TaxTMI 
TaxTMI 
2021 (9) TMI 499
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....nt Systems Limited (c) ICRA Techno Analytics Ltd. (d) KALS Information Systems Ltd.; and (e) Tata Elxsi Ltd. 2.10. Computing the working capital adjustment and in limiting the working capital adjustment while determining the arm's length price. Additional Ground: On the facts and in the circumstances of the case and in law and without prejudice to the grounds of appeal already filed by the appellant: 5. The Hon'ble Commissioner of Income Tax (Appeals) [CIT(A)] in pursuance of the order of the learned Assessing Officer (AO) and learned Transfer Pricing Officer (TPO) erred in law and facts in including Larsen & Toubro Infotech Limited in the set of comparables determined by the learned TPO whereas the same should have been excluded for the reason that it is functionally dissimilar. The Appellant craves leave to add, alter, amend or withdraw all or any of the Ground of Appeal and to submit such statements, documents and papers as may be considered necessary either at or before the appeal hearing. Further, this ground of appeal is independent of the grounds of appeal already filed by the Appellant." 2.1.....
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....vices (ITES) to its AEs. The financial results of the assessee-company for the year ending 31.03.2010 as per the transfer pricing document are as follow:- Operating Revenue : Rs. 15,59,11,881 Operating Expenses : Rs. 14,30,86,997 Operating (Profit/Loss) : Rs. 1,28,24,884 Op profit on cost % : 8.96% 4.1. The assessee had entered into international transaction with its AEs for the relevant assessment year as under:- Sl. No. Type of transaction Amount (Rs.) 1. Revenue from IT services and development 15,59,11,881 2. Revenue from Backend support (ITES) 57,90,782 Total 16,17,02,663 4.2. The Arm's Length Price (ALP) adjustment was made only in respect of SWD segment. The ALP adjustment made by the TPO are as follows:- Arm's length mean margin on cost 22.71% Less : Working capital adjustment (as per annexure C) 1.47% Adjustment margin 21.24% Operating cost Rs. 14,30,86,997 Arms Length Price (ALP) (121.24% of Operating cost) Rs. 17,34,78,675 Price Received Rs. 15,59,11,881 Shortfall being adjustment u/s 92CA Rs. 1,75,66,794 4.3. The assessee in its TP study ....
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....015 - order dated 15th April, 2021) reported in (2021) 127 Taxmann.com 62. 5.1. The learned Departmental Representative supported the orders of the AO/TPO. 5.2. We have heard the rival submissions and perused the material on record. For the assessment year 2010-2011, the Bangalore Bench of the Tribunal in Cisco Systems (India) (P.) Ltd. had held that ICRA Techno Analytics Limited is not functionally comparable to an assessee which is captive service provider for its AEs and into software development. The relevant finding of the Tribunal in the case of Cisco Systems (India) (P.) Ltd. (supra) reads as follow:- 7.1.1 We have heard rival submissions and perused the material on record. We find that this issue was considered by the Co-ordinate Bench of the Tribunal in the case of DCIT v. M/s. Electronics for Imaging India Pvt. Ltd. In IT(TP)A No. 212/Bang/2015 for assessment year 2010-2011, vide order dated 24.02.2016, wherein the Tribunal held as under:- "14. At the outset, we note that apart from having the related party revenue at 20.94% of the total revenue, this company was also found to be functionally not comparable with software development services segmen....
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....om 725. 6.1. The learned Departmental Representative was duly heard. 6.2. We have heard rival submissions and perused the material on record. The Bangalore Bench of the Tribunal in Cisco Systems (India) (P.) Ltd. had held that Infosys Limited is not functionally comparable to an assessee which is capital service provider for its AEs since it having diversified activities and income from sale of products. The relevant finding of the Tribunal in the case of Cisco Systems (India) (P.) Ltd. (supra) reads as follow:- "7.2.2 After hearing both the parties and perusing the relevant material on record, we find that this issue also considered by the Co-ordinate Bench of the Tribunal in case of DCIT v. M/s. Electronics for Imaging India Pvt. Ltd. in IT(TP)A No. 212/Bang/2015 (supra), wherein the Tribunal held as under:- "19. We have heard the ld. DR as well as ld. AR and considered the relevant material on record. We note that in the case of Agnity India Pvt. Ltd. (2015) 58 taxmann.com 167 (Delhi-Trib.), the Delhi Bench of the Tribunal has considered the comparability of this company and the findings of the Delhi Bench of the Tribunal has been confirmed by the Hon'....
