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TMI Blog2019 (4) TMI 1757X X X X Extracts X X X X X X X X Extracts X X X X ..... software development activity comprises of both on site and offshore development activities and the nature of activity remains the same. The Hon'ble DRIP ought to have appreciated the fact that these Comparable have qualified the qualitative and quantitative filters applied by the TPO. 2. Whether the Hon'ble DRP was justified in excluding the M/s Ezest Solutions on the ground of functionally dissimilar when the company has qualified all quantitative filters applied by the TPO. The Hon'ble DRP ought to have considered the fact that computer software services is considered as sector of business and both TPO and the taxpayer has not gone into verticals of the business. 3. Whether the Hon'ble DRIP was justified in excluding the M/s ICRA Techno Analytics Ltd as a comparable on the ground that it is into diversified activity and no segmental data is available when the TPO has not gone into the verticals of the industry of operation. The Hon'ble DRP has failed to appreciate the fact that the company has qualified all quantitative filters applied by the TPO. 4. Whether the Hon'ble DRP was justified in excluding M/s lnfosys Technologies Ltd on the ground th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al revenues. e) rejecting companies using related party transactions more than 25% of total value of transactions. f) rejecting comparable companies using export sales less than 75% of the operating revenues as a comparability criterion. g) rejecting companies with income from software development and related services less than 75% of the total operating revenue. 3. Hon'ble DRP has erred, in law and in facts in accepting certain invalid comparable companies / rejecting certain valid comparable companies. 4. The Leaned AO/learned TPO/Honble DRP has erred, in law and in facts, for not allowing suitable adjustments to be made to account for differences in the risk profile of the Assessee vis-à-vis the comparables. 5. The Hon'ble DRP erred in not adjudicating claim for enhanced section 1 O benefit and treating it as academic. The Respondent submits that each of the above ground is independent and without prejudice to one another. The Respondent craves leave to add, alter, vary, omit, amend or delete one or more of the above grounds of Cross-objections at any time before, or at the time of, hearing of the appeal, so as to enable the Appellate Tribunal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. The average arithmetic profit margin of the 13 comparable companies chosen by the TPO was as follows: 5. The TPO computed the addition to be made to the total income on account of determination of ALP at Rs. 1,34,27,918 adopting profit margin of 24.82% less working capital adjustment of 1.03% resulting in adopting profit margin of comparables at 23.79% and resultantly computed ALP as follows: Computation of arm's length price by TPO and the adjustment made: The above shortfall of Rs. 1,34,27,918/- (Rupees One Crore, Thirty Four Lakhs, Twenty Seven Thousand, Nine Hundred and Eighteen Only) is treated as transfer pricing adjustment u/s 92CA in respect of software development segment of the taxpayer's international transactions 6. The addition suggested by the TPO was added to the total income of the Assessee by the AO in the draft order of assessment. Against the draft order of assessment, the Assessee preferred objections before the Dispute Resolution Panel (DRP) u/s.144C of the Act. 7. Before DRP, the Assessee raised a specific objection viz., Objection 2 C wherein, the Assessee contended that the TPO has excluded companies whose turnover was less than Rs. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e in law and therefore the price charged by the Assessee in the international transaction would have to be regarded as at ALP. Therefore there would be no necessity to decide the other grounds of appeal in the Revenue's appeal regarding transfer pricing as well as the other grounds raised in the Cross-Objection. 11. As far as the application of turnover filter is concerned, the first objection of the ld. DR was that turnover cannot be a relevant criterion in choosing comparable companies and in this regard placed reliance on the decision of the Hon'ble High Court in the case of Chrys Capital Ltd.,82 Taxmann.com 167(Del). The learned counsel for the Assessee however pointed out that similar objection was raised by the Revenue in one of the case decided by this Tribunal in Autodesk India Pvt.Ltd. Vs. DCIT (2018) 96 taxmann.com 263(Banglore-Trib.) and relied on the said decision. 12. We find that various aspects of application of turnover filter, was considered by this Tribunal in the case of Autodesk India Pvt.Ltd. (supra) and it was held that turnover is a relevant criteria for deciding comparability of companies and that a company with huge turnover cannot be compared with a co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nies are functionally comparable. If functions by two companies are identical then they have to be regarded as comparable. According to him therefore the CIT(A) was not justified in excluding 5 companies on the ground that their turnover was above Rs. 200 Crores and cannot be compared with the Assessee whose turnover was around Rs. 10.65 Crores. In support of his contention the learned DR placed reliance on the following decisions: Sl. No. Name of the case Citation Relevant Paragraph 1. M/S.NTT DATA Global Delivery Services Ltd. Vs. ACIT IT(TP)A No. 1487/Bang/2013 AY 2005-06 order dated 6.4.2016 23 & 24 2. LSI Technologies India Pvt. Ltd. Vs. The ITO IT(TP)A.Nos. 1380 & 1381/Bang/2010, AY 2006-07 order dated 13.5.2016 14.3 2. M/S. Societe Generale Global Solution Centre Pvt.Ltd. Vs. DCIT IT(TP) A.No.1188/Bang/2011 for AY 2007-08 order dated 22.4.2016 10 5. Willis Processing Services (I) (P)Ltd. Vs. DCIT (2013)30 Tamann.com 350 (Mumbai-Tribunal) for AY 2007-08 order dated 1.3.2013 47 6. Capgemini India Pvt. Ltd. Vs. ACIT ITA No.7861/Mum/2011 for AY 2007-08 order dated 28.2.2013 4.3 17.2. