TMI Blog2022 (6) TMI 1334X X X X Extracts X X X X X X X X Extracts X X X X ..... cannot place negative onus on assessee and seek to make impugned addition. The impugned addition is therefore directed to be deleted. Addition for non production of import invoices - HELD THAT:- From a perusal of the given table of import information for the balance assessable value along with the purpose for which these have been imported and the purpose of import as given in the last column of the above table, it is clear that the equipments in question were received from respective suppliers for testing and functionality of IT services provided by the Assessee to them. The issue therefore is identical to ground No.15 and for the reasons stated while deciding those grounds, we are of the view that the addition made cannot be sustained and the same is directed to be deleted. - SHRI N. V. VASUDEVAN, VICE PRESIDENT AND MS. PADMAVATHY S, ACCOUNTANT MEMBER Assessee by : Shri. Padam Chand Khincha, CA Revenue by : Shri. V. S. Chakrapani, CIT(DR)(ITAT), Bengaluru. ORDER Per N V Vasudevan, Vice President This appeal by the assessee is directed against the order dated 26.4.2021 of National e-Assessment Centre, Delhi (hereinafter referred to as the Ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The assessee chose companies who are engaged in providing similar services such as the assessee. The assessee identified 7 companies whose average arithmetic mean of profit margin was comparable with the Operating margin of the assessee. The assessee therefore claimed that the price it charged in the international transaction should be considered as at Arm s Length. 4. The Transfer Pricing Officer (TPO) to whom the determination of ALP was referred to by the AO, accepted TNMM as the MAM and also used the same PLI for comparison i.e., OP/OC. He also selected comparable companies from database. The TPO accepted some companies chosen by the assessee as comparable companies. The TPO on his own identified some other companies as comparable with the assessee company and arrived at a set of 13 comparable companies. The PLI was reworked by the TPO at 24.83%. The TPO worked out the average arithmetic mean of their profit margins of the 13 comparable companies as follows: Sl.No. Company Name Financial Year wise OP/OC (%) 2015-16 2014-15 2013-14 Average ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tal income on account of adjustment to ALP as follows: 22.4. Computation of Arm's Length Price: 22.4.1 The median of the weighted average Profit Level indicators is taken as the arm's length margin. Please see Annexure A for details of computation of PLI of the comparables. Based on this, the arm's length price. of the services rendered by the taxpayer to its AE(s) is computed as under: SWD SEGMENT Particulars Formula Amount (in Rs.) Taxpayers operating revenue OR 82,52,62,269 Taxpayers operating cost OC 71,35,24,740 Taxpayers operating profit OP 11,17,37,529 Taxpayers PLI PLI=OP/OC 15.66% 35th Percentile Margin of comaparable set 24.83% Adjustment Required (if PLI 35 th Percentile) Yes Median Margin of comparable set M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... crores for the above-mentioned years. 8. The Learned TPO/Hon'ble DRP erred in excluding the following companies, even though they are functionally comparable to the appellant: (a)Akshay Software Ltd. (b) Sagarsoft (India) Limited. (C) Evoke Technologies Limited. (d) Sankya lnfotech Limited. 8. As far as Ground No. 4 is concerned, the learned Counsel for the assessee prayed for exclusion of 7 companies set out in Ground No.6. The relevant provisions of the Act in so far as comparability of international transaction with a transaction of similar nature entered into between unrelated parties, provides as follows: Determination of arm's length price under section 92C . 10B . (1) For the purposes of sub-section (2) of section 92C, the arm's length price in relation to an international transaction [or a specified domestic transaction] shall be determined by any of the following methods, being the most appropriate method, in the following manner, namely :- (a) to (d).... (e)transactional net margin method, by which,- (i) the net profit margin realised by the enterprise from an international transaction [or a specified domestic transaction] entered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion [or a specified domestic transaction] if- (i) none of the differences, if any, between the transactions being compared, or between the enterprises entering into such transactions are likely to materially affect the price or cost charged or paid in, or the profit arising from, such transactions in the open market; or (ii) reasonably accurate adjustments can be made to eliminate the material effects of such differences. 9. A reading of Rule 10B(1)(e)(iii) of the Rules read with Sec.92CA of the Act, would clearly shows that the net profit margin arising in comparable uncontrolled transactions has to be adjusted to take into account the differences, if any, between the international transaction and the comparable uncontrolled transactions, which could materially affect the amount of net profit margin in the open market. 10. Chapters I and III of the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (hereafter the TPG ) contain extensive guidance on comparability analyses for transfer pricing purposes. Guidance on comparability adjustments is found in paragraphs 3.47-3.54 and in the Annex to Chapter III of the TPG. A revised version ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... raised Grd.No.4 before the Tribunal challenging the aforesaid view of the DRP. 12. On the issue of application of turnover filter, we have heard the rival submissions. The parties relied on several decisions rendered on the above issue by the various decisions of the ITAT Bangalore Benches in favour of the assessee and in favour of the Revenue, respectively. The 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, took note of the decision of the ITAT Bangalore Bench in the case of Sysarris Software Pvt. Ltd. Vs. DCIT (2016) 67 Taxmann.com 243 (Bangalore-Trib) wherein the Tribunal after noticing the decision of the Hon ble Delhi High Court in the case of Chryscapital (supra) and the decision to the contrary in the case of CIT Vs. Pentair Water India Pvt. Ltd., Tax Appeal No.18 of 2015 dated 16.9.2015 wherein it was held that high turnover is a ground to exclude a company from the list of comparable companies in determining ALP, held that there were contrary views on the issue and hence the view favourable to the assessee laid down in the case of Pentair Water (supra) should be adopte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 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 companies is held to correct and such action does not call for any interference. 