2023 (3) TMI 1093

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....upholding the same. 7. Companies not part of TP Order and Draft Assessment Order, erroneously included in Final Assessment Order 7.1 The Ld. AO / TPO erred in facts by including the functionally dissimilar companies in the final assessment order when these companies were rejected by the TPO and were not a part of the TP Order and draft assessment order. objection was raised before Hon'ble DRP for these companies: Sr.No. Name of Company 1 Back Office IT Services India Private Limited 2 XS Cad India Private Limited 3 Smartstream Trechnologies India Private 4 Anjana Software Solutions Private Limited 5 Consilient technologies Private Limited 6 Temenos India Private Limited As the above companies were not a part of the draft assessment order, this is an unambiguous case of violation of principle of natural justice and hence the action of the Ld. AO / TPO of including these companies in the final assessment order is liable to be obliterated. 7.2 With prejudice to the above ground i.e. 7.1, the Company submits that the above companies also fails the filters as provided below: Sr.No. Name of Company Filters failing 1 Back Office IT Services India P....

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....18,71,51,070 Operating Cost (B)   74,46,09,787 Operating Profit (A-B)=C   13,54,41,931 Operating margin as a percentage of Operating Cost (C/B) %   18.19% 5. The AO rejected the comparables selected by the assessee and arrived at the following final list of comparables :- SWD Segment SI. No. Company Name F.Year wise OPIOC (%)     Wt. Average 2015-16 2016-17 2017-18 1 Infomile Technologies Ltd. 9.86 11.06 8.64 9.69 2 Harbinger Systems Pvt. Ltd. 12.69 12.80 9.46 11.65 3 Exilant Technologies Pvt. Ltd. 25.82 17.27  8.50  17.17 4 Tech Mahindra Ltd. 17.5 18.06 20.03  18.57 5 Larsen & Toubro Infotech Ltd. 20.78 19.21 17.14 18.94 6 Great Software Laboratory Pvt. Ltd. 17.88 23.87  17.31 19.73 7 Elveego Circuits Pvt. Ltd. 8.3 40.17 6.75 20.19 8 Black Pepper 9.63 13.84 24.83 20.62 9  Mindtree Ltd. 26.11 20.12  18.41 21.21 10  Aptus Software Labs Pvt. Ltd. 27.67 24.83 15.16 22.70 11 Acewin Agriteck Ltd. 26.54 23.23 22.73 24.51 12 Persistent Systems Ltd. 23.9 24.44  26.94 24.98 13 Wipro Ltd.  27.27 26.38 27.03 26.83 14 Tata Elxs....

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....and perused the material on record. The coordinate bench of the Tribunal in the case of Autodesk India Pvt.Ltd. Vs. DCIT (2018) 96 Taxmann.com 263 (Bangalore- Tribunal), 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) Pvt.Ltd., (supra) was as to whether comparable can be rejected on the ground that they have exceptionally high profit margins or fluctuation profit margins, 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 sa....

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.... 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 turnover filter and his action in excluding companies by following the ratio laid down in the case of Genisys Integrating (supra). 10. Respectfully following the above decision of the coordinate Bench, we hold that the above list of comparables whose turnover is more than 200 crores should be excluded from the list of comparables. 11. With regard to ground No.7, the ld. AR submitted that in the order giving effect in accordance with directions of the DRP, the list ....