TMI Blog2017 (10) TMI 1434X X X X Extracts X X X X X X X X Extracts X X X X ..... be derived from the data available on the website and it stands on other filters, the same can be included in the list of comparables. Credit of risk adjustment - HELD THAT:- Since the Tribunal has repeatedly held that in such circumstances risk adjustment should be given after making necessary verification, we are of the view that in the instant case we should restore the matter to the TPO to consider the contentions of the assessee and after taking into account all relevant facts make the risk adjustment while determining the ALP for international transactions. Excluding provision for doubtful debt from the cost base in the computation of mark up of certain comparable companies - HELD THAT:- Same treatment should be given while excluding/including the provisions for bad and doubtful debts in the case of the assesse company and the comparables. If the provisions of the doubtful debts have been excluded in the case of assessee company, the same be excluded in the case of comparables. Two different types of treatment cannot be given in the case of assessee company and the comparables. Therefore we also restore the issue to the AO/TPO to examine the facts relating to provision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of section 14A is to be invoked, disallowances are to made as per Rule 8D of the Rules. Accordingly, we find no infirmity in the order of the AO. - IT(TP)A Nos. No.443/Bang/2016, 526/Bang/2016, 535/Bang/2017 - - - Dated:- 31-10-2017 - SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI JASON P BOAZ, ACCOUNTANT MEMBER For the Appellant : Shri. K. R. Vasudevan, Advocate For the Respondent : Shri. K. R. Vasudevan, Advocate ORDER Per Sunil Kumar Yadav, Judicial Member These cross appeals are preferred by the assessee as well as the revenue against the respective orders of the AO passed consequent to the directions of DRP. Since all these appeals were heard together, these are being disposed off through this consolidated order. We however we prefer to adjudicate them one after the other. 2. IT(TP)A No. 443/Bang/2016 This appeal is preferred by the assessee against the assessment order passed consequent to the directions of DRP, inter alia, on following grounds: 1. That on the facts and in the circumstances of the case and in law, the order passed by the Ld. Assessing Officer ( AO ) is bad in law. 2. The Ld. Dispute Resolution Panel ( DRP ) erred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gies Limited. ICRA Online Limited, Jeevan Scientific Technology Ltd);, 2.7. excluding certain companies on arbitrary/frivolous grounds even though they are comparable to the Appellant in terms of functions performed, assets employed and risks assumed; 2.8. excluding provision for doubtful debts from the cost base in the computation of markup of certain comparable companies; 2.9. rejecting Appellant's claim of adjustment on account of accelerated depreciation (i.e. higher rate of depreciation charged vis- -vis those of comparables) while computing Margin of comparables; 2.10. committing factual errors in the computation of working capital adjustment; 2.11. including companies having high margins/ volatile operating margins in the final comparables' set, that signify high element of entrepreneurial risk, thereby not appreciating the risk profile of the services rendered by the Appellant and restricting risk adjustment to 1% without giving appropriate/ due regard to economic considerations applicable in the instant case; 3. The Ld. AO/ Ld. TPO erred in not sharing the basis of arriving at the revised TP adjustment while passing the final TP order 4. The re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for appropriate consideration. The services that are provided by the service provider includes remote data entry services like general accounting, accounts payable and receivable, billing, banking reconciliation, financial reporting, documentary compliance and remote tax processing services like indexing of tax working documents, preparation of tax returns, quality checks on the returns prepared etc. The assessee is a part of BPO Group, Business Process Outsourcing Inc., Cayman Islands, which is a leading offshore business process outsourcing service provider and headquartered in USA. In order to determine the ALP of the international transactions, the assessee has prepared the Transfer Pricing study and has taken 8 comparables whereas the TPO has finally taken 10 comparables for determining the ALP. The list of 10 comparables are as under: 1. Accentia Technologies Ltd., 2. Acropetal Technologies Ltd., 3. Cosmic Global Ltd., 4. e4e Healthcare 5. ICRA Online Ltd., 6. Jeevan Scientific Technology Ltd., 7. Infosys BPO Ltd., 8. Jindal Intellicom 9. Mindtree Ltd., 10. iGate Global Solutions Ltd., 5. On the basis of TPO s report, the draft order was prep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t portion of the order of the Tribunal as under: Accentia Technologies Limited 12. As regards the selection of Accentia Technologies Limited as comparable, the learned counsel for the assessee has relied on the decisions of this Tribunal in the cases of Capital IQ Information Systems (India) Pvt. Ltd. v. Addl./Dy. Commissioner of Income-tax, Circle 1(2), Hyderabad and vice versa (ITA No.124 and 170/Hyd/2014 dated 31.7.2014); Excellence Data Research Pvt. Ltd., Hyderabad v. ITO Ward 2(1), Hyderabad (ITA No.159/Hyd/2014 dated 31.7.2014); and Hyundai Motors India Engineering P. Ltd., Hyderabad v. DCIT, Circle 2(2), Hyderabad (ITA NHo.255/Hyd/2014 dated 31.7.2014), wherein M/s. Accentia Technologies Limited(Seg) was excluded by the Tribunal from the list of comparables on the ground that it was a case of mergers and acquisition, and the company was also found to be functionally different. The relevant observations of the Tribunal as recorded in para 19.2 of the order passed in the case of Excellence Data Research Pvt. Ltd., Hyderabad (supra), being relevant in this case, are reproduced below- 19.2 We have considered the rival contentions and noticed that this company operate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ype of services done by the assessee. Further according to him Hyderabad bench of the Tribunal in the case of Excellence Data Research (P.) Ltd. v. ITO [2014] 66 SOT 15/49 taxmann.com 409 (Hyd. - Trib.) had held that Acropetal Technologies Ltd, was not a good comparable in the BPO segment. As per the Ld. AR M/s. Excellence Data Research P. Ltd, was rendering back office data creation, content development and support services which were not comparable to what assessee was doing. Though the decision of the Hyderabad Bench was for A. Y. 2009-10, as per the Ld. AR, M/s. Acropetal Technologies Ltd, was doing the very same business during the relevant previous year also and therefore it could be considered as a good precedent. 22. Per contra, Ld. DR submitted that TPO had considered the argument of the assessee that BPO and KPO had to be distinguished. According to him, Acropetal Technologies Ltd, was giving engineering design services and the assessee was rendering insurance support services. Though these services did not fit in the same mould, the level of expertise required stood more or less on the same pedestal. According to him, applying the yardsticks laid down by Hon'ble D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat this company cannot be selected as a comparable. We accordingly direct the Assessing Officer/TPO to exclude this company. 24. Considering all these, we are constrained to take a view that engineering design services segment of M/s. Acropetal Technologies Ltd, (seg), cannot be considered as a proper comparable for the TP study of the assessee. 29. Seeking exclusion of Jeevan Scientific Technologies Ltd, (seg), Ld. AR submitted that the turnover of the said company was less than ₹ 1 crore. As per the Ld. AR, TPO himself had excluded companies having turnover below ₹ 1 crore. Relying on paper book, page 719, which is a part of the annual report of Jeevan Scientific Technologies Ltd, (seg), Ld. AR submitted that the revenues from BPO operations of the said company came to only ₹ 79.21 lakhs. As per the Ld. AR, the total operating revenue of the said company for the relevant previous year was only ₹ 2.49 crores of which substantial part was from other streams of operation. 30. Per contra, Ld. DR submitted that the segment considered by the TPO had a turnover of ₹ 246,75,00,000/-. Thus according to him Jeevan Scientific Technologies Ltd, (seg), ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urnover filter. Whereas, after judgment of Chryscapital Investment Vs. DCIT (2015) 56 Taxmann.com 417, the turnover filter cannot be held to be a good filter unless it affects the profitability of the comparables. Therefore, Jeevan Scientific Technology Ltd., be re-examined by the TPO in the light of other filters. 9. The assessee has also sought the inclusion of the R System International Ltd., on the ground that TPO has excluded it on account of different financial year. The learned counsel for the assessee further contended that the data for the relevant financial year i.e., April to March can be derived from the quarterly data available on the website of the company, therefore this comparable should be included in the list of comparables. In support of his contention that where the data can be available for the relevant financial year, the comparable should be included in the list of comparables, the learned counsel for the assessee has relied upon the order of the Tribunal in the case of Business Process Outsourcing Pvt. Ltd., Vs. ACIT in IT(TP)No.238/Bang/2016, M/s. Mercer Consulting India Pvt. Ltd., Vs. DCIT in ITA No.101/2015 (Punjab Haryana High Court) and Mckinsey Kn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it is essential to make a risk adjustment to bridge the disparities in risk profile between the appellant and the comparable companies selected by the TPO. The learned counsel for the assessee further placed a reliance upon the order of the Tribunal in the case of Intellinet Technologies India Pvt. Ltd., Vs. ITO (ITA No. 1237/Bang/2010) and Bearing Point Business Consulting Pvt. Ltd., Vs. DCIT (ITA No. 1124/Bang/2011). The learned DR placed reliance upon the order of the DRP. 12. Having carefully examined the order of the lower authority in the light of rival submissions, we find the lower authorities have not considered the factor of risk adjustment while computing the ALP for international transactions. According to assessee, assessee is a captive contract IT enabled service provider to its AE. Therefore, being a mere captive service provider, the assessee does not own any interest in intangibles. It provides mere service in return of fixed mark up on cost incurred in granting of services. Whereas the comparables selected by the TPO are independent risk bearing entities. It is an admitted fact that in the open market any entity assuming increased risk will also be compensat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e matter to the TPO to consider the contentions of the assessee and after taking into account all relevant facts make the risk adjustment while determining the ALP for international transactions. We order accordingly. 