ORDER

R.K. Panda, Accountant Member - This appeal filed by the assessee is directed against the order dated 30.09.2016 passed u/s. 143(3) r.w.s. 144C of the I.T. Act by the ACIT, Circle 4(1), New Delhi relating to assessment year 2012-13.

2. Facts of the case, in brief, are that the assessee Baxter India Pvt. Ltd. was incorporated in 1997 and is engaged in trading and manufacturing of CAPD bags, plasma based proteins, products for renal dialysis and certain chemicals. It is also engaged in trading of certain products and also provides captive IT Enabled Services (ITES) to its associate enterprises. The assessee company filed its return of income on 30.11.2012 declaring total income of Rs. 20,30,25,560/-. Subsequently, the assessee revised its return of income on 27.03.2014 declaring total income of Rs. 19,95,75,120/-. The Assessing Officer referred the matter to the TPO for determining the arm's length price in respect of the international transactions entered into by the assessee as per the provisions of section 92CA(3) of the I.T. Act. In response to notice u/s. 92CA(2), the assessee furnished various details. The TPO observed that the assessee has reported the following international transactions in the Form No. 3CEB :—

S. No.	International Transaction	Amount in INR
1	Purchase of raw material	546730531
2	Sale of goods	612259008
3	Payment of royalty	64377766
4	Availing of services	7534649
5	Purchase of finished goods	1123924565
6	Provision of services	16210677
7	Provision of services (ITES)	10782582
8	Purchase of spare parts and fixed assets	113506642
9	Interest on loan	13561735
10	Networking charges	23727954
11	Cost recharge paid/payable	10908058
12	Cost recharge received/receivable	24602285

3. The TPO issued a show cause notice asking the assessee to justify the arm's length price in respect of its international transactions representing ITES, purchase of fixed assets, and receivables etc. Rejecting the various explanations given by the assessee, the TPO proposed adjustment of Rs. 14,10,49,533/- on account of the transactions under the trading and manufacturing segment. The details of which are as under :—

"24. The cumulative adjustments made in this case are tabulated below.

S.N.	Nature of international transaction	ALP determined by taxpayer (INR)	ALP determined by this office (INR)	Adjustment u/s. 92CA (INR)
1.	Provision of ITES	11,86,08,402/-	13,76,39,659/-	1,90,31,257/-
2.	Purchase of fixed assets	11,35,06,642/-	Nil	11,35,06,642/-
3.	Receivable	Nil	85,11,634/-	85,11,634/-
	Total			14,10,49,533/-"

4. The assessee approached the DRP, who rejected the two comparables from the ITES segments proposed by the Assessing Officer/TPO. However, they retained the three comparables considered by the TPO in the ITES segment. So far as the issue relating to purchase of fixed assets is concerned, the DRP rejected the contention of the assessee. As regards receivable is concerned, the DRP accepted the contention of the assessee for netting off of receivables and payables. After considering the directions of the DRP, the AO reduced the adjustment proposed by the TPO by Rs. 4,84,97,731/- and made an addition of Rs. 1,45,70,988/-.

5. Aggrieved with such order of the Assessing Officer/TPO, the assessee is in appeal before us by taking the following grounds :—

'1. That on the facts and in the circumstances of the case and in law, the Hon'ble Dispute Resolution Panel ("DRP")/Learned Assessing Officer ("AO")/Learned Transfer Pricing Officer ("TPO") erred in making addition to the returned income of the appellant by INR 1,45,70,988/- by re-computing the arm's length price of international transactions under section 92 of the Income Tax Act, 1961 ("the Act") and the orders are bad in law and void ab-initio.

2. That on the facts and in the circumstances of the case and in law, the reference made by AO suffers from jurisdictional error as the AO did not record any reasons in the draft assessment order based on which he reached the conclusion that it was "necessary and expedient" to refer the matter to the TPO for computation of the arm's length price, as is required under section 92CA(1) of the Act.

Provision of IT Enabled Services ("ITes") Segment

3. That on facts and in the circumstances of the case and in law, DRP/AO/TPO erred in making an adjustment of Rs. 1,32,19,445/- to the returned income of the Appellant by re-computing the arm's length price of the international transactions with its associated enterprises in the ITeS segment by:

3.1 Accepting additional/modified filters selected by TPO in the ITeS segment which lacked valid and sufficient reasons.

3.2 Disregarding the economic and comparability analysis as conducted by the Appellant in the Transfer Pricing documentation ("TP documentation") maintained by it in terms of section 92D of the Act and in rejecting appropriate comparable companies selected by the Appellant and in accepting comparable companies that are functionally not comparable.

