DCIT, CHENNAI vs. HANIL TUBE INDIA PVT LTD., KANCHEEPURAM

आदेश / O R D E R

PER D.S.SUNDER SINGH, ACCOUNTANT MEMBER:

This is an appeal filed by the Revenue against the Directions of the DRP in F.No.DRP/CHE/16/2013 dated 20/12/2013 and the consequential & CO No.58/Mds/2014 :- 2 -:

Assessment Order passed by the DCIT-II(2), Chennai u/s.143(3) r.w.s.144C(13) dated 24/02/2014. The assessee also filed Cross objections against the AO/DRP order which was numbered as CO No.58/Mds/2014. The revenue has raised the following grounds challenging the directions given by DRP and consequent Assessment Order:

2. The Hon’ble DRP erred in directing the TPO to include M/s.Ceekay Daikin Limited, the assessee’s comparable which was rejected by the TPO. 2.1 The Hon’ble DRP failed to note that it is an exceptional year of operation for M/s.Ceekay Daikin Limited, during which year the company has ventured in manufacturing a new variety of clutch, viz., ‘one way clutch’ and the start up cost incurred in the new product line has affected the company’s margin. Hence, the company cannot be adopted as a comparable. 2.2 The Hon’ble DRP ought to have noted that as per the decision of the Hon’bte ITAT Bangalore in the case of Trilogy E business Vs. DCIT, if there are specific reasons for abnormal profits or losses or other general reasons as to why they should not be regarded as comparables, then they can be excluded for comparability. 2.3 The Hon’ble DRP ought to have appreciated that as evident from the schedules of the Balance Sheet, there are details of amalgamated shares of the company with its erstwhile shareholder M/s.Exedy Ceekay Limited and hence the company cannot be taken as a comparable. 3. The Hon’ble DRP erred in directing the TPO to exclude the forex loss on from the computation of operating cost of the assessee. 3.1 The Hon’ble DRP ought to have noted that the loss arises only due to sales or purchase activities which are revenue in nature and accordingly the loss has to be part of operating cost. 3.2 The Hon’ble DRP failed to note that as per the OECD guidelines, the forex losses or gains arising due to revenue transactions shall form part of the operating item. 3.3 The Hon’ble DRP erred in not consideringe the decision of the Hon’ble ITAT in the case of M/s. Zenta Knowledge Service Private Limited and M/s.Mercedes Benz R & D India Private Limited, wherein the ITAT has laid down the principle that the forex gain / loss should be considered as an operating item. 4. For these and other grounds that may be adduced at the time of hearing, it is prayed that the direction of the Hon’ble DRP may be set aside and the order of the Transfer Pricing Officer be restored.

& CO No.58/Mds/2014 :- 3 -:

2.0 M/s.Hanil Tube India Ltd., (HTIL) is engaged in manufacturing of Tubes, pipes, automotive components and Tubular Products primarily for the auto industry. M/s.HTIL caters to the requirement only one Original Equipment Manufacturer (OEM) – Hyndai Motors India Limited (HMIL) and hence it dependent on all its sales.

During the assessment proceedings the Assessing officer (AO) found that the assessee has reported the International transaction in Form - 3CEB as follows:

S. Name of the Associated Description of Amount Method (in ₹) No. Enterprise Transaction adopted Purchase of 1 Hanil Tube Corporation, Korea various 28,60,250.00 TNMM components Purchase of 2 TI Automotive, Korea various 16,67,11,762.00 TNMM components Jigs and fixtures CUP/TNMM 3 Hanil Tube Corporation, Korea 21,21,430.00 and machinery Jigs and fixtures 4 TI Automotive, Korea 29,90,928.00 CUP/TNMM and machinery Reimbursement TNMM 5 Hanil Tube Corporation, Korea *1,35,55,629.00 of expenses* Total 18,82,39,999.00 - *In the TP study report, the assessee had submitted that it has incurred Technical Services Fee of ₹1,14,41,552/- which is included under the head Reimbursement of expenses in Form-3CEB.

