TaxTMI 
TaxTMI 
2019 (4) TMI 2095
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....from such transaction has to be determined having regard to the ALP as laid down in Section 92 of the Income Tax Act, 1961 (Act). It is also not in dispute between the assessee and the Revenue that the Profit Level Indicator (PLI) chosen for the purpose of comparing the assessee's profit margin with the comparable companies was Operating Profit on Operating Cost. The assessee's Operating Profit on Operating Cost was 20.53%, which was arrived at the following manner: Particulars Amount Rs. Total Income 28,56,75,746 Less: Other Income 95,30,269 Operating Income 27,61,45,477 Expenditure 23,45,44,482 Less: Provision for doubtful debts & advances (4,65,764) Less: Loss on sale of fixed asset 58,91,765 Operating Expenses 22,91,18,481 Operating Profit 4,70,26,996 OP/OC 20.53% 3. The most appropriate method adopted by the assessee and the Revenue for the purpose of determining ALP was the Transactional Net Margin Method (TNMM). The assessee had chosen 04 comparable companies and based on the Arithmetic Average Mean, profit margin of those 04 companies which was arrived at 17.46% concluded that the assessee's profit margin being ....
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....7,274 Since the shortfall is exceeding 5% of the International Transaction, adjustment is made The above shortfall of Rs. 248,24,560/- is treated as transfer pricing adjustment u/s.92CA in respect of ITES segment of the taxpayer's international transactions". 4.2. Aggrieved by the aforesaid addition made by the Assessing Officer, consequent to determination of ALP, the assessee filed an appeal before the CIT(A). 5. The CIT(A) upheld the order of TPO regarding choosing of comparable companies. 5.1. With regard to allowing negative working capital adjustment, the CIT(A) held that the negative working capital adjustment done by the TPO was not proper. As a result, the Arithmetic Average Mean on profit margins, which was arrived at TPO at 31.36% stood reduced to 28.11% [28.11 + (-)3.25%, towards negative working capital = 31.36%]. 5.2. Aggrieved by the order of Ld.CIT(A) in upholding the comparables chosen by the TPO, assessee has preferred an appeal before the Tribunal. 6. At the time of hearing of the appeal, Ld.counsel for the Assesseepressed for adjudication of only Ground No. 5, which reads as under: Gr.No. 5: The learned AO/learned TP....
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.... turnover is more than Rs. 200 Crores, cannot be compared with the company, whose turnover is less then Rs. 200 Crores. In Coming to the aforesaid conclusion, the Tribunal relied on the decision rendered by the ITAT, Bangalore Bench in the case of Autodesk India P. Ltd., Vs. DCIT (2018) [96 taxmann.com 263] (Bangalore-Trib) reviewing all the conflicting decisions on the point, and concluding that the application of turnover filter still holds good and has not been in any manner diluted by the decision of Hon'ble Karnataka High Court in the case of M/s. Acusis Software (I) Pvt. Ltd., Vs. ITO in ITA No. 223/2017, dt. 14-08-2018, following the relevant observations of the Tribunal, held as under: "11. Aggrieved by the aforesaid addition made by the AO, the assessee filed objections before the DRP. In its objections, the assessee pointed out that the TPO applied the following filters in the TP study:- "Companies whose ITeS service income < 1 cr. were excluded "By taking companies whose income is less than Rs.1 crore, the analysis may not lead to a proper comparability as these companies may not be representing the industry trend. Moreover their low cost/s....
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.... Rs 200 crore and higher than Rs. 2000 crores, therefore, should be excluded from the comparability analysis." 14. Aggrieved by the aforesaid order of DRP, the revenue has raised ground Nos.3 & 4 before the Tribunal. 15. The ld. DR submitted that the Hon'ble High Court of Karnataka in the case of M/s. Acusis Software (I) P. Ltd. V. ITO in ITA No.223/2017, judgment dated 14.08.2018, has taken the view that if the turnover of a comparable company is less or more than 10 times the turnover of the assessee, then it cannot be considered as a comparable company. The ld. DR drew our attention to the turnover of 10 comparable companies which is as follows:- Sl.no Name of the case Operating income Operating cost OP/OC 1 Accentia Technologies Ltd. 1,069,026,524 82,93,91,898 28.89% 2 Acropetal Technologies 494,399,332 389706574 26.86% 3 Cosmic Global Ltd. 62,496,615 5,69,15,360 9.81% 4 e4e Healthcare(capitaline) 613,160,587 54,56,25,872 12.38% 5 I C R A Online Ltd.(seg) 156,691,000 11,67,49,267 34.21% 6 Jeevan scientific technology Ltd 1,721,400,000 1,00,86,52,592 70.66% ....
