TaxTMI 
TaxTMI 
2022 (6) TMI 1555
X X X X Extracts X X X X
X X X X Extracts X X X X
.... period of limitation for any suit, appeal, application or proceedings. In view of the above judgment of the Hon'ble Apex Court, there is no delay in filing this appeal and we proceed to dispose of the same on merits. 3. The brief facts of the case are as follows: The assessee is a company engaged in the business of provision of marketing support services and software support services / engineering design services to its Associate Enterprises (AEs). For the assessment year 2016-2017, the return of income was filed on 30.11.2016 declaring income of Rs. 18,74,47,670. The assessment was selected for scrutiny and notice u/s 143(2) of the I.T. Act was issued. During the course of assessment proceedings, it was noticed that the assessee had undertaken the following international transactions with its AEs :- International transaction Value (Rs.) Income from software development / engineering design services 30,69,58,491 Trade Receivables 8,21,35,544 Trade payables 18,83,888 4. The matter was referred to the Transfer Pricing Officer (TPO) to determine the Arm's Length Price (ALP) of the above said transactions. The OP/OC of the assessee for the asse....
X X X X Extracts X X X X
X X X X Extracts X X X X
....) Ground 21 (iii) Working capital adjustment (Ground 19) (iv) Interest on outstanding receivable (Ground 24-31) We shall adjudicate the above grounds as under :- Ground 14 (Upper Turnover Filter) 6. In the above ground, the assessee is seeking application of upper turnover filter and thereby exclusion of following seven companies :- (i) Larsen & Toubro Infotech Limited (ii) Nihilent Limited (iii) Persistent Systems Limited (iv) Thirdware Solutions Limited (v) Infosys Limited (vi) Aspire Systems India Private Limited (vii) Cybage Software Private Limited. 6.1 According to the learned AR, since a lower turnover filter has been applied, the TPO / DRP ought to have applied a higher turnover filter to exclude the above seven companies. The DRP has rejected the objections of the assessee by observing that turnover does not have an influence on the margins of the company as far as the service sector is concerned. The learned AR has placed reliance upon the rulings of the Bangalore Bench of the Tribunal in the case of BORQS Software Solutions Pvt. Ltd. v. ITO in IT(TP)A No. 310/Bang/ 2021 (Bangalor....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e) 613,160,587 54,56,25,872 12.38% 5 ICRA Online Ltd. (seg.) 156,691,000 11,67,49,267 34.21% 6. Jeevan scientific Technology Ltd. 1,721,400,000 1,00,86,52,592 70.66% 7 Infosys B PO Ltd. 11,291,147,909 9,57,73,24,546 17.89% 8 Jindal Intellicom (capitaline) 390,358,799 35,12,69,641 11.13% 9. Mindtree Ltd. (seg.) 5,653,000,000 5,10,39,05,999 10.76% 10 iGate Global Solutions Ltd. 11,845,540,000 9,47,11,65,000 25.07% He submitted that if such criterion is applied, then that would be the proper basis for excluding companies for the purpose of comparability based on turnover. 16. The ld. Counsel for the assessee, on the other hand, submitted that the Hon'ble High Court of Karnataka in the case of Acusis Software (I) P. Ltd. (supra) merely dismissed the appeal of assessee on the ground that no substantial question of law arises for consideration. In particular, he drew our attention to the following paragraphs of the judgment of Hon'ble High Court :- "14. The findings of the learned Tribunal as regards the comparable namely, Mercury Outsourcing Management Lt....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nds case (supra), which we find it appropriate to quote hereunder to its relevant extent :- " 17. He submitted that the question of law which the assessee sought to raise before the Hon'ble High Court was justification for excluding Mercury Outsourcing Management Ltd. as a comparable company. It is in that context that the aforesaid decision was rendered by the Hon'ble High Court. He pointed out that the Tribunal in excluding Mercury Outsourcing Management Ltd., had taken a view that its turnover was small compared to the assessee's turnover and therefore not comparable, even if the tolerance range of turnover of 10 times on both the sides of assessee's turnover is applied. There is no positive finding by the Tribunal that the company can be excluded for the purpose of comparability on the basis of turnover, only if the turnover is 10 times on both the sides of assessee's turnover. On the conclusions of the Tribunal, the Hon'ble High Court only held that it is reasonable and deserves to be accepted. In para 16, the Hon'ble High Court has clearly observed that the decisions rendered in other cases referred to by the ld. Counsel for the assessee w....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r the decision rendered in the case of Genisys Integrating (supra) by the ITAT Bangalore Bench should continue to be followed. Since arguments were advanced on the correctness of the decisions rendered by the ITAT Mumbai and Bangalore Benches taking a view contrary to that taken in the case of Genisys Integrating (supra), we proceed to examine the said issue also. On this issue, the first aspect which we notice is that the decision rendered in the case of Genisys Integrating (supra) was the earliest decision rendered on the issue of comparability of companies on the basis of turnover in Transfer Pricing cases. The decision was rendered as early as 5.8.2011. The decisions rendered by the ITAT Mumbai Benches cited by the learned DR before us in the case of Willis Processing Services (supra) and Capegemini India Pvt. Ltd. (supra) are to be regarded as per incurium as these decisions ignore a binding co-ordinate bench decision. In this regard the decisions referred to by the learned counsel for the Assessee supports the plea of the learned counsel for the Assessee. The decisions rendered in the case of M/S.NTT Data (supra), Societe Generale Global Solutions (supra) and LSI Technologies....
