TMI Blog2015 (5) TMI 720X X X X Extracts X X X X X X X X Extracts X X X X ..... re more than 25%. However we find no discussion in the assessment order about the determination of the percentage of RPT in the case of ICRA Techno Analytic Ltd. Under such circumstances we direct the AO to determine the RPT percentage of this company afresh as per law after giving opportunity to the assessee. In case if the RPT margin is less than 25%, the ICRA should be included and if it is more than 25% RPT it should be excluded.Also, it is not disputed that turnover of E2E Infotech Ltd. was 5.69 crores which is less than 50 crores and therefore there was no disclosure requirement of RPT under AS-18.Thus in light of the above we find no infirmity in the conclusion of the CIT(A) and reject the ground raised by the revenue. Bodhtree Consulting Ltd. (“Bodhtree”) exclusion - Held that:- this company was a comparable in assessee’s own case for Assessment Year 2008-09. At that time the assessee did not contest the inclusion of this company and allowed it to remain as a comparable. However this year, just because profit margin is higher, this company does not cease to become a comparable. Therefore we find no infirmity in the order of the ld CIT(A) and we uphold the same. Disall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an 25% of their total revenues as a search criteria for short listing and evaluating comparables for software development services; 1.3.2 Exclusion of companies with diminishing revenues for last three years upto and including FY 2008-09; 1.3.3 Exclusion of companies with export sales that are less than 25% of their total revenue; 1.3.4 Retaining companies with related party transactions ( RPT ) up to 25% of their sales 1.4 Disregarding multiple year/prior years data as used by the appellant in the TP documentation and holding that current year (i.e. FY 2008-09) data for comparable companies should be used despite the fact that the same was not necessarily available to the appellant at the time of preparing its TP documentation; 1.5 Ignoring the fact that the appellant is entitled to tax holiday under section 10B of the Act on its profits and therefore would not have any untoward motive of driving of tax advantage by manipulating transfer prices of its international transactions; 1.6 Including certain companies that are not comparable to the appellant in terms of functions performed, assets employed and risks a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its AEs which were duly reported in the accountant s report (Form No. 3CEB) filed alongwith the return of income: Sr. No. Description of International transactions Amount (In Rs.) 1 Provision of CSD/IT Services 14.45 crores 2 Assets provided on loan/returnable basis by the Ade 11.18 lacs 5. The summary of the benchmarking analysis of the TP report, as stated in the CIT(A) order, is as under: Particulars CSD/IT services Most Appropriate Method Transactional Net Margin Method (TNMM) Profit Level Indicator (PLI) used Operating Profit ( OP )/Total Cost (TC ) No. comparables 17 Data used Multiple years data (FYs 2006-07, 2007-08 and 2008-09) Comparables mean margin 13.28% Appellant margin 15.69% 6. During the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i) Akshay Software Technologies Ltd. 8.23% ii) Bodhtree Consulting Ltd. 64.04% iii) LGS Global Ltd. 18.88% iv) Larsen Toubro Infotech Ltd. 20.50% v) Mindtree Ltd. 27.60% vi) Persistent Systems Ltd. 37.55% Arithmetic Mean 29.47% 8. On appeal the CIT(A) rejected the objections of the assessee vis- -vis the 4 filters by the AO namely export sales/sales, diminishing revenue, employee cost and RPT. However he accepted the contention of the appellant that high turnover companies should not be included in the list of comparables. He thus held that Larsen and Toubro Infotech Ltd., Persistent Systems Ltd. and Mindtree Ltd. are high turnover companies and therefore should be excluded from the list of comparables. He also held that M/s ICRA Techno Analytic Ltd. and E2E Infotech Ltd. sho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntended that during the financial year 2008-09, it has a turnover of approx. ₹ 14.45 crores which cannot be compared with certain companies having turnover of more than 200 crores. Support was drawn from the following decisions: a) Decision of ITAT in the case of appellant for A.Y. 2006-07 ITA No. 3856/D/2010 A.Y. 2006-07; b) Genisys Integrating Systems (India) Pvt.Ltd. ITA No. 1231/Bang/2010 