO/ TPO/ DRP have erred in routinely rejecting comparable by adopting contradictory stance as for example Killick Agencies & Marketing Limited ("KAML") was rejected as a comparable on the basis that it fails the 75% Service Income to Total Turnover filter, completely ignoring that Id. TPO himself in its original Remand Report dated 13.07.2012 had accepted that 77% of revenues of KAML are derived from commission. Similarly Publicity Society of India Limited ('PSILj is wrongly rejected now ignoring that Ld. TPO had accepted it as comparable in Remand Report dated 13.07.2012. 5. Without prejudice to the above grounds, Id. AO / TPO / DRP have erred in not accepting the economic analysis conducted by the Appellant in its TP documentation which was in accordance with the provisions of the Act read with the Income tax Rules, 1962 ("Rules") and making modifications to this analysis in a subjective, arbitrary and inconsistent manner. That Id. TPO has erred in adhoc selection/rejection of comparables based on incorrect interpretation of FAR. 6. Ld. AO/ TPO/ DRP have erred in law and in facts and circumstances of the present case in rejecting certain comparables furnished in the TP report by the Appellant namely, Educational Consultants (India) Limited, India Tourism Development Corporation Limited and In House Productions Limited which have been accepted as comparables in recent judicial pronouncements.

7. Ld. AO/ TPO/DRP erred in accepting/rejecting companies based on incorrect and unsubstantiated notions and completely failed to appreciate that as far as comparables are concerned Appellant has only access to data made available in public domain. Further the authorities preferred to conclude on comparability of companies on empty pretexts or unsubstantiated easy presumptions and failed to exercise powers vested in them to determine ALP in accordance with provisions of . ■ law. ' .

8. That the leaned AO erred in facts and law in not granting credit for INR 25,00,000 deposited by the Appellant/ Assessee pursuant to stay order dated 22.02.2013 passed by this Hon'ble Tribunal during original appellate proceedings for the same AY. 9. Without prejudice to the above grounds, Ld. AOI TPO/DRP erred in not allowing appropriate adjustments for differences in level of working capital employed by the appellant vis-a-vis other companies. 10. That the leaned AO erred in facts and law in charging interest under section 234B and 234C of the Act. 11. That the leaned AO erred in facts and law in initiating the penalty proceedings under Section 271(1)(c) of the Act.”

(A.1) During the appellate proceedings, the assessee filed application for admission of additional/m odified grounds of appeal under Rule 11 of Income Tax Appellate

Tribunal Rules, 1963. The additional / modified ground is as follows :

“2.3 Ld. AO/TPO/DRP’s action in including ICC International Agencies even after noticing that it does not satisfy 75% support service revenue filter applied by TPO for Transfer Pricing analysis, violates the entire benchmarking exercise and renders the conclusion invalid and contrary to law .”

(A.2) Pleading for admission of the aforesaid additional / modified ground of appeal, the Ld. AR of the assessee submitted that aforesaid ground goes to be core of the issue and is so fundam ental to the appeal filed that the assessee will not press the other grounds of appeal if the assessee succeeds on the aforesaid additional / modified ground of appeal. He also submitted that all facts necessary for deciding the aforesaid additional / modified ground of appeal are available on record. Ld. DR did not oppose the admission of the aforesaid additional / modified ground of appeal. The aforesaid additional / modified ground of appeal has been admitted in accordance with mandate given to ITAT by Hon’ble Supreme Court in National Thermal Power Co. Ltd. vs. CIT (1998) 229 ITR 383 (SC) for admission of ground(s) of appeal even if such ground (s) were not taken earlier.

(A.3) After adm ission of the aforesaid additional / modified ground the Ld. AR of the assessee subm itted that in the first stage the aforesaid additional / modified ground should be taken up for consideration and the remaining grounds of appeal could be later taken up by ITAT for adjudication if the assessee does not succeed on the aforesaid additional/m odified ground//of appeal. He further submitted that the other grounc&of appeal may be treated as not pressed if the aforesaid additional / modified ground is decided by ITAT in favour of the assessee. Ld. DR of the Revenue agreed to this. Accordingly the aforesaid additional

/ modified ground of appeal for adjudication presently.