3.3 Selecting certain companies which had significantly high turnover and/or were not comparable by way of functions, assets and risks in order to determine the arm's length margin applicable to the Appellant.

3.4 Arbitrarily rejecting the risk analysis conducted by the Appellant for the ITES segment in its transfer pricing submissions without taking cognizance of the fact that the Appellant was operating as a risk free entity rather than an entrepreneur and hence erred in denying the economic adjustment for the difference in risk profile of the Appellant vis a vis comparables.

3.5 Disregarding the multiple year data selected by the Appellant in the TP documentation for the ITeS segment and in selecting the current year (i.e. financial year 2011-12) data for comparability despite the fact that at the time of comparison done by the Appellant, the complete data for financial year 2011-12 was not available within the public domain.

3.6 Rejecting the transfer pricing methodology for this financial year when the same was accepted by the Hon'ble Delhi ITAT in a recently concluded decision for FY 2010-11 wherein the transactions in the ITES segment were held to be at arm's length despite there being no change in facts and circumstances.

Purchase of Fixed Assets

4. That on facts and in the circumstances of the case and in law, DRP/AO/TPO erred in making adjustment on fixed assets by not demonstrating the existence of anyone of the four conditions provided in Section 92C(3) which is a mandatory requirement for making adjustment under section 92CA(3) of the Act.

5. That on facts and in the circumstances of the case and in law, DRP/AO/TPO erred in determining the arm's length value of fixed assets by not taking cognizance of the invoices, bill of entries and valuation certificates by chartered engineer submitted by the Appellant for evidencing the arm's length nature of the purchase of fixed assets.

6. That on facts and in the circumstances of the case and in law, the DRP/AO/TPO erred in not appreciating that the Appellant had also evidenced the arm's length basis of the mark-up charged by the AEs on the sale of some of the fixed assets.

7. That on facts and in the circumstances of the case and in law, DRP/AO/TPO erred in not appreciating that the Arm's Length Price of Appellant's international transactions of purchase of finished goods had been accepted by the customs department as per the Special Valuation Board Order and that arm's length price accepted by one Governmental authority cannot be disregarded by the other Governmental authority.

8. That on facts and in the circumstances of the case and in law, the DRP/AO/TPO erred in not providing any comparable data to hold the arm's length value of the purchases of fixed assets to be "nil".

9. That DRP/AO/TPO erred on the facts and in the circumstances of the case and in law, in charging and computing the interest on demand under section 234B and 234C of the Act and withdrawing interest under section 244A of the Act.

10. That DRP/AO/TPO erred on the facts and in the circumstances of the case and in law, in initiating penalty proceedings under section 274 read with 271(1)(c) of the Act.

The above grounds of appeal are mutually exclusive and without prejudice to each other.

The Appellant craves leave to add, alter, amend or vary any of the above grounds either before or at the time of hearing as we may be advised.'

6. The assessee has also taken an additional ground which reads as under :—

"Ground No. 11 - Without prejudice to other grounds, that on the facts and circumstances of the case and in law the Ld. AO failed to follow the DRP directions in restricting the arm's length cost of fixed assets at invoice value less mark up. Thereby, erred in disallowing the entire depreciation instead of depreciation on mark-up charged."

7. The ld. counsel for the assessee submitted that the additional ground is purely legal in nature and all facts are on record. No new facts are required to be investigated. Relying on the decision of the Hon'ble Supreme Court in the case of National Thermal Power Co. Ltd. v. Commissioner Of Income Tax [1998] 229 ITR 383 (SC) , he submitted that the additional ground raised by the assessee should be allowed.

8. After hearing both the sides and considering the additional ground being a legal ground and no new facts are required to be investigated the additional ground is admitted for adjudication.

9. Ground of appeal no. 1 and 2 being general in nature are dismissed.

10. Ground no. 3 to 3.6 relates to adjustment of Rs. 1,32,19,445/- on account of arm's length price adjustment to provision for ITES. The ld. counsel for the assessee submitted that as a part of its ITES operation, Baxter India is engaged in providing human resource related services, payroll processing services, training and performance system data entry, etc. to its AE. As a compensation for these services, the AE remunerated Baxter India at a cost plus 10% basis. Referring to the TP documentation, copy of which is placed at page 970 of Paper Book Volume - II, ld. counsel for the assessee submitted that the assessee had used TNMM as the most appropriate method with Operating Profits/Operating Cost (OP/OC) as the Profit Level Indicator (PLI). Referring to page 1039 of Volume II (Page 4 of the TPO's order), he submitted that the assessee selected 7 comparables with mark-up of 12.77%. Referring to page 5 of the TPO's order, he submitted that the TPO had initially selected 12 comparables with mark-up of 25.38%. Referring to page 64 of the TPO's order, he submitted that the TPO had finally selected 9 comparables with mark-up of 27.65%, the details of which are as under :—

