TaxTMI 
TaxTMI 
2014 (4) TMI 814
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....hat even in the subsequent assessment years deduction under section 10A was allowed up to assessment year 2003-04. For the assessment year 2004-05 and 2005-06 though the AO disallowed the deduction under section 10A but the same was restricted to exclusion of satellite link charges and technical fee from export turnover. However, the ld. CIT(A) and further this Tribunal allowed the full claim of the assessee for the assessment year 2004-05. Similarly for the assessment year 2005-06, the ld. CIT(A) allowed the full deduction. The ld. AR has submitted that for the assessment year 2006-07 this Tribunal has remanded the issue to the record of the AO to the extent of computation of deduction though on principle the claim of the assessee was allowed. Thus the ld. AR has submitted that once the claim of the assessee under section 10A was allowed in the first year which is the year of formation of Vikroli unit then the same cannot be disallowed in the subsequent years in view of the decision of the Hon'ble Jurisdictional High Court in case of CIT v. Paul Bros. [1995] 216 ITR 548 as well as the decision dated 14.08.2010 in case of CIT v. Western Outdoor Interactive (P.) Ltd. [2012] 349 ....
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....ied upon by the assessee have been duly considered in the impugned order. For the assessment year 2006-07 the Tribunal has remanded the issue to the record of the AO for the purpose of computation of deduction as the AO did not examine the apportionment of export turnover and expenses of the unit. For the year under consideration, the Tribunal after considering the decision of the Tribunal in assessment year 2006-07 as well as decisions of the Hon'ble Jurisdictional High Court in the case of Paul Bros. (supra), as well as in the case of Western Outdoor Interactive (P.) Ltd. (supra), has concluded in para-7 to 8 as under :- "7 Thus, it is clear that, if the claim of the assessee was allowed for the first year, then without withdrawing the claim granted for the earlier AY, the revenue cannot deny the benefit of sec. 10A of the subsequent years, if there is no change in the facts and circumstances, which were in existence during the first Assessment Year and the assessment in which the claim has been denied. Hence, in case there is no change in the facts and circumstances subsequent to first year which could have rendered the assessee ineligible for deduction u/s 10A, the....
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.... brought on record for the first time in the year under consideration and was not examined by the CIT(A), therefore, the same was remanded to the AO for examination of the limited fact of formation of consolidated unit by merging two existing units during the year under consideration. Therefore, this direction of the Tribunal does not affect the claim of the assessee if there is no change in the facts and circumstances during the year under consideration as existed in the first year of formation of the Vikroli Unit. Even otherwise the assessee has not made out a case of apparent error which can be rectified under section 254(2) of the Income tax Act. Hence, we do not find any merit or substance in the miscellaneous application with regard to the finding of the Tribunal on the issue of deduction under section 10A. 4. The next grievance of the assessee is regarding the transfer pricing issue and particularly on inclusion/exclusion of certain comparable cases. The first comparable against which the assessee raised the grievance in the miscellaneous application is Asit C. Mehta Financial Services Ltd. The ld. AR for the assessee has submitted that the said company is not functionall....
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....e income from ITES is about 96% of the total revenue. Therefore, as far as the functional comparability of this company is concerned, we find that this company is functionally comparable with the assessee. 27.1 Moreover, when segment results are available, then the same can be taken into consideration for the purpose of determination of the ALP. 27.2 As regards the related party transactions are concerned, since the related party transactions are in respect of the total business and it is not clear as how much percentage of the related party transactions is in the ITES segment. Therefore, this matter is required verification and examination on the facts as brought before us by the ld DR. Accordingly, we remit this comparable to the record of the Assessing Officer/TPO to reconsider the same after taking into account the segment results and related party transactions in ITES segments and accordingly decide the comparability of this company in view of our observations." 4.3 It is clear from the facts recorded in the order that the issue has been remanded to the record of AO/TPO to consider the segmental results of this company. If the assessee has any doubt about ....
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....divergent view which has been duly considered by the Tribunal in the case of the assessee and thereafter by considering the additional details and facts the Tribunal has arrived at the conclusion that the assessee has not made out a case as to how the high or low turnover has influenced the operating margins. On the contrary it was found that there is no direct relation between turnover and margin at least in services sector. The Tribunal has analyzed the facts in detail and then arrived at the conclusion in para - 47 to 47.7 as under :- "47. We have considered the rival submissions as well as the relevant material on record. The assessee has mainly emphasised the objection of high turnover of Infosys BPO Ltd in comparison to the assessee; therefore, this company cannot be treated as a comparable. The reliance was placed on the decision of the Hyderabad Benches of this Tribunal in case of Capital IQ Information (supra) as well as in the case of Agnity India Technologies (supra) 47.1 We note that in the case of Capital IQ Information (supra) the Tribunal has relied upon the decision in the case of Agnity India Technologies (supra) as well as in the case of Triniti ....
