TaxTMI 
TaxTMI 
2014 (4) TMI 814
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....duction 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 ITR 309 (Bom.). The ld. AR has submitted that the ....
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....gned 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 claim of the assessee cannot be denied in the subsequent Ass....
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....rst 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 functionally comparable with that of the a....
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.... 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 an....
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....aving 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 (s....
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.... Similar view has also been expressed by the Hyderabad Bench of the Tribunal in the case of Trinity Advanced Labs P. Ltd. (supra). In the case 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 ....
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....sis of turnover from Rs. 1 crore to Rs. 200 crores, an entity having Rs. 1 crore can be compared with an entity having Rs. 200 crores turnover ; but at the same time, an entity having Rs. 200 crores turnover cannot be compared with the entity having Rs. 201 crores turnover. Thus, this classification gives unrealistic result as far as the 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 ....
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....a as prescribed under the Rule 10B(2) for selecting the comparables. 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 com....
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....ow margin are necessity of the highly competitive market to survive. 15.1 Similarly, low turnover does not necessarily mean high margin in competitive market condition. Therefore, unless and until it is brought on record that 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 ....
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....cide the matter on its own contrary to the earlier decision and should refer the matter to the President of the Tribunal for constitution of a larger Bench. At the same time there is plethora of authority that a subsequent Bench can draw different conclusion if there is adequate justification 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....
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....e assessment for the particular year for which it is made. No doubt, a decision reached in one year would be a cogent factor in the determination of a similar point in a following year, but I cannot think that it is to be treated as an estoppel binding upon the same party 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 differ....
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..... In a case like this, which indeed must be an extreme case, it could be said that the decision of the first Tribunal was a perverse, decision, and if the decision of the first Tribunal was either arbitrary or perverse it would justify the second Tribunal 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....
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....trength of the case of the assessee, precisely the same has been considered by the learned JM, to be the weakness in the case of the assessee. According to the learned JM by valiant efforts made, the learned Departmental Representative could change the 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 ....
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....p; "51 We have considered the rival submissions and relevant material on record. The first objection raised by the assessee is the involvement of the directors of this company in the fraud. The Tribunal in the case of Capital 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, consid....
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....in the submissions of the assessee on this point. 7. The next error alleged by the assessee is regarding the finding of the Tribunal in respect of comparability of Eclerx Services Ltd. The ld. AR has submitted that the assessee has raised the ground on functional comparability 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 th....
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....trolled transactions. Loss-making comparables that satisfy the comparability analysis should not however be rejected on the sole basis that they suffer losses. 3.66 A similar investigation should be undertaken for potential comparables returning abnormally large profits relative to other potential comparables. Thus, it is clear that even the loss making or high profit making comparables that satisfy 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 un....
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....tion before the authorities below or not. Accordingly we do not find any merit in the submission of the assessee on this issue. 8. The next mistake alleged by the assessee is regarding the finding in respect of comparability of Mold Tex Technologies Ltd. (MTL). The ld. AR for the assessee has submitted that the assessee challenged the selection of MTL on three grounds viz. (a) the company earns super normal profits; (b) the company is engaged in engineering services which is functionally different from the assessee and therefore, not comparable and (c) extra ordinary event in the form of 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 ....
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....omparability of Eclerx Services Ltd. therefore, no detailed finding was given for the sake of brevity and to avoid duplication. As regards the functional comparability when the fact of merger was not examined by the authorities below as it was not raised, therefore, the TPO was directed to verify this fact and accordingly decide the comparability of the company. It is pertinent to note that functional comparability can be determined only after issue of merger is verified and decided, therefore, the Tribunal did not propose to go into the issue of comparability as it was subject to event of merger. Accordingly when the issue of merger has been remanded 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 transa....
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....is not available we find that the said filter has been upheld by the DRP by following the decision of ITAT Delhi Bench in the case of Customer Services P Ltd v. ACIT 30 SOT 486 in which it has been held that commissioner of Income Tax (Appeals) was fully justified in holding that main rule of sec. 10B(4) was applicable to the facts of the assessee's case and it was mandatory on the part of the TPO to use data relating to financial year 2002-03 in which the international transactions were admittedly enter into by the assessee with its associate enterprises. Therefore, the second filter is also upheld." 21.2 The Tribunal has upheld the decision of the authorities below in applying filter for rejection 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 ....
