TaxTMI 
TaxTMI 
2021 (8) TMI 1454
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....reproducing lengthy grounds taken by the assessee on the issue of application of turnover filter as taken by the assessee through its Ground No. 3 of Grounds of Appeal. 3. The brief facts of the case are that M/s. Kumaran Systems Pvt. Ltd., is a global IT solutions provider, offering multiple services ranging from application development and maintenance, application testing and outsourced software development. It serves clients in the banking, education, healthcare, insurance, retail, shipping and telecom verticals globally through its marketing subsidiary M/s. Kumaran Systems, USA and M/s. Kumaran Systems, Canada. The assessee has entered into following international transactions with its AE's. Sl.No. Nature of Transaction Name of the AE Amount (in INR) Method Adopted 1 Provision of Software Development Services Kumaran USA 21,05,78,399 TNMM Kumaran Canada 12,19,02,733 TNMM Total 33,24,81,132 The assessee has benchmarked its international transactions with AE's by adopting TNMM as most appropriate method. The assessee has selected six comparables with an arithmetic mean margin of 5.4% and then compar....
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....ct of economical cost of production in the manufacturing industry due to huge cost of fixed asset but not in service sector and hence, rejected objections filed by the assessee. The DRP has also rejected objections filed by the assessee regarding disallowance of credit card expenses on the ground that in the absence of bifurcation of expenses incurred through credit card as personal in nature and for business purposes, the AO has disallowed a sum of Rs. 18,67,696/- out of total sum of Rs. 38,50,101/- which is highly reasonable. Similarly, the DRP has rejected objection filed by the assessee towards disallowance of repairs & maintenance on the ground that the assessee has incurred various expenditure for renovation of premises which are in the nature of capital expenditure which gives enduring benefit to the assessee. Aggrieved by the DRP direction, the assessee is in appeal before us. 6. The first issue that came up for our consideration is TP adjustment made by the AO to international transactions of the assessee with its AEs by re-characterization of TP study and inclusion of certain new comparables. The ld.AR for the assessee at the time of hearing submitted that al....
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....cularly para 3.1 & 3.2 submitted that where the assessee has not made out a case as how the high or low turnover has influenced operating margin, then a comparable cannot be rejected solely on the basis of high turnover. Therefore, there is no merit in arguments taken by the ld.AR for the assessee for application of turnover filter to exclude new comparables selected by the TPO, when FAR analysis shows that the companies are carrying out similar functions as of the assessee. 8. We have heard both the sides, perused materials available on record and gone through orders of the authorities below. It is a well settled principle of law by various decisions of Courts and Tribunal that upper turnover filter of Rs. 200 crores has to be adopted, while selecting the comparable set of companies, for the purpose of benchmarking under TNMM method. Further, Dun and Bradstreet's analysis has classified software companies into 3 categories based on their turnover, as per which, small size firms are classified on the basis of turnover of Rs. 2,000 and upto Rs. 200 crores, medium size firms has been classified between Rs. 200 to Rs. 2000 crores and large size firms has be....
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....perating margin of the assessee is within admissible range then, we direct the TPO to delete addition made towards TP adjustment. 9. Since, the ld.AR for the assessee has made a statement at bar that if turnover filter is applied then comparables selected by the TPO would automatically goes and consequently he does not want to press grounds challenging exclusion of comparables and hence, the other grounds taken by the assessee challenging erroneous rejection of transfer pricing study and exclusion of comparables have been dismissed as not-pressed. 10. The next issue that came up for our consideration from Ground No. 7 of assessee appeal is disallowance of credit card expenses amounting to Rs. 18,67,696/-. The ld.AR for the assessee at the time of hearing submitted that he does not want to press the ground and hence, Ground No. 7 of the assessee is dismissed as not-pressed. 11. The next issue that came up for our consideration from Ground No. 8 of assessee appeal is disallowance of repairs & maintenance expenses and treated as capital in nature amounting to Rs. 15,62,000/-. The assessee claims that it had incurred repairs & maintenance expenses of R....