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....e of Genesys Integrating India P. Ltd. (supra), the Bangalore Bench of the Tribunal has observed in the following manner- "9. Having heard both the parties and having considered the rival contentions and also the juridical precedents on the issue, we find that the TPO himself has rejected the companies which are making losses as comparables. This shows that there is a limit for the lower end for identifying the comparables. In such a situation, we are unable to understand as to why there should not be an upper limit also. What should be upper limit is another factor to be considered. We agree with the contention of the learned counsel for the assessee that the size matters in business. A big company would be in a position to bargain for the price and also attract more customers. It would also have a broad base of skilled employees who are able to give better output. A small company may not have these benefits and therefore, the turnover also would come down reducing profit margin. Thus, as held by the various benches of the Tribunal when companies which are loss making are excluded from comparables, then the super profit making companies should also be excluded. For the pu....
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.... comparability of two entities having difference of Rs. one crore only cannot be compared. In our view for the purpose of comparing the profit margin of functionally similar entity the classification of such slab range is not practically workable. Therefore, as it is apparent from this classification that two entities can be compared having difference in the turnover upto Rs. 199 crores; but at the same time, cannot be compared even if the difference of turnover of one cr. Therefore, with due respect, we are unable to accept such classification of comparables on the basis of fixed slabs of turnover. 47.4 Further, as brought to our notice by the ld DR through the details and graphic chart there is no direct proportionate relation between the turnover and margin. The details applied by the ld DR as shown in the graphic chart are as under: S. No. Name of the Company Margin Sales Mean Margin Sales Upto 1. Datamatics Financial Services Ltd. (Seg.) 5.07 2.92 2. Bodhtree Consulting (Segmental) 29.58 2.94 3. Informed Technologies India Ltd. 35.56 4.07 4. Co....
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....rables. It is settled proposition that the decisive factor for determining inclusion or exclusion of any case as a comparable are prescribed under Rule 10B(2) which does not specify any such factor of turnover on the basis of which a particular case can be included or excluded in the list of comparables. 47.6 In the case of M/s Symantec Software Solutions P Ltd (supra), this Tribunal (one of us- JM-is the party) has considered and decided the issue of turnover filter in para 12.15.1 as under: "12. Next objection of the assessee is regarding turnover filtering as well as difference in functions and risk profile of comparables. 13. The main contention of the Id AR of the assessee is that the comparables having more than 50 crores and less than 5 crores of turnover should be excluded for determining the ALP because the assessee's revenue from marketing support services is about Rs. 20 crores. He has pointed out that as per Rule 10B(3), if there are material difference between the transaction being compared, then, reasonably accurate adjustments should be made to eliminate the material difference. The Id AR asserted that since the TPO has not made any suc....
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.... the turnover of such comparables has undue influence on the margins, it is not the general rule to exclude the same that too when the comparables are selected by the assessee itself." 47.7 When the assessee has not made out a case as how the high or low turnover has influenced operating margin and on the contrary there is no direct relation between the turnover and margin as clear from the details and graphic chart reproduced above, then a comparable cannot be rejected solely on the basis of high turnover. Even otherwise, the larger turnover and size of the entity may has an impact of economical cost of production in the manufacturing industry due to huge cost of fixed asset but not in service sector.' 5.2 Thus, it is clear that the finding has been given on examination and analysis of the facts and the assessee has not pointed out in the miscellaneous application any factual mistake in the facts which are considered by the Tribunal while giving the finding. The ld. Authorized Representative has also advanced the contention that the Tribunal is bound by the decision of the Co-ordinate Bench and therefore, cannot take a divergent view when a decision of Co-ordinate ....
