TaxTMI 
TaxTMI 
2018 (4) TMI 1688
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....vices of Business Process Management i.e. Financial Processing and Support Services from Gurgaon and call Centre Services from Mumbai. The assessee filed its return of income on 28-10-2005 declaring income of Rs. 2,90,47,030/-. The return was processed u/s 143(1) of the Act in this case, a reference was made to the Transfer Pricing Officer (TPO) for determining Arm's Length Price u/s 92CA (3) in respect of international transaction entered into by the assessee during Financial Year 2004-05. The issue was examined by the Transfer Pricing Officer (TPO) vide order dated 17-12-2008. The difference in book value in the international transaction was worked out at Rs. 23,89,54,060/-. Accordingly, the assessee was asked to explain why the difference in book value of international transaction and the Arm's Length Price worked out by TPO vide order u/s 92CA (3) dated 17-10-2008 amounting to Rs. 23,89,54,060/- should not be brought to tax. The assessee vide its letter dated 5-12-2008 reiterated what has been stated before the TPO. The TPO propose addition of Rs. 23,89,54,060/- on account of difference in the value of international transaction and the Arm's Length Price of the tran....
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....d the Transfer Pricing issue in favour of the assessee and as related to Ground regarding 10A deduction, the same was sent back to the Assessing Officer by direction to allow deduction u/s 10A of the Income Tax Act to SSC Unit of the assessee. 7. The Ld. DR submitted that the deletion of TP Adjustment made by the Transfer Pricing Officer (TPO) on account of Software Development Services is challenged in respect of certain comparables to be excluded and certain comparables to be included by the CIT(A). The Ld. DR submitted that the assessee has disclosed provision of Software Development Services (software design centre for development of software for call centre's) amounting to Rs. 46.76 cr. It has adopted TNMM (OP/TC - PLI) and has selected 45 comparables for benchmarking. The TPO observed that the assessee failed to submit FAR analysis and thus selection of comparables was not appropriate. The TPO rejected 34 comparables out of the 45 comparables by adopting several filters. The CIT(A) made analysis and selected 13 comparables out of 45 comparables by rejecting certain filters of the assessee and by adopting certain new and modified filters. Out of the 13 comparables selecte....
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.... the TPO/AO. 8.4 Visualsoft: The Ld. DR submitted that the reason for exclusion of this comparable by the CIT(A) is that the turnover was more than Rs. 100 crore of this company and the CIT(A) adopted turnover filter of Rs. 1 crore to 100 crore for inclusion. The Ld. DR submitted that the Hon'ble Delhi High Court in case of Chryscapital Investment Advisors (India) (P.) Ltd. (supra) held that no comparable can be excluded merely on ground of high turnover. Similarly, the ITAT Delhi held in case of Ameriprise India (P.) Ltd. (supra) that an otherwise comparable company cannot be excluded on strength of high or low turnover. 8.5 The Ld. AR relied upon the order of the CIT(A). The Ld. AR further submitted that this comparable is functionally different. To support this, the assessee relied upon the Annual report of the comparable company. 8.6 We have heard both the parties and perused the record. Here also the CIT(A) has given a finding that TPO should have defined threshold limits, based on the turnover achieved by the tested party, to eliminate companies for both the segments on the basis of this filter. The Ld. DR relied upon the decision of the Hon'ble Delhi High Court in....
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....onfronted with the TPO. 8.11 The Ld. AR relied upon the order of the CIT(A). 8.12 We have heard both the parties and perused the records. The CIT(A) while excluding this comparable held that companies with significant related party transactions during the relevant financial year 2004-05, having an impact on the profitability should be eliminated from the comparable set and set out a threshold limit of 25%. But arriving at the said RPT , the CIT(A) has not given any proper calculation. Therefore, this comparable company has to be included. Thus, we set aside the order of the CIT(A) to that extent. Accordingly we direct the TPO/AO to include this comparable after verifying all the other filters applied by the TPO/AO. 9. The Ld. DR further submitted that inclusion of following 3 comparable are challenged by the Revenue: i. Encore Software ii. Maars Software iii. Quintegra 9.1 Encore Software: This was excluded by the TPO on the ground that its revenue are continuously declining and its net worth became negative in subsequent year. The CIT(A) rejected the diminishing revenue filter and included this comparable. The Ld. DR submitted that the ITAT Delhi held in the case of Navisit....
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....fere with the order of the CIT(A) to this extent. 9.7 Quintegra: The Ld. DR submitted that it was excluded by the TPO on the ground that this company has different financial year and also because of high RPT. The CIT(A) rejected different financial year ending filter and failed to comment on the RPT percentage. The Ld. DR relied upon the decision of the Delhi Tribunal in case of Ameriprise India (supra) wherein it is held that if tested party has March year ending, then comparables must also have data relating to financial year ending 31st March itself and if such a data is not available, then a company albeit functionally comparable, disqualifies. However, if the relevant data for the concerned financial year can be deducted from the information available from its annual report, then, there can be no objection to its inclusion in the list of comparables with the adjusted data for the relevant financial year itself. The Ld. DR submits that in the assessee's case it has not been established that its financial for the F.Y. 2004-05 can be deduced from the audited accounts. 9.8 The Ld. AR submitted that there was reasonable data available and CIT(A) rightly included this comparab....
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....hreshold limits, based on the turnover achieved by the tested party, to eliminate companies for both the segments on the basis of this filter. The Ld. DR relied upon the decision of the Hon'ble Delhi High Court in case of Chryscapital Investment Advisors (India) (P.) Ltd. (supra) in which it has been held that high or low turnover is not a criteria for excluding an otherwise comparable company. When average PLI of comparables, consisting of companies having similar or high or low turnover, is considered for benchmarking, effect of different volumes of turnover is automatically ironed out. Therefore, simply excluding the comparable because turnover of this company is more than Rs. 100 crore is not a proper reason. The CIT(A) has not set out any other reason in the order for excluding this comparable. Thus, we set aside the order of the CIT(A) to that extent. Accordingly we direct the TPO/AO to include this comparable after verifying all the other filters applied by the TPO/AO. 10.4 Vishal Information: The Ld. DR submitted that the reason for exclusion of this comparable by the CIT(A) is that turnover was less than Rs. 50 crore by adopting turnover filter of Rs. 50 crore to 200 ....