10. Final set of comparable companies are as under :—

S.N.	Name of the comparables	OP/OC (%)
1	Informed Technologies India Ltd.	7.62
2	Jindal Intellicom Ltd.	-0.05
3	Accentia Technologies Ltd.	11.95
4	Eclerx Services Ltd.	58.4
5	Infosys BPO Ltd.	36.75
6	TCS E-Serve Ltd.	63.69
7	Excel Infoways Ltd. (seg.)	41.48
8	E4e Healthcare Services Pvt. Ltd.	19.85
9	Acropetal Technologies Ltd. (segment)	9.21
	Average	27.65

11. Referring to page 7-8 of the order of Assessing Officer, he submitted that the DRP had directed the TPO/Assessing Officer to exclude Accentia Technologies Ltd. and Eclerx Services Ltd. and retained the remaining 7 comparables. He submitted that after giving effect to the order of the DRP, the mark-up comes to 22.26% as against 27.65% mark-up determined by the Assessing Officer/TPO. He submitted that mark-up of the assessee for the impugned assessment year was 10.00%. Ld. counsel for the assessee submitted that as Baxter India is engaged in providing human resource related services, payroll processing services, training and performance system data entry, etc. to its AE, its services can be termed as routine ITES services. He submitted that the sales turnover of ITES segment for financial year 2011-12 is Rs. 11.86 crores. This comprised only 2.65% of total turnover of Baxter India for financial year 2011-12.

12. Ld. counsel for the assessee submitted that for the ITES segment, the assessee can be classified as a routine service provider assuming minimal risks since it is compensated on a cost plus basis. Referring to page 153 of the Paper Book, he submitted that as per action point 10 of Base Erosion and Profit Shifting Action Plan (BEPS) issued by OECD, low value intra group services are defined as services performed by one member or more than one member of a Multinational Enterprise group on behalf of one or more other group members which are of supportive nature, are not part of the core business of the MNE group, do not require the use of unique and valuable intangibles and do not lead to the creation of unique and valuable intangibles and do not involve the assumption or control of substantial or significant risk by the service provider and do not given rise to the creation of significant risk for the service provider. Therefore, for the above low value added services, BEPS Action Plan 10 has recommended the arm's length charge for such services to be at 5% on cost. He submitted that since the services provided by Baxter India are covered under the ambit of low value adding services as defined under BEPS action plan 10, and since Baxter India charges a mark-up of 10% on cost for such services, therefore, the transactions of Baxter India are at arm's length even as per BEPS Action Plan 10.

13. So far as the comparable companies wrongly selected/rejected by TPO/DRP are concerned, the ld. counsel for the assessee submitted that the three comparables namely (i) TCS e-Serve Ltd., (ii) Infosys BPO Ltd. and (iii) Excel Infoways Ltd. should be excluded from the list of comparables and R Systems International Limited which was excluded by the TPO/DRP should be included.

14. So far as the TCS e-Serve Ltd. is concerned, he submitted that the TPO rejected the contention of the assessee stating that the company is engaged in ITES and high turnover does not have any correlation with the profitability. He submitted that this company was rejected as a comparable in assessee's own case for assessment year 2011-12 on the ground of absence of segmental information and considerable brand value. He submitted that the TCS e-Serve Ltd. is functionally different. The company is engaged in ITES and software development services. Further, the segmental information between ITES and software development services are not available. The company has presence of brand and the services are provided pre-dominantly to Citi Group company. So far as the employee base is concerned, TCS e-Serve Ltd. has more than 296 times of that of the assessee's employee base. The turnover is greater than 133 times of the assessee. Incomparable size of operations, abnormal profitability trend and super normal profits are the other grounds for rejection of TCS e-Serve Ltd. as a comparable. He submitted that this company was examined by the Delhi Bench of the Tribunal in assessee's own case in ITA No. 345/Del/2016 and company was excluded from the list of comparables while computing the average margin of comparables.