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....tification to depart from the earlier view, e.g. where subsequently new or more facts come to light. (1961) 41 ITR 685 (SC) (supra); 1974 CTR (SC) 167 : (1972) 84 ITR 273 (SC) (supra) ; (1982) 138 ITR 326 (Cal) (supra); (1986) 57 CTR (Raj) 249 : (1986) 160 ITR 243 (Raj) (supra), etc. or if the earlier bench omitted to consider certain material aspects (1961) 41 ITR 685 (SC) (supra); (1962) 44 ITR 529 (SC) (supra); (1993) 203 ITR 304 (Guj) (supra); (1994) 122 CTR (Ker) 410 : (1995) 211 ITR 635 (Ker) (supra). In the case of CIT v. Kalpetta Estates Ltd. (supra), Hon'ble Kerala High Court have further stated that the Tribunal is entitled to take a different view of the matter on a closer and more intelligent analyses. 50. Thus, from the judgments enumerated in this order, I understand that the decisions of a co-ordinate Bench of the Tribunal do not constitute binding precedent on any subsequent Bench of the Tribunal. At the same time if it is only a case of different opinion being held on the same facts, material and aspects already considered, the subsequent Bench should not proceed on its own to make a contrary decision and instead refer the matter for constitution of a ....
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....for all years." Hon'ble High Court found that the principle that each assessment is a different assessment year is not merely helpful to the IT authorities but it is equally helpful to the assessee. Shri N.A. Palkhiwala, the eminent counsel for the assessee argued that the Tribunal stood on a different footing from an IT authority not bound by an earlier decision. Reliance was placed by him on a large number of authorities including the statement of the law with regard to 'res judicata' appearing in Halsbury, Vol. 13, p. 449. Hon'ble Bombay High Court held the view that the cases mentioned in Halsbury are cases of a Tribunal dealing with a specific issue which is not likely to arise again. The principle should not have application in relation to the power of one Tribunal to revise or reopen a decision given by another Tribunal in a different assessment. In the words of Hon'ble Court, "IT Tribunals deal with different assessments, and it could not be said that when the first Tribunal gave a decision, the issue was at an end and the question could not be raised again because when a fresh assessment came before the later Tribunal, the question did arise but it aros....
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....ribunal in departing from the decision arrived at by the first Tribunal. Therefore, in our opinion, an earlier decision on the same question cannot be reopened if that decision is not arbitrary or perverse, if it had been arrived at after due inquiry, if no fresh facts are placed before the Tribunal giving the later decision and if the Tribunal giving the earlier decision has taken into consideration all material evidence. We should also like to sound a note of warning, especially with regard to a Tribunal like the Appellate Tribunal, that it should be extremely slow to depart from a finding given by an earlier Tribunal. Even though the principle of res judicata may not apply, even though there may be no estoppel by record, it is very desirable that there should be finality and certainty in all litigations including litigations arising out of the IT Act. It is not a very satisfactory thing that an assessee should feel a grievance that one Tribunal came to one conclusion and another Tribunal came to a different conclusion and that the two conclusions are entirely inconsistent with one another. Therefore, the second Tribunal must be satisfied that the circumstances are such as to jus....
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....e entire complexion of the case as compared to the cases earlier decided by the Tribunal including herself. It is needless to say that in such circumstances the case before her fell in the category of exceptions carved out by the series of judgments of Hon'ble Supreme Court and of various High Courts discussed by me at length from para 28 onwards. In my opinion, the learned AM (sic-JM) was entitled to take a different view of the matter when an altogether different case was presented before her.' It is clear that in case of Napar Drugs (P.) Ltd. (supra) the Tribunal has considered various decisions including the decision of Hon'ble Jurisdictional High Court in case of H.A. Shah & Co. v. CIT [1956] 30 ITR 618 (Bom.) and held that if while deciding a case the First Tribunal did not have a particular material before it and if the second Tribunal is satisfied that if those material facts have been taken into consideration the decision of first Tribunal would have been different, it would justify the second Tribunal in not adhering to the decision of the first Tribunal. Accordingly when the issue has been decided after considering certain vital facts which were not before....
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....l IQ Information (supra) as well as CRM rejected this company as comparable. Undisputedly, the alleged fraud relates back to the period of 1980 to 1990 and it was in respect of business in bicycle parts not connected with the business activity of this company. There was no allegation of any malpractice or fraud in the business of these companies and the allegation of fraud was against the directors in person. Though the Tribunal in the case of Capital IQ Information (supra) and CRM Services (supra) has taken one of the grounds for rejecting this company as a comparable because the director of this company was reportedly involved in the fraud, in our considered opinion the said allegation of fraud against the directors and that too in the year 1980 to 1990 would not have influenced the business and margin of these companies when there is no allegation of any malpractice or fraud in connection with the business of these companies. Further, considerable time has passed when these allegations were reported up till the AY under consideration. Therefore, solely on the basis of the allegations of fraud and malpractice against a person in respect of unconnected business activity because th....