(B) The assessee is a company incorporated in Singapore and is operating in India through its branch office. The assessee was established on 7.9.2002 pursuant to receipt of necessary approval from Reserve Bank of India (‘RBI’). The assessee was further granted a certificate of establishm ent of place of business in India by the Registrar of Companies on 26 September, 2002. As per the approval of RBI, the assessee may carry out follow ing activities :

- To provide market inform ation about custom ers - To provide after sales maintenance and other support services and - To provide market support services to the Head Office. The assessm ent was originally completed in this case on 4.10.2012 through which an addition in the form of Transfer Pricing adjustm ent amounting to Rs. 1,02,84,118/- was done on the basis of order of Transfer Pricing Officer dated 28.10.2011 u/s 92CA(3) of I.T. Act. The Ld. TPO in her order u/s 92CA(3) dated 28.10.2011 determined the arm ’s length margin of the comparable entities of the assessee. One of the comparable entities selected by the Ld. TPO was ICC International Agencies Ltd. The assessee filed an appeal before ITAT. One of the issues in dispute was the selection of ICC International Agencies Ltd. as a comparable. The assessee disputed the selection of this com parable mainly on the basis that ICC International Agencies had earned super profits during the year because of impact of state policy / Government scheme. Vide order dated 31.1.2014 in ITA No. uA No. 6734/Del/2015 5830/Del/2012 in the case of assessee for asstt. year 2008- 09, ITAT, Delhi decided this issue as under "4.4. The Ld. AR relying upon the order of the Co-ordinate Bench wherein one of us (Accountant Member) is an author in ITA No.-5585/Del/2011 in the case of American Express Service Ltd. Vs DCIT dated 24.08.2012 (copy of which is placed at paper book page-54-87 in the compilation of the case laws) argued for the exclusion of the said comparable. Inviting attention to internal page 15 para 22 of the same placed at page 68 of the paper book the Ld. AR submitted that considering the functional difference in the case of ICC International Agencies, the Co-ordinate Bench at para 33 considered the arguments that ICC International Agencies had earned super profits and was functionally different. It was pointed out that the said arguments were not accepted by the DRP and over ruling these the Tribunal had come to the conclusion at para 38 that the assessee had demonstrated that ICC International Agencies had earned super profits during the year because of increase in supply on account of government schemes which submissions were not considered by the DRP and the issue as such was restored to the TPO. It was 6 I.T.A .No.-5830/Del/2012 submitted that during these two years, the Gujarat Government had promoted a scheme whereby huge procurement of sewing machines were made in huge numbers resulting in the earning of huge commission income in these 2 years. It was submitted that whereas in the case of American Express the assessment year was 2007-08 in the case of the assessee, the assessment year is 2008-09 which is the 2 year period as such the conditions on account of which heavy procurement of sewing machines was made remained identical i.e the State Policy and the margins remained high. It was submitted that this is evident from that fact that as opposed to 82.92% profit in 2007-08 assessment year and 55.28% profit in the year under consideration i.e the succeeding assessment year the profit thereafter when the Government policy was not in operation plunged to 6.92% i.e when the special circumstances operating ceased to exist. In the circumstances it was his request that the said comparable be excluded as the onus to establish extraordinary circumstances has been discharged by the assessee. 4.5. The Ld. DR, on the other hand contended that the arguments have no merit as it cannot be wished away that this was a comparable given by the assessee itself and the DRP has rightly held that it cannot be excluded. It was his submission that in a TNMM situation, it is very difficult to find an exact replica of the comparable of the assessee and for this specific purpose the statute and the rules have provided for an arithmetic mean which would ensure that the differences if any would get ironed out and thereafter the safe harbour rules are also available. The said comparable it was his argument was offered by the assessee itself and this fact cannot be ignored as the assessee is the best judge of its affairs. In the said background it was his submission reliance placed upon the decision of American Express Services India Ltd. is of no relevance. Inviting attention to the same it was submitted that even otherwise the said order has no relevance as it pertains to the facts prevalent in 2007-08 assessment year and the year under consideration in the present proceedings. IV was submitted that its reliance is misplaced. On the other hand, it was argued that the department would rely upon in ITA No.-5329/Del/2012 in the case of Navisite India Pvt. Ltd. vs ITO which pertains to the very same assessment year (copy of the same was filed in the Court) which too has been authored by the same author. Inviting attention to page 22 para 37 of the same it was contended that considering the similar arguments advanced on behalf of the department that when the functional comparability of the company is established, there is no relevance for considering high profit or low profit. It was argued relying on the same that the occurrence of low profit or high profit would not make a functional comparable company an incomparable company. The extra profits it was submitted may reflect extra operational efficiency and the Co-ordinate Bench had held there that profit is a result of function. Accordingly it was his submission that there is no merit in the arguments advanced on behalf of the assessee. The comparable having been offered by the assessee satisfying itself on functional comparability cannot now be allowed to be excluded on the ground that it had extra-ordinary profits as in a TNMM situation the differences get ironed out by considering the mean of the comparability which is the mandate of the Statute.