13. The Tribunal in the case of Autodesk India Pvt.Ltd. Vs. DCIT (2018) 96 Taxmann.com 263 (Banglore-Tribunal), took note of all the conflicting decision on the issue and rendered its decision and in paragraph 17.7. of the decision held as that high turnover is a ground for excluding companies as not comparable with a company that has low turnover. The following were the relevant observations: 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egemini 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 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 regula ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ored. On a harmonious reading of the provisions of Rule 10CA, 10B(3) (4) of the Rules, we agree with the stand taken by the learned counsel for the Assessee. Therefore, if at all R.S.Software Ltd., is to be regarded as a comparable company, then the margins for AY 2014-15 and 2015-16 of the company have to be ignored because in those years they are to be regarded as not comparable. We hold accordingly. 21. As far as exclusion of this company R.S.Software (India) Ltd., on the ground that the related party transaction is more than 15% as projected in Ground No.7(b) of the concise grounds of appeal is concerned, we find that the admitted position with regard to related party transaction in this case is 17.52% as evident from page-100 of Form No.35A being the grounds of objection before the DRP by the Assessee. The DRP in its order proceeded on the basis that the threshold limit for application of the Related Party Transaction filter (RPT filter) would be 25% of the total transaction. The Hon ble Karnataka High Court in its Judgment 28-06-2018 in I.T.A.No.684/2017 I.T.A..No.685/2017 Pr. Commissioner of Income Tax-7 Anr. Vs. M/s. Yodlee Infotech Pvt Ltd., had to consider among ot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Act or Rules, however, in due course of discussion and adjudication of this issue in a series of decisions of this Tribunal, tolerance range of 5% to 25% of total revenue from RPT has been considered as reasonable depending upon the facts and circumstances of each case. In the case of the assessee before us, the TPO/A.O. selected 17 comparables. Therefore, the availability of the comparables of the international transactions of the assessee is not a difficult task. Thus, when a good number of comparables are available then the RPT cannot be allowed to the extreme limit of 25% of revenue. Accordingly, in order to determine the ALP considering by considering the uncontrolled comparable transactions, it should be kept in mind that the uncontrolled transactions should be least influenced by the controlled and related prices. This Tribunal in the series of decisions has taken a view that when good number of comparables are available, then the threshold limit of RPT shall not be more than 15% of total revenue. In view of the facts and circumstances of the case when good number of comparables available, then we are of the considered opinion that the RPT filter of 15% is proper in the ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ls are filed by the Assessees, because, there may be cases where the Tribunal giving its own reasons and findings has found certain comparables to be good comparables to arrive at an 'Arm's Length Price' in the case of the assessees with which the assessees may not be satisfied and have filed such appeals before this Court. Therefore we clarify that mere dissatisfaction with the findings of facts arrived at by the learned Tribunal is not at all a sufficient reason to invoke Section 260-A of the Act before this Court. 58. The appeals filed by the Revenue are therefore dismissed with no order as to costs. 6. Having heard the learned counsels for the parties, we are therefore of the opinion that no substantial question of law arises in the present cases also. The appeals filed by the Appellants-Revenue are liable to be dismissed and are dismissed accordingly. 22. We are of the view that the facts of the Assessee s case is similar to the case decided by the Hon ble High Court and in the light of the aforesaid decision of the Tribunal which has been upheld by the Hon ble Karnataka High Court, the RPT filter has to be applied adopting the threshold limit of 15%. We ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e in the implementation. The very fact that this company has described that it had rendered professional services in Dubai, indicate that it pertained to the non-software services; or it is also possible it may be a mix of software services and professional services. As segmental information is not available for the same, we consider it appropriate to hold that this company is not functionally comparable to the assessee. Accordingly. fire exclusion of this company is upheld. 18. The learned Counsel for the assessee relied on the following decisions in support of his plea for inclusion of this company as a comparable company: Global Logic India Ltd. vs. ACTT [2020] 117 taxmann.com 640 (Delhi - Trib.)-AY 2015-14 LSI India Research Development (P.) Ltd. vs. DCIT [2021] 124 taxmann.com 83 (Bangalore - Trib.)-AY 2014-IS ARM Embedded Technologies (P.) Ltd.-es. DCIT [2021] 129 taxmann.com 263 (Bangalore - Trib.)