TaxTMI 
TaxTMI 
2024 (11) TMI 1632
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....led on 25.11.2020 declaring total income at Rs. 33,70,65,800/- and book profit under MAT at Rs. 23,02,39,911/-. The assessment was selected for scrutiny and notice u/s. 143(2) of the Act was issued and served on the assessee on 29.06.2021. During the course of assessment proceedings, the case was referred to the Transfer Pricing Officer (TPO) to determine the Arms Length Price of the international transactions undertaken by the assessee with its AE's. The TPO passed an order on 28.03.2023 u/s. 92CA(3) of the Act and proposed upward adjustment of Rs. 9,18,48,775/- on AE sales (Software development segment). Pursuant to the TPO's order, the draft assessment order was passed u/s. 144C(1) of the Act on 25.09.2023 incorporating the aforementioned TP adjustment made by the TPO. 3. Aggrieved by the draft assessment order, the assessee filed objections before the DRP on 25.10.2023. The DRP vide its directions dated 29.05.2024 disposed off the assessee's objections by partly allowing the objections of the assessee. Pursuant to the DRP's order disposing off the assessee's objection, the TPO gave effect to the DRP's directions and the TP adjustment was revised to Rs. 8,....
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.... of the companies. 6.2 We have heard rival submissions and perused the material on record. It is an admitted fact that the assessee's turnover in SWD segment is Rs. 106 crores. It is also a fact that the TPO had applied lower turnover filter by excluding companies having less than one crore turnover. When the TPO has applied lower turnover filter, he ought to have applied upper turnover filter also. As per the Dun & Bradstreet classification of software industry, the companies could be classified under three major heads depending on the turnover of the company viz., a. Less than Rs. 200 crores categorized as small size companies. b. Rs. 200 crores to Rs. 2,000 crores categorized as medium size companies. c. More than Rs. 2,000 crores categorized as large size. 6.3 The turnover of the assessee for the relevant assessment year is Rs. 106 crores and therefore, would fall under the category of small size company having turnover in the range of Rs. 1 crore to Rs. 200 crores. Therefore, the companies not falling within the range i.e., companies having turnover less than Rs. 1 crore or turnover more than Rs.&nbs....
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.... the Bangalore Bench of the Tribunal in the latest judgment had considered all previous judgments and held that high turnover companies cannot be compared with low turnover companies and hence, the AO has to apply turnover filter based on Dun and Bradstreet's analysis for selection of comparables. If turnover filter is applied, then 4 new companies selected by the AO will go out of the list of comparables and thus, the margin of the assessee is within the range of comparables selected by the AO and consequently addition made towards TP adjustment would also goes. 7. The ld.DR on the other hand strongly supporting order of the ld.DRP more particularly 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 ....
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....pany limited its services to its AEs. In this case, admittedly, the assessee has a turnover of Rs. 33.24 crores, whereas the TPO has included 4 comparables whose turnover ranges from Rs. 207 crores to Rs. 3,032 crores, which is almost more than 6 times to 91 times of the turnover of the assessee and hence, we are of the considered view that the TPO as well as the ld.DRP has erred in not applying turnover filter for selection of comparables and hence, we direct the TPO to apply turnover filter of 0 to 200 crores for selection of comparables and recompute margin of the assessee. In case, the TPO finds that after application of turnover filter, operating margin of the assessee is within admissible range then, we direct the TPO to delete addition made towards TP adjustment. 6.4 In light of the aforesaid reasoning and the judicial pronouncements cited supra, since the turnover of the aforesaid five companies exceeds Rs. 200 crores, we direct the TPO to exclude the same from the comparable list. Therefore grounds Nos. 4, 4.1, 4.4, 4.5, 4.6 & 4.7 are partly allowed. It is ordered accordingly. B. Inclusion of Rheal Software Pvt. Ltd., (Ground No. 6 & 6.1....
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....egard to Rheal Software Pvt. Ltd., are as under:- "24. Rheal Software Pvt. Ltd.: Seeking inclusion of this company, learned counsel for the assessee submitted, the only reason for which the TPO has excluded the company is that it is a persistent loss making company. However, he submitted, in assessment year 2015- 16, it has reported profit. Therefore, it does not satisfy the persistent loss making company filter applied by the TPO. 25. Learned Departmental Representative submitted, not only the company had made loss in financial years 2016-17 and 2017-18 but its income has progressively diminished. Thus, he submitted, the company was rightly rejected. 26. Having considered rival submissions, we find, while applying the persistent loss making company filter, the TPO has observed that company having persistent losses for the last three years up to and including financial year 2014-15 are to be excluded. In fact, the only reason for which the company was excluded by the TPO was that it is a persistent loss making company. However, learned counsel for the assessee has furnished cogent evidence before us to demonstrate that the company has made profit in finan....
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....10- 11 relevant to assessment year 2011-12. Since the Gordon Woodroffe Logistics is incurred loss in the assessment year under consideration and also in the earlier year, in our opinion it cannot be considered as comparables to the assessee company. Accordingly, the rejection of the TPO is justified." 7.5 Further, the ITAT, Chennai in the Ahlers India Pvt. Ltd., for the subsequent assessment year namely assessment year 2012-13 in ITA No. 795/Mds/2017 (order dated 31.01.2018) had held that the same comparable was to be included in the final list of comparables even though it has incurred loss in two out of three years. The relevant finding of ITAT reads as follows:- "Since this company is making a persistent loss he held that the company cannot be accepted as comparable. On assessee's objection, the DRP held that since the assessee has not furnished annual reports of earlier years to show that it is not persistent loss making, there is no reason to interfere with the decision of the TPO. Before us, the assessee pleads that the lower authorities erroneously concluding that the company is persistently making losses. It is submitted that the TPO has erred in computing ....