14.1 Referring to the decision of the Bangalore Bench of the Tribunal in the case of Swiss Re Global Business Solutions India (P.) Ltd. v. Dy. CIT [IT (TP) Appeal No. 2315 (Bang.) of 2016, dated 13-4-2017] for the assessment year 2012-13, he submitted that the Tribunal had directed the Assessing Officer/TPO to exclude TCS e-Serve Ltd. from the list of comparables on account of high turnover.

15. Referring to the decision of Delhi Bench of the Tribunal in the case of Actis Global Services (P.) Ltd. v. ITO [2016] 76 taxmann.com 41 for assessment year 2011-12, he submitted that the Tribunal has directed the Assessing Officer/TPO to exclude TCS e-Serve Ltd. from the list of comparables. Similar view has been taken in the case of FIL India Business Services (P.) Ltd. v. Dy. CIT [2016] 70 taxmann.com 42 (Delhi - Trib.) for assessment year 2010-11 and by the Mumbai Bench of the Tribunal in the case of Capita India (P.) Ltd. v. Dy. CIT [IT Appeal No. 356 (Mum.) of 2016, dated 4-3-2016] for assessment year 2011-12. He accordingly submitted that TCS e-Serve Ltd. should be excluded from the list of comparables.

16. Coming to Infosys BPO Ltd. he submitted that this company also should be rejected from the list of comparables. He submitted that the TPO rejected the contention of the assessee stating that the company is engaged in ITES and hence functionally comparable. The TPO further mentioned that the Annual Report does not mention anything in regard to brand deriving its profitability. According to the TPO, the brand in service industry may derive revenue but does not affect the profitability. Ld. counsel for the assessee submitted that Infosys BPO Ltd. is functionally not comparable since the services are in the niche areas. He submitted that this company fails the TPO's own filter of rejecting companies with peculiar circumstances, since this company has acquired the Australian based company M/s. Portland Group Pty Ltd. during the financial year 2011-12. Further, the turnover of this company is more than 111 times than that of the assessee company and it has a presence of brand.

16.1 Referring to the decision of the Bangalore Bench of the Tribunal in the case of Swiss Re Global Business Solutions India Pvt. Ltd. (supra) for assessment year 2012-13, he submitted that this company was examined by the Tribunal and the Tribunal directed the Assessing Officer/TPO to exclude Infosys BPO Ltd. on account of high turnover. Referring to the decision of Delhi Bench of the Tribunal in the case of Actis Global Services Pvt. Ltd. (supra), he submitted that Infosys BPO Ltd. was directed to be excluded from the list of comparables on the ground of huge turnover. Further, it was also held that Infosys BPO Ltd. cannot be considered as comparable to a captive service provider. Similar view has also been taken by the Mumbai Bench of the Tribunal in the case of Maersk Global Service Centers (India) (P.) Ltd. v. ITO [IT Appeal No. 1082 (Mum.) of 2015, dated 29-7-2016] for assessment year 2010-11. This company was directed to be excluded on the ground that this belongs to Infosys Group thereby carries the goodwill and brand value of the group and it has got high turnover, apart from being functionally different from that company. He accordingly requested that Infosys BPO Ltd. should be rejected.

17. So far as Excel Infoways Ltd. is concerned, he submitted that the TPO rejected the contention of the assessee on the ground that the company is not meeting employee cost to sales filter of less than 25%. He submitted that this company fails to pass TPO's own filter of diminishing revenue and abnormal volatility in revenue and margins. It has got super normal profits. Referring to the decision of Mumbai Bench of the Tribunal in the case of Dy. CIT v. Willis Processing Services India (P.) Ltd. [IT Appeal No. 2125 (Mum.) of 2014], he submitted that Excel Infoways Ltd. was excluded on account of supernormal profits. Further, it fails employee cost to sales filter as applied by the TPO.

18. So far as the companies wrongly rejected by the TPO/DRP is concerned, ld. counsel for the assessee requested for the inclusion of R System International Limited (Seg.) as a comparable. He submitted that the TPO rejected this company on account of different financial year ending. He submitted that audited quarterly results of the comparable company is available and the margin of the relevant financial year is also calculated. Further, R System International Limited is functionally comparable, clears all filters of the assessee and PLI for year ending March 2012 has been computed.

18.1 Referring to the decision of Hon'ble Punjab & Haryana High Court in the case of CIT v. Mercer Consulting (India) Pvt. Ltd. [2017] 390 ITR 615/[2016] 76 taxmann.com 153 , he submitted that Hon'ble High Court in the said decision has upheld the decision of the Tribunal that if the data relating to the financial year in which the international transaction has been entered into is directly available from the annual accounts of that comparable, then it cannot be held as not passing the test of sub-rule (4) of rule 10B. The Tribunal had rightly held that if from the yearly data ending 31.12.2008, the results of the quarter ending 31.03.2008 are excluded and if the results for the quarter ending 31.03.2009 are included, it is possible to obtain the data for the financial year 01.04.2008 to 31.03.2009.