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....bility before the CIT(A) and also relied upon the decision of the Hyderabad Bench of the Tribunal in case of Capital IQ Information System India (P.) Ltd. wherein the Tribunal has held that Eclerx Services Ltd. could not be regarded as comparable, as it was involved in KPO Services which is different from BPO Services. However, this Tribunal has omitted to consider this decision and gave a finding completely contrary to the finding in the case of Capital IQ Information System India Pvt. Ltd. On the other hand the ld. DR has submitted that the Authorized Representative did not advance the argument on the functional comparability of Eclerx Services Ltd. but relied upon the decision of Capital IQ Information System India Pvt. Ltd. He has further contended that in the said case of Capital IQ Information System, Eclerx Services Ltd. was rejected as comparable on the ground of super normal profits and KPO services. On the issue of super normal profits there are various decision and Tribunal rulings wherein it has been held that merely on the basis of super normal profit a company cannot be excluded as a comparable. It is the reason of existing abnormal circumstances leading to super norm....
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....y comparability analysis should not be rejected on the sale basis that they suffers loss or earned high profit. 34.6 In the case of Exmxon Mobil Co. India P. Ltd. (supra), the Tribunal has discussing the issue in para 31((xi) as under: (xi) Now, coming to the alternative arguments of the assessee that abnormal profit making unit is also to be eliminated on the same analogy on which loss making units are excluded, we, in principle, do not dispute this proposition. The various case laws relied upon by the assessee lay down that a comparable cannot be eliminated just because it is a loss making unit. Similarly, a higher profit making unit cannot also be automatically eliminated just because the comparable company earned higher profits than the average. The reason for rejecting the two loss making units is not just because they were loss making units but for the reasons which are already stated in the preceding paragraphs. If similar reasons existed in the higher profit making unit, then, it is for the assessee to bring out those reasons and seek exclusion of the same. A general argument that, you have to exclude units which have high profit range, in case you exclude....
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.... merger. 8.1 On the other hand the ld. DR has submitted that the issue has been remanded to the record of the AO/TPO for verification of extra ordinary events of merger and then to decide the comparability of the company. Therefore, issue of comparability has to be decided only after verification of factum of merger. 8.2 We have considered the rival submissions as well as perused the relevant record. The Tribunal has considered and decided this issue in para-52 and 52.1 as under :- "52. The ld AR has referred threefold objections against inclusion of this company in the comparables. Firstly, this company has earned super normal profit; secondly this is not functionally comparable as it is engaged in the engineering services. He has referred page 301 & 302 of the paper book and submitted that the assessee raised these objections that there is a considerable differences in the business profile and the functions performed by this segment of Mold Tex vis-à-vis the business profile and functions performed by the assessee. The ld AR has pointed out that this company operates in two business segments; plastic division and IT division. Plastic division is engaged in t....
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....ed to the record of AO/TPO for verification consequently, the issue of functional comparability has also to be decided by the AO/TPO. Hence, finding in para 52.1 is accordingly clarified. 8.4 The assessee has also raised grievance in respect of finding of the Tribunal on the issue of tolerance range of related party transaction for exclusion of comparable cases. The ld. AR of the assessee has submitted that the assessee has relied upon various decisions of the Tribunal wherein the Tribunal has held that 0-15% of the related party transaction should be considered a threshold for considering an entity as comparable. However, the Tribunal in the impugned order has applied the limit of 15% on the assumption that if good number of comparable are available an entity is having 15% related party transactions can be considered as uncontrolled entity. Thus, the ld. AR has submitted that the Tribunal has taken a contrary view to the ruling of the co-ordinate Bench of the Tribunal which were relied upon by the assessee. 8.5 On the other hand the ld. DR has submitted that the Tribunal has discussed the issue in detail and fixed the tolerance range by considering the facts and circumstance....
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....of Comparable Company having related party transaction more than 15% of the total sales. Similarly in the case of Sony India P Ltd (supra), the Tribunal has dealt with an identical issue in para 115.3 as under: "115.3 On careful consideration of rival submissions, we see no justification for excluding above named three entities from the list of comparable for working out mean operating profit. It is an admitted position that these companies satisfy screening criteria (filters) adopted by the Transfer Pricing Officer at page 10 of the order except his observation that companies were having controlled transactions with related parties. The TPO and on appeal, the learned CIT (Appeals) did not substantiate the allegation by furnishing figures of controlled transactions to show that such transaction had significant impact on the profits of these companies. The taxpayer, on the other hand, has given percentage of transaction with related parties and we are of view that they are not so high as to exclude them from the list of comparables. We are further of view that an entity can be taken as uncontrolled if its related party transaction do not exceed 10 to 15% of total revenue. W....
