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2016 (3) TMI 1138 - ITAT BANGALORETransfer pricing adjustment - selection of comparable - DRP excluding the comparable companies having related party transaction - Held that:- It has been pointed out by the ld. DR that the CIT(Appeals) has directed the TPO to exclude the companies which have Related Party Transactions (RPT) without specifying the exact percentage of RPT to be taken as threshold limit. We find that the TPO has not applied any filter of RPT for selection of comparable companies. The CIT(Appeals) while passing the impugned order held that there is no need for inclusion of the companies which have RPT and accordingly directed the AO to exclude the companies having RPT from the comparables. It is pertinent to note that in the normal circumstances the Tribunal has considered 15% as threshold limit of RPT, when there is no difficulty of finding the comparable companies. Therefore, in view of the fact that the CIT(Appeals) has not fixed any threshold limit of RPT, we modify the impugned order of the CIT(A) and direct the AO/TPO to apply 15% RPT as threshold limit for the purpose of selecting comparables. This ground of the Revenue’s appeal is partly allowed. Exclusion of comparable companies having abnormal/high profit margin - Held that:- Merely a company or entity having a high profit margin or high loss cannot be a reason for exclusion or inclusion in the list of comparables. However, if the high profit or high loss is as a result of some abnormal event or circumstances in a particular comparable company, the same is to be investigated and examined, and if it is found that due to the said particular extra-ordinary or abnormal circumstances the said company cannot be regarded as functionally comparable to that of assessee, then only it is to be excluded from the list of comparables. Accordingly, we direct the AO/TPO to further verify and investigate the actual reason of the high profit margin of the company and then decide the issue in the light of the finding of the Special Bench in the case of Maersk Global Centres (India) (P.) Ltd. (2014 (3) TMI 891 - ITAT MUMBAI ). Exclusion of certain comparable companies by the CIT(A) by applying the turnover filter - Held that:- Classification of comparables on the basis of companies selected on turnover basis is not appropriate and acceptable. The turnover, no doubt, is a relevant factor to be taken into account, but there should be some proper and reasonable parameter to apply the difference of turnover between the assessee and the comparable which may be a multiple in the range of 2 times, 3 times, X times or any other number of times which should be applied to all the comparable companies, instead of taking a slab from ₹ 1 crore to ₹ 200 crores. Thus, if appropriate multiple to say 10 times is applied, then the assessee having turnover of ₹ 8.15 crores can be compared with a company which is having a turnover of ₹ 81.5 crores. Accordingly, in view of the above facts of the case, we set aside this issue to the record of the AO/TPO to apply appropriate multiple or differential factor regarding the turnover of the comparable and the assessee. Exclusion of telecommunication expenses and other expenses in foreign currency from total turnover as well - Held that:- If the export turnover in the numerator is to be arrived at after excluding certain expenses, the same should also be excluded in computing the export turnover as a component of total turnover in the denominator. The reason being the total turnover includes export turnover. The components of the export turnover in the numerator and the denominator cannot be different. Formula will be = Profits of the business of the undertaking × Export turn over / (Export turnover + domestic turn over) Total Turn Over [See ACIT v. Tata Elxsi Ltd.[2011 (8) TMI 782 - KARNATAKA HIGH COURT ]
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