TMI Blog2022 (3) TMI 1495X X X X Extracts X X X X X X X X Extracts X X X X ..... or determination to the TPO if he considers it necessary or expedient to refer the mater to the TPO - The exercise of finding out whether any income arises and/or is affected or potentially arises and/or is affected by the International Transaction would certainly be a factor to determine whether or not it is necessary or expedient to refer the matter to the TPO. Since no objection was raised by the assessee to the applicability of Chapter X then the prima facie view of the Assessing officer would be sufficient before referring the transaction to the TPO for determining the ALP. Consequently, there is no merit in Grd.No.3.2 raised by the Assessee. Validity of search action - We do not find any merit in ground Nos.10 as without calling for the reason to believe recorded u/s.132 of the Act before issuing an authorization to search a person and property, one cannot come to a conclusion whether the condition precedent for issue of warrant of authorization to search u/s.132 of the Act are satisfied or not. No attempt by appellant company to shift profits outside of India - Special Bench of the ITAT, Bengaluru, in the case of Azetec Softech Technology [ 2007 (7) TMI 50 - IT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2002-03, 2003-04, 2004-05 and 2005-06. 2. The assessee is a company incorporated on 23.05.2001. It is wholly subsidiary of M/s. Transworld ICT Holdings Ltd., British Virgin Islands, a group company of First Curacao Ltd., a Bermuda registered company, set up to run an online banking provisionally based at Curacao in Dutch, Antilles, Netherlands. The assessee company carried out software development service and Information Technology enabled Services (ITeS) to its Associate Enterprise (AE). 3. A search and seizure operation under section 132 of the Act was carried out in the business premises of the assessee on 18.12.2006. Pursuant to the search, notice under section 153A of the Act was issued for 6 Assessment Years 2002-03 to 2007-08 as required under section 153A of the Act. As far as Assessment Year 2002-03 to 2005-06 are concerned, the assessee has challenged the additions made to the total income of the assessee in the Order of Assessment passed under section 153A of the Act determining the Arm s Length Price (ALP) of the international transaction of rendering software development services and ITeS by the assessee to its Associated Enterprises (AE). There are certain comm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, OECD guidelines and other conditions which are necessary for selecting comparables under the facts and circumstances of the case. 5.5 The authorities below are not justified in law in not limiting the turnover to Rs.50 crores for the purpose of arriving at comparables since the turnover of the appellant company had not crossed more than Rs.10 crores under the facts and circumstances of the case. 5.6 The authorities below are not justified in rejecting an higher employee cost filter (40% rather than 25% of the Turnover) adopted by the appellant under the facts and circumstances of the case. The authorities below are not justified in law in not normalizing the operating profit by not considering for ESOP (Employee Stock Options) costs based upon fair market value which is the realistic approach to arrive at the true employee cost under the facts and circumstances of the case. 5.7 The authorities below further not justified in combining all the purchases, sales and other transactions and comparing them only with turnover (and not against the sum of turnover and purchases) while applying Related Party Transactions filter under the facts and circumstances of the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt under section 10A of the Income-tax Act, 1961 under the facts and circumstances of the case. 8.2 Without prejudice the authorities below are not justified in law in disallowing the claim of exemption under section 10A of the Act for the additions made by the TPO under the facts and circumstances of the case. 9. The authorities below are not justified in levying interest under Sec 234(A), (B), (C) on the facts and circumstances of the case. The levy is further bad in law as the computation of the interest and the amount, period and interest rate calculations are not explained. 5. Vide applications dated 23.11.2010, 07.02.2020 and 14.12.2021, the assessee has sought to raise the following additional grounds: 10. The entire assessment based upon the search proceedings which itself is bad in law as the mandatory conditions for being a valid search did not exist nor are they discernable from the facts. The conditions prescribed under Sec 132(1)(A),(B),(C) are not satisfied and consequently the issue of notice under Sec 153(A) is to be set aside. 