TaxTMI 
TaxTMI 
TaxTMI 
2023 (1) TMI 560
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....VELOPMENT SEGMENT 2. The lower authorities have erred in: (i) Adopting inappropriate filters like one sided turnover filter, 25% RPT filter, etc. in the process of selecting comparables and not adopting appropriate filters like onsite revenue filter, etc; (ii) Selecting following companies as comparables even though they fail upper turnover filter of more than Rs.200 crores: * Exilant Technologies Private Limited * Larsen & Toubro Infotech Ltd * Mindtree Ltd * Persistent Systems Ltd * Sasken Technologies Ltd * Wipro Ltd * Tata Elxsi Ltd * Nihilent Ltd * Infosys Ltd * Cybage Software Pvt. Ltd (iii) Selecting inappropriate comparables and selecting companies as comparables even though they are not comparable in terms of functions performed, assets utilized, risks assumed, size, unusual business circumstances, high margin, etc. The lower income tax authorities have erred in adopting the following companies as a comparables: * Black Pepper Technologies Pvt Ltd * Elveego Circuits Pvt. Ltd * Aptus Software Labs Private Limited * Acewin Agriteck Ltd (OFS Technologies Ltd) * Infobeans Technologies Limited * Threesixty Logica Testing....
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....er, the assessee filed objections before DRP on 21.09.2021. Pursuant to the directions of the DRP, an order giving effect to it was passed by the Ld.TPO dated 24.06.2022 making the following TP adjustment: 2.5 Post the above order, the Ld.AO passed the final assessment order u/s 143(3) r.w.s 144C(13) of the Act, dated 29.06.2022. In the order, the Ld.AO incorporated TP adjustment of Rs.2,37,84,839/- to arrive at total income of Rs.19,93,15,519/-. Aggrieved by the final assessment order, the assessee filed the instant appeal before this Tribunal. 2.6 At the outset, the Ld.AR submitted that the assessee wish to argue only Ground No. 2(ii) and Ground No. 3. He submitted that the assessee do not wish to press any other ground. In Ground No. 2(ii), assessee is seeking exclusion of following comparables for having turnover more than 200 crores. a) Exilant Technologies Private Limited b) Larsen & Toubro Infotech Ltd c) Mindtree Ltd d) Persistent Systems Ltd e) Sasken Technologies Ltd f) Wipro Ltd g) Tata Elxsi Ltd h) Nihilent Ltd i) Infosys Ltd j) Cybage Software Pvt. Ltd 2.7 Before we undertake the comparability analysis, it is sinequa non to understand t....
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....* Autodesk India (P.) Ltd vs DCIT, Circle 11 (1), Bangalore [20181 96 taxmann.com 263 (Bangalore - Trib.) * Cenduit (India) Services Pvt. Ltd vs DCIT, Circle 2(1)(1), Bangalore (TS- 19-ITAT-2022 Bang-TP) * M/s. Software Paradigms Infotech Pvt. Ltd vs ALIT, Circle 1(1), Mysuru (TS-676-ITAT-2021 Bang-TP) 3.3 Therefore, the assessee submits that the above companies should be rejected as comparables. On the contrary, the Ld.AR relied on the orders passed by authorities below. We have perused the submissions advanced by both sides in the light of records placed before us. 3.4 We note that Coordinate bench of this Tribunal in the case of Barracuda Networks India (P.) Ltd. vs. DCIT reported in [2021] 131 taxmann.com 337 excluded Tata Elxi Ltd (Seg.), Persistant Systems Ltd., Larsen and Toubro Infotech Ltd., RS International Ltd., Nihilent Technologies Ltd., Infosys Ltd., Cybage software Pvt.Ltd., from the list of comparables for having high turnover more that 200 crores. This Tribunal observed that, the said company was having multiple segments and cannot be compared with a captive service provider. In assessee's own case for A.Y. 2017-18, Coordinate Bench of this Tribunal in IT(T....
