TMI Blog2024 (2) TMI 273X X X X Extracts X X X X X X X X Extracts X X X X ..... he Respondent : Shri. G. Manoj Kumar, CIT(DR)(ITAT), Bengaluru ORDER Per George George K, Vice President: This appeal at the instance of assessee is directed against the Final Assessment Order dated 12.04.2021, passed under section 143(3) r.w.s. 144C of the Income Tax Act, 1961 (hereinafter called the Act ). The relevant Assessment Year is 2016-17. 2. Brief facts of the case are as follows: Assessee is a private limited company incorporated on 12.01.2006. It is a subsidiary of Marvel International Ltd., Bermuda (MIL). Assessee is engaged in the provision of design and development of software. For the Assessment Year 2016-17, the return of income was filed on 30.11.2016 declaring total income of Rs. 20,86,89,460/-. The return of income was selected for scrutiny and notice under section 143(2) of the Act was issued on 30.07.2017. During the course of assessment proceedings, it was noticed that assessee had entered into international transaction with its Associate Enterprises (AE) amounting to Rs. 131,11,86,107/-. The case was referred by the AO to the TPO to determine the Arm s Length Price (ALP) of international transaction undertaken by assessee with its AE ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tribunal had remanded the matter to the Transfer Pricing Officer (TPO) directing him to exclude companies having more than Rs. 200 Crores while recomputing the ALP of the international transaction in the software development segment. Therefore, it was contended that the issue raised in ground No.6 in the instant case is squarely covered in favour of the assessee by the order of the Tribunal in assessee s own case for Assessment Year 2015-16 (supra). As regards the other grounds, the learned AR submitted that the same may be left open since if the aforesaid 8 comparables are excluded from the list, the ALP would be within the arm s length margin. 6. The learned DR supported the orders of the TPO/DRP. 7. We have heard the rival submissions and perused the material on record. The limited contention of the assessee is only for adjudication of ground No.6 referred supra. The assessee submits that the turnover of the assessee is only Rs. 124 Crores during the relevant previous year, hence, companies having turnover of more than Rs. 200 Crores needs to be excluded from the comparable list while calculating the ALP of the said international transaction. We find that identical issue w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t observation of the Hon'ble ITAT is as under:- 8. As far as Ground No. 8.7 is concerned, 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 into with an associated enterprise is computed in relation to costs incurred or sales effected or assets employed or to be employed by the enterprise or having regard to any other relevant base; (ii) the net profit margin realised by the enterprise or by an unrelated enterprise from a comparable uncontrolled transactio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch transactions in the open market; or (ii) reasonably accurate adjustments can be made to eliminate the material effects of such differences. 10. 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. 11. 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 of this guidance was approved by the Council of the OECD on 22 July 2010. In paragraph 2 of these guidelines it has been explained as to what is comparability adjustment. The guideline explains that when applying the arm s length principle, the conditions of a controlled tran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isions 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 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere are two views expressed by two Hon ble High Courts of Bombay and Delhi and both are nonjurisdictional 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 (Bangalore-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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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