TaxTMI 
TaxTMI 
TaxTMI 
2015 (5) TMI 720
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....he Act') and in doing so, the Ld. CIT(A) has grossly erred in confirming/upholding the ld. AO's action of: 1.1 Disregarding the Arms Length Price („ALP"), as determined by the appellant in the Transfer Pricing ("TP") documentation maintained by it in terms of section 92D of the Act read with Rule 10D of the Income Tax Rules, 1962 ('the Rules') as well as fresh search; 1.2 Including companies having high margin/volatile operating profit margins in the final comparables' for benchmarking a low risk captive nit such as the appellant (disregarding judicial pronouncements on the issue); 1.3 Modifying the results of economic analysis carried out by the appellant in the TP documentation by conducting a further analysis on the 17 comparables given in the TP documentation based on application of the following additional/revised filters (applied by the TPO in the immediately preceding year) in determining the ALP: 1.3.1 Adopting employee cost....
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....llant on account of this fact. 4 The Ld. CIT(A) has grossly erred both on facts and in law in confirming/upholding the Ld. AO's action of disallowing Rs. 30,946/- under section 14A of the Act. 5 The ld. CIT(A) erred on facts and in law in charging interest under section 234B of the Act." 3. Further the grounds raised by the revenue read as under: "a) Whether the ld. CIT(A) has erred on facts and in law in restricting the enhancement of Rs. 1,72,01,288/- by the Assessing Officer to Rs. 93,58,086/- on account of determination of ALP b) Whether the ld. CIT(A) has erred on facts and in law in holding that Larsen and Toubro Infotech Ltd., Persistent Systems Ld. and Mind Tree Ltd. should be excluded from the list of comparables c) Whether the ld. CIT(A) has erred on facts and in law in holding that ICRA Techno Analysis Ltd. and E2E Infotech Ltd. should be included....
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....om software development segment in FY 2008-09 Arithmetic Mean 8.84% 7. The AO employed export sales to sales, diminishing revenue, employee cost to sales ratio less than 25% and related party transactions (RPT) above 25% filters and rejected 11 comparables out of 17. The final set of comparables and the margin calculated against the assessee are as follows: Sr. No. Company Name OP/TC Margin using data for FY 2008-09 i) Akshay Software Technologies Ltd. 8.23% ii) Bodhtree Consulting Ltd. 64.04% iii) LGS Global Ltd. 18.88% iv) Larsen & Toubro Infotech Ltd. 20.50% v) Mindtree Ltd. 27.60% vi) Persistent Systems Ltd. 37.55% Arithmetic Mean 29.47% 8. On appeal the CIT(A) rejected the objections of the assessee vis-à-vis the 4 filters by the AO namely export sales/sales, diminishing revenue, employee cost and RPT. However he accepted the contention of the appellant that high turnover companies should not be included in the list of comparables. He thus held that Larsen and Toubro Infotech Ltd., Persistent Systems Ltd. and Mindtree Ltd.....
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.... Kodiak Networks (India) Pvt. Ltd. vs. ACIT ITA No. 1413/Bang/2010 e) Actis Advisers Pvt. Ltd. ITA No. 5277/D/2011 12. Having regard to the above the CIT(A) held as under: "5.6 I have carefully considered the submission of the appellant. The Ho'ble ITAT in the case of the appellant itself has held that high turnover companies should not be included in the list of comparables. Larsen & Toubro Infotech Ltd., Persistent Systems Ltd. and Mindtree Ltd. are certainly high turnover companies as can be seen from the above table. Respectfully following the order of the ITAT in the appellant's case, I hold that these three companies should be excluded from the list of comparables." 13. Having considered the rival submissions and perused the material on record. We find this issue is no longer res-integra. The Hon'ble High Court upholding the decision of Tribunal in the case of the appellant for A.Y. 2006-07 has held in an order dated 10.7.2013 in ITA No. 1204/2011 that a giant company in the area of development of software which assumed all risks leading to higher profits is not comparable with the assessee which was....
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....ttled in view of these decisions in its own case. Therefore we do not find any necessity to interfere this company's exclusion. 17. Having regard to the factual position and respectfully following the judgment of the Hon'ble High Court we partly allow the ground raised by the revenue and uphold the exclusion of persistent system Ltd, and direct inclusion of Larsen & Toubro Infotech Ltd and Mind tree Ltd. 18. As regards inclusion of the comparables namely ICRA Techno Analytic Ltd. and E2E Infotech Ltd. are concerned it is noted that CIT(A) has included the same by observing as under: "ICRA Techno Analytics Ltd. This company was in the list of comparables selected by the appellant in the TP study. The appellant has stated that calculation of RPT is 23.88% and therefore this company should be included. On verification, I found that, the contention of the appellant is correct and therefore this company should be included in the set of comparables as the sole ground for rejection of this comparable....
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.... direct the AO to determine the RPT percentage of this company afresh as per law after giving opportunity to the assessee. In case if the RPT margin is less than 25%, the ICRA should be included and if it is more than 25% RPT it should be excluded. 21. Also, it is not disputed that turnover of E2E Infotech Ltd. was 5.69 crores which is less than 50 crores and therefore there was no disclosure requirement of RPT under AS-18. 22. Thus in light of the above we find no infirmity in the conclusion of the CIT(A) and reject the ground raised by the revenue. 23. Taking up assessee appeal in ITA No. 1780/D/2013, the ld. counsel contended vis-à-vis Ground No. 1, 2, 3 that out of the set of five comparables selected by the CIT(A) M/s Bodhtree Consulting Ltd. be excluded. 24. In this regard we notice that before the CIT(A) the appellant in this regard contended as under: "Further, the appellant submits that during the FY 2008-09, Bodhtree Consulting Ltd. ("Bodhtree") had a high growth rate of 67% in its revenue as compared to the previous year.  ....
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....onsulting Ltd. is a comparable having 4.04% margin which is an extraordinary profitability company which should not be compared to the case of the appellant. The appellant has relied on various decisions of the ITAT. I have considered the argument of the appellant but cannot agree with the contention. Under the TNMM the arithmetical mean is used as against an intermediate/interquartile range. These two are separate average concepts commonly used in mathematics and statistics. The argument of the appellant confuses these two mathematical tools. The Indian Transfer Pricing Law does not recognize the intermediate/inter quartile range. The margin of the comparables is the end product and not the starting point of comparability. Therefore, the extreme profit or loss making companies can be rejected if the inter quartile range is being used instead of simple average. Only comparing the margins is like putting the cart before the horse. Therefore, this contention of the appellant is rejected." 26. Having considered the rival submission we notice that this company was a comparable in assessee's own case for Assessment Year 2008-09. At that time the assessee did not contest the inclusion o....