14. Through ground No. 2.8, the learned counsel for the assessee has contended that DRP also erred in excluding provision for doubtful debt from the cost base in the computation of mark up of certain comparable companies. In this regard, we have examined the material on record and we are of the view that same treatment should be given while excluding/including the provisions for bad and doubtful debts in the case of the assesse company and the comparables. If the provisions of the doubtful debts have been excluded in the case of assessee company, the same be excluded in the case of comparables. Two different types of treatment cannot be given in the case of assessee company and the comparables. Therefore we also restore the issue to the AO/TPO to examine the facts relating to provision for doubtful debts in the assesse company as well as in the case of comparables. 15. Through ground No. 2.9, the learned counsel for the assessee has contended that the DRP erred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e ld. DR relied on DCIT v. Sumi Motherson Innovative Engineering Ltd. (2014) 150 ITD 195 (Delhi)and some other decisions to bring home his point of view of not carrying out any adjustment on account of difference in depreciation. 5.13 There can be no dispute on the principle that calculation of 'Operating profit' as envisaged under Rule 10B(1)(e) embraces cumulative effect of all the items of income and expenses which are of operating nature. Ordinarily, there can be no question of considering each item of such operating expenses or income in isolation de hors the other expenses to claim adjustment on the ground of such expenditure or income of the assessee on the higher side seen individually or as a percentage of other operating expense/incomes in comparison with its comparables. The reason is obvious that when we consider the operating profit margin, the effect of all the individual higher or lower items of expenses or incomes gets submerged in the overall operating profit margin, ruling out the need for any adjustment on one-to-one comparison. One company may have taken a building on rent for carrying on its business, in which case, it will pay rent which will find i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n or inclusion of a company on the ground that the ratio of its depreciation to total expenses is more or less in comparison with comparables. It is so for the reason that such higher percentage of depreciation to total expenses is marginalized by the lower percentage of repairs and other incidental costs of the assets and vice versa. 5.14 However, the position may be a little different when there is a difference in the rates of depreciation charged by two companies on similar category of assets. One company may adopt the policy of charging depreciation on its assets in conformity with the rates prescribed in Schedule XIV of the Companies Act and other company may adopt a policy of charging depreciation at the higher rates or lower than those prescribed under Schedule XIV. This can be demonstrated with the help of an example. Other things being equal, if the operating profit of company A, after claiming depreciation of ₹ 10 on the value of asset worth ₹ 50 with rate of depreciation 20%, is ₹ 100, the operating profit of company B with everything same including the value of assets at ₹ 50, but with rate of depreciation 30%, will be ₹ 95. It shows tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rved that the higher amount of depreciation is usually coupled with the lower repair cost etc., and vice versa. That is how, it held that : 'there can be no justification in applying the filter of rejecting the companies with depreciation higher or lower than a particular percentage of total costs.'. It is, thus, overt that these two cases relied by the ld. DR, in fact, support the case of the assessee rather than the Revenue. 5.17 Another case relied by the ld. DR in 24/7 Customer Com (P.) Ltd. v. Dy. CIT 2012-TII-143-ITAT-BANG-TP, again does not take us any further. In that case, the assessee raised an additional ground for suitable adjustment towards higher rate of depreciation charged by the assessee vis-a-vis its comparables. It is patent from the penultimate para of this order that the tribunal eventually remitted the issue of depreciation, as raised through the additional ground, to the file of the AO/TPO for a fresh consideration and decision. So, this order also does not support the case of the Revenue. The last case relied by the ld. DR is Lason India (P.) Ltd. v. ACIT 2012-TII-47-ITAT-MAD-TP.The assessee in that case provided depreciation on assets under SLM a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arity between the rates of depreciation charged by the assessee vis-a-vis its comparables. This contention in our considered opinion, is not tenable. It has been noticed above that Rule 10B(1)(e)(iii) contemplates the making of adjustment to the net profit margin of the comparables determined under sub-clause (ii) to Rule 10B(1)(e). Even Rule 10B(3) also requires the making of adjustment in the hands of comparables to eliminate the material effects of differences. Thus, the adjustment can be made only in the hands of the comparables' operating profit margin and not to that of the assessee. 