TaxTMI 
TaxTMI 
2019 (4) TMI 1757
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....e and that they are functionally dissimilar, when software development activity comprises of both on site and offshore development activities and the nature of activity remains the same. The Hon'ble DRIP ought to have appreciated the fact that these Comparable have qualified the qualitative and quantitative filters applied by the TPO. 2. Whether the Hon'ble DRP was justified in excluding the M/s Ezest Solutions on the ground of functionally dissimilar when the company has qualified all quantitative filters applied by the TPO. The Hon'ble DRP ought to have considered the fact that computer software services is considered as sector of business and both TPO and the taxpayer has not gone into verticals of the business. 3. Whether the Hon'ble DRIP was justified in excluding the M/s ICRA Techno Analytics Ltd as a comparable on the ground that it is into diversified activity and no segmental data is available when the TPO has not gone into the verticals of the industry of operation. The Hon'ble DRP has failed to appreciate the fact that the company has qualified all quantitative filters applied by the TPO. 4. Whether the Hon'ble DRP was j....
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....nts were for a period other than 12 months). d) rejecting companies having employee cost less than 25% of the total revenues. e) rejecting companies using related party transactions more than 25% of total value of transactions. f) rejecting comparable companies using export sales less than 75% of the operating revenues as a comparability criterion. g) rejecting companies with income from software development and related services less than 75% of the total operating revenue. 3. Hon'ble DRP has erred, in law and in facts in accepting certain invalid comparable companies / rejecting certain valid comparable companies. 4. The Leaned AO/learned TPO/Honble DRP has erred, in law and in facts, for not allowing suitable adjustments to be made to account for differences in the risk profile of the Assessee vis-à-vis the comparables. 5. The Hon'ble DRP erred in not adjudicating claim for enhanced section 1 O benefit and treating it as academic. The Respondent submits that each of the above ground is independent and without prejudice to one another. The Respondent craves leave to add, alter, vary, omit, ....
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....omparables, the TPO accepted some of the comparable companies chosen by the Assessee and chose some other companies on his own and arrived at a set of 13 comparable companies. The average arithmetic profit margin of the 13 comparable companies chosen by the TPO was as follows: 5. The TPO computed the addition to be made to the total income on account of determination of ALP at Rs. 1,34,27,918 adopting profit margin of 24.82% less working capital adjustment of 1.03% resulting in adopting profit margin of comparables at 23.79% and resultantly computed ALP as follows: Computation of arm's length price by TPO and the adjustment made: The above shortfall of Rs. 1,34,27,918/- (Rupees One Crore, Thirty Four Lakhs, Twenty Seven Thousand, Nine Hundred and Eighteen Only) is treated as transfer pricing adjustment u/s 92CA in respect of software development segment of the taxpayer's international transactions 6. The addition suggested by the TPO was added to the total income of the Assessee by the AO in the draft order of assessment. Against the draft order of assessment, the Assessee preferred objections before the Dispute Resolution Panel (DRP) u/s.144C of the....
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.... by applying turnover filter, then the profit margins of the remaining companies, even assuming those companies are regarded as comparable will be within the range of profit margin permissible in law and therefore the price charged by the Assessee in the international transaction would have to be regarded as at ALP. Therefore there would be no necessity to decide the other grounds of appeal in the Revenue's appeal regarding transfer pricing as well as the other grounds raised in the Cross-Objection. 11. As far as the application of turnover filter is concerned, the first objection of the ld. DR was that turnover cannot be a relevant criterion in choosing comparable companies and in this regard placed reliance on the decision of the Hon'ble High Court in the case of Chrys Capital Ltd.,82 Taxmann.com 167(Del). The learned counsel for the Assessee however pointed out that similar objection was raised by the Revenue in one of the case decided by this Tribunal in Autodesk India Pvt.Ltd. Vs. DCIT (2018) 96 taxmann.com 263(Banglore-Trib.) and relied on the said decision. 12. We find that various aspects of application of turnover filter, was considered by this Tribunal in the case o....
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....t be an upper limit also, as size matters in business. 17.1. The learned DR submitted that high turnover is not a relevant criterion to regard a company as not comparable, so long as the two companies are functionally comparable. If functions by two companies are identical then they have to be regarded as comparable. According to him therefore the CIT(A) was not justified in excluding 5 companies on the ground that their turnover was above Rs. 200 Crores and cannot be compared with the Assessee whose turnover was around Rs. 10.65 Crores. In support of his contention the learned DR placed reliance on the following decisions: Sl. No. Name of the case Citation Relevant Paragraph 1. M/S.NTT DATA Global Delivery Services Ltd. Vs. ACIT IT(TP)A No. 1487/Bang/2013 AY 2005-06 order dated 6.4.2016 23 & 24 2. LSI Technologies India Pvt. Ltd. Vs. The ITO IT(TP)A.Nos. 1380 & 1381/Bang/2010, AY 2006-07 order dated 13.5.2016 14.3 2. M/S. Societe Generale Global Solution Centre Pvt.Ltd. Vs. DCIT IT(TP) A.No.1188/Bang/2011 for AY 2007-08 order dated 22.4.2016 10 5. Willis Processing Ser....