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....nal in the case of Cisco Systems (India) (P.) Ltd. (supra) had held that KALS Information System Limited is not functionally comparable to an assessee. The relevant finding of the Tribunal, reads as follow:- "7.3.2 We have heard rival submissions and perused the material on record. We find that the Tribunal in the case of DCIT v. M/s. Electronics for Imaging India Pvt. Ltd. (supra) has excluded KALS Information Systems Limited as comparable, by holding as under:- "23. We have heard the ld. DR as well as ld. AR and considered the relevant material on record. The ld. DR has not disputed the fact that comparability of this company has been examined by this Tribunal in a series of decisions including in the case of Trilogy e-business Software India Ltd. ITA No. 1054/Bang/2011 dated 23.11.2012. We further note that in the balance sheet of this company as on 31.3.2010, there are inventories of Rs. 60,47,977. Therefore, when this company is in the business of software products, the same cannot be compared with a pure software development services provider. Accordingly, we do not find any error or illegality in the impugned findings of the DRP." 7.2. In view of the afo....
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....9;ble Delhi High Court in case of Chris Capital (supra) has been dealt with by this Tribunal in case of Autodesk India Pvt. Ltd. vs DCIT in (2018) 96 taxmann.com 263 for assessment year 2005-06. This Tribunal reviewed gamut of case laws to consider, whether companies having turnover more than Rs. 200 crores should be regarded as comparable with a company having turnover less than Rs. 200 crore. This Tribunal held as under: 17.7 We have considered the rival submissions. The substantial 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 ....
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....place reliance on the decision of the Hon'ble Delhi High Court in the case of Chriscapital Investment (supra). We have already held that the decision rendered in the case of Chriscapital Investment (supra) is obiter dicta and that the ratio decidendi laid down by the Hon'ble Bombay High Court in the case of Pentair (supra) which is favourable to the Assessee has to be followed. Therefore, the decisions cited by the learned DR before us cannot be the basis to hold that high turnover is not relevant criteria for deciding on comparability of companies in determination of ALP under the Transfer Pricing regulations under the Act. For the reasons given above, we uphold the order of the CIT(A) on the issue of application of turnover filter and his action in excluding companies by following the ratio laid down in the case of Genisys Integrating (supra). Based upon above discussions we are of opinion that objection raised by revenue cannot withstand the test of law. Accordingly, we do not find any infirmity in excluding Infosys Ltd., Larson & Tubro Infotech Ltd., Mindtree Ltd., Persistent Systems Ltd., Sasken Technologies Ltd., Infosys Ltd., and TATA Elxsi Ltd., fo....
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....unal in the case of Cisco Systems (India)(P.) Ltd. (supra), we find that Persistent Systems Limited cannot be compared with the assessee company, and thus, we direct the AO/TPO to exclude the said company from the final list of comparable companies. (f) Tata Elxsi Limited 10. The assessee is seeking to exclude Tata Elxsi Limited from the list of comparable companies as the said company is functionally different from that of the assessee. According to the learned AR, the said company is engaged in product design services, innovation design engineering and visual computing labs. Thus, it is prayed that the above company may be excluded from the final list of comparables. The assessee has also relied on the order of the Bangalore Bench of the Tribunal in the case of Cisco Systems (India) (P.) Ltd. (supra). 10.1. The learned Departmental Representative supported the orders of the AO/TPO. 10.2. We have heard both parties. We find that the Bangalore Bench of the Tribunal in the case of Cisco Systems (India) (P.) Ltd.(supra) had held that Tata Elxsi Limited is not functionally comparable to the assessee. The relevant finding of the Tribunal, reads as follow:- "7.5.2 A....