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TMI Blog2019 (12) TMI 678X X X X Extracts X X X X X X X X Extracts X X X X ..... t order passed by the Ld. AO is bad in law to the extent the Ld. AO did not issue to the Appellant a show cause notice as per proviso to Section 92C(3) of the Income-tax Act, 1961 ['the Act']. c) That, on the facts and circumstances of the case and in law, the Respondent erred in not providing the Appellant an opportunity of being heard prior to making a reference to the Deputy Commissioner of Income-Tax (Transfer Pricing) - 2(2)(1), Bangalore ['the Ld. TPO' for short], which is violative of the principles of natural justice. d) That the Respondent erred in making a reference to the Ld. TPO without recording an opinion that any of the conditions in Section 92C(3) of the Act were satisfied in the instant case. e) That the final assessment order passed by the Ld. AO is without jurisdiction insofar as it purports to give effect to an invalid order of the Ld. TPO and to invalid directions of the Dispute Resolution Panel - 2 [`Ld. DRP']. f) That, on the facts and circumstances of the case and in law, the Ld. TPO erred and the Ld. DRP further erred in confirming the action of the Ld. TPO in not demonstrating that the motive of the Appellant was to shift pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a in accepting / rejecting comparables. Ld. The DRP erred in confirming the same. i) That the Ld. AO/ Ld. TPO erred in arbitrarily accepting companies without considering the turnover and size of the Appellant and comparables. The Ld. Panel also erred in confirming the same. j) That the Ld. Panel erred in upholding the action of the Ld. AO / Ld. TPO in not applying the turnover filter at the upper limit so as to reject the high turnover companies selected by the Ld. AO / Ld. TPO such as Capgemini Business Servicese(India) Pvt. Ltd. and Infosys BPO Ltd. k) That the Ld. AO/ Ld. TPO, while applying the said turnover filter at the lower limit so as to reject companies having turnovers less than INR 1 crore in FY 2012-13, erred in notapplying the said filter at the upper end so as to reject high turnover company as well. The Ld. Panel also erred in confirming the same. l) That the Ld. AO/Ld. TPO erred on facts and in law in arbitrarily rejecting companies having a different financial year ending (i.e. other than 31st March 2013) andinconsistently applying such filter. The Ld. DRP erred in confirming the same. m) That the Ld. AO/Ld. TPO also erred in arbitrarily rejecti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pgemini Business Services (India) Pvt. Ltd. and Hartron Communications Ltd. The Ld. DRP erred in upholding the actions of the AO/TPO. 4. Non-allowance of appropriate adjustment to the comparable companies by the Ld. Panel and Ld. AO/ I.d. TPO That the Ld. AO/ Ld. TPO erred in not allowing appropriate adjustments under Rule 10B to account for, inter alia, differences in (i) accounting practices, (ii) marketing expenditure, (iii) research and development expenditure, (iv) working capital, (v) risk profile, and (vi) depreciation between the Appellant and the comparable companies. 5. Variation of 3% from the arithmetic mean The Ld. AO/ Ld. TPO erred in not granting the benefit of the proviso to Section 92C(2) of the Act to which the Appellant is entitled. 6. Short grant of TDS credit That the AO erred in granting credit for TDS only to the extent of INR 14,962,665 as against the amount of INR 15,518,356 that was claimed by the Appellant in its return of income for this assessment year. 7. Directions issued by the I.d. DRP: That the directions issued by the Ld. DRP, to the extent they confirm the draft assessment order of the Ld. AO, are otherwise erroneous and l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of current year data and companies having different financial year ending, data of the company which does not fall within 12 months period from 1/4/2012 to 31/3/2013 were rejected, companies whose income was less than Rs. 1 crore were excluded, the companies whose ITeS income is less than 75% of its total operating revenue were excluded. The companies who have more than 25% RPT of sales were excluded. Further companies whose export service income is less than 75% of sales were excluded and companies with employees cost less than 25% turnover were excluded. Finally, TPO rejected comparables selected by the assessee and applying the filters and selected final list of comparable at page 27 para.14.1 which reads as under: TPO has computed ALP at para.15.4 as under: Finally, TPO passed the order u/s 92CA of the Act dated 24/10/2016. Subsequently, Draft assessment order was passed u/s 143(3) r.w.s 144C(1) of the Act 27/12/2016with TP adjustment of Rs. 37,10,559/- and disallowance u/s 14A of the Act r.w.rule 8D of Rs. 4242 and assessed the total income of Rs. 11,89,06,761/-. 