-AY 2013-14 19. We find that in the decision cited, the TPO himself accepted this company as a comparable company and there was no dispute whatsoever. In the other decisions which were in relation to different Assessment Years, the fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Year, the company has made a profit, it has to be regarded as a comparable company. 21. As far as the plea of the assessee for inclusion of Evoke Technologies Pvt. Ltd., is concerned, this company was rejected by the TPO on the ground that the financials of this company included figures from outside branches which are unconnected. The DRP agreed with the view of the TPO. The learned Counsel for the assessee placed reliance on the decision of the ITAT, Hyderabad Bench in the case of Infor India Pvt. Ltd., Vs. DCIT (2019) 109 taxmann.com 435 (Hyderabad Tribunal) wherein it was held that availability unaudited accounts cannot be the reason to reject the comparability of the company which satisfies all filters. Reliance was also placed on the decision of the ITAT, Bengaluru Bench in the case of Zynga Game Network India Pvt. Ltd., Vs. DCIT in IT(TP)A No.2573/Bang/2019, order dated 23.03.2021 for Assessment Year 2015-16 in which the comparability of this company was remanded to the TPO for fresh consideration. We are of the view that the comparability of this company has to be remanded to the TPO for fresh consideration in the light of the decision brought to our notice as above. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Median 23.44% 65th Percentile 26.44% **These two comparables were pari of the search matrix enclosed With the Show cause notice and were rejected as functionally not comparable. However based on other taxpayer's submissions and on perusal of annual reports and functional profile of the companies they are found to be functionally comparable and included in the final list of comparables. ITeS SEGMENT Particulars Formula Amount (in Rs.) Taxpayers operating revenue OR 4,11,99,837 Taxpayers operating cost OC 3,66,17,122 Taxpayers operating profit OP 45,82,715 Taxpayers PLI PLI-OP/OC 12.52% 35th Percentile Margin of comparable set 20.44% Adjustment Required (if PLI 35th Percentile) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the ratio laid down therein we hold that the 4 companies listed in ground No.10 whose turnover is above Rs.200 Crores has to be excluded form the list of comparable companies. 26. As far as exclusion of the Bhilwara info Technology Ltd., is concerned, this company was not chosen as a comparable company by the assessee in its TP study. The TPO, without proposing this company as a comparable company, added this company as a comparable company before the DRP. Apart from other submissions, the assessee made a specific submission that the export turnover of the company was less than 75% of its total turnover and therefore this company should not be regarded as a comparable company. The DRP it is directions in paragraph 2.9.2 gave the following directions: 2.9.2 The assessee has without prejudice has asked for the exclusion of Bhilwara Info Technology Ltd as a comparable, stating that it fails the export filter. It has contented that as per note 39 segmental information to financial statements, the total income from software and IT related services is of Rs. 31, I 6,69,226/- is from domestic customers and total income 110m medical transcription from foreign customers is Rs. 10 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... do not has any significant R841) activity, the company may be considered for inclusion as comparable. 30. In the order passed by the TPO giving effect to the directions of the DRP dated 20.04.2021, the TPO has not given effect to its directions. We are of the view that it would be just and appropriate to direct the AO/TPO to consider the directions of the DRP and pass an order as per the said direction after giving opportunity of being heard to the assessee. The TPO/AO is directed to compute the ALP in the SWD and ITeS segment after giving opportunity of being heard to the assessee and as per the directions contained in this order. 31. The next issue that requires consideration in the concise grounds of appeal is the issue with regard to determination of ALP in respect of an international transaction of delayed realization of outstanding from the AE. The grounds raised by the assessee in this regard are contained in ground No.17 of the grounds of appeal. The limited prayer of the learned Counsel for the assessee and ground No.17 was that in respect of receivables from non-AE, the period allowed for realization was much greater and therefore this international transaction nee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 14 of Annexures to Form 35A. 33. The factual details with regard to ground No.15 are that the assessee provided ITeS services to one of its customers viz., Remote Diagnostic Technologies ( RDT ) who supplied specific equipment worth Rs.3,59,722/- to the assessee for testing the functionality of ITeS services provided by the assessee to the RDT. Since this was only provided for testing the transaction was not recorded by the assessee in its books of accounts. The AO treated the value of this asset as a benefit or perquisite by the assessee in the course of its business brought to tax the aforesaid sum under section 28(iv) of the Act. Before the DRP, assessee submitted that it had no right whatsoever over the machineries supplied and therefore the very basic presumption of the AO in considering that the assessee received the benefit or perquisite is itself erroneous and therefore the addition should be deleted. The DRP however rejected the claim of the assessee on the ground that no evidence was placed on record to show that the assessee returned back the equipment. We are of the view that this approach of the DRP is incorrect because the question of return of the equipment will a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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