11. The proceedings on the grounds of transfer pricing is bad in law as there was no attempt by appellant company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ground Nos.5.4 and 5.5 already raised by the assessee in the main grounds of appeal. 7. At the time of hearing, learned Counsel for the assessee made submissions on ground Nos.3.1 and 3.2. In these grounds, it has been submitted that the AO, before making a reference to Transfer Pricing Officer (TPO) under section 92CA of the Act, has not complied with the mandatory conditions laid down in the said section and has not afforded opportunity of being heard to the assessee before making a reference to the TPO. Though the learned Counsel for the assessee did not spell out as to what are the mandatory conditions that have not being satisfied or complied with by the AO while making a reference to the TPO, a plain reading of section 92CA of the Act shows that once an assessee enters into an international transaction, the AO has to make a reference to the TPO and the fact that he made a reference in the present case can only go to show that the AO is satisfied that it was necessary or expedient to make a reference to the TPO for determination of ALP of international transaction entered into by an assessee. The order passed in section 92CA of the Act clearly spells out that prior approval ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce to the TPO and that before making a reference to the TPO, there is no requirement of affording assessee opportunity of being heard. 10. So also ground Nos.16 and 17 raised by the assessee are without any merit because the assessee did not file a transfer pricing analysis alongwith the returns filed under section 139(1) of the Act and therefore the AO was well within his powers to examine the issue without regard to ALP in the proceedings under section 153A of the Act. These grounds are accordingly dismissed. 11. We shall now take up for consideration the main ground of appeal which is with regard to the determination of ALP in respect of the international transaction of rendering software development services by the assessee to its AE. As we have already seen the assessee has rendered software development services to its AE. To substantiate the price it received from the AE for the services so rendered as at arm s length, the assessee filed transfer pricing study in which it adopted Transaction Net Margin Method (TNMM) as the Most Appropriate Method (MAM) for determining the ALP. The operating revenue of the assessee was Rs.3,27,91,449/- and the operating expense was Rs.2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... td 66.58 20.70 16 Kshema Technologies Ltd . 53.72 24.00 17 Orient Information Technologies Ltd 52.03 12.54 Avg. 29.30 12. The TPO determined ALP of the international transaction as follows: 14.6 Computation of Arms Length.Price: The arithmetic mean of the Profit Level indicators is taken as the arms length margin (Please see Annexure-B for details of computation of. PLI of the comparables). Based on this, the arms length price of the software services rendered by you is computed as under: Arithmetic mean PLI : 29.30% Arm's Length Price Operating Cost Rs.3,06,46,199/- Arm s Length Margin 29.30% of the Operating Cost Arm s Length Price @ 129.30% of operating cost Rs.3,96,25,535/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4 (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 adopted. The following were the conclusions of the Tribunal in the case of Dell International (supra): 41. We have given a very careful consideration to the rival submissions. ITAT Bangalore Bench in the case of Genesis Integrating Systems (India) Pvt. Ltd. v. DCIT, ITA No.1231/Bang/2010, relying on Dun and Bradstreet s analysis, held grouping of companies having turnover of Rs. 1 crore to Rs.200 crores as comparable with each other was held to be proper. The following relevant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cluding 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. 17. 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 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 fluctuation 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 dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o 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 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). 18. Following the aforesaid decisions, we hold that the 4 comparable companies whose turnover is above Rs.100 crores should be excluded from the list of comparable companies. 