TaxTMI 
TaxTMI 
TaxTMI 
2024 (9) TMI 1797
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....e Arms Length Price u/s. 92CA of the Act. Thereafter the Ld. TPO passed the order determining the TP adjustment of Rs. 13,32,47,187/-. Based on the TPO's reference, the AO issued a draft assessment order for which the assessee filed their objections before the Dispute Resolution Panel ('DRP'). The DRP also heard the assessee and considered the submissions made by the assessee but not accepted the objections and confirmed the draft assessment order and directed the AO to pass orders accordingly. Thereafter the AO passed the assessment order on 29/12/2022. Now the assessee is challenging the said assessment order before us and raised several grounds which is as follows: "ANNEXURE 1 to Form 36 Marvell India Pvt. Ltd. (hereinafter referred to as the 'Appellant' or 'Company)' objects to the final assessment order dated 29.12.2022 passed under section 143(3) read with Section 260 of the Income-tax Act, 1961 (hereafter referred to as the 'Act') by the Deputy Commissioner of Income Tax, Circle 4(1)(1), Bangalore on the basis of the directions dated 28.11.2022 of the Dispute Resolution Panel (hereinafter referred to as the `DRP') and order under section 92CA....
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....ailable. Ground No. 5: Companies with different financial accounting year end 5. The Ld. Assessing Officer has erred in law and on facts in rejecting certain comparable companies on the basis that their financial year-end dates do not coincide with the Appellant's financial year-end date. The Ld. Assessing Officer has himself selected R Systems International Limited, a company having different FY as compared to the Appellant in the final set of comparable. Ground No. 6: Turnover filter should have an upper limit 6. The Ld. Assessing Officer has erred in law and on facts by incorrectly applying the turnover filter for non-exclusion of comparable having turnover more than Rs. 200 crores despite several rulings of coordinate bench including in appellant's own case: i. Nihilent Ltd. ii. Cybage Software Pvt. Ltd. iii. Mindware Ltd. iv. Larsen & Toubro Infotech Ltd. v. Infosys Ltd. vi. Persistent Systems Ltd.( Ground No. 7: Application of filter for ten times of Appellants turnover 7. Without prejudice to Ground no. 5 and in the alternative, the Ld. Assessing Officer have erred in law and on facts by considering comparable companies having turn....
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....d for inclusion by the Appellant during the course of assessment proceedings. 13. The Ld. Assessing Officer has erred in law and on facts in rejecting additional comparable companies requested for inclusion by the Appellant, during the assessment proceedings: i. Synfosys Business Solutions Ltd. ii. Maveric Systems Ltd. iii. E-Zest Solutions Ltd. iv. Batchmaster Software Pvt. Ltd. v. DCIS DOT COM Solutions India Pvt. Ltd. vi. Indianic lnfotech Ltd. vii. Nintec Systems Ltd. viii. Y Media Labs Pvt. Ltd. ix. Sybrant Technologies Pvt. Ltd. Ground No. 14: Computation of operating margins 14. The Ld. Assessing Officer has erred in considering provision for bad and doubtful debts for the purpose of computing the operating profit of comparable companies. Ground No. 15: Not granting working capital adjustment. 15. The Ld. Assessing Officer has erred in law and on facts by disregarding the provisions of Section 92C of the Act read with Rule 10B (3) of the Rules, by not granting the working capital adjustment. Ground No. 16: Risk adjustment 16. The Ld. Assessing Officer has erred in not appreciating that the Appellant, being a captive service pro....
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....ar was only Rs. 64,90,685; and d) Addition of Rs. 3,03,86,087 on account of difference in closing WDV of fixed assets for AY 2016-17 and opening WDV of fixed assets for AY 2017-18. The Appellant prays that the impugned additions of Rs. 10,89,81,456 made by the Ld. Assessing Officer in the final assessment order should be deleted. Ground No. 20: The Ld. Assessing Officer has erred in levying interest under Section 234B of the Income-tax Act. 1961 and initiating penalty under Section 270A of the Income-tax Act. 1961. 21. On the facts and in the circumstances of the case and in law, the Ld. Assessing Officer erred in levying interest of Rs. 3,37,10,530 under section 234B of the Act. Interest under section 234B of the Act is consequential in nature and needs to be recomputed based on the order of your honours on the above grounds. 22. On the facts and in the circumstances of the case, the Ld. Assessing Officer erred in initiating penalty proceedings under section 270A of the Act for under-reporting and misreporting of income. The Appellant craves leave to add to. amend, alter. modify. forego. or withdraw any the above Grounds of Appeal before the disposal of the Appea....