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed counsel for the Assessee submitted that ITAT Bangalore Bench in the case of Dell International Services India (P) Ltd. Vs. DCIT (2018) 89 Taxmann.com 44 (Bang-Trib) order dated 13.10.2017, considered the various aspects of application of turnover filter for excluding companies and has noted that the first decision rendered on application of this filter was in the case of Genisys Integrating Systems (I)(P) Ltd. Vs. DCIT (2010) 20 taxmann.com 715 rendered on 5.8.2011. In the case of Dell International (supra), the tribunal took note of a divergent view expressed by ITAT Bangalore Bench in the case of Robert Bosch Engineering and Business Solutions Ltd. Vs. DCIT ITA No.1519/Bang/2013 order dated 13.9.2017 after considering the decision rendered by the Hon'ble Delhi High Court in the case of Chryscapital Investment Advisors India Pvt.Ltd Vs. DCIT 82 Taxmann.com 167(Del), that high turnover ipso facto does not lead to the conclusion that a company which is otherwise comparable on FAR analysis can be excluded and that the effect of such high turnover on the margin should be seen. The Tribunal in the case of Dell International (supra) also took note of the decision of the ITAT Bangalor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... NASSCOM have given different ranges. Taking the Indian scenario into consideration, we feel that the classification made by Dun & Bradstreet is more suitable and reasonable. In view of the same, we hold that the turnover filter is very important and the companies having a turnover of Rs. 1.00 crore to 200 crores have to be taken as a particular range and the assessee being in that range having turnover of 8.15 crores, the companies which also have turnover of 1.00 to 200.00 crores only should be taken into consideration for the purpose of making TP study." 42. The Assessee's turnover was around Rs. 110 Crores. Therefore the action of the CIT(A) in directing TPO to exclude companies having turnover of more than Rs. 200 crores as not comparable with the Assessee was justified. As rightly pointed out by the learned counsel for the Assessee, there are two views expressed by two Hon'ble High Courts of Bombay and Delhi and both are non-jurisdictional High Courts. The view expressed by the Bombay High Court is in favour of the Assessee and therefore following the said view, the action of the CIT(A) excluding companies with turnover of above Rs. 200 crores from the list of comparable co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... endered in the case of CIT Vs. Agnity India Technologies (P) Ltd. (2013) 36 taxmann.com 289 (Delhi), clearly observed that turnover is obviously a relevant fact to consider the comparability. Our attention was also drawn to paragraph-3 of the decision rendered in the case of Pentair (supra) wherein the department specifically contended that the Tribunal erred in holding that size and turnover of a company are deciding factors for treating a company as comparable. According to him therefore it was not a case of merely dismissal of appeal u/s.260A of the Act as unadmitted on the ground that no substantial question of law arose for consideration but was precedent in so far as the Hon'ble Court has expressed a clear opinion on the issue. 17.5. The learned counsel for the Assessee also drew our attention to a decision of the Hon'ble Delhi High Court rendered in the case of PCIT Vs. New River Software Services (P) Ltd. In ITA No.924/2016 order dated 22.8.2017 wherein the Hon'ble Delhi High Court followed the decision of the Hon'ble Bombay High Court rendered in the case of Pentair (supra) and held that Infosys BPO was rightly excluded as not being a comparable company. Our attention w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l in the category of per incuriam. The following were the relevant observations of the Hon'ble Supreme Court: "19. It cannot be over-emphasised that the discipline demanded by a precedent or the disqualification or diminution of a decision on the application of the per incuriam rule is of great importance, since without it, certainty of law, consistency of rulings and comity of Courts would become a costly casualty. A decision or judgment can be per incuriam any provision in a statute, rule or regulation, which was not brought to the notice of the Court. A decision or judgment can also be per incuriam if it is not possible to reconcile its ratio with that of a previously pronounced judgment of a Co-equal or Larger Bench; or if the decision of a High Court is not in consonance with the views of this Court. It must immediately be clarified that the per incuriam rule is strictly and correctly applicable to the ratio decidendi and not to obiter dicta. It is often encountered in High Courts that two or more mutually irreconcilable decisions of the Supreme Court are cited at the Bar. We think that the inviolable recourse is to apply the earliest view as the succeeding ones would fall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se of Genisys Integrating (supra) was the earliest decision rendered on the issue of comparability of companies on the basis of turnover in Transfer Pricing cases. The decision was rendered as early as 5.8.2011. The decisions rendered by the ITAT Mumbai Benches cited by the learned DR before us in the case of Willis Processing Services (supra) and Capegemini India Pvt.Ltd. (supra) are to be regarded as per incurium as these decisions ignore a binding co-ordinate bench decision. In this regard the decisions referred to by the learned counsel for the Assessee supports the plea of the learned counsel for the Assessee. The decisions rendered in the case of M/S.NTT Data (supra), Societe Generale Global Solutions (supra) and LSI Technologies (supra) were rendered later in point of time. Those decisions follow the ratio laid down in Willis Processing Services (supra) and have to be regarded as per incurium. These three decisions also place reliance on the decision of the Hon'ble Delhi High Court in the case of Chriscapital Investment (supra). We have already held that the decision rendered in the case of Chriscapital Investment (supra) is obiter dicta and that the ratio decidendi laid dow ..... X X X X Extracts X X X X X X X X Extracts X X X X
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