TMI Blog2021 (10) TMI 1098X X X X Extracts X X X X X X X X Extracts X X X X ..... /Bang/2017 - - - Dated:- 11-10-2021 - Shri Chandra Poojari, Accountant Member And Smt. Beena Pillai, Judicial Member For the Assessee : Shri C.J. Brito, CA For the Revenue : Shri Rajendra Kumar Mishra, CIT (DR) ORDER PER BEENA PILLAI, JUDICIAL MEMBER Present appeal is filed by assessee against final assessment order dated 25/09/2017 passed under section 143(3) read with section 144 C of the Act by the Ld.ACIT Transfer Pricing officer, Circle 3(1)(2), Bangalore on following grounds of appeal: 1. The Learned Transfer Pricing Officer [TPO], Assessing Officer [AO] and Honorable Dispute Resolution Panel [DRP] have erred in law as well as on facts in passing the order which is bad in law and disregarding principle of natural justice. 2. The Ld. TPO, AO as well as DRP have erred in law as well as on facts by considering companies which are functionally not comparable to the functions performed, assets employed and risk assumed by the assesse company viz., (i) Larsen Toubro Infotech Ltd, and (ii) Persistent Systems Ltd 3. The Ld. TPO, AO as well as DRP have erred in law as well as on facts by excluding five companies which have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... observed that assessee had following international transaction with its associated enterprise: International Transaction Amount (in Rs.) Provision of Software development services 945017785 Reimbursement of expenses 13401128 Issue of equity shares 14394842 4. The Ld.TPO observed that assessee computed its margin at 15% by using OP/OC as PLI it used to TNMM as the most appropriate method to determine arm s-length price of its transaction. Assessee used following 9 comparable companies with average margin of 8.28% and thereby held its transaction to be at arm s-length: SI.No Name of the Company (M/s.) Wt. Avg (%) 1 Akshay Software Technologies Ltd. 7.20% 2 Take Solutions 17.24% 3 FCS software -4.73% 4 Synfosis Business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y proposing addition of ₹ 4,14,22,650/- (including the adjustment proposed by Ld.TPO). Aggrieved by the order of Ld.AO, assessee filed objections before the DRP. 7. DRP while considering assessee s objections, excluded Tech Mahindra from the list of comparables. Rest of the objections raised by assessee were rejected. On receipt of the DRP directions, the Ld.AO passed final assessment order by making addition of ₹ 4,38,97,083/- to the hands of assessee. Aggrieved by the order of loan deal, assessee is in appeal before us. 8. At the outset the Ld.AR submitted that, assessee wish to argue only Ground No.4 and 5. Accordingly Ground No.1, 2 and 3 are dismissed as not pressed. 9. In Ground No.4 , assessee is seeking exclusion of following comparables as they fail the turnover filter: Larsen and Toubro Infotech Ltd Mindtree Ltd. (SEG.) Persistent Systems Ltd Before we undertake the compatibility analysis, it is s ine qua non to understand the functions performed, assets owned and risk assumed by assessee. 9.1 Functions: In TP study assessee is held to be a software development service provider. It is subm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies having turnover more than 200 crores upto 500 crores has to be regarded as one category and those companies cannot be regarded as comparables with companies having turnover of less than 200 crores, the Tribunal held as follows: 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 Advisors (India) Pvt. Ltd., (supra) was as to whether comparable can be rejected on the ground that they have exceptionally high profit margins or f CIT dear relied on orders passed I authority is below luctuation profit margins, as compared to the Assessee in transfer pricing analysis. Therefore as rightly submitted by the learned counsel for the Assessee the observations of the Hon'ble High Court, in so far as it refers to turnover, were in the nature of obiter dictum. Judicial discipline requires that the Tribunal should follow the decision of a non-jurisdiction High Court, even though the said decision is of a non-jurisdictional High Court. We however find that the Hon'ble Bombay High Court in the case of CIT v. Pentair Water IndiaPvt. Ltd. Tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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). 10. Respectfully following the aforesaid decision, we hold that the aforesaid five com-panies should be excluded from the list of comparable companies. We hold and direct accordingly. The learned DR however pointed out that the Assessee did not raise this issue of turnover filter before AO and raised it before DRP in which the turnover limit of ₹ 1000 crores alone is mentioned. In our opinion, this will not be very material, as the turnover filter of ₹ 200 cro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ₹ 45.33 lakhs turnover cannot be considered as comparable to the Assessee-company whose turnover is more than ₹ 27 Crores. Even going by the above observation, and considering 10 times to 1/10 of the turnover the alleged comparable is much more than the turnover of assessee. 9.6 We note that, assessee before Hon ble Karnataka High Court as well as in the decision by coordinate bench of this Tribunal hereinabove, were captive service provider like assessee before us. Respectfully following the same we direct the Ld.TPO to exclude the comparable s alleged hereinabove for exclusion. Accordingly Ground No.4 raised assessee stands allowed. Ground No.5 10. It is submitted by the Ld.AR that the Ld.AO while computing deduction under section 10AA of the Act, reduced communication expenses and travelling and conveyance expenses incurred from the e ..... X X X X Extracts X X X X X X X X Extracts X X X X
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