18.2 Referring to the decision of Hon'ble Delhi High Court in the case of Mckinsey Knowledge Centre India (P.) Ltd. [IT Appeal No. 217 of 2014, dated 27-3-2015], he submitted that this principle was also accepted by the Hon'ble High Court where it was held that the comparable cannot be excluded solely on the ground of different financial year ending. He accordingly submitted that R System International Ltd. should be included as a comparable company.

19. Ld. DR, on the other hand, heavily relied on the order of the TPO/AO/DRP.

20. We have considered the rival arguments made by both the sides, perused the orders of the Assessing Officer and the DRP and Paper Book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find after the direction of the DRP the only issue to be decided in this ground is regarding the exclusion of three comparables namely (i) TCS e-Serve Ltd., (ii) Infosys BPO Ltd. and (iii) Excel Infoways Ltd. and inclusion of R System International Ltd.

21. So far as exclusion of TCS e-Serve Ltd. is concerned, we find this issue had came up before the Tribunal in assessee's own case in the immediately preceding assessment year. The Tribunal in ITA No. 345/Del/2016 order dated 26.10.2016 for assessment year 2011-12 had directed to the exclusion of TCS e-Serve Ltd. from the list of comparables by observing as under :—

'18. We have considered the submissions of both the parties. It is not disputed that TCSe-Service was engaged, inter alia, in software development services and the segmental details between ITEs and SDS were not there in the annual report. Moreover, from the annual report it is evident that its brand value also was considerable, which added to it profitability substantially. As compared to this, assessee was rendering only human resource services to its AE, on which profit margin derived by it was quite reasonable. Further, we find that in the case of Actis Global Services Pvt. Ltd. (ITA no. 6175/Del/2015 for AY 2011-12, ITAT observed in regard to TCS-E-Serve Ltd., as under:

"22. Before us, the td. A; submitted that this company is engaged in services like software testing, verification and validation and data centre management services which falls under software development services, different from low end, low risk ITES segment. He further ... should be excluded.

24. We have carefully considered the rival submissions and also referred to page No. 247 of the paper book filed before us wherein relevant extracts from annual reports shows that it includes technical services like software testing, verification and validation of software at the time of implementation and data center management activities. It is engaged in BPO segment to the banking and financial service industries. Therefore, it is apparent that the assessee is engaged in BPO services. The coordinate Bench in the case of Equant Solutions India Pvt. Ltd. v. CIT in ITA No. 120210el./2015 for A. Y. 2010-11 has held that it has used intangibles and use of data brand. Vide para No. 24 of that order, it was held to be excluded compared to low risk ITES company like Appellant. Further, the decision of the coordinate Bench in the case of Ameriprise India Pvt. Ltd. has considered in ITA No. 701410el.l2014 at para No. 12 has excluded this company as under:

12. TCS e-Serve Ltd.

12.1 The assessee objected ... Thus, the entity level figures render this company as unfit for comparison. Following the above reasons also taken note in the case of TCS e-Serve International Limited, we order for the elimination of this company from the final set of comparables."

Therefore, following the decision of the coordinate Bench, we direct exclusion of TCS E-Serve Limited from the final list of comparables."

19. Further, in the case of FIL India Business Services Pvt. Ltd. (ITA no. 6867/Del/2014) for AY 2010-11, Tribunal has observed in regard to TCS E-serve Ltd., segment as under:

"56. We have considered the rival submissions and perused the material available on record. This comparable has been directed to be excluded in the case of Equant Solutions India Pvt. Ltd. ( supra). The business profile of Equant Solutions India Pvt. Ltd. ( supra), inter alia, comprised of rendering IT enabled network management and other back office support services, which included remote monitoring and maintenance of Equant global network platforms and services, coordination, remote configuration and implementation of quality customer networking solutions. The assessee primarily undertakes to provide services for European and the Indian asset management company based in Mumbai. The assessee is primarily catering to the retail site (individual investor) to Fidelity Group business. Thus, broadly the functions performed by assessee are similar to that of Equant Solutions India Pvt. Ltd. ( supra) and, therefore, this company deserves to be excluded. We find that functions performed by TCS-e-Serve Ltd. included rendering of technical services like software testing etc., which required skilled persons. As far as the objection regarding related party transaction is concerned, we are in agreement with the reasoning given by ORP that since this company was taken over by TCS group, therefore, there was no question of any separate details being given about related party transaction. However, keeping in view the various factors, pointed out by Id. counsel for the assessee, which we have noted earlier, this company cannot be taken as a comparable to the tested party."