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.... the application of turnover filter and that some Benches have held that high turnover was relevant criteria for excluding comparable companies. His prayer in the alternative was for constitution of a special bench to resolve the conflict. 17.3. Per Contra the learned counsel for the Assessee submitted that ITAT Bangalore Bench in the case of Dell International Services India (P) Ltd. Vs. DCIT (2018) 89 Taxmann.com 44 (Bang-Trib) order dated 13.10.2017, considered the various aspects of application of turnover filter for excluding companies and has noted that the first decision rendered on application of this filter was in the case of Genisys Integrating Systems (I)(P) Ltd. Vs. DCIT (2010) 20 taxmann.com 715 rendered on 5.8.2011. In the case of Dell International (supra), the tribunal took note of a divergent view expressed by ITAT Bangalore Bench in the case of Robert Bosch Engineering and Business Solutions Ltd. Vs. DCIT ITA No.1519/Bang/2013 order dated 13.9.2017 after considering the decision rendered by the Hon'ble Delhi High Court in the case of Chryscapital Investment Advisors India Pvt.Ltd Vs. DCIT 82 Taxmann.com 167(Del), that high turnover ipso facto does not lea....
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....rc loss making are excluded from comparables, then the super profit making companies should also be excluded. For the purpose of classification of companies on the basis of net sales or turnover, we find that a reasonable classification has to be made. Dun & Bradstreet & Bradstreet and NASSCOM have given different ranges. Taking the Indian scenario into consideration, we feel that the classification made by Dun & Bradstreet is more suitable and reasonable. In view of the same, we hold that the turnover filter is very important and the companies having a turnover of Rs. 1.00 crore to 200 crores have to be taken as a particular range and the assessee being in that range having turnover of 8.15 crores, the companies which also have turnover of 1.00 to 200.00 crores only should be taken into consideration for the purpose of making TP study." 42. The Assessee's turnover was around Rs. 110 Crores. Therefore the action of the CIT(A) in directing TPO to exclude companies having turnover of more than Rs. 200 crores as not comparable with the Assessee was justified. As rightly pointed out by the learned counsel for the Assessee, there are two views expressed by two Hon'ble High Cour....
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....ct on the ground that no substantial question of law arose for consideration, learned counsel drew our attention to the decision of the Bombay High Court in the case of Pentair (supra) paragraph 9, wherein the Hon'ble Bombay High Court after referring to a decision of the Hon'ble Delhi High Court rendered in the case of CIT Vs. Agnity India Technologies (P) Ltd. (2013) 36 taxmann.com 289 (Delhi), clearly observed that turnover is obviously a relevant fact to consider the comparability. Our attention was also drawn to paragraph-3 of the decision rendered in the case of Pentair (supra) wherein the department specifically contended that the Tribunal erred in holding that size and turnover of a company are deciding factors for treating a company as comparable. According to him therefore it was not a case of merely dismissal of appeal u/s.260A of the Act as unadmitted on the ground that no substantial question of law arose for consideration but was precedent in so far as the Hon'ble Court has expressed a clear opinion on the issue. 17.5. The learned counsel for the Assessee also drew our attention to a decision of the Hon'ble Delhi High Court rendered in the case of PCIT Vs. Ne....
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.... possible to reconcile its ratio with that of a previously pronounced judgment of a Co-equal or Larger Bench and when High Courts encounter two or more mutually irreconcilable decisions of the Supreme Court cited at the Bar, the inviolable recourse is to apply the earliest view as the succeeding ones would fall in the category of per incuriam. The following were the relevant observations of the Hon'ble Supreme Court: "19. It cannot be over-emphasised that the discipline demanded by a precedent or the disqualification or diminution of a decision on the application of the per incuriam rule is of great importance, since without it, certainty of law, consistency of rulings and comity of Courts would become a costly casualty. A decision or judgment can be per incuriam any provision in a statute, rule or regulation, which was not brought to the notice of the Court. A decision or judgment can also be per incuriam if it is not possible to reconcile its ratio with that of a previously pronounced judgment of a Co-equal or Larger Bench; or if the decision of a High Court is not in consonance with the views of this Court. It must immediately be clarified that the per incuriam rule is ....
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....llowed. Since arguments were advanced on the correctness of the decisions rendered by the ITAT Mumbai and Bangalore Benches taking a view contrary to that taken in the case of Genisys Integrating (supra), we proceed to examine the said issue also. On this issue, the first aspect which we notice is that the decision rendered in the case of Genisys Integrating (supra) was the earliest decision rendered on the issue of comparability of companies on the basis of turnover in Transfer Pricing cases. The decision was rendered as early as 5.8.2011. The decisions rendered by the ITAT Mumbai Benches cited by the learned DR before us in the case of Willis Processing Services (supra) and Capegemini India Pvt.Ltd. (supra) are to be regarded as per incurium as these decisions ignore a binding co-ordinate bench decision. In this regard the decisions referred to by the learned counsel for the Assessee supports the plea of the learned counsel for the Assessee. The decisions rendered in the case of M/S.NTT Data (supra), Societe Generale Global Solutions (supra) and LSI Technologies (supra) were rendered later in point of time. Those decisions follow the ratio laid down in Willis Processing Services ....
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....e's appeal is the only other ground that remains to be considered in the Revenue's appeal. As far as this ground is considered the issue is whether payments of employees contribution by the Assessee towards provident fund and Employees State Insurance which are not deposited on or before the due date to the respective organizations but which are deposited before the due date for filing return of income u/s.139(1) of the Act, cannot be disallowed u/s.36(1)(va) of the Act. The Hon'ble Karnataka High Court in the case of CIT Vs. Sabari Enterprises (213 CTR 269) taken the view that contributions made by the Assessee to PF and ESI are allowable deductions even though made beyond stipulated period as contemplated under the mandatory provisions off Sec.36(1)(va) read with Section 2(24)(x) of the Act provided such contributions are paid by the Assessee on or before the due date for furnishing the return of income as per Sec.139(1) of the Act. In view of the aforesaid decision, there is no merit in Gr.No.6 raised by the revenue. 15. In the result, the appeal filed by the revenue is dismissed and the CO is partly allowed. Order pronounced in the Open Court on 24th April, 2019. =====....