(3) An uncontrolled transaction shall be comparable to an international transaction if- (i) none of the differences, if any, between the transactions being compared, or between the enterprises entering into such transactions are likely to materially affect the price or cost charged or paid in, or the profit arising from, such transactions in the open market; or (ii) reasonably accurate adjustments can be made to eliminate the material effects of such differences. (4) The data to be used in analyzing the comparability of an uncontrolled transaction with an international transaction shall be the data relating to the financial year in which the international transaction has been entered into: Provided that data relating to a period not being more than two years prior to such financial year may also be considered if such data reveals facts which could have an influence on the determination of transfer prices in relation to the transactions being compared." (bold texted for emphasis) 5.2. It is therefore seen that that Rule 10B(2) specifically addresses the factors which must be considered while judicially determining the comparability of an international transaction with an uncontrolled transaction. These factors are set out in clauses (a) to (d) of Rule 10B(2). Whereas a detailed FAR analysis is required to be done in compliance with clauses (a) to (c) Rule 10B(2) which elaborated means an analysis based on contractual terms and conduct of the functions performed, assets utilized and risks assumed by the assessee and the comparables. Role of clause (d) of Rule 10B in the facts of the present case needs a specific elaboration in the context of the present dispute. It is seen that reference in clause (d) is made inter alia to conditions prevailing in the market etc. and in particular specifically include "the laws and the Government orders in force." In view of the requirement of the above Statutory Rules which mandate that in order to judge the comparability of an international transaction with an uncontrolled transaction "shall' be comparable to an "international transaction" which warrants a consideration of not only what is set out in clauses (a) to (c) of Rule 10B(2) but also clause (d) of the said Rule. It is further seen that Sub rule (4) of rule 10B mandates that the data to be used in analyzing the ii