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....arties 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. v. Dy CIT [2018] 89 taxmann.com 44, took note of the decision of the ITAT Bangalore Bench in the case of Sysarris Software (P.) Ltd. v. Dy. CIT [2016] 67 taxmann.com 243 wherein the Tribunal after noticing the decision of the Hon'ble Delhi High Court in the case of Chryscapital Investment Advisors (India) (P.) Ltd. (supra) and the decision to the contrary in the case of CIT v. Pentair Water India (P.) Ltd ., [2016] 69 taxmann.com 180/381 ITR 216 (Bom.) wherein it was held that high turnover is a ground to exclude a company from the list of comparable companies in determining ALP, held that there were contrary views on the issue and hence the view favourable to the Assessee laid down in the case of Pentair Water India (P.) Ltd. (supra) should be adopted. The following were the conclusions of the Tribunal in the case of Dell International Services (P.) Ltd. (supra): '41. We have given a very careful conside....
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....ssessee was justified. As rightly 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 Rs. 200 crores from the list of comparable companies is held to correct and such action does not call for any interference.' 13. The Tribunal in the case of Autodesk India (P.) Ltd. v. Dy. CIT [2018] 96 taxmann.com 263 (Bang-Trib), took note of all the conflicting decision on the issue and rendered its decision and in paragraph 17.7. of the decision held as that high turnover is a ground for excluding companies as not comparable with a company that has low turnover. The following were the relevant observations: "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) (P.) Ltd., (supra) was as to whether comparable can be rejected on t....
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....cision. 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 (supra) and have to be regarded as per incurium. These three decisions also 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....
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....e concept will be applicable in certain cases for determining the price and will begin with the 35th percentile and end with the 65th percentile of the comparable prices. Transaction price shown by the taxpayers falling within the range will be accepted and no adjustment will be made. The use of multiple year data allows for yearly variations to be averaged out and would therefore add value to transfer pricing analysis. The Amended Incometax Rules, 1962 ('Rules') via Notification 83 of 2015 which is the 16th amendment to the originally drafted Indian Tax Rules, 1962, are applicable for transactions undertaken on or after 1 April 2014 (i.e. from FY 2014-15 and onwards). These amended provisions are applicable only when the determination of 'ALP' is done under the MAM being resale price method ('RPM'), cost plus method ('CPM') or transactional net margin method ('TNMM'). The relevant provisions of Rule 10CA of the Rules, in so far as it relates to choice of comparable companies, read as follows: "Computation of arm's length price in certain cases. 10CA. (1) Where in respect of an international transaction or a specified domestic trans....
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.... determine the price of the comparable uncontrolled transaction undertaken in the financial year immediately preceding the current year; and (ii) the weighted average of the prices, computed in accordance with the manner provided in sub-rule (3), of the comparable uncontrolled transactions undertaken in the aforesaid period of two years shall be included in the dataset instead of the price referred to in sub-rule (1) : Provided also that where the use of data relating to the current year in terms of the proviso to sub-rule (5) of rule 10B establishes that, - (i) The enterprise has not undertaken same or similar uncontrolled transaction during the current year; or (ii) the uncontrolled transaction undertaken by an enterprise in the current year is not a comparable uncontrolled transaction, then, irrespective of the fact that such an enterprise had undertaken comparable uncontrolled transaction in the financial year immediately preceding the current year or the financial year immediately preceding such financial year, the price of comparable uncontrolled transaction or the weighted average of the prices of the uncontrolled transactions, as the case may be, undertaken b....
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....ables of TPO given in paragraph-4 of this order, the profit margins of the Company R.S. Software (India) Ltd., for the three financial years were 2013-14 to 2015-16 were 24.14%, 32.75% and -2.09% respectively and the weighted average margin of 24.83% has been considered by the TPO. 18. The second proviso to section 10CA(2) of the Rules provides for a situation where R.S. Software (India) Ltd., has undertaken comparable uncontrolled transaction only in Financial year 2014- 15 & 2015-16, then the weighted average of the two financial year 2014-15 and 2015-16 has to be computed in the manner laid down in Rule 10CA(3) of the Rules and the margin so arrived at has to be included in the dataset. 19. The third proviso to section 10CA(2) of the rules provides that if in the current year i.e., financial year 2015-16 if R.S. Software (India) Ltd., has not undertaken any uncontrolled comparable transaction then that company can never be considered for inclusion in the dataset. 20. The submission of the learned Counsel for the Assessee was that as per the proviso to Rule 10CA(2) of the Rules, R.S. Software (India) Ltd., cannot be regarded as comparable company for Financial Year 2013-....