19. As far as the remaining 6 companies ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de these companies from the list of comparable companies. Following the said decision we remand the question of comparability of these companies to the TPO/AO as directed in the aforesaid order of the Tribunal. (v) Mphasis Ltd., : As far as comparability of this company is concerned, the ITAT, Delhi Bench, in the case of Alcatel Lucent Portugal SA, Vs. DCIT (2014) 45 taxmann.com 244 (Delhi Trib.) rendered for AY 2006-07 in the case of an Assessee which rendered SWD services such as the Assessee in this appeal, remanded the question of excluding this company from the list of comparable companies on the ground that this company was engaged in diversified IT services segment offering business process operations, application development and maintenance, etc., and hence not comparable with a software development service provider such as the assessee. The Tribunal remanded the question of comparability of this company in the light of the aforesaid factors that were pointed out by the assessee before the Tribunal. We are of the view that it would be appropriate to set aside the question of comparability of this company for a fresh consideration by the TPO/AO on the lines indicated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce to TPO is bad in law as the mandatory conditions have not been satisfied or complied with as the reasons have not been recorded before the matter was referred to the TPO. 3.2 The order is further bad in law as the appellant was denied of opportunity of being heard before reference to the TPO which is against the principles of natural justice. 4. The authorities below are not justified in holding that the amendment to proviso to section 92C(2) of the Act is effective from 1-10-2009 was clarificatory and denied the 5% rebate which ought to have been given as per the existing proviso for the respective years. 5. Appropriate Transfer Pricing Methodology: 5.1 The authorities below failed to appreciate that CPM is the appropriate methodology for determining the transfer pricing for IT and ITES services. The authorities below are not justified in rejecting the Cost plus Methodology without assigning any cogent reasons under the facts and circumstances of the case. 5.2 Without prejudice, the authorities below were not justified in law in rejecting the revised Transfer Pricing Study submitted by the appellant company under TNMM methodology is not in accordan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case. 5.11 The learned authorities below failed to understand the risk-insulated environment in which the appellant operated and the nature of services provided by it to the AE while determining the ALP. Further the authorities failed to consider the lower risk companies receive lower returns while computing the mark-up under the facts and circumstances of the case. 5.12 The authorities below are further not justified in law in holding that the appellant company has not provided the computation before seeking for working capital adjustment. 5.13 The order of the authorities below has various factual errors and further the authorities below have not followed a consistent Policy in adopting the filters under the facts and circumstances of the case. 6. Without prejudice the authorities below ought to have considered the objections raised by the appellant regarding the companies selected by the TPO and the justification provided for the companies selected by the appellant The authorities below ought to have at least taken the average of companies which the appellant and the TPO did not dispute. 7. Without prejudice the authorities should have adopted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erred in selecting the following functionally dissimilar companies as comparable for Software Development Services segment under the facts and circumstances of the case: a. Infotech Enterprises Ltd. b. Visual Soft Technologies Ltd. 16. The authorities below erred in selecting the following functionally dissimilar companies as comparable for Information Technology Enabled Services segment under the facts and circumstances of the case: a. Fortune Infotech Limited b. Tricom India Limited (Seg) c. Wipro Business Solutions Limited 25. We have already decided the ground Nos.3, 17, 18 as well as ground Nos.10 to 13 while deciding the appeal for Assessment Year 2002-03. The grounds raised in AY 2003-04 are identical and arise under same facts and circumstances. For the reasons stated while deciding identical grounds in the appeal for AY 2002-03, these grounds are dismissed. 