TaxTMI 
TaxTMI 
2019 (7) TMI 1077
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....ferred to as "the Act") dated 05.04.2019 giving appeal effect to the order of the Ld. CIT(Appeals). In view of the aforesaid submissions made by the Ld. AR, we proceed to first adjudicate the issues in the Revenue"s appeal. ITA No.117/PUN/2017 ( By Revenue) A.Y.2011-12 3. The first ground of Revenue"s appeal is with regard to that the Ld. CIT(Appeals) had directed to include the company "Maveric Systems Ltd" in the final list of comparables with that of the assessee. The Transfer Pricing Officer had rejected the company "Maveric Systems Ltd.", as stated in this ground of appeal by the Revenue, on account of extraordinary events and also failed the filter export to sales filter of 75%. 4. The facts on record demonstrates that the Transfer Pricing Officer had rejected the comparable company selected by the assessee, "Maveric Systems Ltd.", on the ground that it is a loss making company for financial year 2010-11 and that it has incurred extra-ordinary cost during the year under consideration. That before the Ld. CIT(Appeals), the assessee had filed detailed written submissions stating that the said comparable company i.e. "Maveric Systems Ltd." was consistently making profit....
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....have perused the case records and analyzed the facts and circumstances while providing considerable thought to the relevant documents on record. The rejection by the Transfer Pricing Officer of "Maveric Systems Ltd." as comparable to that with the assessee on the ground that it was consistently loss making company, is not correct, since as per tabulation on record, the company had been earning profit and at the same time, the Transfer Pricing Officer relying on the Director"s Report had stated that "Maveric Systems Ltd" has incurred extra ordinary cost. However, on perusal of the Director"s Report of the said company, no categorical/specific finding is there that extra ordinary cost has been incurred by this company. The Ld. CIT(Appeals) also has given findings perusing all the relevant factors/criterias and we do not find any infirmity in his order. Therefore, relief provided to the assessee regarding the inclusion of "Maveric Systems Ltd." in the final list of comparables is hereby sustained. 5.1 With regard to the second part of the first ground raised by the Revenue regarding "filter export to sales filter of 75%", we observe that no where it is coming from the order of the ....
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....e turnover filter is of no relevance in the software industry and there is no relationship of the turnover with the profit of the company as the company with lower turnover has also earned higher profit than the company with higher turnover. I agree with the view that turnover may not be a factor in a service industry, however, according to me size of company makes difference in undertaking risks. Bigger sized company is in a position to undertake more risks in the business as compared to the smaller sized companies. The size of the company can be categorized either on the basis of the capital or asset or on the basis of turnover. Para 3.43 of the OECD Guidelines mention size in terms of "sales" as one of the comparability criteria. In this connection, it may not be out of place to mention that the Rule 10TD of the Income Tax Rules provide higher profitability for the companies having turnover of more than Rs. 500 cr. Further, turnover is an important criterion in the industrial policies and other commercial policies. The honorable Delhi High Court in the case of CIT Vs. Agnity India Technologies Private Limited has discussed several aspects of the "giant" companies such as Infosys....
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....mpared to the assessee who does not own any tangible assets; - L& T has incurred huge expenditure on R & D, Marketing and adverting as compared to Assessee who does not undertake any R & D and also does not undertake any advertising and marketing; - L & T has revenue from software development services as well as software products, however, break up of revenue from respective income stream or segmental data is not available. - In view of the above, L & T cannot be considered as comparable in case of the assesee company." 10. The Ld. CIT(Appeals) on this issue has held as follows : "2.3.6.2 Findings on the comparability of the above company are covered by the findings of the comparability of Infosys Technologies Limited. Accordingly, I direct the learned AO to exclude L & T Infotech Ltd. from the list of the comparable companies. D. Persistent Systems Limited : Against the selection of Persistent Systems Limited in the final set of the comparable companies, the assessee has submitted vide its written submission before the Ld. CIT(Appeals) as under: "- Persistent has significantly huge (i.e. 30 times higher) turnover of Rs. 610 Crores....
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....mentioning size in terms of "sales" as one of the comparability criteria. In this regard, reference was also made to Rule 10TD of the Income Tax Rules which provide higher profitability for the companies having turnover of more than Rs. 500 Cr. So while considering size of the company, its capacity of risk taking, capital, assets and turnover have been considered by the Ld. CIT(Appeals). We, therefore, do not find any infirmity with the findings of the Ld. CIT(Appeals) and uphold the relief provided to the assessee. Thus, ground No.2 raised in appeal by the Revenue is dismissed. 14. Ground No.3 of Revenue"s appeal is general in nature and hence, requires no adjudication. 15. The Revenue has also preferred additional grounds in appeal wherein, it had challenged the decision of the Ld. CIT(Appeals) in excluding "E-infochips Ltd." from the list of comparable companies. Though the Revenue has taken five additional grounds, but crux of these grounds is with regard to the issue as hereinabove referred. 16. The facts on this issue are that the Transfer Pricing Officer had included "E-infochips Limited" in the final set of the comparable companies by observing as follows: ....
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....d) Rules, 2006 and the relevant provisions of Companies Act, 1956." The Ld. CIT(Appeals) after considering the facts of the case and Annual report of the company observed that "E-infochips Limited" provides software development services, ITes and sells products and hardware. However, segmental information is not available for these different activities. The Ld. CIT(Appeals) thereafter held that in absence of segmental information of the IT services and ITes, including " E-infochips Limited" in the final set of comparable is unjustified and accordingly, he directed the Assessing Officer/ Transfer Pricing Officer that this company should be excluded from the list of comparables companies with that of the assessee. 19. We have perused the case records and the findings of the Ld. CIT(Appeals). We find that it is an undisputed fact that the said company i.e. "E-infochips Limited" is engaged in diversified activities. "E-infochips Limited" has earned abnormal profit for the year under consideration (i.e. 56.44%) which cannot be considered as comparable. In fact there was extra ordinary fluctuation in profit margins over years from loss of (-) 14.33% in 2008-09 to super profit of 56....