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2015 (3) TMI 937 - AT - Income TaxTransfer pricing adjustment - addition made to the total income consequent to determination of Arm’s Length Price - improper application of the RPT filter by the CIT(A)- Held that:- It is not in dispute before us that this Tribunal, in the cases of 24/7 Customer Pvt. Ltd. [2013 (1) TMI 45 - ITAT BANGALORE ] and and Sony India Private Ltd. [2008 (9) TMI 420 - ITAT DELHI-H] as taken a view that comparables having RPT of upto 15% of total revenues can be considered. In view thereof, the Revenue’s grievance on this issue as projected in ground has to be allowed. It is held that the CIT(A) ought to have adopted a threshold limit of 15% of the total revenue attributable to related party transaction as ground for rejecting comparable companies. Consequently it is held that comparable companies having RPT upto 15% of the total revenues alone can be included. Selection of comparable - CIT(A) holding that profit on cost of more than 50% of the comparable company(ies) is abnormal - Held that:- The filter of companies dealing in software products and abnormal profits owing to amalgamation of the companies during the relevant period thereby showing abnormal profits was applied to exclude Exensys Software solutions Ltd. Infosys Technologies Ltd., was excluded for reasons of high turnover and high risk profile. Satyam Computer Services Ltd., has to be excluded from the comparable companies for non-reliability of financial data as it was involved in financial scam. Standard deduction of 5% of the arm’s length price allowed to the Appellant by the CIT(A) - Held that:- If the difference between the arithmetic mean of the profit margins comparable companies ultimately retained and the profit margin of the Assessee is more than 5% than no deduction under the proviso to Sec.92C(2) of the Act could be allowed to an Assessee. Although 12 comparable which were rejected on the basis of RPT being more than zero percent, one comparable viz., Four Soft Ltd., will have to be excluded since the RPT is at 19.89% and thus in excess of 15%. Sathyam Computers Ltd., and Infosys Technologies Ltd., will get excluded for the reason that the financial results are not reliable in the case of Sathyam Computers Ltd., and for the reason that the high turnover, brand value, high risks etc. The remaining 9 comparable companies which were excluded by the CIT(A) by applying the Related Party Transaction filter of 0% related party transaction will now have to be included. Also Foursoft Ltd., and Thirdware Solutions Ltd., should be excluded from the list of comparable companies. TATA Elxsi Ltd., should also be excluded from the list of comparable companies as is not functionally comparable with that of a software development service provider such as the Assessee. Appeal by the Revenue and the cross objection by the assessee is partly allowed.
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