The above international transaction of ₹18,18,82,999/- has been 3.0 referred to the TPO for determining the ALP. The assessee company accepted TNMM as most appropriate Method and taken operating profit/operating income (OP/OI) as PLI. The assessee’s PLI was bench marked with that of the comparables chosen by the assessee and held that transactions were at Arms Length. While selecting the comparables, & CO No.58/Mds/2014 :- 4 -: the assessee has selected public limited companies as comparables and eliminated the private limited companies in selection of comparables. The reason given by the assessee for selecting public limited companies was that “it was very difficult task to get the data of Private Limited Companies (the Financial data for Private Limited Companies could be available only from the Registrar of companies) hence decided not to consider the Private Limited companies as comparables”. The reasons given by the assessee to restrict comparables to Public Ltd. Companies was not accepted by the TPO since the data is available in public domain. The assessee company being Pvt. Ltd. Company, the TPO was of the view that the assessee should have included the Private Ltd. Companies, also as comparables. The assessee declined for inclusion of Private Ltd companies since the data from public domain is only available on payment but not freely. The assessee also used multiple year data for arriving the margin against the Rules of contemporaneous data. The assessee further stated before the TPO that the Transfer pricing study conducted by the assessee was as per the Indian TP regulations in sections 92, 92A and 92F of Income Tax Act. The TPO after considering the explanation of the assessee excluded the four companies given from the list of 11 companies. As per the detailed reasoning given in the TP order for arriving at the margin, the following list of companies were excluded by the TPO: a) M/s.I.P.Rings Ltd b) M/s.Autolite India Ltd. c) M/s.G.S.Auto International Ltd. d) M/s.Ceekay Daikin Ltd.(presently known as M/s.Exedy Ceekay Ltd.)

& CO No.58/Mds/2014 :- 5 -:

4.0 The TPO conducted independent search process and opined that for external TNMM, selection of comparables should be at similar functions and products and selected the following comparables.

Operating Profit S. Name of the Company ---------------------- No. Operating Income TPOs comparables: 1 M/s.Amtek Ring Gears Limited 16.52 2 M/s.Highway Industries Limited 9.62 3 M/s.Jay Bharath Exhaust Systems Limited 5.80 4 M/s.Rambal Limited 12.19 5 M/s.Talbros Automotive Components Limited 5.59 Assessee’s comparables: 6 M/s.ANG Auto Industries Limited (ANG Auto Ltd.) 14.29 7 M/s.Bimetal Bearings Limited 6.82 8 M/s.KAR Mobiles Limited 5.05 9 M/s.Lumax Automotive Systems Limited 5.75 10 M/s.Raunaq Automotive Components Limited 5.28 11 M/s.Samkrg Pistons and Rings Limited 6.01 12 M/s.India Nippon Electricals Limited 6.28 Average 8.27 Assessee’s Margin 2.43 5.0 From the comparables, the TPO arrived at the average margin of 8.27% against the assessee’s margin of 2.43% and issued show cause notice for determining the ALP as follows:

S.No. Description 1 Assessee’s Margin(A) 2.43% 2 A.M of comparable margin (B) 8.27% 3 Operating Sales manufacturing (C) 55.09% 4 Expenses made to/Purchases from AE (AE cost) 18.10 Cr. 5 If the sales is 100, cost incurred by the assessee 97.57 6 If the sales is 100, cost expected to be incurred 91.73 by the assessee, with a profit margin of 8.83% 7 ALP of AE cost 17.02 Cr. (18.10 * 91.73/97.57) 8 Actual AE cost 18.10 Cr. 9 Difference proposed to be adjusted 1.08 Cr.

& CO No.58/Mds/2014 :- 6 -:

6.0 The assessee filed reply to the show cause notice objecting for exclusion of the following comparables selected by the assessee: i) M/s.G.S.Auto International Ltd. ii) M/s.Ceekay Daikin Ltd.(presently known as M/s.Exedy Ceekay Ltd)

6.1 The assessee had objected for inclusion of the following comparables selected by the TPO:

1. M/s.Amtek Ring Gears Limited.

6.2 The assessee also submitted for inclusion of the following additional comparables:

1) M/s.Federal-Mogul Bearings India Ltd. 2) M/s.India Japan Lighting Pvt. Ltd. 3) M/s.Jay Bharat Exhaust Systems Ltd. 4) M/s.Mubea Suspension India Ltd. 5) M/s.R S M Autokast Ltd. 6) M/s.Remsons Industries Ltd. 7) M/s.Somic Z F Components Ltd. 8) M/s.Talbros Automotive Components Ltd. 9) M/s.Vaid Elastomer Processors Ltd. 10) M/s.Victor Gaskets India Ltd.

