TaxTMI 
TaxTMI 
2022 (2) TMI 1296
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....rvices was an "international transaction" i.e., a transaction between two or more associated enterprises, either or both of whom are non- residents, in the nature of purchase, sale or lease of tangible or intangible property, or provision of services, or lending or borrowing money, or any other transaction having a bearing on the profits, income, losses or assets of such enterprises, and shall include a mutual agreement or arrangement between two or more associated enterprises for the allocation or apportionment of, or any contribution to, any cost or expense incurred or to be incurred in connection with a benefit, service or facility provided or to be provided to any one or more of such enterprises. In terms of Sec.92(l) of the Act, the any income arising from an international transaction shall be computed having regard to the arm's length price. In this appeal by the Assessee, the dispute is with regard to determination of Arms' Length Price (ALP) in respect of the international transaction of rendering SWD services to the AE. 3. As far as the provision of Software Development services are concerned, the Asse....
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....8 Persistent Systems Ltd. 26.92% 31.34% 35.64% 30.89% 9 Infobeans Technologies 34.98% 20.78% 41.95% 32.42% 10 Thirdware Solution Ltd. 23.89% 44.39% 44.68% 36.90% 11 Infosys Ltd. 38.22% 41.30% 36.28% 38.68% 12 Aspire S stems (India) 34.26% 47.56% 38.04% 39.28% 13 Cybage Software Pvt. 62.90% 68.68% 68.82% 66.45% 35th Percentile 24.83% Median 28.20% 65%th Percentile 32.42% 5.The TPO computed the Addition to total income on account adjustment to ALP as follows: "22.4. Computation of Arm's Length Price: 22.4.1 The median of the weighted average Profit Level indicators is taken as the arm's length margin. Please see Annexure A for derails of computation of PLI of the Comparable. Based on this, the arm's length price. of the services rendered by the taxpayer to its AE(s) is computed as under: SWD SEGMENT Particulars Formula Amount (in Rs.) Taxpayers operating revenue OR 8,13,02,520 Taxpayers operating cost OC 7,21,45,894 Taxpayers operat....
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....s far as Ground No. 6 is concerned, the learned Counsel for the Assessee prayed for exclusion of only 7 companies out of the 10 companies set out in Ground No.6. The three companies which the Assessee does not wish to press for exclusion (i) Rheal Software Pvt. Ltd., Inteq Software Pvt. Ltd., and (iii) Infobeans Technologies Ltd. The relevant provisions of the Act in so far as comparability of international transaction with a transaction of similar nature entered into between unrelated parties, provides as follows: Determination of arm's length price under section 92C . 10B (l) For the purposes of sub-section (2) of section 92C, the arm's length price in relation to an international transaction [or a specified domestic transaction] shall be determined by any of the following methods, being the most appropriate method, in the following manner, namely:- (a) to (d) (e) transactional net margin method, by which, (i) the net profit margin realised by the enterprise from an international transaction for a specified domestic transaction entered into with an associated enterprise is computed in rel....
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....transaction shall be comparable to an international transaction specified domestic transaction] if- (i) none of the differences, if any, Between the transactions being compared, or between the enterprises entering into such transactions are likely to materially affect the price or cost charged or paid in, or the profit arising from, such transactions in the open market; or (ii) reasonably accurate adjustments can be made to eliminate the material effects of such differences. 9. A reading of Rule 10B(1)(e)(iii) of the Rules read with Sec. 92CA of the Act, would clearly shows that the net profit margin arising in comparable uncontrolled transactions has to be adjusted to take into account the differences, if any, between the international transaction and the comparable uncontrolled transactions, which could materially affect the amount of net profit margin in the open market. 10. Chapters I and Ill of the OECD Transfer Pricing Guidelines fin r Multinational Enterprises and Tax Administrations (hereafter the "TPG") contain extensive guidance on comparability analyses for transfer pricing purposes. Guidance on comparability adjustment....
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....e DRP therefore held that a company which is otherwise functionally comparable cannot be excluded only on the basis of high turnover. The Assessee has raised Grd.No.4 before the Tribunal challenging the aforesaid view of the DRP. 12. On the issue of application of turnover filter, we have heard the rival submissions. The parties relied on several decisions rendered on the above issue by the various decisions of the ITAT Bangalore Benches in favour of the Assessee and in favour of the Revenue, respectively. The ITAT Bangalore Bench in the case of Dell International Services India (P) Ltd. vs. DCIT (2018) 89 Taxmann.com 44 (Bang-Trib) older dated 13.10.2017, took note of the decision of the ITA T Bangalore Bench in the case of Sysarris Software Pvt.Ltd. Vs. DCIT (2016) 67 Taxmann.com 243 (Bangalore-Trib) wherein the Tribunal after noticing the decision of the Hon'ble Delhi High Court in the case of Chryscapital (supra) and the decision to the contrary in the case of CIT' Vs. Pentair Water India Pvt.Ltd. Tax Appeal No. 18 of 2015 dated 16.9.2015 wherein it was held that high turnover is a ground t....
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....hold that the turnover filter is very important and the companies having a turnover of Rs. 1.00 crore to 200 crores have to he 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 lightly pointed out by the learned counsel for the Assessee, there are two views expressed by two Hon'ble High Courts of' Bombay and Delhi and both are non-jurisdictional High Courts. The view expressed by the Bombay High Court is in favour of the Assessee and therefore following the said view, the action of the CIT (A) excluding companies with turnover of above crores from the list of computable companies is held to correct and such action does not call for any interference." &nb....
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....s Integrating (supra) by the I TAT Bangalore Bench should continue to be followed. 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 5.8.201 1. 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 Solu....
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.... aforesaid 5 companies are concerned, the Assessee included the aforesaid 5 companies in its TP study as comparable companies. The TPO did not accept them as comparable companies for the reason that the data with reference to these companies was not available in the public domain. In the objections filed before the DRP, the Assessee specifically pointed out that the data relating to these companies are available in the public domain and has also filed the details in the submissions before the DRP and the same was captured as follows: A3 Comparables filtered by Assessee: Rejected by TPO -- whose rejections are objected by Assessee Sl.No. Name of the Comparable Margin(PL1) TPO's contentions Assessee's contentions 1 Sankhya Infotech Ltd. Assessee :4.46% [Same contention for 6companies]Data not available in public domain.Hence rejected [Same contention for 6 companies]Objection No.6 (as part of Form 35A,submitted on 12- Mar-2020] Screenshot of initial dump obtained from capitaline database was shared with TPO. All these companies' annual reports are available as public documents in the website of Ministry of Corporate Affairs ....