TMI Blog2017 (2) TMI 802X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome Tax Act, 1961 (in short the Act ), which has been passed as per the directions of the Dispute Resolution Panel- 1,(DRP) dated 01/11/2013 pertaining to assessment year 2002-03. 2. In the appeal of the Revenue, the following Grounds of appeal have been raised:- 1.Whether on the facts and circumstances of the case and in law, the Hon'ble DRP-I, Mumbai has erred in ignoring the turnover as valid criteria in choosing the comparables? 2. Whether on the facts and circumstances of the case and in law, the Hon'ble DRP failed to appreciate that it is a settled fact that S/s 92C Rule 108(2) of Income Tax Act and Rules has clearly laid down the principle that the turnover filter is an important criteria in choosing the comparables because significant differences in size of the companies would impact comparability even there is no functional difference in their activities. 3. Whether on the facts and circumstances of the case the Hon. ORP failed to appreciate that the said stance is also upheld in various cases by the courts such as Sony India 114 ITO 448 (Del)(2008)? 4. The appellant craves leave to amend or alter any ground or add a new ground whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s relevant. The assessee before us is a partnership firm which is engaged in the business of cutting and polishing of diamonds. In this case, initially, the assessment was completed under section 143(3) of the Act and the income assessed at ₹ 1,77,34,100/-, which has since been set-aside by the Tribunal vide its order in ITA NO.2346/Mum/2006 and the matter was restored back to the file of Assessing Officer for deciding afresh. In the remanded proceedings, the Assessing Officer referred the matter of determination of arm's length price of the international transactions of import and export of diamonds entered by the assessee with its associated enterprises under section 92CA(1) of the Act to the Transfer Pricing Officer. The Transfer Pricing Officer has examined the international transactions of import and export of diamonds with the associated enterprises and benchmarked the same by selecting the TNM method as the most appropriate method. The Transfer Pricing Officer selected 15 concerns, which were comparable to the assessee and determined their mean profit margin at 11.02% and since assessee s margin was 6.82%, he determined an adjustment ofRs.1,27,21,348/- which accord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n turnover cannot be regarded as a valid criteria to exclude a concern from the list comparables. 7. On the other hand, the Ld. Representative for the assessee has primarily defended the direction of the DRP by asserting that M/s.Anshuni Commercials Ltd. has been rightly directed to be included in the final set of comparables. 8. We have carefully considered the rival submissions. At the outset, in our considered opinion, the contention of the Revenue seeking to reverse the finding of the DRP to include M/s. Anshuni Commercials Ltd. from the final set of comparable is misconceived. In this context, it is notable from the relevant discussion by the DRP that the said concern has been directed to be included on the ground that it is functionally comparable with the assessee. In fact, the Transfer Pricing Officer had excluded it from the final set of comparables on the ground that the said concern was not found functionally comparable . Thus, the objection of the Transfer Pricing Officer with regard to the functional comparability has not been accepted by the DRP, who in turn has held it be functionally comparable. The said aspect of the controversy is not manifested in the Grounds ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment of the Hon'ble Bombay High Court in the case of M/s.Pentair Water India Pvt. Ltd.(supra) yet, in our considered opinion, it would make no difference to the ultimate decision of the DRP to include M/s.Anshuni Commercials Ltd. in the final set of comparables, as our following discussion would show. Firstly, DRP has included it on account of functional similarities with the assessee, an aspect which is not challenged by the Revenue in its appeal. Secondly and more importantly, in our view, the ratio of the judgment of the Hon ble Delhi High Court in the case of CIT vs. Nortel Networks India A. Pvt. Ltd. in ITA 115/2015 dated 24/02/2015 is very apt and fully governs the controversy before us. In the case of Nortel Networks India A. Pvt. Ltd.(supra), the Transfer Pricing Officer had excluded M/s.Capital Trust Ltd. from the list of comparables on account of its low turnover. The DRP also concurred with the Transfer Pricing Officer noting that because of the small turnover, the said concern could not be taken as comparable. The Tribunal noted that no turnover filter was applied by either of the parties and, therefore, M/s. Capital Trust Ltd. was wrongly excluded, on the basis of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch a test by the Transfer Pricing Officer. Therefore, following the decision of the Hon'ble Delhi High Court in the case of M/s. Nortel Networks India A. Pvt. Ltd.(supra), the stand of the Revenue seeking exclusion of M/s. Anshuni Commercials Ltd. from the set of final comparables is quite untenable and is hereby rejected. 8.4 In the result, appeal of the Revenue is dismissed. 9. Now we may take up the Cross objection of the assessee. In so far as Grounds of appeal No.1 2 are concerned, the same are to the effect that the stated concerns be excluded from the final set of comparables on the basis of difference in turnover. The above Grounds spring-up in the context of the Ground raised by the Revenue in its cross-appeal. Having regard to the reasons for which the Grounds of appeal of the Revenue have been dismissed, the said Grounds raised by the assessee become academic, and, in any case, there is no addition surviving on account of determination of arm's length price in the instant case after the dismissal of the appeal of the Revenue. Therefore, the Grounds of appeal No.1 2 in the Cross-objection of the assessee are treated as infructuous and are accordingly dis ..... 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