TaxTMI 
TaxTMI 
2025 (7) TMI 1159
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....rom the list of comparable adopted by ld. Transfer Pricing Officer (TPO) on account of turnover filter and difference in functions, assets and risks. The comparable which are excluded and contested by the revenue are common in the two appeals and therefore both are taken up for adjudication by passing this consolidated order. We take up Assessment Year 2011-12 as the lead case. Our observations and findings in appeal for this year shall apply mutatis mutandis in appeal for Assessment Year 2012-13. Grounds raised by the revenue in appeal for Assessment Year 2011-12 are reproduced as under: i. "Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) is correct in directing to exclude Infosys Ltd., Larsen & Toubro Infotech Ltd., Mindtree Ltd., Persistent Systems & Solutions Ltd., Persistent Systems Ltd., Sasken Communication Technologies Ltd., Tata Elxsi Ltd., Wipro Technologies Ltd. and Zylog Systems Ltd. from the list of comparables without analyzing the impact of turnover on the profitability and ignoring the fact that the assessee is a captive service provider to its AE, therefore, the quantum of turnover will not affect the profit margin being earne....
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.... comparables without appreciating that E-Zest Solutions Ltd. is into development of software products as the assessee does and, therefore, it cannot be excluded from the list of comparables? ix. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) is correct in directing to exclude E-Zest Solution Ltd. from the list of comparables without appreciating that it is an accepted principle that in TNMM analysis the strictness of functional comparability is least as compared to other methods and under this method net margin of entities engaged in similar function is compared and the minute differences in the functioning of comparables cannot become a reason for exclusion of comparables? x. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) is correct in directing to exclude Sankhya Infotech Ltd. from the list of comparables without going into the merits of the case and also the assessee has not filed anything during transfer pricing proceedings to challenge the functional comparability of the aforesaid company? xi. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) is correct in direc....
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....ware development and related services to its associated enterprises namely, Xoriant Corporation, USA and Y-Point UK Ltd. M/s. Xoriant -US has 90.63% shareholding of M/s. Xoriant Solutions private limited. Another associated enterprise, M/s. Y-Point UK is a subsidiary of M/s. Xoriant-US. Assessee's software development and engineering services line offers a full life-cycle software development, engineering services, producing implementation and integration services. Assessee reported the following international transactions in its Form 3CEB wherein it had claimed to have benchmarked the same under Cost Plus Method.: - Sr. no. Name of the A.E. Nature of Transactions Amount (RS.) Method adopted 1 Xoriant Corporation, USA Sale of computer software 36,99,51,010 Cost plus method 2 Y-Point UK ltd. Sale of computer software 21,75,574 Cost plus method Total 37,21,26,584 3.1. Reference was made to ld. TPO u/s 92CA(1) by the ld. Assessing Officer for computation of arms' length price in relation to international transactions. According to ld. TPO, assessee has not properly applied the Cost Plus Method. However....
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....(P.) Ltd vs. DCIT; in the case of Tesco Hindustan Service Centre Pvt. Ltd. vs. DCIT; by ITAT Mumbai in Jacobs Engineering India P. Ltd. vs. DCIT. 3.4. According to the assessee, the criteria of comparable companies having turnover between 1/10th to 10 times turnover of the assessee has been considered by the ld. TPO in assessee's own case for Assessment Year 2017-18, 2018-19 and 2020-21 while making the transfer pricing assessment. Accordingly, following companies cannot be considered as comparable with the assessee as the turnover is not within the specified range: Sr. No. Name of the Company OP/OC % Turnover (in Rs. crores) 08 Infosys Ltd. 43.53 25,385.00 10 Larsen & Turbo Infotech Ltd 18.40 43,495.93 11 Mindtree Limited 10.74 1,509.00 12 Persistent Systems & Solutions Ltd 22.12 610.13 13 M/s. Persistent Systems Ltd 23.08 610.13 16 Sasken Communication Technologies Ltd 24.36 394.19 17 Tata Elxsi Ltd 13.00 4,110.12 19 Wipro Technologies Limited 54.42 26,005.00 20 Zylog Systems Ltd 28.74 899.11 4. In the first appeal, it is observed by the ld. CIT(A) that al....
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.... applying the turnover filter has excluded this company out of the comparable. The turnover reported in the case of Wipro Ltd. Is Rs. 939.78 crores while in the case of the assessee the turnover is around Rs. 11 crores. Therefore, on the basis of the turnover filter itself this company cannot be regarded to be comparable to the assessee company and accordingly, we do not find any infirmity in the finding of CIT(A) while he excluded this company on the turnover criteria following the decision of this tribunal in: Sony India (P) Ltd. V. DY. CIT [2008] 114 ITD 448 (Delhi) E-gain communication (P). Ltd. V. ITO [2008] 23 SOT 385 (Pune). Deloitte Consulting India (P) Ltd. V. Dy. CIT [2013] 144 ITD 451/36 taxman.com 68 (Hyd.) Genisys Integrating System (India) (P). Ltd. V. Dy. CIT [2012] 53 SOT 159/20 taxman.com 715 (Bang.)" 5.1. Considering the undisputed facts on record, factual finding given by the ld. CIT(A) and judicial precedents in favour of the assessee as noted above, we are in agreement with the claim of the assessee and find no reason to interfere with the findings arrived at by the ld. CIT(A) for excluding the above tabulated comparable companies on accoun....
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....ts mentioned herein above Acropetal Technologies Ltd is not comparable company to the assessee and thus same needs to be removed from the comparable." 6.2. E-Zest Solution Limited "10.6 I have gone through the record and case law in the light of the submissions made by the appellant and would like to say that E-Zest Solution Limited, the information available in the annual report shows that this company is a certified product engineering and software development company, having special expertise in emerging technologies such as Cloud SaaS, Business Intelligence and Mobility. Its business is diversified into product and service, the products being offered by it include product engineering ITA Nos. 189 & 317/Hyd/2016 services, outsourcing product development services, enterprise application development, IT services, industries solution, technology expertise and delivery approach. Findings of the Tribunal and the Hon'ble High Courts are to the effect that the company engaged in product development services and high-end technical services, are to be categorized as KPO services, in general. Apart from this the annual report at page No. 50 under the head 'segment repo....
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....e bench of Mumbai Tribunal in Agnity India technologies Pvt Ltd wherein the company was held to be product Company. The same was excluded by ITAT in its order in case of the appellant for A.Y 2010-11. Thus, on going through the facts mentioned herein above and business carried on by the appellant is same as was in AY 2010-11 Thirdware Solutions Limited is not comparable company to the assessee and thus same needs to be removed from the comparable." 6.7. We have considered the submissions made before us by both the parties and perused the material on record which does not in any way controverts the above extracted observations and finding of ld. CIT(A) while holding for the exclusion of the stated comparable companies taken by the ld. TPO for arriving at an upward adjustment to determine the ALP of the international transactions undertaken by the assessee. The factual position remains uncontroverted. Further, in the conclusion, ld. CIT(A) held that following remaining companies tabulated below should be adopted as comparable for computing the arm's length margin for the assessee by taking the arithmetic mean: Sr. No. Name of the Comparable Company PLI (OP/OC) % AY 2011-1....