X X X X Extracts X X X X
X X X X Extracts X X X X
....unal in the case of BORQS Software Solutions Pvt. Ltd. v. ITO (supra) wherein margins of F.Y. 2013-2014 relevant to assessment year 2014-2015 was directed to be excluded in arriving at ALP. 7.2 The learned DR has placed reliance on the orders of the Revenue Authorities. 7.3 We have heard rival submissions and perused the material on record. Since the issue has not been examined by the lower authorities and considering the rulings in the case of BORQS Software Solutions Pvt. Ltd. v. ITO (supra), we direct the AO / TPO to compute the RPT for the A.Y. 2014-2015 and check if it clears the criteria. It is ordered accordingly. Infobeans Technologies Limited 7.4 The assessee is seeking to exclude this company from margin calculation on account of functional dissimilarity. The learned AR has submitted that this company's margin for A.Y. 2015-2016 has to be excluded as it is functionally incomparable for the said year. The learned AR has placed reliance on the rulings of the Bangalore Bench of the Tribunal in the case of BORQS Software Solutions Pvt. Ltd. v. ITO (supra) wherein margins of A.Y. 2015-2016 were directed to be excluded in arriving at ALP. The relevant extract of....
X X X X Extracts X X X X
X X X X Extracts X X X X
....gaged in different segments and therefore proper comparison cannot be made. (iii) Disclose in the balance sheet does not contain break up of trade and non-trade debtors and creditors and therefore working capital adjustment done without such break up would result in computation being skewed. (iv) Cost of capital would be different for different companies and therefore working capital adjustment made disregarding this different based on broad approximations, estimations and assumptions may not lead to reliable results. 16. The CIT(A) also placed reliance on a decision of Chennai ITAT in the case of Mobis India Ltd. v. Dy. CIT [2013] 38 taxmann.com 231/[2014] 61 SOT 40. That decision was based on the factual aspect that the Assessee was not able to demonstrate how working capital adjustment was arrived at by the Assessee. Therefore nothing turns on the decision relied upon by the CIT(A) in the impugned order. In the matter of determination of Arm's Length Price, it cannot be said that the burden is on the Assessee or the Department to show what is the Arm's Length Price. The data available with the Assessee and the Department would be the starting p....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the view that the CIT(A) was not justified in denying adjustment on account of working capital adjustment. Since, the CIT(A) has not found any error in the TPO's working of working capital adjustment, the working capital adjustment as worked out by the TPO has to be allowed. We may also add that the complete working capital adjustment working has been given by the Assessee and a copy of the same is at pages 173 & 192 of the Assessee's paper book. No defect whatsoever has been pointed out in these working by the CIT(A). We may also further add that in terms of Rule 10B(1)(e) (iii) of the Rules, the net profit margin arising in comparable uncontrolled transactions should 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. It is not the case of the CIT(A) that differences in working capital requirements of the international transaction and the uncontrolled comparable transactions is not a difference which will materially affect the amount of net profit margin in the open market. If for reasons given by CIT(A)....