20. Therefore, we are in agreement with the submission of ld. counsel that TCS e-Serve Ltd. is to be excluded while computing the average margin of comparables. We direct accordingly.'

22. Respectfully following the decision of the order of the Tribunal in assessee's own case in the immediately preceding assessment year and in absence of any distinguishable features brought to our notice by ld. DR, we direct the TPO/Assessing Officer to exclude the TCS e-Serve Ltd. from the list of comparables while computing the average margin of the comparables. We hold and direct accordingly.

23. In so far as exclusion of Infosys BPO Ltd. is concerned, we find from the submissions made by the assessee before the Assessing Officer/TPO/DRP is that Infosys BPO Ltd. is predominantly into areas like Insurance, Banking, Financial Services, Manufacturing and Telecom which are in the niche areas, unlike the assessee. Further it was also submitted that the Infosys BPO Ltd. comprises brand value which will tend to influence its business operation and the pricing policy thereby directly impacting the margins earned by the Infosys BPO Ltd.. We find the submissions of the ld. counsel for the assessee before TPO/DRP that in order to maintain the brand image of Infosys BPO Ltd. in the market, the company incurs substantial selling and marketing expenditure whereas the assessee being a contract service provider does not incur such expenses to maintain its brand has not been controverted by them. Further, Infosys BPO Ltd. being a subsidiary of Infosys has an element of brand value associated with it. This can be further confirmed by the presence of brand related expenses incurred by Infosys BPO Ltd. Further, Infosys BPO Ltd. has acquired Australian based company M/s. Portland Group Pty Ltd. during financial year 2011-12. They provide sourcing and category management services in Sydney, Australia. Therefore, this company also failed the TPO's own filter of rejecting companies with peculiar circumstances. In view of the above i.e. functionally not comparable, presence of brand and extraordinary event that has taken place during the year on account of acquisition of Australian based company, we are of the considered opinion that Infosys BPO Ltd. should not be included in the list of comparables. We accordingly direct the Assessing Officer/TPO to exclude Infosys BPO Ltd. from the list of comparables for the purpose of computing the average margin.

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 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 (INR'000)	2010-11 (INR'000)	2011-12 (INR'000)	2012-13 (INR'000)	2013-14 (INR'000)	2014-15 (INR'000)
Revenue	204,161.34	203,526.39	79,096.95	76,098.54	52,792.12	22,994.38
Operating Cost	43,986.99	50,751.24	55,991.57	47,539.99	41,355.78	22,895.57
Operating Profit	160,174.35	152,775.14	23,105.38	28,558.55	11,436.34	98.81
OP/OC (%)	364.14%	301.03%	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 Willis Processing Services (India) Pvt. Ltd. (supra) 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.

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 (P.) Ltd. v. Asstt. CIT [2014] 48 taxmann.com 248/[2015] 152 ITD 158 (Delhi) 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.

26. So far as the inclusion of R System International Limited is concerned, we find the TPO rejected the same on the ground that it has got different financial year ending. However, from the submission of the ld. counsel for the assessee before the TPO/DRP we find that audited quarterly results of the comparable company are available and the margin of the relevant financial year was calculated. Since the above company is functionally comparable, clears all filters of the assessee and PLI for year ending March 2012 has been computed, therefore, merely because the above company is following different financial year, the same cannot be a ground to reject the said company from the list of comparables.

27. We find identical issue had came up before the Hon'ble Delhi High Court in the case of Mckinsey Knowledge Centre India (P.) Ltd. (supra) where the Hon'ble High Court has observed as under :—

"14. The Revenue is in appeal before this Court questioning the admissibility of the above mentioned comparables while computing Arm"s Length Price regarding the IT Support services after the TPO and AO rejected the above mentioned companies but was later allowed by the CIT (A) and ITAT. While the AO had confirmed the findings of the TPO, the Ld. CIT (A) after considering the Assessee's submissions accepted all the four companies rejected by the TPO. The revenue submits that Fortune Infotech Ltd. was correctly rejected by TPO because the company had different financial year ending on December, 2006, whereas Assessee"s financial year ended on March, 2006. There is nothing shown to the court that supports the revenues argument that the ITAT fell into error in holding that if a comparable is following different financial year then the same cannot be included in the list of comparables selected for benchmarking the international transaction. Therefore, the ITAT has held that if the comparable is functionally same as that of tested party then same cannot be rejected merely on the ground that data for entire financial year is not available. If from the available data on record, the results for financial year can reasonably be extrapolated then the comparable cannot be excluded solely on the ground that the comparables have different financial year endings."

