AI Drafter 
TaxTMI 
TaxTMI 
2016 (3) TMI 1205
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....d that there is no provision in section 10B which requires the concerned expenses, which are required to be reduced from the export turnover as per clause (iv) of the Explanation to Section 10B to be reduced from the total turnover also. 4) The Ld.CIT(A) ought to have considered the fact that the jurisdictional High Court decision relied upon by him has not been accepted by the department and a SLP has been filed before the Hon'ble Supreme Court which is still pending. 5) The learned CIT(A) erred in holding that the size, turnover of the company are deciding factors for treating a company as a comparable, and accordingly erred in excluding Wipro BPO Solution Ltd and Sutherland Global Services Pvt. Ltd., as comparables in the segment. 6) The Ld CIT(A) erred in excluding the comparable companies: Mercury Outsourcing Management Ltd., and Flextronics Software Systems Ltd on the basis of abnormal loss Without defining what constitutes abnormal loss filter and how the same is determined. 7) The Ld. CIT(A) erred in directing the inclusion of M/s Pentasoft Technologies Ltd. as an appropriate comparable rejecting the diminishing revenue filter used by....
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....ed in holding that M/s Apex Advanced Technology Pvt. Ltd. is an appropriate comparable given the facts that the comparable does not pass through all the filters applied by the TPO for the purposes of comparability analysis. 16) For these and such other grounds that may be urged at the time of hearing, it is humbly prayed that the order of the CIT(A) be reversed and that of the Assessing Officer be restored. 17) The appellant craves leave to add, to alter, to amend or delete any of the grounds that may be urged, at the time of hearing of the appeal." 3. Briefly facts of the case are that the respondent-assesseecompany is a company incorporated under the provisions of the Companies Act, 1956. It is a subsidiary of M/s.Speedera Network, Inc., USA. It is engaged in the business of providing back office support services which includes voice/non-voice based technical support services, invoice processing, accounts receivable and collection processing etc., to its holding company. The respondent assessee-company is remunerated by its holding company on a cost plus 10% basis for the services rendered. 4. Return of income for the assessment year 2005-06 was filed decl....
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.... Vishal Information Tech Ltd. 33.87% 45.65% Total 155.04% 24.65% Average 12.92% 2.05% 5. The Assessing Officer (AO) referred the matter to the Transfer Pricing Officer (TPO). The TPO, by an order dated 23/09/2008 passed u/s 92CA(3) of the IT Act, 1961 computed the transfer pricing adjustment at Rs. 63,81,562/-. The TPO accepted the TNMM adopted by the respondent-assesseecompany but rejected the transfer pricing study report. The TPO proceeded to identify a different set of comparable entities for the purpose of determining the ALP. While doing so, the ld. TPO had applied the following filters: a. Companies whose turnover while doing so, <Rs.1 crore were excluded. b. Companies who have less than 25% of their revenues as export sales were excluded. c. Companies who have more than 25% related party transactions of the sales were excluded. d. Companies who have diminishing revenues/ persistent losses for the period under consideration were excluded. e. Companies having different financial year ending (i.e. not March 31, 2006) or date of the company not available for the 12 month per....
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.... by the TPO, the respondent-assessee-company accepted the inclusion of company Allsec Technologies Ltd., in the list of comparables but prayed for correction of its margin. The ld.CIT(A) after considering the material had directed that the margin of this comparable should be adopted at 26.19% as against 29.38% adopted by the TPO. As regards the inclusion of Vishal Information Technologies Ltd., in the list of comparables, the ld.CIT(A) had not accepted the contention of the respondent-assessee-company that the business model of the comparable is different from that of the respondent-assessee-company. Therefore, the ld.CIT(A) upheld the action of the TPO in including this company as a comparable. The Nucleus Netsoft & FIS Ltd., the comparable selected by the TPO was directed to be excluded from list of comparables on the grounds of functional dissimilarities. The comparable viz., Maple E Solutions Ltd., was also directed t be excluded from the list of comparables selected by the TPO, as the reputation of the ground was under serious indictment. The ld.CIT(A) also directed the inclusion of M/s.Apex Advanced Technology Ltd., Finally, the ld. CIT(A) computed the arithmetic mean of oper....