ITA flo. 6734/Del/2015 comporobility of on uncontrolled transaction with an international transaction "shall be the data relating to the financial year in which the international Transaction has been entered into". However the statute gives a discretion under proviso to Sub Rule (4} of Rule 10B to consider "prior Data" i.e, data relating to a period not being more than two years prior to the financial year in which the international transaction has been entered into provided the data records facts which could have an influence on the determination of transfer prices in relation to the transactions being compared. In the facts of the present case as evident from data available in the public domain not assailed by the Revenue there does appear to be a glaring difference in the quantum of profits of the said comparable in the two years under consideration. It is a settled legal position that the Statute imposes an obligation upon the person who has entered into an international transaction to furnish information and documents as he may deem fit to 10 I.T.A .No.-5830/Del/2012 rely upon or may be required to furnish before AO, TPO etc. as it is only on the basis of "all the relevant material which he has gathered" that the TPO under Section 92CA(3) shall determine the arms length price in relation to the international transaction in accordance with Sub Rule (3) of Section 92(C). The only prohibition imposed in the statute is to consider the data as relevant data under Sub Rule (3) and (4) to Rule 10B. 5.3. The case of the assessee is that the State Policy of State of Gujarat created a situation where the comparable became an incomparable and sub-rule (3)(i) to Rule 10B may give cause to consider that this factor materially affected the profit arising from such transaction. Clause (d) of Rule 108(2) apart from market conditions, geographical location etc. specifically enumerates the "laws and Government orders in force" as far as possible as such there can be no doubt on the position that it is a relevant consideration to consider the comparability. Before us the assessee has pleaded relying on the case of American Express that the operation of the Policy of the State of Gujarat in the immediately preceding assessment year which had focused on large scale distribution of sewing machines materially affected the profits of the very same comparable and these conditions operated in the year under consideration also. It is seen that the Rules, in the quest of searching and enabling relevant data/material, enables the analysis, under sub-rule (4) to Rule 10B, of data used in analysing the comparability of an uncontrolled transaction with an international transaction which generally has to be relating to the financial year in which the international transaction has been entered into and the proviso to sub­ rule (4) of Rule 10B enables a consideration and analysis of data which may not pertain to the relevant period if the data reveals facts that it had an influence on the determination of transfer prices being compared provided the data provided is not of a period more than two years prior to such financial year. Having addressed the provisions and the several factors necessarily to be considered by the Tribunal for judicially determining the proper legal affect of the facts that stand proved on record in arriving at the ultimate conclusions, we must now turn to the case law relied upon by the parties for deciding the issues under consideration in the facts and circumstances of the case. 5.4. It is an admitted position that the comparable ICC International Agencies is afunctional comparable proposed by the assessee during the proceedings before the TPO which it now seeks to exclude on the ground that the said comparable, though functionally similar, has in the year under consideration shown extraordinary profits due to the impact of the Government policy. The facts in support of the said assertion are stated to have come to the knowledge of the assessee from the public domain on becoming aware of the decision rendered in the case of American Express (cited supra) dated 24.08.2012 wherein the Co-ordinate Bench considering these facts has restored the issue to the TPO in order to consider the arguments for excluding the said comparable. It is a matter of record that in the case of American Express the facts referred to were for the 2007-08 assessment year and admittedly the present case pertains to 2008-09 assessment year. The Ld. AR has submitted that the State Policy of the State of Gujarat during the said period of 2 years sought to financially empower the women, as a result of which the distribution of sewing machines to the eligible female population took place on a large scale. It has been stated that this large scale extra­ ordinary drive to procure and then make available the sewing machine by the State resulted in creating extraordinary circumstances which admittedly were not operating for other distributors of other products. The said drive it has been urged resulted in the generation of extraordinary profits giving boost to the commission income making the said comparable an incomparable due to the operation of the State Policy. This argument on behalf of the assessee has been based on the data in the public domain which shows that the profit in 2007-08 assessment year considered for American Express was 82.92% and in the 13 year under consideration when the State Policy was still in operation, it was 55.28% and the immediate withdrawal of the State Policy resulted in drastic reduction of the profits of ICC International Agencies in 2009-10 assessment year when they dramatically plunged to single digit i.e 6.92% only. These facts and figures have not been assailed by the Revenue. 5.5. The objection of the department as referred to in the earlier part of this order has been that firstly the said comparable has been considered a comparable by the assessee itself and offered accordingly. Since the assessee being the best judge of its business having offered the said comparable as afunctional comparable it should not, now, be allowed to resile from its stated position purely on account of high profitability. Relying on the decision of Navisite India Pvt. Ltd. (cited supra) emphasis has been laid on the proposition that the profits are a result of function and the simple fact of earning high profits shall not make a functional comparable an incomparable.

