2019 (10) TMI 1491 - AT - Income Tax

TP Adjustment - Comparable selection - HELD THAT - We have noticed that the turnover of the assessee herein for the year under consideration was 13.97 crores and hence it falls under the category of 1 - 200 crores as per Dun and Bradstreet s analysis. Hence the assessee should be compared with the companies having turnover in the above said range as per the decision rendered by the co-ordinate bench in the case of Genesis Integrating Systems India P Ltd. 2011 (8) TMI 952 - ITAT BANGALORE . Since the turnover of following companies are more than 200 crores they are liable to be excluded under turnover filter Infosys Ltd Larsen Toubro Infotech Ltd Mindtree Ltd Sasken Communication Technologies Persistent Systems Ltd and Tata Elxsi (seg) Al following the decision of the co-ordinate bench rendered in the case of Electronics for Imaging India P Ltd. 2016 (2) TMI 1123 - ITAT BANGALORE we direct the AO/TPO to exclude above said two companies ICRA Techno Analytics Ltd and KALS INFORMATION SYSTEMS Ltd also. Determining the ALP - We direct the AO to compute margins by taking foreign exchange fluctuations gains/loss as part of operating income both in the case of the assessee and comparable companies.

Summary

Issues:
Transfer Pricing Adjustment

Analysis:
The assessee appealed against the assessment order passed by the AO under section 143(3) r.w.s. 144C(13) of the Act for the assessment year 2010-11, focusing on the Transfer Pricing adjustment of ?1,08,58,381. The assessee, a 100% export-oriented unit providing Software Development services to its Associated Enterprises, faced a Transfer Pricing adjustment only on the income from Software development Services. The assessee adopted the TNMM as the most appropriate method with the PLI as Operating Profit/Operating Cost. The TPO selected eleven comparable companies with an average margin of 22.71%, proposing the Transfer pricing adjustment. The DRP confirmed the selection of comparable companies by the TPO.

Regarding the turnover filter, the assessee argued that it falls under the 1-200 crores category, citing relevant case laws. The assessee contended that companies with turnovers exceeding 200 crores should be excluded. The Tribunal agreed with the assessee, directing the AO/TPO to exclude companies with turnovers exceeding 200 crores. Additionally, companies functionally not comparable were to be excluded as per the decision in another case. The Tribunal upheld the exclusion of companies based on turnover and functional comparability criteria.

The Ld. A.R. also raised the issue of foreign exchange fluctuation, urging compliance with the DRP's directions. The Tribunal found merit in the request, directing the AO to consider foreign exchange fluctuations in determining the ALP for both the assessee and comparable companies. Consequently, the appeal of the assessee was allowed, and the order was pronounced on 25th October 2019.