The TPO considered the reply of the assessee and rejected the objections raised by the assessee for exclusion and inclusion of comparables and also rejected the assessee’s request for additional comparables. In respect of use of multiple year data the TPO rejected the same and adopted the data relating to the financial year in which the International transaction has been entered into. The TPO adopted the PLI of 8.27% as worked out above and determined the ALP of purchase cost at ₹17.49 Cr. against the actual cost of ₹18.60 Cr. and suggested for & CO No.58/Mds/2014 :- 7 -: downward adjustment of ₹1.11 Cr. The Assessing Officer issued Draft Assessment Order proposing the adjustment suggested by the TPO.

7.0 The assessee filed objections before the DRP against the draft Assessment Order agitating the selection or rejection of comparables, application of RPT filter @25%, adjustment of working capital, idle capacity adjustment exclusion of foreign exchange loss for operating profit and for inclusion of additional comparables. The DRP considered the objections raised by the assessee and issued the following directions: i) The DRP upheld the filters of RPT transaction over 25%. ii) The DRP is directed the AO/TPO to include the M/s.Ceekay Daikin Ltd., as comparable. iii) The DRP rejected the assessee’s request for considering the alternate set of comparables provided by the assessee as they are cherry picked.

7.1 The assessee also objected before the DRP regarding the working of PLI and argued for inclusion of interest expenditure for working of PLI.

The DRP has rejected the contention of the assessee for inclusion of interest expenditure.

7.2 The assessee also raised objections for exclusion of foreign exchange loss and DRP directed the TPO to exclude foreign exchange loss for computation operational income of the assessee as well as the comparables. Similar is the case with the foreign exchange gain also.

7.3 The assessee has raised objection for adjustment of working capital and idle capacity utilization which was rejected by the DRP. & CO No.58/Mds/2014 :- 8 -: 7.4 The assessee raised the objections for excluding the companies with different accounting period which was rejected by the DRP.

On receipt of the directions from the DRP, the AO passed the Assessment Order assessing the total loss at ₹2,62,22,219/-. The directions of the DRP resulted in TP adjustment at Rs.NIL against the proposed adjustment of ₹1.11 Cr. suggested by TPO. Therefore, the Revenue is in appeal against the directions of the DRP and the assessee filed Cross-Objections.

Revenues’ appeal:

8.0 Ground Nos.1 & 4 are general in nature which do not require specific adjudication.

9.0 Ground Nos.2 to 2.3 are related to the inclusion of M/s.CeeKay Daikin Ltd., as comparable. The assessee argued before the DRP not to exclude M/s.Ceekay Daikin Ltd., from the comparables since the functions of the company are the same. The DRP after considering the objections raised by the assessee directed the AO to include M/s.Ceekay Daikin Ltd., as comparables for determining the margin.

9.1 Aggrieved by the Order of DRP, the department has filed appeal before this Tribunal. & CO No.58/Mds/2014 :- 9 -: Appearing for the Revenue, the Ld.DR argued that it is an exceptional year of operation for M/s.Ceekay Daikin Ltd. During the year the company has ventured in to manufacturing of new variety of clutch i.e. one way clutch and the startup cost incurred in the new product line has affected the company’s margin. The Ld.DR submitted that if specific reasons exists for abnormal profits or loss or other general reasons which will have material effect on profit margins of such company should be excluded as comparable. It is evidenced from the balance sheet of M/s.Ceekay Daikin Ltd that it has been amalgamated with the M/s.Exedy Ceekay Ltd., and there were circumstances prevailing for exclusion from the comparables. According to the Ld.DR, the TPO has rightly excluded M/s.Ceekay Daikin Ltd. On the other hand, the Ld.AR argued that it is not disputed that the companies functionally comparable to the assessee and the company M/s.Ceekay Daikin continues to be in the same line of business. The DRP has upheld the functional similarity. The new product one way clutch is also part of regular operations of company’s auto auxiliary business. Therefore, merely because it has introduced a new product it does not mean that the said company cannot be considered as a comparable. According to the Ld.AR, the DRP has rightly directed the TPO to include M/s.Ceekay Daikin Ltd., as comparable.