28. Similar view has been taken by the Hon'ble Punjab & Haryana High Court in the case of Mercer Consulting (India) (P.) Ltd. (supra) wherein the Hon'ble High Court has observed as under :—

'27. The TPO excluded the case of R. Systems International Limited from the list of comparables. The ITAT included the same. The TPO excluded the case of R. Systems International Limited on the ground that it follows the calendar year i.e. Ist January to 31st December for maintaining its annual account whereas the accounting year of the assessee is 1st April to 31st March. The TPO followed an order passed by the Mumbai Bench of the Tribunal in ACIT v. Hapag Lloyd Global Services Ltd. 2013-TII-68-ITATMUM-TP in which it had been held that a company with a different financial year ending cannot be compared.

28. We are unable to agree with the decision of the TPO and of the DRP that affirmed it. The view taken by the Tribunal commends itself to us. It is not the financial year per se that is relevant. Even if the financial years of the assessee and of another enterprise are different, it would make no difference. If it is possible to determine the value of the transactions during the corresponding periods, the purpose of comparables would be served. The question in each case is whether despite the financial years of the assessee and of the other enterprise being different, the financials of the corresponding period of each of them are available. If they are, the TPO must refer to the corresponding period of both the entities in determining whether the two are comparable or not for the purpose of determining the ALP.

29. As noted by the Tribunal, the audit accounts of R System International Ltd. for the year ending 31.12.2008 had been given under one column and the data for the quarter ending 31.03.2009 and 31.03.2008 (both audited) had been given in two other columns. Thus, as rightly held by the Tribunal, if from the yearly data ending 31.12.2008, the results of the quarter ending 31.03.2008 are excluded and if the results for the quarter ending 31.03.2009 are included, it is possible to obtain the data for the financial year 01.04.2008 to 31.03.2009. 30. This view is not contrary to Rule 10(B)(4) which reads as under:—

"10B(4) The data to be used in analysing 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".

31. The Rule does not exclude from consideration the data of an entity merely because its financial year is different from the financial year of the assessee. What the Rule requires is that the data to be used in analyzing the financial results 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. Thus so long as the data relating to the financial year is available, it matters not, if the financial year followed is different. In the case before us the data relating to the relevant financial year of R. Systems International Limited is available.

32. We are, therefore, entirely in agreement with the decision of the Tribunal that if the data relating to the financial year in which the international transaction has been entered into is directly available from the annual accounts of that comparable, then it cannot be held as not passing the test of sub-rule(4) of rule 10B.'

29. Since the assessee in the instant case has provided the audited quarterly results of the comparable company and the margin of the relevant financial year has been calculated, therefore, following the decisions cited above, the company cannot be excluded from the list of comparables. We hold and direct accordingly. Ground no. 3 to 3.6 are accordingly allowed.

30. Ground no. 4 to 8 and the additional ground by the assessee relates to addition on account of purchase of fixed assets.

31. The ld. counsel for the assessee submitted that Baxter India purchased some capital assets from its AE which are necessary for use in the manufacturing plant of the assessee and without which manufacturing activities of the assessee would not be possible. He submitted that the price paid by the Baxter India for purchase of fixed assets is as per the value that has been assessed by the chartered engineer's valuation report, a copy of which is placed in the Paper Book and, therefore, the purchase of fixed assets are at arm's length under the Indian TP Regulations. He submitted that the valuation reports submitted cover 100% of the fixed assets purchased to the tune of Rs. 11,35,06,342/-, the details of which are placed at page 334 of Volume - I of Paper Book. The above amount consist of two parts i.e. (a) Rs. 3,95,46,512/- on which no mark has been charged and (b) mark up of 10% has been charged by the AE on purchase of fixed assets amounting to Rs. 7,39,60,130/-. He submitted that as per the benchmarking analysis submitted before ld. TPO/DRP the average OP/OC (three years) earned by independent overseas comparable manufacturing companies is 13.63%. Since the AEs have charged a lower mark-up than the comparable companies, therefore, the transaction is at arm's length. Referring to page 659 of Volume - I of Paper Book, he submitted that SVB order evidencing the arm's length nature of import of goods was submitted to the TPO/DRP. Further, during the financial year 2011-12 fixed assets to the tune of Rs. 1,80,20,576/- has only been capitalized. These comprise only 16.19% of the total assets purchased during the year. The value of depreciation claimed during the financial year 2011-12 on the purchase of fixed assets is only Rs. 13,51,543/- which is evident from page 329 of Volume - I of Paper Book. He submitted that as per the TPO, purchase of fixed assets is separate class of transaction, therefore, it needs to be benchmarked separately given by the chartered engineer and held that if a transaction is in accordance with one Government Regulation, it does not apply that it would be at arm's length under the TP Regulations. The TPO accordingly determined the arm's length value of the entire value of the purchase of fixed assets as Nil and made the adjustment of Rs. 11,35,06,642/-.

