TaxTMI 
TaxTMI 
2021 (11) TMI 1144
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....e is a 100% export oriented unit. It is providing Software Development (SWD) services to its Associate Enterprises (AEs). As per the Transfer Pricing (TP) study, the assessee had entered into various international transactions with its AEs. The only international transfer which has subjected to Transfer Pricing Adjustment by the TPO was provision for SWD services of Rs.55,50,63,134. The financials of the assessee as per the TP study and financials for computing Arm's Length Price (ALP) as per the TPO are as follows:- Particulars Provisions of SWD and support services Operating income 55,50,63,134 Operating Cost 47,28,45,313 Operating Profit 8,22,17,821 OP/OC 17.39% Income 56,41,23,715 Other Income Exclude 9060581 Add : Forex gain Include 8816977 Operating Revenue / Income 56,38,80,111 Total Expenditure 47,44,88,315 Interest & finance expense Exclude 1643002 Operating expenses 47,28,45,313 Operating profit 9,10,34,798 OP/OC 19.3% O....
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.... before the Tribunal. The limited submission of the assessee is to exclude two companies from the list of comparables, namely, Larsen & Toubro Infotech Limited and Persistent Systems Limited on application of turnover filter (Grounds 9 to 11). The learned AR submitted that the turnover of the assessee is only Rs.56.38 crore whereas the turnover of L&T Infotech Limited is Rs.3609.32 crore and Persistent Systems Limited is Rs.965.75 crore. The learned AR relied on the following orders of the Bangalore Bench of the Tribunal for exclusion of the above companies on account of application of upper turnover filter:- (i) Autodesk India Pvt. Ltd. (2018) 96 taxmann.com 263 (Bangalore) (ii) IGEFI Software India Pvt. Ltd. v. ACIT [IT(TP)A No.2614/Bang/2017 (order dated 04.09.2019) 7. The learned Departmental Representative, on the other hand, supported the orders of the TPO / CIT(A). 8. We have heard rival submissions and perused the material on record. The AO / TPO had excluded companies having turnover of less than Rs.1 crore, however, the AO / TPO has not put upper limit to turnover for exclusion of companies having high turnover. The company having very high turnove....
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....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 nonjurisdictional High Court. We however find that the Hon'ble Bombay High Court in the case of Pentair Water India (P.) Ltd. (supra) 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 hi....
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.... ratio laid down in the case of Genisys Integrating (supra)." 40. Ld.AR submitted that though this decision was rendered with reference to AY 2005-06 and 2006-07, same reasoning would apply to AY 2015-16 also and in this regard. Based upon above discussions and the decision relied by Ld.AR herein above. We are of opinion that objection raised by revenue cannot withstand the test of law. Accordingly 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." 8.1 As mentioned earlier, the turnover of the assessee is Rs.56.38 crore whereas the turnover of L&T Infotech Limited is Rs.3609.32 crore and the turnover of Persistent Systems Limited is Rs.965.75 crore. Therefore, in view of the aforesaid reasoning, we direct the AO / TPO to exclude L&T Infotech Limited and Persistent Systems Limited from the list of comparables. 8.2 In the result, ground No.11 is partly allowed. IT(TP)A No.331/Bang/2018 (Revenue's appeal) 9.....
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....to this company is allowed and the TPO / AO should exclude this company from the list of comparables." 11. The above discussion of the CIT(A) clearly explains that Tech Mahindra Limited is functionally dissimilar to that of the assessee. Tech Mahindra Limited has got multiple segments and on perusal of the segmental details in the consolidated report, it can be seen that the said company is strictly not into software development services, ITES etc. Moreover Tech Mahindra Limited is having turnover far exceeding Rs.200 crore. Therefore, this company gets excluded by application of upper turnover limit also. Hence, we see no reason to interfere with the order of the CIT(A) in excluding the above company from the list of comparables. It is ordered accordingly. ICRA Techno Analytics 12. The CIT(A) has excluded this company by holding that it is functionally not similar after detailed analysis of the annual report. The relevant finding of the CIT(A) in this regard reads as follow:- "9.1 ICRA Techno Analytics: The appellant has argued against inclusion of ICRA Techno Analytics.Ltd in the list of comparables by the TPO. The appellant has made detailed submissions to supp....
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....justified in excluding the company from the final list of comparables on account of functional dissimilarity. The said company is engaged in multifarious activities such as web development and engineering services etc. and the segmental details of the company is not available. Therefore, we hold that the CIT(A) is justified in excluding the above company from the list of comparables. Negative Working Capital 14. The CIT(A) has given a finding that the assessee is captive service provider and is operating on cost plus basis. Since the entire revenue of assessee was from its AE's, the CIT(A) held that negative working capital adjustment is not appropriate by relying on the order of the Bangalore Bench of the Tribunal in the case of Lam Research India Pvt. Ltd. v. DCIT in IT(TP)A No.1437 & 1385/Bang/2014 (order dated 30.04.2015). The relevant observation of the CIT(A) reads as follows:- "11.1 In relation to working capital adjustment, it is observed that the appellant is a captive service provider in the Software Development Segment. It is operating on cost plus basis and the entire revenue in this segment is from AE. So the decision of Bangalore Bench of ITAT in the ca....