9.2 We heard the rival submissions and perused the material placed on record. The assessee company is engaged in the manufacture of tube & CO No.58/Mds/2014 :- 10 -: pipes automatic components and tubular products primarily in the auto industry. M/s.Ceekay Daikin Ltd., is also in the manufacturing of automotive components for the AY 2008-09. TPO excluded from the comparables under the impression that it has incurred cash losses due to introduction of a new product ‘one way clutch’ for the two wheelers segments which involves start up costs and has amalgamated with M/s.Exedy Ceekay Ltd., for acquiring 121340 equity shares of M/s.Ceekay Daikin Ltd., with M/s.Exedy Ceekay Ltd., Director’s reports supports the introduction of new product and high cost of raw material and depreciation resulted in loss of company. The DRP observed that there was no amalgamation during the FY 2008-09 and the companies are comparable functionally. There was no change in the method of accounting, depreciation and inventory as mentioned by the TPO in his Order. There was no change in the shareholding and the functional comparability. The company manufactures clutch system and auto components and the Ld.AR further brought to our notice that the sale value of one way clutch has a percentage of total turnover only 4.25% amounting to ₹4.06 Cr. out of the total turnover of ₹118.98 Cr. which is insignificant. The Ld.AR brought to our notice that there were no extraordinary events i.e. no amalgamation during the year and no change in the accounting policies. Though, the TPO noticed that the profits have been reduced due to start up costs of new product ‘one way clutch’ no evidence has been placed before us and the & CO No.58/Mds/2014 :- 11 -: Ld.DR did not controvert the facts. Therefore, we do not find any infirmity in the directions of the DRP and uphold the Order of the DRP.

10.0 Ground Nos.3 to 3.3 are related to the foreign exchange (in short ‘Forex’) loss. The TPO has not considered the Forex loss as non-operative in nature while calculating the operative margin of the company. The DRP has directed the TPO to exclude the Forex loss from the operating income as well as from the comparables similarly Forex gain also should be excluded.

10.1 Aggrieved by the Order of the DRP, the Revenue is on appeal before us. The Ld.DR argued that Forex loss is an operative income which arises only due sales or purchase activities which are Revenue in nature and it should be part of operating loss. According to the OECD guidelines, the Forex loss or gain arising due to Revenue receipt shall form part of operating income. The Revenue relied on the decision of the Hon’ble ITAT in the case of M/s.Zenta Knowledge Service Private Limited and M/s.Mercedes Benz R&D India Pvt. Ltd., wherein the Hon’ble ITAT considered the Forex loss as an operating loss. On the other hand, the Ld.AR submitted that the DRP directed the TPO to exclude forex gain/loss placing reliance on Safe Harbour Rules. The Ld.AR further submitted as under: & CO No.58/Mds/2014 :- 12 -:

Safe Harbor Rules provides for exclusion of forex gain/loss from operating profit.

Forex gain/loss should be excluded because it would not be possible to ascertain the revenue/capital nature of forex gain/loss in case of comparable companies.

It is pertinent to note that the forex loss/ gain arises due to transaction with Indian banker while buying/selling the forex and no gain accrues to AEs. For eg. If at the time of agreeing the price with AE if 1 USD is INR 50 and post placing the order, receiving the goods, at the time of payment if 1USD is 52 Rupees then the assessee would have paid INR 52 to Bank for 1 USD to remit the same to AE. In this regard, it is pertinent to note that AE has not gained anything. AE has received only 1 USD as agreed. It is due to the macro-economic factor/market forces, the assessee had to pay additional INR 2 to Banker for securing the 1USD.