5.20 The ld. DR pleaded for not allowing any adjustment on this score by arguing that the difference in the rates of depreciation by the assessee and comparables does not affect the computation of the net operating profit margin on a long term basis. He stated that the higher rates of depreciation would no doubt lower the profit in the earlier years, but such reduction of profits would be set off with the higher amount of profit due to lower amount of depreciation in the later years, thereby, nullifying the effect of such higher rate of depreciation over the life time of an asset. Assertin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the comparables providing depreciation on similar asset under SLM at the rate of 16.21% by impliedly considering its useful life a little over six years. He explained that the comparable company providing depreciation at 16.66% on SLM would continue to hold assets in 4th, 5th and 6th year as well and the amount of depreciation in these three years will also be at 16.21% despite the fact that this particular asset has exhausted its useful life after three years as has been done by the assessee. This proposition, in the opinion of the ld. DR, warranted reduction in the amount of depreciation of comparables companies to the extent of 16.21% of the value of such asset from 4th to 6th years. It was thus pleaded that if some adjustment is to be allowed in favour of the assessee in line with the above arguments of the ld. AR, then a simultaneous negative adjustment on account of the above factor should also be directed. 5.22.2 This contention advanced on behalf of the Revenue can be properly appreciated if one understands the striking dissimilarities between the scheme of charging depreciation under the Income-tax Act, 1961 and the Companies Act, 1956. The concept of block of assets e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fer of short-term capital assets. A careful perusal of the above provisions deciphers that the individual assets on their purchase merge with other assets of that block, thereby losing their separate identity. Depreciation is provided on the basis of the written down value of such block and not the w.d.v. of such individual assets. Even the event of their transfer also does not lead to automatic charging of capital gains, unless the case falls under either of two clauses of section 50. Assessee gets depreciation on the w.d.v. of such assets, which stand merged with the w.d.v. of the block, even after their transfer, of course subject to the provisions of section 50 and other relevant sections. 5.22.3 Now let us examine the position under the Indian Companies Act, 1956. Section 349 deals with the determination of net profits. Sub-section (1) provides that in computing the net profits of a company in any financial year, : '(a) credit shall be given for the sums specified in sub-section (2) and credit shall not be given for those specified in sub-section (3); and (b) the sums specified in subsection (4) shall be deducted, and those specified in sub-section (5) shall not be dedu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed at the rates specified in Schedule XIV for the purposes of the determination of profit. If an asset is sold or discarded before providing full depreciation on it, then the excess of the w.d.v. of such asset over its sale price/scrap value, to the extent provided, shall be written off in the financial year in which the asset is sold or discarded. In the converse situation, where the amount for which any fixed asset is sold exceeds the written-down value thereof referred to in section 350, then credit shall be given for so much of the excess, to the extent provided, as is not higher than the difference between the original cost of that fixed asset and its w.d.v. in the year of its sale. These two situations can be demonstrated with the help of a simple example. If asset A with original cost of ₹ 100 having w.d.v. of ₹ 40 is sold for ₹ 50, then the profit of ₹ 10 is to be credited to the Profit and Loss account for the year of sale of such asset. If asset A with original cost of ₹ 100 having w.d.v. of ₹ 40 is sold for ₹ 30, then the loss of ₹ 10 is to be debited to the Profit and Loss account for the year of sale/scrapping of such ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d be accordingly written off in its accounts. In such a situation, that particular asset with useful life of three years would cease to appear in the Schedule of fixed assets of the comparable company at the end of fourth, fifth and sixth years respectively, As such, no value of such assets will be available for depreciation in the next year(s). 