TMI Blog2023 (3) TMI 459X X X X Extracts X X X X X X X X Extracts X X X X ..... nt order dated 29.01.2016 passed u/s 143(3) r.w.s. 144C(13) of the I.T.Act. The relevant assessment year is 2011-2012. 2. The brief facts of the case are as follows: The assessee is a company incorporated under the Companies Act, 1956. The assessee is engaged in providing software development services to its group companies as well as third parties. For the assessment year 2011-2012, the return of income was filed on 30.11.2011 declaring gross total income of Rs.3,84,96,686. The assessment was selected for scrutiny and notice u/s 143(2) of the I.T.Act was issued on 10.09.2012. During the course of scrutiny assessment, the A.O. referred the matter to the Transfer Pricing Officer (TPO) to determine Arm s Length Price (ALP) of the international transactions undertaken by the assessee with its Associated Enterprises (AEs). The TPO vide order dated 30.01.2015 passed u/s 92CA of the I.T.Act, proposed the TP adjustment of Rs.18,10,43,171. Pursuant to the TPO s order, the draft assessment order was passed, incorporating the above TP adjustment as well as certain corporate tax additions. 3. Aggrieved, the assessee filed objections before the Dispute Resolution Panel (DRP). The DRP ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ute Resolution Panel are opposed to law and facts of the case. II. The ld.Hon ble DRP erred in holding that the size and turnover of the company are deciding factors for treating a company as a comparable and accordingly erred in excluding the comparables in software development segment. III. The Ld.DRP erred in excluding uncontrolled comparables having turnover more than Rs.2000 crores in the absence of turnover criterion prescribed in Rule 10B of the Income Tax Rules and also there being no correlation between turnover and profit margin. IV. For these and other grounds that may be urged at the time of hearing, it is prayed that the directions of the Dispute Resolution Panel in so far as it relates to the above grounds may be reversed. V. The appellant craves leave to add, alter, amend and / or delete any of the grounds mentioned above. 5. The learned Departmental Representative relied on the grounds and submitted that the multiple of 10 times of the turnover should be adopted while adopting the turnover filter. 6. The learned AR, on the other hand, relied on the directions of the DRP and also the order of the Tribunal in the case of Northern Opera ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er range of Rs.l Crore to Rs.200 Crores should be taken into consideration for the T.P. study in the case of small size companies and turnover range of 200 Crore to 2000 Crore should be taken for the medium size company. In Genisys Integrating Systems Vs. DCIT (15 ITR (Trib) 475), the Bench observed that the application of the turnover filter by the TPO has no rational basis. The turnover range of Rs.l Crore to infinite was not a reasonable classification as turnover base. The Transfer Pricing Officer himself having rejected loss making companies as comparable , there should also be an upper limit. A big company would be in a position to bargain the price and attract more customers. It would also have a broad base of skilled employees able to give better output. A small company may not have these benefits and therefore, the turnover would also come down reducing the profit margin. Thus, for the purpose of classification of companies on the basis of net sales or turnover, a reasonable classification has to be made. The turnover filter is important and the assessee being in that range having turnover of Rs.290.45 Crores companies having a turnover of Rs.200 Crore to Rs.2000 Crores ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9. Mindtree Ltd. (seg.) 5,653,000,000 5,10,39,05,999 10.76% 10 iGate Global Solutions Ltd. 11,845,540,000 9,47,11,65,000 25.07% He submitted that if such criterion is applied, then that would be the proper basis for excluding companies for the purpose of comparability based on turnover. 16. The ld. Counsel for the assessee, on the other hand, submitted that the Hon ble High Court of Karnataka in the case of Acusis Software (I) P. Ltd. (supra) merely dismissed the appeal of assessee on the ground that no substantial question of law arises for consideration. In particular, he drew our attention to the following paragraphs of the judgment of Hon ble High Court:- 14. The findings of the learned Tribunal as regards the comparable namely, Mercury Outsourcing Management Ltd., which too have been excluded by the Tribunal are quoted below for ready reference:- (ii) Mercury Outsourcing Management Ltd. 13.1 The learned Authorised Representative has submitted that the TPO has rejected this company o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. as a comparable company. It is in that context that the aforesaid decision was rendered by the Hon ble High Court. He pointed out that the Tribunal in excluding Mercury Outsourcing Management Ltd., had taken a view that its turnover was small compared to the assessee s turnover and therefore not comparable, even if the tolerance range of turnover of 10 times on both the sides of assessee s turnover is applied. There is no positive finding by the Tribunal that the company can be excluded for the purpose of comparability on the basis of turnover, only if the turnover is 10 times on both the sides of assessee s turnover. On the conclusions of the Tribunal, the Hon ble High Court only held that it is reasonable and deserves to be accepted. In para 16, the Hon ble High Court has clearly observed that the decisions rendered in other cases referred to by the ld. Counsel for the assessee would not render the findings of the Tribunal in the case before the High Court as negatory or perverse for the reason that analysing of the comparables may be in a different context. The same need not be blindly or generally adopted in all the cases, irrespective of the context or circumstances calling ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ceed to examine the said issue also. On this issue, the first aspect which we notice is that the decision rendered in the case of Genisys Integrating (supra) was the earliest decision rendered on the issue of comparability of companies on the basis of turnover in Transfer Pricing cases. The decision was rendered as early as 5.8.2011. The decisions rendered by the ITAT Mumbai Benches cited by the learned DR before us in the case of Willis Processing Services (supra) and Capegemini 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 tha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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