5.6. Accordingly it is seen that the respective parties have supported their stand for excluding and retaining the said comparable relying on the decisions rendered in American Express and Navisite India Pvt. Ltd. which both have been authored by the Ld. Accountant Member in the present proceedings.

5.7. Notwithstanding the above, in the light of the respective stands of the parties before the Bench on the facts and circumstances of the case, we hold that as profit is a result of function, accordingly the approach to purely be guided by high profits or low profits for the purposes of seeking an exclusion of a comparable has to be avoided. We further hold that the said approach is an anathema to the Indian Transfer Pricing Rules and provisions as adequate safeguards in a TNMM situation have been provided by the Statutory provisions which mandate the consideration of only the arithmetic mean which can iron out the differences which may arise when the comparables show extreme cases. Accordingly the approach to seek exclusion of comparables only on the ground of comparability also cannot be approved as the Statutory provisions further enable if so warranted on facts the applicability of Safe Harbour Rules. Thus we agree with the Revenue's contention that in the face of these Statutory provisions, the minor differences if any would get ironed out as even thereafter the Safe Harbour Rules also operate. We have also seen that it is a matter of practical experience that it is very difficult to find an exact replica of a comparable in a TNMM situation. Thus there 14 can be no quarrel with the proposition that once a functional comparability of a company has been established and accepted there is no relevance in considering the arguments for exclusion based on high profit or low profit as admittedly profit is a result of function and the occurrence of low profit or high profit would not make a functional comparable an incomparable as laid down in Navisite India Pvt. Ltd. 5.8. However, while doing so we take note of the fact that the assessee does not seek to exclude the inclusion of ICC International Agencies on the grounds of functional incomparability. The exclusion is sought on the ground that although it is functionally comparable however due to extraordinary circumstances created by the State Policy which operated during the specific period of two years, extraordinarily high commissions have been earned. These assertions of incomparable circumstances are based on data available in the public domain which demonstrate that as soon as the special circumstances ceased to exist the profit dropped to single digit i.e 6.92% in 2009-10 assessment year from 55.82% in the year under consideration i.e 2008-09 assessment year. As observed these figures have not been assailed by the Revenue. 5.9. In the afore-mentioned facts and circumstances, giving our utmost consideration to the arguments of the parties, we are of the view that the data available in the public domain leading to the conclusion that ICC International Agencies was operating in unique circumstances during the period under consideration prima facie requires to be considered and verified and cannot be outrightly rejected taking a specious plea that the comparable was proposed by the assessee itself. ,4s examined in the earlier part of this order the Statutory Rules specifically mandate that the data for two years prior to the year in which transaction took place can be considered if it is revealed that these facts could have an influence on the determination of transfer prices in relation to the transactions being compared. It has also been seen that sub-Rule (3)(i) requires a certain degree of comparability vis-a-vis the differences remaining and clause (d) of sub-Rule (2) of Rule 10B amongst others mandate that conditions prevailing in the market include amongst others criteria a consideration of laws and Government orders is force at the relevant point of time. 5.10. We are of the view that the assessee cannot be barred from pleading for the exclusion of a comparable when it pleads the existence of extra-ordinary circumstances. The existence of such a fact would make a specific period creating extraordinary circumstances in the case of a functional comparable an incomparable. The argument that since it was proposed by the assessee as such should not be excluded solely on this ground has no merit. To hold so would be not in compatibility with the scheme of the Act as the very purpose of having Appellate Forums would be defeated if it is held that once afunctional comparable is offered by a party where on facts it could not have been a comparable then for all times to come the said party de horse the material on record would be barred from pleading for its exclusion. Once the party seeking exclusion of a comparable is able to establish the existence of unique circumstances then the Tribunal is bound to consider the said plea and consider the allowability or not of the same regardless and undettered by the fact that the said comparable was offered as a comparable based