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....nal in excluding the aforesaid company as comparable is also reasonable and the same deserves to be accepted by us. It is analysed by the learned Tribunal in extenso which arrived at a decision that the company which is having only Rs.45.33 lakhs turnover cannot be considered as comparable to the Assesseecompany whose turnover is more than Rs.27 Crores. 16. The decision of the learned Tribunal in the other cases referred to by the learned counsel for the Appellant-Assessee would not render the findings of the learned Tribunal in the present case nugatory or perverse for the reason that analyzing of the comparables may be in a different context and the same need not be blindly or generally adopted in all cases, irrespective of the context or the circumstances calling upon for the inclusion/exclusion of the comparables which absolutely is a decision to be taken by the learned Tribunal as last fact finding authority. This view is supported by our judgment dated 25.08.2018 on Softbrands case (supra), which we find it appropriate to quote hereunder to its relevant extent:-" 17. He submitted that the question of law which the assessee sought to raise before the Hon'ble ....
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.... turnover has to be seen. Even the Tribunal in the order against which the appeal was filed, did not proceed on application of turnover filter with any such condition. Therefore, it is not correct to say that for application of turnover filter, tolerance range of turnover of 10 times on both the sides of assessee's turnover has been laid down by the Hon'ble High Court. The Hon'ble High Court held that the order of Tribunal is correct and calls for no interference and further held that no question of law arose for consideration. The decision rendered in the case of Autodesk (I) P. Ltd. (supra) of the Tribunal after analysing every conflicting views has ultimately concluded that the law laid down in the case of Genesis Integrated Systems (I) P. Ltd. (supra) has to be followed. The following were the relevant observations of the Tribunal:- "17.8. In view of the above conclusion, there may not be any necessity to examine as to whether the decision rendered in the case of Genisys Integrating (supra) by the ITAT 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 takin....
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....tems (I) P. Ltd. (2012) [53 SOT 159] lays down the correct law on the application of turnover filter and that decision has to be followed. In the decision rendered in the case of Genesis Integrates Systems (I) Pvt.Ltd., it has been held that companies with turnover of above Rs.200 crores cannot be compared with companies with turnover of less than Rs.200 Crores. In view of the aforesaid decision of the Tribunal, we hold that the CIT(A) erred in not accepting the claim of assessee for excluding of companies, whose turnovers were more than Rs. 200 Crores and those companies remain un-comparable with assessee, because assessee's turnover was only Rs. 27.61 Crores. The 02 companies which would stand excluded by the application of turnover filter from the set of 10 set of companies chosen by the TPO are - (i) M/s. Infosys BPO Limited, whose turnover is Rs.1312 Crores and (ii) TCS E-Serve Limited, whose turnover is Rs.1578.40 Crores. Accordingly, we hold that the aforesaid two companies sould be removed from the list of comparable companies. The TPO is directed to compute the average Arithmetic Mean profit of the comparable companies chosen by the TPO, after excluding the aforesaid two c....
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....ere provisions, cannot be allowed as a deduction. Accordingly the sum of Rs. 8,11,455/- was disallowed and added to the income of assessee. 8.3. Before the CIT(A), the assessee contended that the provisions of Section 40(a) cannot be invoked, where the assessee has merely made a provision in the books of account. This argument was rejected by the CIT(A) by following the decision of the Bangalore Bench of ITAT in the case of M/s. Bosch Limited Vs. ITO in ITA No. 1583/Bang/2014, dt. 01-03-2016, wherein it was held that - even in respect of a provision made in the books of account, TDS has to be effected. On the question whether the expenditure was contingent in nature, CIT(A) found no material to show that the liability-in-question has crystalised. He therefore upheld the order of Assessing Officer. 8.4. Ld. Counsel for the assessee reiterated the contentions as appearing in the grounds of appeal (No.15) raised before the Tribunal on this issue. These contentions in the grounds of appeal are identical to the contentions put forth before the CIT(A). 8.5. We are of the view that in the absence of material to show that the liability-in-question was not contingent and had crysta....