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....sfied. One of the criteria is if an entity holds 26% shares in another entity, then it can be considered as AE. Thus it is clear that the Benches of Tribunal have taken divergent view in various decisions and held that an entity can be taken as uncontrolled, if its related party transaction ranging from 0 to 25% of the total revenue. In the majority of the cases, the range of related party transaction has been considered between 10 to 15% of the total revenue. It is discernible from the different views taken by the Tribunal in these decisions that there cannot be a fixed criteria/parameter which can be applied as a filter in respect of related party transactions for considering an entity as uncontrolled for the purpose of determination of the ALP. 22.8 In our view 0% related party transaction is an impossible situation and therefore, it is practically not possible to find out a comparable having no related party transaction. Therefore, a reasonable percentage of the total revenue from the related party transaction can be considered for selecting an uncontrolled comparable. There cannot be a single criteria/parameter which can be applied as general rule in all the cases. Th....
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....ge of 15% was taken in the case of assessee by considering the various decisions of the Tribunal wherein this range has been considered from 0-25%. The assessee's grievance is against reasoning and view of the Tribunal and not against any error or mistake apparent on record. Even in the decisions relied upon by the assessee related party transactions have been considered between 10-15% . The view taken by the Tribunal in assessee's case is not divergent from the view in other cases. Hence, the assessee failed to make out any error apparent from record on this issue. 8.8 The assessee has also raised an objection in the miscellaneous application against the finding of the Tribunal on the issue of justification of carrying out fresh search by the TPO. The ld. AR of the assessee has submitted that the assessee relied upon the decision of the Tribunal in case of Haworth (India) (P.) Ltd. and in case of Vedaris Technologies (P.) Ltd wherein the Tribunal has considered even one comparable sufficient for determining the ALP. The ld. AR has submitted that in assessee's case TPO accepted eight comparables selected by the assessee and further carried out the search to include 2....
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....etermining the ALP in relation to international transactions. 14.2 The assessee has challenged the action of the TPO on the ground that after accepting 8 comparables selected by the assessee, the TPO is not justified in carrying out fresh search and adding 22 more comparables. The contention of the ld Sr counsel is based on the logic that the 8 comparables, as selected by the assessee and accepted by the TPO, are more than sufficient for determination of the ALP and therefore, there was no requirement, which justified the fresh search carried out by the TPO in inclusion of 22 more comparables 14.3 We do not agree with the proposition advanced by the ld Sr counsel for the assessee because there cannot be a fixed number of comparables to be considered as sufficient or appropriate number for determination of the ALP as a general parameter. The sufficient number of comparables depends upon the facts and circumstances of the each case and there cannot be a fixed criteria or parameter for number of comparables, which can be universally applied to each and every case for determination of the ALP. It is an accepted rule of sampling that larger size of sample would better ....
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....e's case as in that case both the parties had accepted one comparable only. But that is not the only basis on which the Tribunal has rested its decision. The other case of similar nature is Parrot Systems TSI India Ltd. v. DCIT (supra). Moreover, the comparable which has been Left was selected by the assessee itself in its TP study and no reason whatsoever is given that how the said comparable could not be taken to compute arm length price of the assessee. Therefore, we reject the submission of the assessee that on the basis of one comparable, the arm length price could not be determined and fresh search was required to be taken as per submissions made before DRP. The facts of the present case do not warrant the fresh search to be taken into consideration as there is no valid reason to do so. 14.6 The finding of the Tribunal is on the point whether in a case where only comparable is left which is selected by the assessee in the TP study, then the TPO is not bound to carry out a fresh search. Therefore, the Tribunal's decision is not on the point of restricting the power and jurisdiction of the TPO to carry out the fresh search; but it is in the peculiar facts of th....
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....8.13 The assessee has also objected against the finding of the Tribunal on the comparability of Tritone Corporation and Maple Esolutions Ltd. It has been submitted that the Tribunal has taken a divergent view from the decision in case of IQ Information System. Therefore, the matter should have been referred to the Special Bench to the extent of taking divergent view. 8.14 As we have already considered this objection of the assessee and reproduced the findings of the Tribunal in para No.6.1 of this order, the decision relied upon by the assessee has also been duly considered while giving the finding. The allegation of fraud is against the director of the company but in respect of business of bicycle spare parts and further it related to the year 1980-1990. Therefore, by considering this particular fact of a different business and lapse of considerable time as well as allegation were against director and not against the company the Tribunal has decided the issue. In our view the decision taken on merits and recording sufficient reasons cannot be assailed in the proceedings under section 254(2). Accordingly we do not find any error apparent on record qua this issue. 8.15 As it i....