Turnover criteria mandatory for TP comparable selection with ten times tolerance range for fresh search

The ITAT Hyderabad allowed the assessee's appeal for statistical purposes on multiple grounds. Regarding TP adjustment, the tribunal held that turnover is a relevant criteria for selecting comparables and directed the AO/TPO to apply a tolerance range of ten times on both sides of the assessee's turnover for fresh search. The management fee issue was remanded to AO/TPO for re-examination. The 20% adhoc disallowance of foreign outward remittances was set aside and restored to the AO/TPO for proper consideration of assessee's submissions. The tribunal also directed the AO to verify and allow TDS credit attributable to the amalgamated entity if found correct.

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Issues Involved:
1. Transfer Pricing Adjustment on IT enabled services (ITeS)
2. Interest on receivables
3. Management fee
4. Adhoc disallowance of foreign outward remittances
5. Short credit of TDS

Detailed Analysis:

1. Transfer Pricing Adjustment on IT enabled services (ITeS):
The assessee, engaged in software distribution, development, and shared services, filed a return for AY 2018-19. The TPO suggested an upward adjustment based on a fresh search of comparables, leading to a significant increase in assessed income. The assessee contested the inclusion of certain large companies (Infosys BPM Ltd., Tech Mahindra Business Services Ltd., and E-Clerks Services Ltd.) as comparables due to their significantly higher turnovers and brand values. The Tribunal, referencing various judicial precedents, agreed that turnover is a relevant criterion for comparability and directed the AO/TPO to apply a turnover filter of ten times on both ends for a fresh search. Consequently, the grounds related to the Transfer Pricing adjustment were allowed for statistical purposes.

2. Interest on Receivables:
The assessee chose not to press the issue related to interest on receivables. Consequently, Grounds No. 9 to 11 were dismissed.

3. Management Fee:
The issue of management fee was previously restored to the AO for re-examination in past years. The Tribunal followed the same approach for the current year, directing the AO/TPO to re-examine the issue in light of previous findings and relevant judicial precedents. The grounds related to the management fee were allowed for statistical purposes.

4. Adhoc Disallowance of Foreign Outward Remittances:
The assessee argued that the DRP did not consider their submissions and highlighted discrepancies in the figures used by the DRP. Additionally, it was contended that the management fee was doubly disallowed. The Tribunal found the request reasonable and restored the issue to the AO/TPO for reconsideration of the enumerated discrepancies. The ground was allowed for statistical purposes.

5. Short Credit of TDS:
The assessee claimed a short credit of TDS attributable to an amalgamated entity and itself. The Tribunal directed the AO to verify the records and allow the credit if found correct. The appeal was partly allowed for statistical purposes.

Conclusion:
The Tribunal addressed each issue raised by the assessee, providing detailed directions for re-examination and reconsideration by the AO/TPO where necessary. The appeal was partly allowed for statistical purposes, and the stay application was dismissed as infructuous. The judgment emphasized the importance of appropriate comparability criteria in Transfer Pricing cases and the need for thorough verification of claims related to TDS credits and foreign remittances.

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