TaxTMI 
TaxTMI 
2020 (2) TMI 1279
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....see was an international transaction and the price received for rendering such services by the Assessee from its AE has to pass the Arm's Length Price (ALP) test as provided u/s.92 of the Income Tax Act, 1961 (Act). In this appeal the disputes is with regard to addition made consequent to determination of ALP and consequent upward revision and adjustment made to the price at which international transaction was carried out by the Assessee with its AE in respect of Software development Services(SWD services). TP ADJUSTMENT RELATING TO IT SERVICES (Software Development Services: 3. There is no dispute that the Most Appropriate Method chosen for the purpose of comparison of the profit margin of the Assessee with that of the comparable companies was the Transaction Net Margin Method (TNMM) and the Profit Level Indicator (PLI) chosen for the purpose of such comparison was Operating Profit to Operating Cost (OP/OC). The OP/OC of the Assessee in the SWD services segment was as follows:- Description Amount Operating Revenue Rs. 27,41,16,163/- Operating Cost Rs. 23,93,94,023/- Operating Profit (OP) Rs. 3,47,22,140/- Operating Profit to Cost(OP/OC) 14.50 % ....
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....retained by the DRP viz., Larsen & Toubro Infotech Ltd., Persistent Systems Ltd., and Sasken Communication Technologies Ltd. 6. As far as the appeal of the revenue is concerned, the tax effect in the said appeal is less than Rs. 50 lacs and in view of the CBDT Circular No.17 of 2019 dated 8.8.2019, the appeal by the revenue is liable to be dismissed as not maintainable. 7. As far as the appeal of the Assessee is concerned, on the issue with regard to inclusion of Evoke Technologies Pvt.Ltd., as comparable company, the admitted factual position is that both the Assessee and the Revenue want its inclusion. The Assessee had chosen this company as comparable company in its TP study and the TPO accepted this company as comparable company. The DRP suo motto excluded this company from the list of comparable companies. The reasons assigned by the DRP for excluding this company was (i) that the margin of this company was abnormally low as compared to other comparable companies and (ii) Expenses on consultancy charges increased by 1,118% which indicated that the low margins during the relevant period was due to peculiar circumstances. It is the plea of the Assessee before us that this ....
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.... functionally comparability of these companies have been examined by this Tribunal and pleaded that the additional ground raised by the assessee may be admitted for adjudication on merits. Ld. AR has submitted that in a series of decisions, the Tribunal has held that there cannot be estoppel against the law and the non-comparable companies even if selected by the assessee in TP study, the same should be rejected. On the other hand, Ld. DR has vehemently objected to the admission of the additional ground raised by the assessee. 10. We have considered the rival submissions. Though the assessee included these three companies in the list of comparables as part of the TP study analysis, however, mere inclusion of the companies in the list of comparables does not operate as estoppel against the assessee, if on examination of the relevant facts it is found that these companies are functionally not comparable with that of assessee. Therefore, the selection of the companies by the assessee itself is not the finality of the comparability of the entities when the TPO has to examine the functional comparability as well as the other filters for inclusion or exclusion of the companies i....
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....ial question of law (Question No.1 to 3) which was framed by the Hon'ble Delhi High Court in the case of Chryscapital Investment Advisors (India) Pvt.Ltd., (supra) was as to whether comparable can be rejected on the ground that they have exceptionally high profit margins or fluctuation profit margins, as compared to the Assessee in transfer pricing analysis. Therefore as rightly submitted by the learned counsel for the Assessee the observations of the Hon'ble High Court, in so far as it refers to turnover, were in the nature of obiter dictum. Judicial discipline requires that the Tribunal should follow the decision of a non-jurisdiction High Court, even though the said decision is of a non-jurisdictional High Court. We however find that the Hon'ble Bombay High Court in the case of CIT Vs. Pentair Water India Pvt.Ltd. Tax Appeal No.18 of 2015 judgment dated 16.9.2015 has taken the view that turnover is a relevant criterion for choosing companies as comparable companies in determination of ALP in transfer pricing cases. There is no decision of the jurisdictional High Court on this issue. In the circumstances, following the principle that where two views are available on a....