c) Centilium India Pvt. Ltd. vs. DCIT ITA NO. 1354/Bang/2010 d) Kodiak Networks (India) Pvt. Ltd. vs. ACIT ITA No. 1413/Bang/2010 e) Actis Advisers Pvt. Ltd. ITA No. 5277/D/2011 12. Having regard to the above the CIT(A) held as under: 5.6 I have carefully considered the submission of the appellant. The Ho ble ITAT in the case of the appellant itself has held that high turnover companies should not be included in the list of comparables. Larsen Toubro Infotech Ltd., Persistent Systems Ltd. and Mindtree Ltd. are certainly high turnover companies as can be seen from the above table. Respectfully following the order of the ITAT in the appellant s case, I hold that these three companies should be excluded from the list of comparables. 13. Having consid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecause it is engaged in development of software product; and this company was excluded by the Tribunal in assessment year 2006-2007, which has been up held by the Hon ble High Court, thus the issue about exclusion of persistent system Ltd, while making TP adjustments in it s case stands settled in view of these decisions in its own case. Therefore we do not find any necessity to interfere this company s exclusion. 17. Having regard to the factual position and respectfully following the judgment of the Hon ble High Court we partly allow the ground raised by the revenue and uphold the exclusion of persistent system Ltd, and direct inclusion of Larsen Toubro Infotech Ltd and Mind tree Ltd. 18. As regards inclusion of the comparables namely ICRA Techno Analytic Ltd. and E2E Infotech Ltd. are concerned it is noted that CIT(A) has included the same by observing as under: ICRA Techno Analytics Ltd. This company was in the list of comparables selected by the appellant in the TP study. The appellant has stated that calculation of RPT is 23.88% and therefore this company should be included. On verification, I found that, the contention of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the percentage of RPT in the case of ICRA Techno Analytic Ltd. Under such circumstances we direct the AO to determine the RPT percentage of this company afresh as per law after giving opportunity to the assessee. In case if the RPT margin is less than 25%, the ICRA should be included and if it is more than 25% RPT it should be excluded. 21. Also, it is not disputed that turnover of E2E Infotech Ltd. was 5.69 crores which is less than 50 crores and therefore there was no disclosure requirement of RPT under AS-18. 22. Thus in light of the above we find no infirmity in the conclusion of the CIT(A) and reject the ground raised by the revenue. 23. Taking up assessee appeal in ITA No. 1780/D/2013, the ld. counsel contended vis- -vis Ground No. 1, 2, 3 that out of the set of five comparables selected by the CIT(A) M/s Bodhtree Consulting Ltd. be excluded. 24. In this regard we notice that before the CIT(A) the appellant in this regard contended as under: Further, the appellant submits that during the FY 2008-09, Bodhtree Consulting Ltd. ( Bodhtree ) had a high growth rate of 67% in its revenue as compared to the previous year. It is humbly su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the appellant but cannot agree with the contention. Under the TNMM the arithmetical mean is used as against an intermediate/interquartile range. These two are separate average concepts commonly used in mathematics and statistics. The argument of the appellant confuses these two mathematical tools. The Indian Transfer Pricing Law does not recognize the intermediate/inter quartile range. The margin of the comparables is the end product and not the starting point of comparability. Therefore, the extreme profit or loss making companies can be rejected if the inter quartile range is being used instead of simple average. Only comparing the margins is like putting the cart before the horse. Therefore, this contention of the appellant is rejected. 26. Having considered the rival submission we notice that this company was a comparable in assessee s own case for Assessment Year 2008-09. At that time the assessee did not contest the inclusion of this company and allowed it to remain as a comparable. However this year, just because profit margin is higher, this company does not cease to become a comparable. Therefore we find no infirmity in the order of the ld CIT(A) and we uphold the sam ..... X X X X Extracts X X X X X X X X Extracts X X X X
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