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....g in comparable uncontrolled transactions is adjusted to take into account the differences, if any, between the international transaction [or the specified domestic transaction] and the comparable uncontrolled transactions, or between the enterprises entering into such transactions, which could materially affect the amount of net profit margin in the open market; (iv) the net profit margin realised by the enterprise and referred to in sub-clause (i) is established to be the same as the net profit margin referred to in subclause (iii); (v) the net profit margin thus established is then taken into account to arrive at an arm's length price in relation to the international transaction [or the specified domestic transaction]; ** (2) For the purposes of sub-rule (1), the comparability of an international transaction [or a specified domestic transaction] with an uncontrolled transaction shall be judged with reference to the following, namely:- (a) the specific characteristics of the property transferred or services provided in either transaction; (b) the functions performed, taking into account assets employed or to be employed and the risks assumed, by the respective ....
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....od of two years prior to the current year may also be considered but with a rider that "if such data reveals facts which could have an influence on the determination of transfer prices in relation to the transactions being compared". If by application of any filter an enterprise undertaking uncontrolled transaction similar to an international transaction is regarded as not being comparable in the earlier two years immediately preceding the current year and thereby attracting the provisions of Rule 10B(2) or 10B(3) then the data for those years will not have any influence on the determination of transfer prices in relation to the transactions being compared for the current year and hence have to be ignored. On a harmonious reading of the provisions of Rule 10CA, 10B(3) (4) of the Rules, we agree with the stand taken by the learned counsel for the Assessee. Therefore, if at all R.S.Software Ltd., is to be regarded as a comparable company, then the margins for AY 2014-15 and 2015-16 of the company have to be ignored because in those years they are to be regarded as not comparable. We hold accordingly. The assessee in Barracuda Networks India (P.) Ltd. vs. DCIT. (supra) was a captiv....
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....rt, 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 an issue, the view favourable to the Assessee has to be adopted, we respectfully follow the view of the Hon'ble Bombay High Court on the issue. Respectfully following the aforesaid decision, we uphold the order of the DRP excluding 5 companies from the list of comparable companies chosen by the TPO on the basis that the 5 companies turnover was much higher compared to that the Assessee. 17.8. In view of the above conclusion, there may not be any necessity to examine as ....
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....ee Limited, Persistent Systems Limited, Tata Elxsi Limited, Nihilent Limited, Infosys Limited and Cybage Software Private Limited from the list of comparables, since the said companies are having turnover far exceeding Rs.200 crore for the relevant assessment year. It is ordered accordingly. 4.3 In the result, ground 6(iii) is partly allowed." 12.1. Nothing has been placed by the Revenue to deviate from the above view taken by the coordinate bench of this Tribunal in Zynga Game Network India (P.) Ltd. (supra). Respectfully following the above, we direct Ld. AO/TPO to exclude Tata Elxi Ltd (Seg.), Mindtree Ltd., Larsen and Toubro Infotech Ltd., RS Software (India) Ltd., Persistent Systems Ltd., Nihilent Technologies Ltd., Infosys Ltd., Cybage software Pvt.Ltd. for having high turnover as compared to a captive service provider like assessee. Accordingly, we direct the Ld.AO to exclude the above comparables from the final list." 3.5 It has been also submitted that the turnover of the comparables sought for exclusion are as under: 1. L&T Infotech Ltd. 2. Persistent Systems Ltd. 3. Tata Elxsi Ltd. 4. Infosys Ltd. 5. Nihilent Technologies Ltd. 6. Cybage Software Pvt. ....