TaxTMI 
TaxTMI 
2026 (6) TMI 491
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....demic/consequential in nature. Hence, the remaining grounds are dismissed as not pressed 4. Ground No. 3.5 raised by the assessee pertains to inclusion of certain comparable companies by the TPO and further upheld by the Ld. DRP. 5. The brief facts of the case on hand are that the assessee, a private limited company, operates as a captive service provider in SWD services to its AEs on a cost-based model. The assessee is incorporated in India and is part of the global Oplus/OPPO group. The assessee benchmarked its international transactions under SWD segment by adopting TNMM as MAM and by considering PLI as OP/OC which arrived at 15.75%. The assessee for the comparability analysis under SWD Segment selected 09 comparables as follows: Sr. No. Company Name NCP 2019-20 NCP 2020-21 NCP 2021-22 Weighted Average 1 Infomile Technologies Ltd. 1.39% 0.41% 10.67% 4.44% 2 Evoke Technologies Pvt. Ltd. 3.38% 8.00% 3.59% 5.02% 3 Yudiz Solutions Pvt Ltd. 2.97% 7.14% 7.14% 6.14% 4 Kcube Consultancy Services Pvt. Ltd. 10.20% NC 7.70% 8.92% 5 Microland Ltd. 4.99% 13.78% 10.42% 9.78% 6 ....
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....re the Ld. DRP. 7. Before the Ld. DRP, the assessee with respect to the 05 comparables submitted as follows: S. No. Name of the company Assessee's contentions 1 Happiest Minds Technologies Ltd. * Diversified business activities * Owns Intangibles * Undertakes R&D activity * Sub-Contracting charges * High Turnover 2 Infosys Ltd * Functionally dissimilar * Diversified business activities - Segment information not available * Own non-routine intangible assets * Undertakes R&D activity * Substantial foreign expenditure * Owns Brand * High Turnover 3 Tata Consultancy Services Ltd * Functionally dissimilar - Diversified business operations * Owns Brand * High Turnover * Undertakes R&D activity * Substantial foreign expenditure * Subcontractor charges 4 Tata Elxsi Ltd * Functionally dissimilar * Diversified operations * Undertakes R&D activity * Substantial onsite revenue * Subcontractor charges * Owns Brand and Patents * High Turnover 5 Wipro Ltd * Functionally dissimilar * Diversified business activities - Segment information not available * Owns IP * Undertak....
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....gued that turnover by itself is not a decisive factor under TNMM and does not materially affect profit margins if companies are otherwise functionally comparable. It was further submitted that the assessee's reliance on a fixed upper turnover filter of 10 times is arbitrary and not mandated under the Act or Rules. 10.1 The Ld. DR further submitted that the decision in DNV Business Assurance India (P.) Ltd. vs. ACIT [2024] 158 taxmann.com 263 (Mumbai - Trib.), relied upon by the assessee, is distinguishable on facts. In that case, the turnover filter was applied by the TPO after completion of the search process and after applying the other filters. However, in the present case, the R&D filter was duly disclosed by the TPO and was thereafter applied as part of the comparability analysis. In this regard, the Ld. DR referred to page 11 of the TPO order. The ld. DR supported the order of authorities below. 11. We have heard the rival submissions of both the parties and perused the materials available on record. At the outset, we note that the objection of the Ld. DR is that the decision of the Mumbai Tribunal in the case of DNV Business Assurance India (P.) Ltd. (supra) is disting....
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.... the incorrect premise that in the Transfer Pricing Study Report the Appellant did not apply any filters while selecting the comparables. Accordingly, we find merit in the contentions advanced on behalf of the Appellant and direct the TPO/Assessing Officer to re-compute the ALP and transfer pricing adjustment, if any, after including (a) APITCO Limited and (b) IDMA Laboratories Limited in the final set of comparables. In terms of the aforesaid, Ground No. 3 to 3.3 raised by the Appellant are allowed, while Ground No. 3.4 & 3.5 raised by the Appellant are dismissed as being infructuous." 11.3 Further, with regard to the companies/comparables to be excluded on the basis of turnover, we note that it is well settled that turnover is a relevant criterion for determining comparability, as the scale of operations has a direct bearing on profitability owing to economies of scale. Companies having significantly higher turnover enjoy cost efficiencies and market advantages which are not available to smaller entities. 11.4 It is pertinent to note that companies with very high turnover operate on a different scale and benefit from economies of scale, better market position and cost advan....
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.... exceptionally high profit margins or fluctuation profit margins, as compared to the Assessee in transfer pricing analysis. Therefore as rightly submitted by the Ld. counsel for the Assessee the observations of the Hon'ble High Court, in so far as it refers to turnover, were in the nature of obiter dictum. Judicial discipline requires that the Tribunal should follow the decision of a non-jurisdiction High Court, even though the said decision is of a non-jurisdictional High Court. We however find that the Hon'ble Bombay High Court in the case of CIT v. Pentair Water India (P.) Ltd. Tax Appeal No. 18 of 2015 judgment dated 16-9-2015 has taken the view that turnover is a relevant criterion for choosing companies as comparable companies in determination of ALP in transfer pricing cases. There is no decision of the jurisdictional High Court on this issue. In the circumstances, following the principle that where two views are available on an issue, the view favourable to the Assessee has to be adopted, we respectfully follow the view of the Hon'ble Bombay High Court on the issue. Respectfully following the aforesaid decision, we uphold the order of the DRP excluding 5 compani....
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....excluding companies by following the ratio laid down in the case of Genisys Integrating (supra)". 11.7 Further, we find that this Tribunal subsequently in the case of Robert Bosch Engineering and Business Solutions Pvt. Ltd. vs. DCIT in IT(TP)A No. 593/Bang/2020 followed the decision in the case of Autodesk India (P) Ltd. (Supra) and excluded the company with turnover exceeding 200 crores from the comparable set. Against the order of the Tribunal, the revenue filed an appeal before the Hon'ble Karnataka High Court in ITA No. 146/2025. In the said case, the Hon'ble High Court did not admit the Revenue's grounds of appeal on this issue by observing as under: "10. Indisputably, a company that has a significantly large turnover cannot be considered as a comparable with an assessee, whose turnover is a small fraction of that of the said entity. 11. The question whether the entities are comparable is required to be determined on the basis of similar FAR [Functions, Assets and Risks] profile. It would be erroneous to assume that the size of an entity and its turnover has no bearing on the FAR profile. It is erroneous to suggest that a company of a huge size and a larg....
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.... of up to 10 times for ensuring proper comparability. In view of the above, we direct the AO/TPO to apply an upper turnover filter of 10 times of the assessee's turnover and recompute the list of comparables accordingly. The relevant para of Bangalore ITAT judgment is reproduced below: "10.9 These two companies are found comparable in many orders of the Coordinate Benches, but excluded on the basis of turnover filter of Rs. 200 Crores limit in Sunquest Information Systems (India) (P.) Ltd.'s case (supra), we have considered the same. Assessee's turnover is about 63 Crores. The turnover of Igate Global Solutions Ltd., (Seg) is about 405 crores and L & T Infotech Ltd is of 562 Crores. This is with the range of ten times the upper limit. Moreover, Assessee Counsel has not pressed on turnover filter of Rs. 200 Crores. Therefore, these two are retained." 12.2 Regarding Happiest Minds Technologies Ltd., ee also note that the turnover of Happiest Minds is not more than ten times the upper limit of the turnover filter. However, it is still significantly higher than that of the assessee. Considering the substantial difference in scale of operations, we are of the view th....