on its own analysis. Once a comparable demonstrably ceases to meet the very basic and fundamental requirement of being a comparable by virtue of operating in unique circumstances for a specific duration, then it cannot be said to be a comparable of the assessee for that period. It is trite law that only like can be compared with like and once the existence of unique circumstances is raised by a party even if the comparable was proposed by the said party itself if the party based on information subsequently available in the public domain, is able to show the existence of unique circumstances, we are of the view that there is nothing in law which bars the assessee to move the authorities or the Appellate Forums to look into and seek an adjudication on the issue. Accordingly to us there can be no bar contemplated in law that estops the assessee from raising the arguments that the comparable was wrongly offered as a comparable. The issue having been raised necessarily casts a duty on the Court/Tribunal to apply its minds to the argument so raised and adjudicate thereon. Accordingly on consideration of the arguments on facts and law, we are of the firm view that a comparable can be taken as a comparable purely and simply only for the reason that it is a comparable and alternately it most definitely cannot be "declared" to be a comparable only on the ground that it has been offered as a comparable by a party to the proceedings ignoring the arguments that it was offered on a mistaken belief of law and facts. Law has to be applied to the facts and circumstances as it is and it does not depend on the admission or waiver either of the assessee or the Revenue. No case law is required to appreciate the basic principle that what cannot be taken as a comparable under the provisions of the Act cannot became a comparable just because of the admission of the assessee. Once a plea is raised, which prima facie appears to be bona fide and is found to be supported by facts, the same necessarily needs to be considered. We are firmly of the view that too hold otherwise would defeat the very purpose of having Appellate Forums if on the mere proposal of a functional comparable by the assessee it is to be held as a comparable ignoring facts to the contrary. Whenever the comparability of a comparable company is called into question then it is the duty of the Court to apply its mind and come to a conclusion, on a due consideration of the facts whether it is a comparable or not a comparable and accordingly disposal of the case by blindly placing reliance on admission or waiver by the assessee or the Revenue to our minds cannot be said to be a proper discharge of judicial function. We do not see any logic in persuading ourselves to come to the conclusion that de-horse the data in the public domain the assessee, after having proposed a company as a comparable is barred permanently from canvassing to the contrary relying on information and knowledge available in the public domain. We do not see any statutory or legal impediment in the stand of the assessee as to why the said comparable should not be excluded and also do not see any reason as to why the assessee be saddled with the said comparable. The alarm having been sounded by the information in the public domain of the earning of profits to the extent of 82.92% in 2007- OS which plunged to 6.92% in 2009-10 assessment year arid have remained high to the extent of 55.28% in the year under consideration when the State Policy was still stated to be in continuance requires to be given due consideration and needs to be addressed as prima facie the circumstances cannot be said be identical and they definitely appear to be unique for ICC International Agencies. However while so holding it is also seen that the State Policy of Gujarat for the two years under consideration i.e the first year considered in the decision of American Express (cited supra) and the other year applicable to the case at hand has not been placed before us. 5.11. Accordingly we deem it appropriate to restore the issue back to the TPO who shall consider the arguments for excluding the said comparable after allowing the assessee to lay evidence in support of its claim i.e the specific State Policy addressing the period of its implementation which facts have not been disputed by the Revenue. The arguments of the assessee on the earning of profits from 2007-08 assessment year to 2009-10 assessment year for ICC International Agencies remain unassailed by the Revenue. However the facts need to be demonstrated in appropriate detail by the assessee and thereafter considered by the TPO. Accordingly the issue is restored back with the above direction to the TPO to decide the same in accordance with law after giving the assessee a reasonable opportunity of being heard. As indicated the assessee is directed to place the necessary evidences in support of its claim before the TPO in order to demonstrate the exclusion of ICC International Agencies as a comparable and the TPO is duty-bound to consider the evidences before passing of his order."