26. The other grounds that remains for adjudication in this Assessment Year is the determination of ALP with regard to SWD services and ITeS services rendered by the assessee to its AE. 27. SWD Segment : The profit margin of the assessee in the SWD segment was 15.36% and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Margin 22.14% of the Operating Cost Arm s Length Price @ 122.14% of operating cost Rs.5,20,80,074/- 17.7 Price Received vis- -vis the Arms Length Price The price charged by the taxpayer to its Associated Enterprises is compared to the Arms Length price as under: Arms Length Price @ 129.30% of operating cost Rs.5,20,80,074/- Price received Rs.4,91,92,995/- Shortfall being adjustment under section 92CA Rs.28,87,079/- The difference of Rs.28,87,079/- as determined above is the transfer pricing adjustment under section 92CA. 29. The DRP confirmed the action of the TPO. In this appeal, the assessee seeks exclusion of 2 out of 6 comparable companies that remain after the order of the DRP. The assessee seeks exclusion of Infotech Enterprises Ltd., by placing reliance on the decision of the ITAT, Bengaluru Bench, in the case of SAP Labs India Ltd., (supra) rendered for Assessment Year 2003-04. While discussing this comparable company for Assessment Year 200 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 13.98 100.00 P Average 55.44% 31. The TPO determined the ALP of the international transaction as follows: 17.6 Computation of Arms Length Price: The arithmetic mean of the Profit Level indicators is taken as the arms length margin (Please see Annexure-B for details of computation of PLI of the comparables). Based on this. the arms length price of the software services rendered by you is computed as under: Arithmetic mean PLI 55.44% Arm's Length Price Operating Cost Rs.1,04,77,921 /- Arm s Length Margin 55.44% of the Operating Cost Arm s Length Price @ 122.14% of operating cost Rs.1,62,14,086/- 17.7.Price Received vis- -vis the Arms Length Price The price charged by the taxpayer to its Associated Enterprises is compared to the Arms Leng ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facts and circumstances being identical, the issue with regard to comparability of this company is remanded to TPO/AO for consideration as directed by the Tribunal in the case of HSBC Electronic Data Processing India Pvt. Ltd., (supra). We hold and direct accordingly. 33. The TPO is directed to compute the ALP in the ITeS segment in accordance with the directions contained in this order, after affording the assessee opportunity of being heard. 34. The other issue that arises for consideration in this appeal is with regard to ground No.8 which is identical to ground No.8 decided in Assessment Year 2002-03. For the reasons stated therein, the AO is directed to exclude the delivery charges both from the export turnover and total turnover while computing deduction under section 10A of the Act. Moreover, the order of the Hon ble Karnataka High Court has been upheld by the Hon ble Supreme Court in the case of CIT v. HCL Technologies Ltd. in Civil Appeal No.8489-98490 of 2013 Ors. dated 24.04.2018. The order of the CIT(A) on this issue is therefore reversed and the ground of appeal of the Assessee in this regard is allowed. 35. The appeal of the assessee for Assessment Year 200 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iting the turnover to Rs.50 crores for the purpose of arriving at comparables since the turnover of the appellant company had not crossed more than Rs.10 crores under the facts and circumstances of the case. 5.6 The authorities below are not justified in rejecting an higher employee cost filter (40% rather than 25% of the Turnover) adopted by the appellant under the facts and circumstances of the case. The authorities below are not justified in law in not normalizing the operating profit by not considering for ESOP (Employee Stock Options) costs based upon fair market value which is the realistic approach to arrive at the true employee cost under the facts and circumstances of the case. 5.7 The authorities below further not justified in combining all the purchases, sales and other transactions and comparing them only with turnover (and not against the sum of turnover and purchases) While applying Related Party Transactions filter under the facts and circumstances of the case. 5.8 The authorities below are not justified in law in summarily rejected all the Companies which made losses for last 3 years without ascertaining any facts. On the other hand the authoriti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xemption under section 10A of the Act for the additions made by the TPO under the facts and circumstances of the case. 9. The authorities below are not justified in levying interest under Sec 234(A), (B), (C) on the facts and circumstances of the case. The levy is further bad in law as the computation of the interest and the amount, period and interest rate calculations are not explained. 37. Additional Grounds raised are as follows: 10. The entire assessment based upon the search proceedings which itself is bad in law as the mandatory conditions for being a valid search did not exist nor are they discernable from the facts. The conditions prescribed under Sec 132(1)(A),(B),(C) are not satisfied and consequently the issue of notice under Sec 153(A) is to be set aside. 11. The proceedings on the grounds of transfer pricing is bad in law as there was no attempt by appellant company to shift profits outside of India. The basic intention behind introducing the transfer pricing provisions in the Act is to prevent shifting of profits outside India. 