2017 (5) TMI 1815

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..... Id. AO/TPO and the Hon'ble DRP have erred in determining the ALP for the international transaction of software development services by selecting companies by way of a fresh search which are not comparable to the appellant due to various factors such as functional differences, lack of segmental information, product led revenues, difference in size, inadequate financial information, extra ordinary events, peculiar economic circumstances, failing IPO's filers etc. Further, the Id. AO/TPO and the Hon'ble DRP has erred in not taking cognizance o the judicial precedence wherein these companies have been adjudicated to be not comparable to SWD services rendered by a captive SWD service provider. The list of companies which are not comparable to the appellant in the SWD segment is as follows; a.) ICRA Techno Analytics Ltd., b) Infosys Ltd. c) Larsen & Toubro Infotech Ltd. d) Persistent Systems Ltd, and e) Spry Systems Ltd. 8. The Id. AO/TPO and the Hon'ble DRP have erred in determining the ALP for the international transaction of ITES by selecting companies by way of a fresh search which are not comparable to the appellants due to various factors such as ....

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....gin of the comparable companies for the respective intl transactions. 16, The ld. AO has erred in not providing the appreciate risk adjustment considering the risk profile of the appellant as directed by the Hon'ble DRP. 17. The Hon'ble DRP/ld. AO/TPO have in law and on facts, in levying interest under sections 234B and 234D of the Act. 18. The ld. AO has erred in law by initiating penalty proceedings under section 271(1)(c ) of the Act". 3. In course of hearing before us, Id. AR of the assessee submitted a chart regarding the claim for inclusion/ exclusion Of various comparables. He submitted that as per this chart, there are two segments i.e. Software Development Segment and ITES Segment. Regarding first segment, he submitted that the turnover of the assessee company for this segment is Rs. 198.65 Crores and for this segment, there are 10 comparables selected by the TPO and confirmed by the DRP. Out of it, the assessee is seeking exclusion of three comparables i.e. 1) M/s Infosys ltd. 2) L & T Infotech Ltd. and 3) Persistent Systems Ltd. He also submitted that the assessee requests for inclusion of two more comparables i.e. 1) M/S Thinksoft Global Services Ltd. ....

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....parable should be excluded by applying the turnover filter. 5. Regarding the second segment i.e. ITES segment, it is submitted by the Id. AR of the assessee that as per chart for this segment, the turnover of the assessee company for this segment is be 15.29 Crores and the TPO has selected 1.0 comparables out of which one is excluded by the DRP being Jindal intellicom Ltd. but the assessee seeks its inclusion. The assessee is seeking exclusion of 5 comparables. The assessee is also seeking inclusion of one more comparable i.e. Microland Ltd. He, submitted that turnover of two companies i.e. Infosys BPO Ltd. Rs. 1312.41 Crores and TCS E-Serve ltd 1578.44 Crores is more than 10 times Of turnover of this segment of the assessee company and therefore, these two comparables are to be excluded by applying the turnover filter alone. 6. Regarding the request of the assessee for exclusion of three more comparables, i.e. Jindal Intellicom Ltd, BNR Udyog Ltd. (Seg.) M/S Excel Infoways Ltd. (Seg.), he submitted that the order of DRP regarding these three comparables is also very cryptic as can be seen in para-7.6 Of the of DRP and therefore, the issue regarding exclusion Of these three compa....

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.... that the turnover was also not a criteria prescribed under rule 10B for selection of comparables We are also of the considered opinion that the turnover cannot be relevant criteria in a service sector where fixed overheads are nominal and the cost of service is in direct proportion to the services rendered. Following this reasoning we hold that the above companies cannot be excluded from the list of comparables. From the above Para re-produced from the Tribunal order, it is seen that. in that case, the turnover filter applied was different i.e. 1.00 crore to 200 Crores. The Tribunal has noted another Tribunal order rendered in the case of Willis Processing Services (I) P. Ltd. vs. DCIT (Supra) wherein it was held that the turnover filter of Rs.1 to 200 Crores is bereft or any rationality as the application of this rule does not enable comparison of a company Having turnover Of Rs.200 Crores with any company having the turnover Of RS.1 to 200 Crores. In our considered opinion, this turnover filter of Rs. 1 to Rs. 200 Crores is having this lacunae and therefore, the same is rightly held to be not a proper filter but now a days the Tribunal is applying different turnover filter i.e....