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TMI Blog2019 (2) TMI 1707X X X X Extracts X X X X X X X X Extracts X X X X ..... he Hon'ble Karnataka High Court in the case of Tata Elxsi Ltd., 349 ITR 98. 4. The ld. DR in support of the grounds raised has submitted that since the SLP has been filed in the Hon'ble Supreme Court, the judgment of the Hon'ble jurisdictional High Court in the case of Tata Elxsi Ltd., 349 ITR 98 should not be followed. The ld. counsel for the assessee, on the other hand, has contended that the operation of the judgment of the Hon'ble jurisdictional High Court has not been stayed by the Hon'ble Supreme Court, therefore, the Tribunal is supposed to follow the judgment of Hon'ble jurisdictional High Court. 5. Having carefully examined the orders of the lower authorities, we find that so long as the judgment of Hon'ble jurisdictional High Court holds the field, all subordinate authorities are supposed to follow the same. Therefore, we find no infirmity in the order of the DRP, which has adjudicated the issue following the judgment of the Hon'ble jurisdictional High Court in the case of Tata Elxsi Ltd. (supra). We accordingly confirm the order of DRP. 6. Ground Nos. 3 & 4 raised by the revenue reads as follows:- "3. The learned Hon'ble DRP erred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ithmetic Mean 14.38% 9. The assessee claimed that since its profit margin was more than the arithmetic mean of comparable companies, the price charged in the international transaction should be considered as at arm's length. 10. The TPO, to whom reference was made by the AO u/s. 92CA of the Act, accepted only one comparable company chosen by the assessee viz., Cosmic Global Ltd., as a comparable company. The TPO on his own selected 9 other companies and after allowing the working capital adjustment, determined the shortfall in the price received by the assessee compared to ALP at Rs. 23,70,73,748 and added the said sum to the total income of the assessee as follows:- Sl.No. Company Name Unadjusted Margins FY 2010-11 1. Accentia Technologies Ltd. 28.89% 2. Acropetal Technologies 26.86% 3. Cosmic Global Ltd. 9.81% 4. e43 Healthcare 12.38% 5. ICRA Online 34.21% 6. Jeevan Scientific Technology Ltd. 70.66% 7. Infosys BPO Ltd. 17.89% 8. Jindal Intellicom 11.13% 9. Mindtree Ltd. 10.76% 10. iGate Global Solutions Ltd. 25.07% Arithmetic Mean 24.77% Less: Working capital adjustment 1.47% Adjusted Arithmetic mean 23.30% C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith turnover less than Rs. 200 crore, `medium' with turnover Rs. 200 to Rs. 2000 crore and 'large' with turnover greater than Rs. 2,000 crore. On this issue a detailed finding has been given by the TPO in his order, justifying that there is no correlation between high turnover and profit margins of a company. Further, the ITAT Mumbai in the case of the Capgemini India Pvt Ltd vs ACIT (ITA No. 7861/Mum/2011 for AY 2007-08) had held that the concept of economy of scale cannot be applied to service delivering companies and that there is no empirical evidence to suggest that margins are related to turnover. However, following the decision of the jurisdictional ITAT, the objection of the assessee is accepted. The taxpayer company would fall in the category of a 'medium' sized firm, as per the Dun & Brad Street categorization. Companies with a turnover lower than Rs. 200 crore and higher than Rs. 2000 crores, therefore, should be excluded from the comparability analysis." 14. Aggrieved by the aforesaid order of DRP, the revenue has raised ground Nos.3 & 4 before the Tribunal. 15. The ld. DR submitted that the Hon'ble High Court of Karnataka in the case of M/s. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssions as well as the relevant material on record. At the outset, we note that turnover of this company in the ITES segment is only Rs. 45.33 lakhs which is any case does not satisfy any filter of turnover in comparison to the assessee's turnover more than Rs. 27 Crores. Even if we apply the tolerance range of turnover of 10 times on both sides of the assessee's turnover then the company which is having less than Rs. 2.7 Crores of turnover will be outside the said range of 10 times. Accordingly, we are of the view that this company which is having only Rs. 45.33 lakhs turnover cannot be considered as a good comparable to the assessee". 15. From the aforesaid findings of the learned Tribunal, we are satisfied that the reasons assigned by the learned Tribunal in excluding the aforesaid company as comparable is also reasonable and the same deserves to be accepted by us. It is analysed by the learned Tribunal in extenso which arrived at a decision that the company which is having only Rs. 45.33 lakhs turnover cannot be considered as comparable to the Assessee-company whose turnover is more than Rs. 27 Crores. 16. The decision of the learned Tribunal in the other cases refer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of Genesis Integrated Systems (I) P. Ltd. [2012] 53 SOT 159 lays down the correct law on the application of turnover filter and that decision has to be followed. He pointed out that the DRP in the present case has followed the ruling in the case of Genesis Integrated Systems (I) P. Ltd. (supra) and therefore the order of DRP has to be upheld. 18. We have given a careful consideration to the rival submissions and are of the view that as rightly submitted by the ld. Counsel for the assessee, the decision rendered by the Hon'ble High Court of Karnataka in the case of Acusis Software (I) P. Ltd. (supra) does not positively say that for a company to be excluded on the basis of high turnover, the tolerance range of turnover of 10 times on both the sides of assessee's turnover has to be seen. Even the Tribunal in the order against which the appeal was filed, did not proceed on application of turnover filter with any such condition. Therefore, it is not correct to say that for application of turnover filter, tolerance range of turnover of 10 times on both the sides of assessee's turnover has been laid down by the Hon'ble High Court. The Hon'ble High Court hel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the basis to hold that high turnover is not relevant criteria for deciding on comparability of companies in determination of ALP under the Transfer Pricing regulations under the Act. For the reasons given above, we uphold the order of the CIT(A) on the issue of application of turnover filter and his action in excluding companies by following the ratio laid down in the case of Genisys Integrating (supra)." 19. In the given facts and circumstances of the case, we find no grounds to interfere with the order of DRP on this issue. Consequently, ground Nos.4 & 5 raised by the revenue are dismissed as without any merit. 20. In the result, the appeal by the revenue is dismissed. 21. The CO filed by the assessee is only with regard to the action of the DRP in not considering the functional comparability of some of the companies considered by the TPO as comparable companies. Since the application of turnover filter has been upheld, we are of the view that functional comparability of the companies set out in the cross objections becomes academic. Hence the CO of the assessee is dismissed as requiring no adjudication. IT(TP)A No.101/Bang/2016 & CO No.8/Bang/2017 22. In the result, the app ..... X X X X Extracts X X X X X X X X Extracts X X X X
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