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....rvices India P Ltd (Supra), the Tribunal has reaffirmed the view as taken in the case of Sony India (supra) and held that the tolerance limit of related party transactions would be in the vicinity of 10 to 15%. 22.6 In the case of Benetton India P Ltd (supra), a similar view was taken by the Tribunal that the related party transactions should not exceed 10 to 15% of the total revenue. 22.7 On the contrary, the Tribunal in the case of Actis Advisers (supra) has held that an entity can be taken as uncontrolled, if its related party transaction do not exceed 25% of the total revenue. This view of the Tribunal is based upon the criteria enumerated u/s 92A(2) of the IT Act wherein expression of associate Enterprises has been defined, if certain conditions and criteria as provided thereunder are satisfied. 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 ....
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....available, then an entity having related party transactions not exceeding 25% of the total revenue can be considered so that the ALP should be determined having comparison broad based, though this extreme limit of 25% can be considered only in exceptional cases. 22.11 In the case in hand, as it is evident that the TPO has found sufficient number of comparables and finally took 30 companies as comparables; therefore, this case does not fall under the category of exceptional cases where criteria of related party transactions can be relaxed more than 15% of the total revenue of the entity. Hence, we are of the considered opinion that in the case in hand, when there is no shortage of comparables, an entity can be considered as uncontrolled, if the related party transaction do not exceed 15% of the total revenue.' 8.7 It is clear from the finding of the Tribunal that the tolerance range 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 ....
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....bunal has considered and decided the issue in para-14 to 14.7 as under :- "14 We have considered the rival submissions and carefully gone through the relevant material as well as the provisions relating to the Transfer Pricing Regulations. As per the provisions of sec. 92CA(3), the TPO has jurisdiction/power to gather and consider all relevant material and information apart from the evidence, information and documents produced by the assessee as required u/s 92D(3) to determine the ALP in relation to the international transaction. 14.1 Sub sec. (7) of sec 92CA empowers the TPO for the purpose of determining the ALP to exercise any of the powers specified in clause (a) to (d) of sub-sec. (1) of sec 132 or sub-sec. (6) of sec 133 or 133A. Thus, under the TP regulations, there is no embargo on the powers of the TPO in carrying out fresh search for gathering more relevant information, documents etc., while determining 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 no....
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.... to which the comparables and international transactions belong. 14.5 In the case of Haworth India P Ltd, (supra) the Tribunal has observed that only one comparable was left which was selected by the assessee itself in its TP study and the TPO did not choose to carry out a fresh search, then the said comparable can be taken to compute the ALP. The relevant part of the Tribunal's observation in para 77 is as under: 77. Now coming to the case Law relied upon by Id. DR which convey that only one comparable is sufficient and it has been held by the Tribunal in other cases that arm length price can be worked out even on the basis of one comparable. In the case of Vedaris Technology (P.) Ltd. v. ACIT (supra) 20 comparables were short listed and mean margin was worked out at 16.585% and out of those only one comparable was Left namely Sophia Software Ltd. on the basis of which the arm Length price was determined. Here, it is the case of Ld. AR that the said case is not applicable to assessee's case as in that case both the parties had accepted one comparable only. But that is not the only basis on which the Tribun....
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....es in the cases relied upon by the assessee are entirely different. In those cases the TPO rejected the other comparables selected by the assessee except one and ALP was determined on the basis of one comparable selected by the assessee. Therefore, when the TPO itself did not choose to carryout further search then issue of justification of TPO did not arise before the Tribunal. In the case in hand the assessee raised the question about the jurisdiction of TPO to carryout fresh search which has been considered and decided after considering the relevant provisions, decisions as well as arguments of the assessee. Therefore, we do not find any substance in the contention of the assessee. The decision relied upon by the ld. AR in the present proceedings are undisputedly on the point of considering the evidences and necessary facts before the Tribunal. Therefore, there is no quarrel as regards the decision of Hon'ble Supreme Court relied upon by the assessee but it is not the case of the assessee that Tribunal has ignored and any fact or evidence while passing the impugned order. 8.13 The assessee has also objected against the finding of the Tribunal on the comparability of Tritone Corp....