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....e ld.AR of the respondent-assesseecompany submitted that this company cannot be considered as a comparable even on the grounds of functional differences. In support of this, he relied on the decision of the Hyderabad bench of Tribunal in the case of Market Tools Research Pvt.Ltd. (ITA No.1150/Hyd/2011) and Mumbai bench of Tribunal in the case of Maersk Global Services Centre (India) P. Ltd. (ITA No.3774/Mum/2011). 10.1 We heard the rival submissions and perused the material on record. The Hon'ble Bombay High Court in the case of CIT vs.Pentair Water India Pvt. Ltd. (381 ITR 216) had held that the turnover was a relevant factor for the purpose of comparability of two entities. However, without going into this issue, as rightly submitted by the learned AR of the respondentassessee- company, it was held by the co-ordinate benches of Hyderabad and Mumbai benches in the cases cited supra, Wipro BPO Solutions Ltd., cannot be considered as a comparable entity in view of the fact that it is gigantic company owning intangibles and having substantial brand value. Co-ordinate bench (Hyderabad) of the Tribunal, in the case of M/s.Market Tools Research Pvt.Ltd., (supra) held as follows: ....
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....of comparables. Hence, the ground of appeal is dismissed as such. 12. Ground No.7 challenges the direction of the ld.CIT(A) to include M/s.Pentasoft Technologies Ltd., in the list of comparables. This comparable was offered by the respondentassessee- company during the course of proceedings before the TPO. TPO rejected this company as comparable for the reason that no annual report was available on public domain and the company was reporting decreasing sales against the industry trend. The ld.CIT(A) held that the diminishing revenue cannot be accepted as a filter and directed the TPO to include this company in the list of comparables. 12.1 Ld.AR of the respondent-assessee-company drawn our attention to page 215 to 260 of the paper book which contains the Annual report for 2004-05 and specific attention was drawn to page 221 of the paper book which highlights the business performance of the company, which is as under: "2. Business Performance: The total income for the financial year ended 31st March 2005 is Rs. 55.94 Crores as compared to Rs. 101.69 Crores for the previous year. The net profit stood at Rs. 2.51 Crores compared to previous year figure of 2.34 ....
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....parable and therefore, the respondent-assessee-company should not contest on the inclusion. 14.3 On the other hand, ld.AR of the respondent-assesseecompany has submitted that this company was engaged in the Geographical Information Systems Services and also earned super normal profits and therefore, cannot be considered as a comparable with the respondent-assessee-company. In support of this, he has drawn our attention to the Annual Report. He also relied on the decision of the co-ordinate bench (Hyderabad) of Tribunal in the case of BA Continuum India Pvt. Ltd. In ITA No.1154/Hyd/2011 dated 24/10/2013 wherein it has been held as under: "13. We have heard both the parties and perused the material on record. In our opinion, this issue was considered by the Tribunal in the case of DCIT vs. Hellosoft India Pvt. Ltd. (ITA No.640/Hyd/2009 dated 15/1/2013) wherein it was held that companies having extraordinary high profit/loss cannot be considered as comparables. Being so, the companies having extraordinarily high profit or loss are to be excluded as comparables. 14.4 The decision of the Hyderabad bench of Tribunal in the case of BA Continuum India Pvt. Ltd. (supra) is ba....
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....umstance of a company otherwise conforming to the stipulations in Rule 10B (2) in all details, presenting a peculiar feature such as a huge profit or a huge turnover, ipso facto does not lead to its exclusion. The TPO, first, has to be satisfied that such differences do not "materially affect the price...or cost"; secondly, an attempt to make reasonable adjustment to eliminate the material effect of such differences has to be made." Therefore, this company cannot be excluded by applying the filter of abnormal profits. The ld.AR of the respondent-assesseecompany further argued that this company needs to be excluded from the list of comparables on functionality differences. 14.5 We heard rival submissions and perused the material on record. The respondent-assessee-company had not filed any evidence in support of the functions carried out by the comparable. For the purpose of comparability, analysis of FAR is sine qua non, in the absence of the same on record, we are unable to render any finding on this aspect of the argument. Therefore, we are unable to agree with the finding of the ld.CIT(A) that this company should be excluded from the list of comparables even on the gro....