Further, it is submitted that there is no statutory definition for the term “operating expenses” under the Income-tax Act, 1961. General rule of statutory interpretation permits borrowal of definition from supplementary Acts/Rules/Regulation. Accordingly, the Safe Harbor Rule which is issued by the CBDT by virtue of the powers vested in it under section 119 of the Income-tax Act, the definition mentioned therein could be borrowed and adopted herein. According to Rule 10TA(j) of the Safe Harbor Rules, the term of “operating expenses” has been defined to mean certain expenses other than loss of account of foreign exchange fluctuation. Therefore, when income-tax administrator indicates that such expenses cannot be treated as operating expenses, the same logic should be applied in the instant case while computing the margins of the Assessee.

Further, the objective of undertaking detailed functional analysis (FAR analysis) is only to determine the Functions, Assets and Risks borne by each party to the transaction and undertake appropriate adjustment for such differences. The basic principle is that the party who bears the risk would have the right to undertake the adjustment. For example, if capacity utilization risk is borne by tested party as per FAR analysis in TP Report and if there is under absorption of fixed overheads due to under-utilization of capacity then the tested party would have the right to undertake the capacity utilization adjustment.

Hence, the conclusion made stating that, since forex risk is borne by the assessee as per FAR analysis, forex gain/loss would form part of operating expenses and hence the assessee cannot claim the forex adjustment is totally erroneous and defies the basic principles of risk adjustment concept.

Given that under transfer pricing provisions, the objective is to determine the Arm’s Length Price of transaction and to see if any profits are shifted to AEs, the forex loss/gain arising out of external market forces are to be excluded as the same are not under the control of the assessee or the AEs.

Given the above, for determining the ALP of transaction with AEs, the forex fluctuations should be excluded. This is also the position taken by CDBT in computation of margins under safe harbor provisions.

It is pertinent to note that this reinstatement was made only for the purpose of complying with the Accounting Standards. Therefore, forex loss on account of restatement is a notional loss accounted only to comply with AS.

The assessee also relied on the following decisions of the tribunal: a) Airbus India Operations Private Limited (IT(TP) A No.35/Bang/2014), b) D.A. Jhaveri (ITA 5161/Mum/2007), the Hon’ble Mumbai Tribunal & CO No.58/Mds/2014 :- 13 -:

10.2 We heard the rival submissions and perused the material placed before us. The assessee claimed foreign exchange loss amounting to ₹3.06 Cr. which was considered by the TPO as operating income for computing PLI. He did not exclude the same. Out of foreign exchange loss of ₹3.06 Cr. an amount of ₹1.41 Cr. was on account of reinstatement of balances outstanding at the end of the year. According to the Ld.DR, the foreign exchange loss represents operating income and according to the Ld.AR foreign exchange loss would not give any benefit to the AE and it is the loss on account of foreign exchange fluctuation which is unforeseen expenses by the assessee. Therefore, the foreign exchange loss or gain are to be excluded from the operating income. Foreign exchange loss or gain due to reinstatement of balance outstanding at the end of the year cannot be held as operating profit/loss since the same is on account of notional loss to comply with the accounting standards. With regard to the foreign exchange loss incurred in business operations for purchase of materials or for international transaction do not give any extra benefit to the AE who supplies the material, since the AE receives the payment in foreign exchange and the assessee also makes the payment in foreign exchange. The loss was due to exchange difference between the foreign currency and the Indian currency. Therefore, while computing the PLI, operating income for the purpose of PLI, both foreign exchange loss or gain should be excluded from the operating income. The DRP has allowed & CO No.58/Mds/2014 :- 14 -: loss on Forex to exclude from the operating income, relying on the safe Harbour Rules which provide for exclusion of Forex loss from operating expenses. Therefore, we do not find any infirmity in the directions given by the DRP to exclude both foreign exchange loss or gain of the tested party as well as comparables from the operating income. This ground of Revenue is dismissed.

