TMI Blog2013 (1) TMI 801X X X X Extracts X X X X X X X X Extracts X X X X ..... and testing in the areas of high performance storage solutions. The assessee renders software development services to its associated enterprise (AE, in short) i.e., Adaptec Inc, USA. The assessee is registered as 100 per cent export-oriented unit (EOU, in short) under the Software Technology Parks of India (STPI) Scheme. For the assessment year under dispute, the assessee filed its return of income declaring total income of ₹ 40,436 after claiming deduction under s. 10A of the Act. The assessee being a captive service provider to its AE is remunerated on a cost plus mark-up basis for the services provided. During the financial year 2006-07 relevant to the assessment year under dispute, the assessee had the following international transactions:- (i) Provision of software services 15,04,42,057 (ii) Purchase of capital assets 32,78,884 (iii) Amount received on transfer of assets pursuant to global restructuring of Adaptec Group 1,83,61,894 4. During the scrutiny assessment proceedings, the AO made a reference under s. 92CA(1) of the Act to the Addl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting one viz., M/s Celestial Labs Ltd. Pursuant to the order of the DRP the AD passed the final assessment order. 6. The learned Authorised Representative, at the time of hearing before us, which was subsequently followed by a submission in writing, submitted that if assessee's objection with regard to two of the comparables viz., Infosys Technologies Ltd. and Wipro Ltd., selected by the TPO, are accepted then the assessee would not like to press for other grounds raised. Explaining the reasons for exclusion of the aforesaid two companies, the learned Authorised Representative has submitted that these companies are having turnover of more than 900 times the turnover of the assessee. These companies have emerged as market leaders and are IT giants performing additional functions, assuming risks and employing unique intangible assets. It was submitted the brands of these companies enjoy premium pricing and due to scale of operations, these companies enjoy economies of Scale in lower cost of infrastructural facilities and employees. It was further submitted, these companies are engaged in diversified activities including products, consultancy and solution. It was submitted that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mparable. 9. We have considered the submissions of the parties and perused the materials on record. We have also examined the decisions placed before us. Undisputedly assessee is a service provider operating with limited or no risk at all. Whereas both Infosys and Wipro are considered as giants in the sector of software development assuming all the risks. It is accepted principle that more the risk more is the profit. The dynamics of these companies also cannot be compared with the assessee. While the turnover of the assessee is about ₹ 15 crores only, the turnovers of Infosys and Wipro are ₹ 13,149 crores and ₹ 9,616 crores, respectively. When the TPO has applied the turnover filter by excluding companies having turnover of less than ₹ 1 crore, he should have applied the same logic to exclude companies having extraordinary high turnover compared to the assessee. So far as learned Departmental Representative's contention that the assessee itself has selected Infosys as a comparable is concerned, we find merit in the contention of the learned Authorised Representative that the TPO cannot adopt a pick and choose method while selecting comparables, when ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the industry trend. That very logic also applies to the companies having high turnover of over ₹ 200 crores as against the assessee's turnover of only ₹ 60 crores, and therefore, it would be fair enough to exclude those companies also. In the case of Agnity India Technologies (P) Ltd. (supra), the Delhi Bench of the Tribunal, while considering the comparability with companies which are market leaders in their field, and having substantially high turnover, observed as follows:- '5.2 Various arguments, as stated earlier, were taken before the DRP which inter alia included rejection of comparable cases; application of arbitrary filter of wage to sales ratio; ignoring that the assessee is a limited risk company; inclusion of Infosys Technologies Ltd.; and inclusion of Satyam Computers Services Ltd. in spite of the fact that its data is not reliable as publicly known. On the basis of these arguments, the DRP excluded the case of Satyam Computers Services Ltd., thereby reducing the arm's length margin to 25.6 per cent. It is argued that the case of the assessee is not comparable with Infosys Technologies Ltd., the reason being that the later is giant in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee being in the range having turnover of 8.15 crores, the companies which also have turnover of ₹ 1 to ₹ 200 crores only should be taken into consideration for the purpose of making transfer pricing study.' In view of the aforesaid consistent decisions of the Tribunal, we accept the contention of the learned Authorised Representative for the assessee that the aforesaid three companies cannot be treated as comparable, considering their substantially high turnover as compared to that of the assessee. We also agree that the turnover filter of ₹ 1 crore to ₹ 200 crores as applied by the Tribunal, Bangalore Bench in the aforesaid decision, should also apply to the facts of the present case, considering the assessee's turnover of mere ₹ 60 crores. We therefore, hold that companies having turnover of ₹ 1 crore to ₹ 200 crores alone can be considered as comparable, in the case of the assessee. Similar view was again reiterated by the Tribunal, Hyderabad Bench in case of Brigade Global Services (P) Ltd. (supra). Following the aforesaid decisions of Co-ordinate Bench, we hold that the Infosys Technologies and Wipro Ltd. cannot b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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