32. He submitted that the DRP accepted the genuineness of purchase of the fixed assets. However, the arm's length cost of assets was restricted to the invoice value only without mark-up. According to them, the transaction of purchase of fixed assets being on capital accounts, only depreciation should be considered which affects the total income. Accordingly, the DRP directed the TPO to restrict the addition to the amount of depreciation claimed during the year without the mark-up which resulted into adjustment of Rs. 13,51,543/-. He submitted that since out of the assets purchased with mark-up, amounting to Rs. 7,39,60,130/- no assets have been capitalized during financial year 2011-12 and the assets on which no mark-up has been charged and depreciation amounting to Rs. 13,51,543/- has been claimed during financial year 2011-12, therefore, in view of the order of the Tribunal in assessee's own case no addition is called for.

33. Ld. DR on the other hand heavily relied on the order of the DRP/TPO.

34. We have heard the rival arguments made by both the sides and perused the material on record and the Paper Book filed on behalf of the assessee. We find identical issue had came up before the Tribunal in assessee's own case in the immediately preceding assessment year and the Tribunal after considering the various submissions by both the sides had restored the issue to the file of the TPO with certain directions by observing as under :—

'33. We have considered the submissions of both the parties and have perused the record of the case. In course of hearing bench had raised a query as to whether the 10% mark up charged by AE was on cost or on MRP, as this fact was not coming out from the records. The assessee has filed a certificate dated 19.9.2016, which is reproduced hereunder, wherein it is, inter alia, stated that the transaction price included 10% mark up on the cost.

"TO WHOMSOEVER IT MAY CONCERN

Dated 19th Sep'16

Subject: Valuation of import of capital asset~ from SAPA Prodotti Plastici SAGL, Switzerland

Dear Sir

This is to certify that the following capital assets have been imported from SAPA Prodotti Plastici SAGL, Switzerland by Baxter {India} Private Limited during Financial Year 2010-11. The transaction price included 10% mark-up on the cost. It is to certify that there was no double mark-up.

	Sr No	Description of capital assets	Date of Transaction	Amount in CHF
	1	RF Machine	31 Dec. 2010	1,334,888
	2	RF Machine	31 Dec 2010	1,334,888

There are no remittances to SAPA Prodotti Plastici SAGL, Switzerland with regards to the imported capital assets over and above the above value.

Further, Baxter India Private Limited has not purchased identical/similar capital assets from un-related third party in India.

For Baxter India Private Limited

Sd/-

Finance Director

{Authorised Signatory}

Baxter (India) Pvt. Ltd."

34. After taking into consideration this certificate, we are of the opinion that the matter needs to be restored back to the file of ld. TPO because the mark up cannot be taken as zero. As noted earlier, the assessee will furnish necessary details of the price charged by AE from third party in order to arrive at the mark up, which was at arm's length from the assessee. Ld. DR submitted that the ld. TPO be also given an opportunity to verify the genuineness of the certificate field before the Bench. We direct accordingly. In the result, this ground is allowed for statistical purposes.'

35. Since the facts of the impugned assessment year are identical to the facts of the case in the immediately preceding assessment year, therefore, following the order of the Tribunal in assessee's own case we restore this issue to the file of the Assessing Officer/TPO with direction to re-compute the addition, if any, in the light of the direction of the Tribunal. The grounds raised by the assessee are accordingly allowed for statistical purposes.

36. So far as ground no. 9 is concerned, the same relates to levy of interest on demand u/s. 234B and 234C and withdraw interest u/s. 244A of the I.T. Act.

37. After hearing both the sides, we find the levy of interest under the above provisions are mandatory and consequential in nature. Accordingly, the grounds is dismissed.

38. Ground no. 10 relating to levy of penalty being premature at this juncture is dismissed.

39. In the result, the appeal filed by the assessee is partly allowed for statistical purposes.

jyoti