10.3 In the result, the appeal of the Revenue is dismissed.

11.0 Cross Objections No.58/Mds/2014 The assessee filed cross objections and raised the following grounds:

1. The Transfer Pricing Officer (TPO) erred in making an upward adjustment to the value of international transaction 1.1 The DRP/TPO erred in not providing any adjustment to the arm’s length margin of the comparables on account of differences in working capital. 1.2 The DRP/TPO ought to have considered adjustments for difference in capacity utilization while calculating the operating margin of the Respondent since the company is in the initial years of operations and its entire capacity could not be utilized fully. 1.3 The DRP erred in confirming the action of the TPO in selecting Amtek Ring Limited as a comparable company without appreciating that the said different financial year ending from that of the Respondent. 1.4 The Dispute Resolution Panel (DRP) erred in confirming the order of the TPO in holding that RPT filter should be applied at the rate of 25 per cent instead of 33 per cent. 1.5 The DRP erred in confirming the action of the TPO in not considering the fresh set of comparable companies submitted by the Respondent for benchmarking analysis. 1.6 The DRP erred in confirming the order of the TPO in excluding interest expenditure while computing the PLI of comparable companies.

2. The Respondent craves leave to add, alter, amend, substitute, rescind, modify and/or withdraw in any manner whatsoever all or any of the foregoing grounds at or before the hearing of the appeal.

& CO No.58/Mds/2014 :- 15 -: 12.0 Ground Nos.1 & 2 are general in nature which do not require specific adjudication.

13.0 Ground No.1.1 is related to the working capital adjustment. The assessee has requested for working capital adjustment. The DRP has rejected the assessee’s objection for allowing the working capital adjustment, since the assessee has not brought on record any evidence to show that the assessee is purchasing from AE and the AE has allowed the assessee extraordinary credit period. During the appeal, the assessee has filed additional evidence before us in the Paper Book. However, the assessee has not furnished the pricing model and reasons for extending extraordinary credit to its clients. Similarly the assessee did not furnish the pricing models of the comparable companies as well as the AE. The terms and conditions of sale and interest clause if any require verification.

The assessee relied on the decisions of ITAT, Bangalore bench in the case of Apigee technologies (India) (P) Ltd. (63 Taxmann129) and Qualcomm India Pvt. Ltd(ITA No.5329/Del/2010), Delhi wherein the coordinate benches have allowed the working capital adjustments. However, the issue of working capital adjustment requires verification of facts from the assessment records of the assessee and the data of comparables companies in the light of discussion made above. Therefore, we remit the matter back to the file of the AO to examine the assessee’s claim of working capital adjustment on facts and make appropriate adjustment on & CO No.58/Mds/2014 :- 16 -: facts and merits. It is needless to say that the Assessing Officer should give opportunity to the assessee to present the case. This ground of the assessee is allowed for statistical purposes.

14.0 Ground No.1.2 is related to adjustment for idle capacity utilization.

This is the ground raised by the assessee before the DRP and the DRP has rejected the assessee’s objections stating that the claim has been made without any actual computation and no case has been made out for capacity utilization. The assessee filed additional evidence before us and argued that the AY 2009-10 was first full year of operation and requested for capacity utilization. The assessee also furnished the details of capacity utilization of adjustment and relied on the decision in the case of Mando India Steering Systems Pvt. Ltd., (in ITA No.2092/Mds/2012). On the other hand, the Ld.DR relied on the order of the Ld.DRP.

14.1 We heard the rival submissions and perused the material placed before us.

The assessee has not furnished the details of installed capacity and capacity utilized and the reasons for non-utilization of the installed capacity and resources available and utilized by the assessee. Similarly, the assessee has also not furnished the details of the comparable companies installed capacity and utilized capacity and the levels of break even. In the absence of reasons for non-utilization of installed capacity & CO No.58/Mds/2014 :- 17 -: the claim for capacity adjustment is unfounded. The assessee claimed to be in the second year of operation but furnished the details in respect of sales to fixed costs which is insufficient information to decide whether installed capacity was due to start ups or not. The assessee did not explain the reasons for non-utilization of optimum capacity and therefore, this objection of the assessee cannot be accepted and the decision of the Co-ordinate Bench in the case of M/s.Mando India Steering Systems Pvt. Ltd., (cited supra) is not applicable and this ground is dismissed.

