TaxTMI 
TaxTMI 
2017 (4) TMI 1575
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....0,51 0/- are to be excluded from total turnover as well for the purpose of computation of deduction u/s 10A while such exclusion is permitted to arrive at the export turnover only as per the definitions given in Sec.10A of the I.T. Act, 1961 and total turnover has not been defined in the section. 3. In the facts and circumstances of the case, the learned CIT(A) erred in holding that the TPO erred in not excluding comparables having any related party transactions, even if the related party transactions are less than 25% of the revenues. 4. The learned CIT(A) erred in holding that profit on cost of more than 50% of the comparable company(ies) is abnormal without giving reasons how functions discharged, assets deployed and risks assumed of such companies were different from the appellant company. 5. The learned CIT(A) erred in holding that the assessee is eligible for a standard deduction of 5% from the Arm's Length Price (ALP) under the proviso to Section 92C(2) of the Income Tax Act. 6. For these and other grounds that may be urged at the time of hearing, it is prayed that the order of the CIT(A) in so far as it relates to the above grounds ma....
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....4) data for comparable companies should be used. f. Ignoring the limited risk nature of the services provided by the appellant as detailed in the TP documentation an din upholding the conclusion of the learned TPO that no adjustment on account of risk differential is required while determining the Arm's Length Price of the international transactions of the Appellant, but for an adjustment towards differences in the working capital position between the Appellant and the entrepreneurial comparable companies. (g) Considering cost of impairment of assets charged to the Profit and Loss account as operative in nature even after specifically observing in the order that such expenses should not be considered as part of the operating expenses. 4.The learned CIT (Appeals) erred in upholding the charging of interest under section 2348 and 234D of the Act. 5. That the Appellant craves leave to add to and I or alter, amend, rescind or modify the grounds taken hereinabove before or at the time of hearing of this appeal. 4. The assessee company is engaged in the business of call center operations and also providing IT enabled services. The profile of the....
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....e comparable companies pertaining to the financial years 2002-03,2003-04 and 2004-05 and selected 22 comparable companies with a markup cost of 8%. The TPO issued a show cause notice as the assessee used the data of financial year 2002-03, 2003-04 and 2004-05 instead of current year's data in accordance with TP regulations. It was pointed out that the current year data was available at the time of filing of return and audit reports were also available well in time i.e before October 2005. It was held by the TPO that the use of current year data was mandatory. 9. The TPO in view of the regulations has retained only 5 comparables and has sought to include more comparables and further for this purposes issued show cause notice to the assessee. 10. After receipt of the show cause notice, the assessee filed reply and also filled objections in respect of four new comparables. However, the AO has retained 9 comparables and the operating mark up on the cost at 9.95% with an arithmetic mean operating mark up on the cost of comparable companies as 14% submitted by the assessee. 11. On the basis of this, the TPO proposed an adjustment u/s 92CA and determined the arm's length price at....
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.... the activity of the said company is similar to that of the assessee. 20. We have heard the rival contentions of the parties and perused the material on record. The Co-ordinate Bench of the Tribunal in the case of M/s Thomson Reuters India Services Pvt. Ltd., (Supra) in para 13.3 has held as under:- "We have considered the rival submissions as well as the relevant material on record. At the outset, we note that the co-ordinate bench of this Tribunal in the case of Telelogic India (P) Ltd. Vs. ACIT (supra) has examined the comparability of this company in paras 8.2 and 8.3 as under : 8.2 We heard the rival submissions and perused material on record. This comparable is selected by the TPO. The assessee-company objected for inclusion of this company on the ground that the business model is different as it outsourced major portion of the work and the employees cost is merely 0.9% of the revenue and showing abnormal profit of 45.62%. The Id. CIT(A) had not concurred with the views of the assessee-company and therefore, confirmed the action of the TPO in including this company in the list of comparables. The Mumbai bench of Tribunal in the case of ACIT vs. Maersk Glo....