12. The appellant craves leave to add, alter, delete or substitute any of the grounds urged above. 13. ln vi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lobal Systems ltd 2.88 0.28 10.70% 3 Exensys Software Solutions ltd. 3.02 1.13 60.09% 4 I3odhtrec consultim2, ltd- 4.26 0.57 15.29% 5 Sankhya lnfotech ltd 12.41 3.21 34.96% 6 Thirdware Solution limited 23.88 9.17 62.28% 7 Geometric Software Solutions Co.ltd 63.67 8.99 16.44% 8 Tata Elxsi Limited (seg) 94.1 I 16.20 20.80% 9 Sasken Communication Technologies ltd (seg) 123.78 14.36 13.13% 10 Visual soft Technologies ltd 153.86 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , and (iii) Sankhya Infotech Ltd., : The Bengaluru Bench of the Tribunal in the case of Sysarris Software Pvt. Ltd., Vs. DCIT (2016) 67 taxmann.com 243 (Bang. Trib.) held that Bodhtree Consulting Ltd., cannot be regarded as a comparable vide para 16 of this Order and also held that Sankha Infotech Ltd., is not comparable vide paragraph 24 of the said order and excluded the aforesaid 2 companies from the list of comparable companies in the case of a SWD services provider. Though the decision relates to Assessment Year 2005-06, the functional profile of these 2 companies is stated to be similar for Assessment Year 2004-05 and therefore following the aforesaid decision, we hold that the aforesaid 2 companies should be excluded from the list of comparable companies. (iv) Thirdware Solutions Ltd., : In the case of Dell International Services Pvt. Ltd., 83 taxmann.80 (Bang. Trib.) rendered for Assessment Year 200405, this company was regarded as not comparable with a software services company vide para 14.3 of this order for the reason that this company was in the software design and consultancy and also there was no segmental information available. Following the said decision, we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see's Margin 16.95% Assessee's Turnover 2,45,12,060 45. The TPO computed the ALP as follows : 17.6 Computation of Arms Length Price: The arithmetic mean of the Profit Level indicators is taken as the arms length margin (Please see Annexure-B for details of computation of PLI of the comparables). Based on this. the arms length price of the software services rendered by you is computed as under: Arithmetic mean PLI :36.49% Arm's Length Price Operating Cost Rs.2,09,58,107/- Arm s Length Margin 36.49% of the Operating Cost Arm s Length Price @ 122.14% of operating cost Rs.2,86,05,720/- 17.7. Price Received vis- -vis the Arms Length Price The price charged by the taxpayer to its Associated Enterprises is compared to the Arms Length price as und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 33 taxmann.com 618 (Hyderabad) rendered for Assessment Year 2004-05 held that Spanco cannot be regarded as comparable for absence of segmental data for determining employee cost and applying the employee cost filter of more than 25% of the revenue and cannot be compared with the assessee. Ultramarine Pigments Ltd., was excluded in the aforesaid decision on the ground of abnormal profits due to abnormal circumstances. 48. The AO is directed to compute ALP in the ITeS segment as per the directions contained in this order, after affording assessee opportunity of being heard. 49. The other issue in this appeal is with regard to excluding delivery charges in the export turnover without excluding the same from the total turnover. While adjudicating the similar ground in Assessment Year 200203, we have already directed that whatever is excluding in the export turnover is to be excluded from the total turnover. The AO is accordingly directed to do so. 50. In the result, appeal of the assessee is treated as partly allowed. 51. IT(TP)A No.1308/Bang/2010 for Assessment Year 2005-06 Grounds of appeal raised by the assessee are as follows: 1. The order of the authori ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the case. 5.6 The authorities below are not justified in rejecting an higher employee cost filter (40% rather than 25% of the Turnover) adopted by the appellant under the facts and circumstances of the case. The authorities below are not justified in law in not normalizing the operating profit by not considering for ESOP (Employee Stock Options) costs based upon fair market value which is the realistic approach to arrive at the true employee cost under the facts and circumstances of the case. 5.7 The authorities below further not justified in combining all the purchases, sales and other transactions and comparing them only with turnover (and not against the sum of turnover and purchases) while applying Related Party Transactions filter under the facts and circumstances of the case. 5.8 The authorities below are not justified in law in summarily rejected all the Companies which made losses for last 3 years without ascertaining any facts. On the other hand the authorities below have included all companies with abnormal profit margins. 