15.0 Ground No.1.3 is related to selection of Armtek Ltd as comparable.

The Ld.AR of the assessee objected before the DRP for selection of M/s.Amtek Ring Gears Ltd. which follows the FY June, 2008 to June, 2009.

The DRP rejected the objections of the assessee since effectively nine months were covered in the accounting period. The Ld.AR argued that the assessee follows the accounting period April to March and all other comparable companies also follow the same Financial year. Therefore, he contended that M/s.Amtek Ring Gears Ltd., should be excluded from the comparables. The Ld.AR relied on the following decision: i. Honeywell Automation India Ltd. (ITA No.4/PN/08) ii. Hewlett Packard (India) Globalsoft (P) Ltd. (63 taxmann 136)

On the other hand, the Ld.AR relied on the lower authorities orders.

15.1 We heard both the parties and perused the material placed on record. & CO No.58/Mds/2014 :- 18 -:

The Co-ordinate Bench in the case of Hewlett-Packard (India)

Globalsoft (P) Ltd., in Para No.27 held as under:

“26. Now taking up the question of exclusion of Flextronics Software Systems Ltd (seg), it is true that the decision of Motorola Solutions (India) P. Ltd (supra) also was for the very same year and also on software development services sector. This Tribunal held as under:

“97.2 For a company to be included in the list of comparables, it is necessary that credible information is available about the company. Unless this basic requirement is fulfilled, the company cannot be taken as a comparable. It is true that Ld.TPO is entitled to obtain information u/s.133(6), the object of which is primarily only to supplement the information already available on record, but not, as rightly submitted by Ld.Counsel for the assessee, to replace the information. If there is a complete contradiction between the information obtained u/s.133(6) and Annual Report then the said information cannot be substituted for the information contained in Annual Report. We, therefore, are in 149 agreement with Ld.Counsel for the assessee that this company cannot be included as a comparable in the set of comparables selected by Ld.TPO on account of clear contradiction between contents of Annual Report and information obtained u/s.133(6).

In the instant case, the assessee is following accounting year from April to March and the comparable company M/s.Amtek Ring Gears Ltd., is following June, 2008 to June, 2009. Once, the company is following a different accounting year, there will be a wide range effects in the operating results and the company seized to be a good comparable. The AO has not reconciled the financials of the comparable company to the corresponding period of the tested party by collecting necessary information and re-casted the financials. Therefore, following the decision, in the case of M/s.Hewlett Packard (India) Globalsoft (P) Ltd., ITAT Bangalore Bench we direct the AO to exclude the M/s.Amtek Ring & CO No.58/Mds/2014 :- 19 -: Gears Ltd., as comparable. This ground of Cross-Objection of the assessee is allowed.

16.0 Ground No.1.4 is relating to RPT filter.

The TPO has applied the RPT filter of 25% and the assessee objected for restricting it to 25%. The DRP has rejected the assessee’s objection on the ground that the 25% has become more or less acceptable and it gets support from the fact that 26% is a threshold limit for treating the company as AE u/s.92A. Similarly, Sec.40A(2)(b) treats 20% as the threshold limit for having substantial interest in the company. Therefore, the DRP held the application of 25% is reasonable. No argument has been made by the assessee on this ground and we consider that as per the reasoning given by the DRP for application of 25%, application of RPT appears to be reasonable and this ground is dismissed.

17.0 Ground No.1.5 relates to not considering the fresh set of comparables submitted by the assessee for bench marking the margins.

The DRP has rejected the objection of the assessee stating that the additional set of companies were nothing but cherry picked by the Ld.AR without proper objectives and analysis. During the appeal hearing, the Ld.AR did not place any additional information except reiterating the submissions made before the DRP. The Ld.AR has not placed TP analysis & CO No.58/Mds/2014 :- 20 -: and the FAR analysis and the financials of the additional comparables before the tribunal. Therefore, we uphold the directions of the DRP and this ground of the appeal is dismissed.

18.0 Ground No.1.6 is exclusion of interest expenditure while computing the PLI of comparable companies. No argument has been raised by the Ld.AR and this ground is dismissed.

18.1 In the result, Cross-Objections of the assessee are partly allowed.