TaxTMI 
TaxTMI 
2024 (2) TMI 826
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....sing Officer or learned AO') dated 24 June 2022, is not in conformity with the procedures laid out in section 144B(1)(xxix) and section 144B(1) (xxx) and is bad in law, void ab initio and contrary to the facts and circumstances of the case and is liable to be quashed. 2. On the facts and in circumstances of the case and in law, the Dispute Resolution Panel-1. Mumbai ("Hon'ble Panel' or 'DRP') and the Learned AO erred in not appreciating that the order of the learned Assistant Commissioner of Income-tax (Transfer Pricing) 1(2)(1), Mumbai ('learned Transfer Pricing Officer' or 'learned TPO') passed under Section 92CA of the Act is contrary to law and thus liable to be quashed; 3. On the facts and in the circumstances of the case, the Hon'ble DRP erred in upholding the learned AO/learned TPO's approach of 3.1. not accepting the economic analysis that was undertaken by the Appellant in accordance with the provisions of the Act read with the Income-tax Rules, 1962. 3.2. applying an upper turnover filter at 10 times the turnover of the tested party along with the lower turnover filter of 1/10th of the turnover of the tested party: ....
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....ted. In response, the Appellant filed submissions, dated 28/07/2021, along with revised working of PLI with updated margin of comparables. However, the TPO rejected (a) APITCO Limited and (b) IDMA Laboratories Limited as comparables as the same failed to meet the additional turnover filter applied by the TPO. The TPO determined the arm's length range of 8.54% to 12.18% with a median of 10.36% by taking into consideration the balance 6 comparables and asked the Appellant to show-cause as to why the operating margins of the Appellant should not be enhanced to 10.36% from 2.26%. In response, the Appellant inter alia, submitted that the Appellant had conducted a detailed transfer pricing study and after much deliberation arrived at a list of 8 comparables. The exclusion of 2 comparables amounted to cherry picking which was not permissible under law. However, the TPO rejected the contentions of the Appellant and proposed transfer pricing adjustment of INR 7,11,18,430/- vide order dated 31/07/2021, passed under Section 92CA(3) of the Act . 5. In the Draft Assessment Order, dated 28/09/2021, the Assessing Officer incorporated the above Transfer Pricing Adjustment of INR 7,11,18,430/-....
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....ng their operations in start-up stage. Such companies in the start-up phase would not be functionally comparable to an established company. Therefore, to reject such incomparable companies and for selecting functionally comparable companies, the filter of turnover more than INR 1 Crore was applied by the Appellant. Without rejecting the aforesaid lower turnover filter adopted by the Appellant, the TPO introduced an additional turnover filter. It was submitted on behalf of the Appellant that the Turnover filter was applied by the TPO not at the time of selecting the comparables but at the stage of computation of PLI with the object of cherry picking. Reliance in this regard was placed on the decision of the Mumbai Bench of the Tribunal in the case of Satellite Television Asian Region Limited Vs. DDIT (International Taxation -2(1) [ITA No. 7680/Mum/2012] disposed by way of a common order, dated 16/09/2016, passed in the batch of 7 appeals (i.e. ITA No. 7679 to 7684/Mum/2012 & ITA No. 32/Mum/2013). 9. Per contra the Ld. Departmental Representative supported by order passed by the TPO/Assessing Officer and submitted that the TPO has correctly applied, both, upper and lower turnover fi....
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....cements discussed above, we are of the view that the turnover filter must be applied not as a tool for cherry picking at a later stage but at the time of the search process and by applying a quantitative filter. It cannot be one sided process to exclude companies after the qualitative level based on FAR analysis where no filter has been applied in the earlier. Consistency also requires that it cannot be used to exclude it in an individual given year, when it has not been applied in earlier year and subsequent year. There cannot be a pick and choose of comparables every year unless there are some material differences in facts and circumstances. Therefore, based on the above cited reasoning we direct the DRP/TPO/AO to delete this addition." 12. We concur the observations made by the Tribunal that turnover filter cannot be applied as a tool for cherry picking the comparables at the later stage after completion of the search process with the object of excluding comparables which was otherwise found to be functionally comparables after the Functions Assets Risks (FAR) Analysis. After taking into facts and circumstances of the present case, we are of the view that the application of th....