5.9 The authorities below are not justified in law in rejecting the companies having minor variations during the end of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ec 234(A), (B), (C) on the facts and circumstances of the case. The levy is further bad in law as the computation of the interest and the amount, period and interest rate calculations are not explained. 52. Additional Grounds raised are as follows: 10. The entire assessment based upon the search proceedings which itself is bad in law as the mandatory conditions for being a valid search did not exist nor are they discernable from the facts. The conditions prescribed under Sec 132(1)(A),(B),(C) are not satisfied and consequently the issue of notice under Sec 153(A) is to be set aside. 11. The proceedings on the grounds of transfer pricing is bad in law as there was no attempt by appellant company to shift profits outside of India. The basic intention behind introducing the transfer pricing provisions in the Act is to prevent shifting of profits outside India. 12. The appellant craves leave to add, alter, delete or substitute any of the grounds urged above. 13. In view of the above and other grounds that may be urged at the time of the hearing of the appeal, the appellant prays that the appeal may be allowed in the interest of justice and equity. a) The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2.83% 42.59% 4. Lanco Global Systems Limited 13.65% 10.44% 5. Larsen Toubro Infotech Limited 10.33% 9.47% 6. R S Software (India) Limited 8.07% 7.66% 7. Sasken communications Technologies Limited 14.42% 14.26% 8. Sasken Network Systems Limited 16.64% 15.05% 9. Satyam Computers Services Limited 29.44% 28.26% 10. Visualsoft Technologies Limited 23.52% 21.26% 11. Exensys Software Solutions Limited 70.68% 64.95% 12. Sankhya Infotech Limited 27.39% 22.34% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the 17 comparables chosen by the TPO. On the application of turnover filter, the assessee seeks exclusion of iGate Technologies Ltd., Flextronics Ltd., L T Infotech Ltd., Satyam Computer Services Ltd., and Infosys Ltd. The turnover of these companies was admittedly above 100 Crores and cannot be compared with the assessee. While deciding appeal for Assessment Year 2002-03, we have already held that turnover is a relevant criterion for choosing comparable companies and companies with high turnover cannot be compared with the companies with low turnover. Following this ratio, the aforesaid companies are directed to be excluded from the list of comparable companies. 58. The assessee seeks exclusion of following 6 companies on the ground of functional comparability. We will deal with these companies as follows: 1. Bodhtree Consulting Ltd., 2. Excensis Software Solutions Ltd., 3. Sankhya Infotech Ltd., 4. Foursoft Ltd., 5. Tata Elxsi Ltd., 6. Thirdware Solutions Ltd., 59. Exclusion of all the aforesaid 6 comparable companies was considered by this Tribunal in the case of Sysarris Software Pvt. Ltd., (supra) rendered in Assessment Year 2005-06. Bodhtree Consu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2. Saffron Global Ltd., 27.78 24.88 27.78 100% -- 0.12 3. Vishal Information Tech. Ltd., 20.82 45.62 20.82 100% -- -- 4. Cosmic Global Ltd., (Tulsyan Tech. Ltd.,) 1.90 17.02 1.70 89.5% -- -- 5. Transworks Information Services Ltd., 108.23 2.81 107.78 99.6% 3.57 2.59 6. Wipro BPO Solutions Ltd., 617.71 18.59 617.71 100% 6.34 2.59 7. Ace Software Exports Ltd., 5.90 14.50 5.90 100% 0.3 0.02 8. Nucle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ground for excluding comparable companies and following the reasoning given in the earlier part of this order, direct exclusion of Wipro BPO Solutions Ltd. 64. On functional comparability, the assessee seeks exclusion of 3 companies viz., Vishal Information Technologies Ltd., Nucleus Netsoft and GIS Ltd., and Maple e-Solutions Ltd. As far as exclusion of Vishal Information Technologies Ltd., is concerned, learned Counsel for the assessee placed reliance on the decision of the ITAT, Bengaluru Bench, rendered in the case of 24/7 Customer.com Pvt. Ltd., rendered for Assessment Year 2004-05, [2012] 28 taxmann.com 258 (Bengaluru Tribunal). Vide paragraph 17.3 of the aforesaid order, the Tribunal held that this company was outsourcing its work and therefore cannot be regarded as a comparable company. Parties stated before us that the factual position is identical in Assessment Year 2005-06 and therefore following the aforesaid decision, we direct exclusion of Vishal Information Technologies Ltd. As far as Nucleus Netsoft and GIS Ltd., and Maple e-Solutions Ltd., is concerned, the learned Counsel for the assessee has brought to our notice decision of the ITAT, Bengaluru Bench, in the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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