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....s as under: - "8. As far as Ground No. 8.7 is concerned, the relevant provisions of the Act in so far as comparability of international transaction with a transaction of similar nature entered into between unrelated parties, provides as follows: 10B. Determination of arm's length price under section 92C.- (1) For the purposes of sub-section (2) of section 92C, the arm's length price in relation to an international transaction [or a specified domestic transaction] shall be determined by any of the following methods, being the most appropriate method, in the following manner, namely :- (a) to (d)........ (e) transactional net margin method, by which,- (i) the net profit margin realised by the enterprise from an international transaction [or a specified domestic transaction] entered into with an associated enterprise is computed in relation to costs incurred or sales effected or assets employed or to be employed by the enterprise or having regard to any other relevant base; (ii) the net profit margin realised by the enterprise or by an unrelated enterprise from a comparable uncontrolled transaction or a number of such transactions is computed having regard to....
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....te the material effects of such differences. 9. A reading of rule 10B(1)(e)(iii) of the Rules read with sec. 92CA of the Act, would clearly shows that the net profit margin arising in comparable uncontrolled transactions has to be adjusted to take into account the differences, if any, between the international transaction and the comparable uncontrolled transactions, which could materially affect the amount of net profit margin in the open market. 10. Chapters I and III of the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (hereafter the "TPG") contain extensive guidance on comparability analyses for transfer pricing purposes. Guidance on comparability adjustments is found in paragraphs 3.47-3.54 and in the Annex to Chapter III of the TPG. A revised version of this guidance was approved by the Council of the OECD on 22 July 2010. In paragraph 2 of these guidelines it has been explained as to what is comparability adjustment. The guideline explains that when applying the arm's length principle, the conditions of a controlled transaction (i.e. a transaction between a taxpayer and an associated enterprise) are generally compared to the....
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.... The ITAT Bangalore Bench in the case of Dell International Services India (P) Ltd. Vs. DCIT (2018) 89 Taxmann.com 44 (Bang-Trib) order dated 13.10.2017, took note of the decision of the ITAT Bangalore Bench in the case of Sysarris Software Pvt. Ltd. Vs. DCIT (2016) 67 Taxmann.com 243 (Bangalore-Trib) wherein the Tribunal after noticing the decision of the Hon'ble Delhi High Court in the case of Chryscapital (supra) and the decision to the contrary in the case of CIT Vs. Pentair Water India Pvt. Ltd., Tax Appeal No. 18 of 2015 dated 16.9.2015 wherein it was held that high turnover is a ground to exclude a company from the list of comparable companies in determining ALP, held that there were contrary views on the issue and hence the view favourable to the Assessee laid down in the case of Pentair Water (supra) should be adopted. The following were the conclusions of the Tribunal in the case of Dell International (supra): "41. We have given a very careful consideration to the rival submissions. ITAT Bangalore Bench in the case of Genesis Integrating Systems (India) Pvt. Ltd. v. DCIT, ITA No. 1231/Bang/2010, relying on Dun and Bradstreet's analysis, held grouping of compa....
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.... are non-jurisdictional High Courts. The view expressed by the Bombay High Court is in favour of the Assessee and therefore following the said view, the action of the CIT (A) excluding companies with turnover of above Rs. 200 crores from the list of comparable companies is held to correct and such action does not call for any interference." 13. 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 ri....
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....cisions rendered in the case of M/S. NTT Data (supra), Societe Generale Global Solutions (supra) and LSI Technologies (supra) were rendered later in point of time. Those decisions follow the ratio laid down in Willis Processing Services (supra) and have to be regarded as per incurium. These three decisions also 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). 14. In view of the afores....