(B.1) As the issue was set aside to the file of the TPO, fresh order dated 28.1.2015 was passed by the Ld. TPO u/s 92CA(3)of the I.T. Act, 1961. The aforesaid Transfer Pricing adjustm ent of Rs. 1,02,84,118/- was kept unchanged in the fresh order dated 28.1.2015. The Ld. TPO rejected the objections of the assesssee. The assessee had objected to selection of ICC International Agencies Ltd. as a comparable on three grounds which can be summarised as under :- a. The comparable fails one of the T P O 's on filter of 75% of Service Revenue b. The comparable is earning Super Normal Profit in teh A.Y. 2008-09 c. The comparable is functionally different. For the purpose of deciding the additional / modified ground of appeal filed by the assessee in this appeal, and which is being adjudicated presently ; only the above mentioned first & «'• ground^ is relevant. Perusal of original order dated 20

October, 2011 passed by TPO u/s 92CA(3) of I.T. Act shows that the Ld. TPO accepted two com parables proposed by the assessee, one of which was the aforesaid ICC International Agencies Ltd. The other com parables proposed by the assessee had rejected by the Ld. TPO in the aforesaid order dated 20th October, 2011. Perusal of para 4 of the aforesaid order dated 20.10.2011 shows that in selecting the comparables, the Ld. TPO had applied the follow ing filters :

Com panies whose support service income Rs. 1 crore need to be excluded Companies whose support service receipts are less than 75% of the total operating revenues need to be excluded Companies having more than 25% related party transactions (sales as well as expenses combined) need to be excluded Companies having dim inishing revenues/persistent losses for the last 3 years upto and including FY 2007-08 need to be excluded. Companies those are expansively functionally different from the taxpayer need to be excluded.

(B.2.1) Before the Ld. TPO passed subsequent order dated 28.1.2015 u/s 92CA(3) of I.T. Act pursuant to aforesaid order dated 31.1.2014 of ITAT in the assessee’s case the assessee submitted before the Ld. TPO that ICC International Agencies will fail as a comparable if TPO’s filter of 75% of service revenue is applied. The comparables proposed by the assessee were rejected by the Ld. TPO by applying the filter that 'companies whose support service receipts were less than 75% of the total revenue needed to be excluded. The assessee contended that if the same filter is applied, ICC International Agencies should also not have been selected by the Ld. TPO. In his fresh order dated 28.1.2015, the Ld. TPO did not refute the factual contention that support service receipt of ICC International Agencies were less than 75% of total operating revenues. The Ld. TPO rejected the contention of the assesee merely on the ground that this issue had not been raised by the assessee during any proceedings earlier. The relevant discussion by the Ld. TPO appears at page 18 of the aforesaid order dated 28.1.2015 and is reproduced as under “The contention of the assessee that ICC International fails the revenue service filter cannot be accepted as the same issue has never been raised by the assessee during any proceedings before the TPO or before the Appellate authorities. The same is being rejected on being devoid of any merit. ”

(B.2.2) Based on aforesaid fresh order of Ld. TPO u/s 92CA(3) of I.T. Act dated 28.10.2011 the Ld. AO prepared Draft Assessment Order dated 20.2.2015. The assessee’s objections vide Form No.

35A were overruled / set aside by DRP (Disputes Resolution Panel) vide its order dated 15.10.2015. Aggrieved, the assessee is now in appeal before us. ■ ( k 20

ITA No. 6734/De!/2015

(C) In the course of hearing before us the Ld. AR of the assessee submitted that Revenue should have 'been'consistent in applying the filters. If the filter is applied by Ld. TPO, he contended ; for rejecting other comparables proposed by the assessee ; then the comparable of ICC International Agencies should also have been excluded by applying the same filter. He submitted that the comparable of ICC International

Agencies was included by the Ld. TPO merely because it showed high profits although it should have been excluded by application of the same filter which was used by the Ld. TPO for rejecting other 4l comparables proposed by the assesee. He submitted that Jfoe A comparable cannot be selected merely because it shows high profits.

Ld. DR for Revenue strongly defended the selection of ICC

International Agencies as a comparable and made detailed submissions.