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.... thus, could not be included to arrive at an arm's length price of controlled transactions, which were materially different in its content and value. In Maersk Global Centers (India) Pvt. Ltd. (supra), the Special Bench of the Tribunal had noted the same and had, thus, excluded eClerx as a comparable. It is further observed that the comparability of eClerx had also been examined by the Hyderabad Bench of the Tribunal in Capital Iq Information Systems (India) (P.) Ltd. v. Addl. ClT (supra), where in the Tribunal directed the exclusion of eClerx as a comparable for there as on that it was engaged in providing knowledge process outsourcing services and further that it had also returned supernormal profits. 38. In our view, even Vishal could not be considered as a comparable, as admittedly, its business model was completely different. Admittedly, Vishal's expenditure on employment cost during the relevant period was a small fraction of the proportionate cost incurred by the assessee, apparently, for the reason that most of its work was outsourced too the vendors/service providers. The Dispute Resolution Panel and the Tribunal erred in brushing aside this vital differen....
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..... Your contention that the India company has a stake n the company will result in influencing the pricing decision is not understandable by any means of imagination. You have not given any proof regarding the company having any related parts transactions as such, hence the company has been retained as a comparable. Your contention is a mere assumption." 24. In view of the above facts and circumstances , we deem it appropriate to remand the matter back to the TPO/AO with a direction to decide this issue afresh after giving liberty to the assessee to furnish the record to prove that data entry charges and vendor payments are not related to cost of employees and further prove that its prices were influenced by Indian company. RPT filter 25. Since the CIT(A) has rejected the comparable companies by applying 0% RPT filter as well as by applying the other criteria which are not acceptable to the revenue, as this Tribunal in series of decisions have held that the tolerance range of RPT in normal circumstances is 15% and in extreme circumstances it can be extended up to 25%. Therefore, respectfully following the judgment of the coordinate bench in the case of M/s Thomson Reuters I....
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....ted parties. Therefore, in this case, good number of comparables are available and there is no difficulty in searching the comparables. Accordingly, in order to determine the ALP by considering the comparable uncontrolled transactions, it should be kept in mind that the uncontrolled transactions should be least influenced by the RPT in the case of DCIT Vs. Textron Global Technology Centre Pvt. Ltd. in IT(TP)A No. 291Bang12012 & C.O.No: 401Bang12012Ot.20.3.2015 for the Assessment Year 2005-06 the Tribunal has held in para 17 as under :- 17. In view of the conclusion above that exclusion of comparable companies with RPT of less than zero percent is not valid, and that companies where RPT is less than 15% alone can be considered, then the comparable rejected by the CIT (Appeals) on the basis of the said filter will have to be included along with the four comparable retained by the CIT (Appeals). Although 12 comparable which were rejected on the basis of RPT being more than zero percent, one comparable viz., Four Soft Ltd, will have to be excluded since the RPT is at 19.89% and thus in excess of 15%. Sathyam Computers Ltd. And Infosys Technologies Ltd. will get excluded for th....
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.... filter to 15% instead of 0% by the CIT(A) and 25% by the TPO, therefore, new comparables which were rejected by the CIT(A) will now be available/applicable for the comparing and for arriving at the ALP of the assessee. Therefore, we remand the matter to the TPO/AO for re-calculation. It may be pointed out that though in respect of Wipro BPO Solution Ltd, the CO has not been filed by the assessee to support the order passed by the CIT(A). Therefore, we deem it appropriate to direct the learned TPO/AO to consider the turnover filter while rejecting the comparables and also more particularly Wipro BPO Solution Ltd., as it was pointed out by the learned AR that the turnover of the Wipro is 18 times more than that of the assessee. It is of the consistent view that the turnover is within the range of 1/10th of the turnover or up to 10 times, then the comparable is considered to be good comparable. However, if the comparable turnover is more than 10 times, it is held not to be an appropriate or a good comparable. The learned TPO will keep the consistent view of the Tribunal while applying RPT filter of 15% as well as simultaneously consider the turnover filter in the light of the consist....
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....rnover n the denominator. The reason being the total turnover includes export turnover. The components of the export turnover in the numerator and the denominator cannot be different. Therefore, though there is no definition of the term 'total turnover' in section 10A, there is nothing in the said section to mandate that, what is excluded from the numerator that is export turnover would nevertheless form part of the denominator. Though when a particular word is not defined by the Legislature and an ordinary meaning is to be attributed to the same, the said ordinary meaning to be attributed to such word is to be in conformity with the context in which it is used. When the statue prescribes a formula and in the said formula, 'export turnover' is defined, and when the 'total turnover' includes export turnover, the very same meaning given to the export turnover by the Legislature is to be adopted while understanding the meaning of the total turnover, when the total turnover includes export turnover. If what is excluded in computing the export turnover is included while arriving at the total turnover, when the export turnover is a component of total turnover, such an interpretation woul....