5.23 Turning to the facts of the instant case, we find that the method of charging depreciation, both by the assessee and its comparables, is by and large the same that is SLM. The assessee is seeking adjustment only due to higher rates of depreciation charged by it under SLM with the lower rates of depreciation charged by four comparable companies, other than Mapro Industries Ltd. and Karvy Consultants Ltd. In view of above discussion, we hold that the operating profit margins of these four comparable companies should be recomputed by the TPO/AO in line with the rates of depreciation charged by the assessee under SLM. To put it simply, the amount of depreciation of the four comparable companies on their assets shall also be recomputed under the SLM alone as per the rates at which the assessee has provided depreciation. In doing so, if t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 18. The next issue through ground No. 2.10 and 2.11 relate to the working capital adjustment and in this regard it has been repeatedly held by the Tribunal that working capital adjustment should be allowed while determining the ALP without putting any cap thereon. Therefore, we restore this issue to the file of the AO/TPO to allow the working capital adjustment while computing the ALP for international transactions. Other grounds raised in this appeal are general in nature and do not require any independent adjudication. 19. IT(TP)A No. 526/Bang/2016 This appeal is preferred by the Revenue against the order of the AO passed consequent to the order of DRP on a solitary ground that the DRP has erred in granting 1% risk adjustment arbitrarily without appreciating the facts of the case and its comparables. In this regard, this issue has already been adjudicated by us in the assessee s appeal and we restore the matter to the file of the AO/TPO to verify the facts and to allow the risk adjustment if he finds that the different nature of risk is involved in business activities of the assessee s and the comparables. Accordingly, this ground is disposed off. 20. IT(TP)A N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 3.2 That the Ld. DRP/Ld. AO erred in law and on the facts and circumstances of the case by not taking cognizance of the detailed submission filed by the appellant. 3.3 Without prejudice to above Grounds, the Ld. DRP/ Ld. AO has erred in disregarding the fact that the disallowance of ₹ 218,382 pertains to the SEZ unit of the Assessee and addition made to the income of the Assessee of ₹ 218,382 should be entitled for enhanced deduction under section 10AA of the Act. 4. The Ld. AO/ Ld. Transfer Pricing Officer's ( TPO ) erred on facts and in law in enhancing the income of the Appel lant by ₹ 358,286,971 holding that the internat ional transactions pertaining to provision of Information Technology enabled services ( ITeS ) do not satisfy the arm's length principle envisaged urireithe Act. In doing so, the Ld. AO/ Ld. TPO have grossly erred in: 4.1. rejecting the Arm's Length Price ( ALP ) as determined by the Appellant in the TP documentation maintained by it in terms of section 92D of the Act read with Rule 10D of the Rules as well as the fresh search and in particular modifying/ rejecting the filters applied by the Appellant; 4.2. disreg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the final comparables' set, that signify high element of entrepreneurial risk, thereby not appreciating the risk profile of the services rendered by the Appellant and not allowing the risk adjustment to the Appellant; 4.10.1. without prejudice, that if risk adjustment is not allowed to compensate for risk free activities of the Appellant and hence considered it to be risk bearing, in that case appropriate tested party for the arm's length analysis should be the Appellant's overseas Associated Enterprise ( AE ); 4.11.committing a number of factual/ computational errors in the computation of the operating profit margins of the comparables; 5. Ld. AO/ Ld. TPO erred in not giving appropriate effect to the directions passed by the Hon'ble DRP and not sharing the basis of arriving at the revised TP adjustment while passing the final TP order. In this regard, a rectification letter has been filed before the Ld. AO/ Ld. TPO. 6. The reference made by the Ld. AO suffers from jurisdictional error as the Ld. AC has not recorded any reasons in the draft assessment order based on which he reached the conclusion that it was 'necessary or expedient' to refer the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Excel Callinet Pvt Ltd., Omega Healthcare Management Services Pvt. Ltd., R Systems International Ltd., and Caliber Point Ltd., companies which are comparable to the Appellant. Reason for filing Additional Ground of Appeal The Appellant during the preparation of Form 36B has taken a ground on the rejection of comparable companies from the TPO's proposed set which are not comparable to the Appellant and a ground on the acceptance of companies included by the Appellant in the TP Report/fresh search, which are comparable to the Appellant. However, in order to bring clarity on the existing ground no. 4.5 and 4.6, we are elaborating the name of each comparble company which is sought for rejection/acceptance. On the above basis, we humbly request the Hon'ble bench members to reject/ include the above-mentioned companies from the final set