However the submissions and arguments advanced by him pertained mainly to other grounds of appeal, i.e. other than the aforesaid additional / modified ground of appeal. Ld. DR failed to refute the factual claim made by Ld. AR of the assessee that in the case of ICC

International Agencies support service receipt were less than 75% of total operating revenues. Ld. DR also did not offer any explanation why the filter selected by Ld. TPO which excluded other comparable proposed by the assessee was not applied on ICC International Agencies for excluding ICC International Agencies also as a comparable. — (D) We have heard both sides. We have also carefully perused the material on record. It is not in dispute that the Ld. TPO applied a filter on the basis of which other comparable? offered by the assesee were rejected. The filter applied by the Ld. TPO was , companies whose support service receipt were less than 75% of the total operating revenues were excluded. It is also not in dispute that the support service receipt from ICC International Agencies are less than 75% of the total operating revenues. It is thus obvious that the ICC International

Agencies should have been excluded as a comparable the aforesaid filter applied by the Ld. TPO was applied consistently. No justification A has been offered by the Ld. TPO why filter was applied selectively^ ^ exclude other comparables but to not exclude ICC International

Agencies. It is true that profit margin shown by ICC International

Agencies is high. But that alone cannot be just and reasonable criteria for selection of comparable. At para 5.10 of aforesaid earlier ITAT order dated 31.1.2014 in the case of the assessee in ITA No.

5830/Del/2012, ITAT Delhi has already taken a view that the comparable of ICC International Agencies Ltd. should not be included merely because it was proposed by the assessee. We quote from this para, and we are in agreement with the view expressed to quote ITAT

Delhi held : “It most definitely cannot be “declared” to be a comparable only on the ground that it has been offered as a comparable by a party to the proceedings ignoring the arguments that it was offered on a mistaken belief of law and facts. Law has to be applied to the facts and circumstances as it is and it does not depend ■ ' ■ ■■ . . . . > ' ■... on the admission or waiver either of the assessee or the Revenue. No case law is required to appreciate the basic principle that what cannot be taken as a comparable under the provisions of the Act cannot became a comparable just because of the admission of the assessee.

Once a plea is raised, which prima facie appears to be bona fide and is found to be supported by facts, the same necessarily needs to be considered. We are firmly of the view that too hold otherwise would defeat the very purpose of having Appellate Forums if on the mere proposal of a functional comparable by the assessee it is to be held as a comparable ignoring facts to the contrary. Whenever the comparability of a comparable company is called into question then it is the duty of the Court to apply its mind and come to a conclusion, on a due consideration of the facts whether it is a comparable or not a comparable and accordingly disposal of the case by blindly placing reliance on admission or waiver by the assessee or the Revenue to our minds cannot be said to be a proper discharge of judicial function, ”

Merely because a comparable was proposed by the assessee, the assessee is not barred from pleading from its exclusion, once adequate reasons are available for this plea and if there are just and reasonable grounds for its exclusion. Ld. TPO acted arbitrarily, unreasonably and unjustifiably in not excluding ICC International Agencies as a comparable on the basis of a filter which the Ld. TPO had himself selected and used to reject other comparables proposed by the assessee. A comparable cannot be selected by Revenue merely because it shows high profit margin or because it was proposed by the assessee when other similar comparables proposed by assessee are rejected by Revenue applying a filter. Revenue should apply whatever criteria it selects or adopts for ^exclusion- or exclusion of comparables , consistently. Therefore, aforesaid additional / modified ground of appeal raised by the assesee is allowed and we direct that the ICC

International is to be excluded as a comparable.In the result ground ais® 2.3 of appeal, which is art additional/modification ground of appeal is L allowed. As the other grounds of appeal were not pressed by the assessee; the remaining grounds of appeal, other than the aforesaid additional / modified grounds of appeal ; are treated as dismissed, being not pressed, for statistically purposes. ~ ~

In the result this appeal is partly allowed.