Tribunal excludes high turnover companies, upholds delayed payments allowance, emphasizing turnover in comparability.

The Tribunal directed the AO to exclude high turnover companies from the list of comparables and re-compute the Arm's Length Price (ALP), rendering other grounds academic. The Tribunal also upheld the allowability of delayed payments towards PF/ESI, dismissing the Revenue's appeal and partly allowing the Assessee's cross-objection. The decision emphasizes the importance of turnover as a criterion for comparability and aligns with judicial precedents on the treatment of delayed statutory payments.

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Issues Involved:
1. Exclusion of certain companies as comparables for determining Arm's Length Price (ALP).
2. Application of turnover filter in selecting comparable companies.
3. Allowability of delayed payment of employees' contributions towards PF/ESI.

Detailed Analysis:

1. Exclusion of Certain Companies as Comparables:
The primary issue in Grounds 1 to 5 of the Revenue’s appeal and the grounds of the Assessee’s cross-objection pertains to the determination of ALP for the international transaction of rendering software development services by the Assessee to its Associated Enterprise (AE). The Assessee received Rs. 17,56,78,482 for these services and claimed the price was at Arm's Length based on a Transfer Pricing study using the Transaction Net Margin Method (TNMM) with a profit margin of 15%. The Transfer Pricing Officer (TPO) selected 13 comparable companies with an average profit margin of 24.82%, leading to an addition of Rs. 1,34,27,918 to the Assessee's income. The Dispute Resolution Panel (DRP) modified the list of comparables, excluding some companies chosen by the TPO.

2. Application of Turnover Filter:
The Assessee raised an objection that the TPO applied a lower turnover filter of Rs. 1 crore but did not exclude companies with high turnover (above Rs. 200 crores). The Tribunal agreed with the Assessee, citing previous decisions that turnover is a relevant criterion for comparability. The Tribunal noted that companies with significantly higher turnover than the Assessee (Rs. 17.56 crores) should be excluded. This decision was supported by various precedents, including the case of Autodesk India Pvt. Ltd., which held that a company with huge turnover cannot be compared with a company with small turnover. The Tribunal directed the AO to re-compute the ALP by excluding high turnover companies, making other grounds of appeal academic.

3. Allowability of Delayed Payment of Employees' Contributions towards PF/ESI:
The issue in Ground 6 of the Revenue’s appeal was whether the delayed payments of employees' contributions towards PF/ESI, which were deposited before the due date for filing the return of income under Section 139(1), should be disallowed under Section 36(1)(va). The Tribunal, following the Karnataka High Court’s decision in CIT Vs. Sabari Enterprises, held that such contributions are allowable deductions even if paid beyond the stipulated period, provided they are paid before the due date for filing the return.

Conclusion:
The Tribunal directed the AO to exclude high turnover companies from the list of comparables and re-compute the ALP, rendering other grounds academic. The Tribunal also upheld the allowability of delayed payments towards PF/ESI, dismissing the Revenue's appeal and partly allowing the Assessee's cross-objection. The decision emphasizes the importance of turnover as a criterion for comparability and aligns with judicial precedents on the treatment of delayed statutory payments.

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