6. Aggrieved by the Draft assessment order, the assessee has filed objections in Form 35A before the DRP. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... We shall deal with comparables and the application of turnover. 8.1 First, we shall take up the company M/s.CapgemeniBusiness Services (India) Ltd., where the margin is 26.87%and is functionally incomparable as it is engaged in diversified activities such as selling, technology outsourcing services and professional services and the company has also ITeS, BPO services, software development services and KPO and scope of this service on procurement of technical data services and has a High Brand Value. The company has incurred significant expenditure in foreign currency of 11.46% of total operating cost and rendered onsite services adopting different modules and has RPO of 82.32% of its total sales for the financial year 2012-13. The ld. AR relied on the decision of the co-ordinate bench in the case of M/s.Auto desk India (P) Ltd., vs. Dy,CIT in (106 Taxman.com116). We found that this company has been excluded from the final list of comparable at para.17.7 to 17.8 (96 taxman.com 263): "17.7. We have considered the rival submissions. The substantial question of law (Question No.1 to 3) which was framed by the Hon'ble Delhi High Court in the case of Chryscapital Investment Adv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... regarded as per incurium as these decisions ignore a binding coordinate 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), SocieteGenerale 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 tobe 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 down by the Hon'ble Bombay High Court in the case of Pentair (supra) which is favourable to the Assessee has to be followed. Therefore, the decisions cited by the learned DR before us cannot be 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ges 14-15, 18-19, 15-16, and 15 thereof respectively) these four companies were excluded on the ground of functional dissimilarity. We are of the view that the aforesaid decision of the Tribunal rendered for AY 2008-09 in the case of a SWD service provider such as the Assessee supports the plea of the Assessee. Therefore these four companies are directed to be excluded from the list of comparable companies on the ground of functional dissimilarity also. As far as exclusion of Celestial Biolabs Ltd. is concerned we have already held while deciding the connected ground of appeal of the revenue that this company has to be excluded on the ground of functional dissimilarity. We reiterate that this company should be excluded from the comparable companies on the said ground. As far as exclusion of e-Zest Solutions Limited, from the list of comparable companies is concerned, the plea of the Assessee is that it is not functionally comparable as the said company is engaged in the business of rendering product engineering and development services, IT services and high end technical services, which come under the category of KPO services. Thus it is not comparable to the Assessee. In this rega ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s at para 8, 9 and 10 and directed exclusion from the final list of comparable. We found the facts of the assessee in the present case are similar in respect of comparable. Therefore, following the ratio of the judicial decision and similarity on facts, we direct comparable M/s.Harton Communications Ltd., to be excluded from the final list of comparable by TPO. 8.5 In the result, M/s.Microland Ltd., M/s.Capgemeni and M/s.Infosys are directed to be excluded based on turnover criteria relying on the co-ordinate bench decision whereas M/s.Harton Communications Ltd., has to be excluded because of wide fluctuations and the observations of the co-ordinate bench decision. Accordingly, we direct the TPO to exclude four comparables from the final list of comparable in determination of ALP. 9. The ld. AR submitted that the assessee has made a claim of TDS and out of total TDS the AO has not granted the total credit and prayed for direction for granting for credit of TDS. We found that the assessee has raised this ground of appeal and we direct the AO to grant TDS credit as per Form 26AS and further interest u/s 234B has to be levied as per law. 10. In the result, the assessee's appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X
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