of comparable. Ground No. 4.9A: Working Capital Adjustment The Ld. TPO/ Ld. DRP has erred in not considering the fact that the Appellant does not have any working capital risk, therefore, no negative working capital adjustment should be allowed. Reason for filing Additional Ground of Appeal The Appellant during the prep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 14A and applied Rule 8D for determining the disallowances. Since rule 8D takes care of all aspects of interest bearing funds and interest free funds and expenditure incurred in management of portfolios etc., we are of the view, that once it is decided that provisions of section 14A is to be invoked, disallowances are to made as per Rule 8D of the Rules. Accordingly, we find no infirmity in the order of the AO. 26. Ground No. 4 relate to the Transfer Pricing adjustments. In this regard, our attention was invited to the fact that for determining the ALP for the international transactions, the TPO has selected 10 comparables. On receipt of TPO order, the AO has prepared the draft assessment order against which assesse has filed the objections before the DRP. DRP has considered the objections filed by the assessee and having dealt with these objections, the DRP has excluded 2 comparables from the list of comparables, i.e., Accentia Technologies Ltd., and Informed Technologies and finally taken 8 comparables for determining the ALP. Out of these 8 comparables, the assessee has sought exclusion of Universal Print System Ltd., Infosys BPO Ltd., TCS E-serve Ltd., BNR Udyog Ltd., and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd that in para 4, the Tribunal has made a reference of these 4 comparables that too along with their turnover and relying upon the judgment of the Hon ble High Court in the case of Pentair Water India Pvt. Ltd., of Bombay High Court in which only Infosys BPO was discussed, the Tribunal has excluded all the comparables from the list of comparables. For the sake of reference, we extract the relevant portion of the order of the Tribunal as under: 2. After allowing the negative working capital adjustment of 1.74% the TPO has arrived at the adjusted mean margin of 29.85%. Accordingly, the TPO has proposed an adjustment u/s. 92CA of ₹ 11,67,33,647/-. The assessee challenged the action of the TPO before the DRP. The DRP has not accepted the objections of the assessee however suomoto rejected one company from the set of comparables on the ground of different business model. Thus the DRP has excluded M/s. Accentia Technologies Limited from the set of comparables. After the directions of the DRP, the final assessment order was passed by considering the nine comparable companies. Before the Tribunal, the assessee is seeking exclusion of six comparable companies out the nine compani ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the turnover is a relevant factor for the purpose of determining the comparability of the proposed companies for the purpose of determining the arms length price. The Hon ble Bombay High Court in case of Vs M/s. Pentair Water India Pvt. Ltd. (supra) while dealing with the issue of the comparability of companies having high turnover in comparison to the assessee held in para 5 and 6 as under. 5. On perusal of the impugned Order passed by the Tribunal dated 23.05.2014, we find that the Tribunal has recorded the reasons for not accepting the said three companies are comparable by stating as follows: (i) HCL Comnet Systems Services Ltd:- We find force in the submission of the Id. AR that this company cannot be a comparable as the turnover of this company is 260.18 crores while in the case of the Assessee, the turnover is around ₹ 11 crores only. While making the selection of comparables, the turnover filter, in our opinion, has to be the basis for selection. A company having turnover of ₹ 11 crores cannot be compared with a company which is having turnover of ₹ 260 crores which is more than 23 times the turnover of the Assessee. This company cannot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... applied it should be in the multiple of the assessee s turnover and accordingly the Tribunal has taken a view that in normal circumstances ten times of the assessee s turnover on both sides lower as well as higher would be an appropriate tolerance range of turnover while selecting the comparable companies. In the case in hand the assessee s turnover is ₹ 71.37 crores. Accordingly by applying the said parameter of ten times of assessee s turnover on both sides the companies which are having less than ₹ 7.1 crores and more than ₹ 713 crores on turnover would be excluded. Thus we find from the above details that these six companies are breaching the said tolerance range of turnover either on the lower side or on the higher side. In view of the above discussion as well as facts and circumstances of the case, we direct the AO / TPO to exclude the above mentioned six companies from the set of comparables. 30. In this order of the Tribunal, no discussion with respect to Excel Infoways Ltd., was at all made. This comparable was sought to be excluded on the ground of extra ordinary events and it fails the employee cost filter but details were not furnished during the c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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