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TMI Blog2014 (4) TMI 72X X X X Extracts X X X X X X X X Extracts X X X X ..... er the terms and conditions enumerated in the agreement between the parties. For the assessment year under dispute, the assessee filed its return of income on 31/10/2007 declaring total income of Rs. 1,92,500/- after claiming deduction u/s 10A of the Act. During the FY relevant to AY under dispute, the assessee had entered into international transactions with its AE worth Rs. 20,90,12,312/-. The assessee adopted the Cost Plus Method (CPM) for computing arm's length price for its international transactions. In course of scrutiny assessment proceeding, the Assessing Officer noticing that the assessee has entered into international transactions with its AE, made a reference u/s 92CA(2) of the Act to the Additional Commissioner of Income-tax/Transfer Pricing Officer (hereinafter called 'TPO') for determining ALP. 3. In course of proceeding, the TPO called upon the assessee to produce all the documents, which was complied by the assessee. The TPO after verifying the TP study and other documents submitted by the assessee did not accept the CPM adopted by the assessee. The TPO was of the view that Transactional Net Margin Method (TNMM) is the most appropriate method for determining ALP i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee for the AY 2005-06 and 2006-07. 8. So far as the third issue relating to application of turnover filter is concerned, the learned AR submitted that the scale of operations is a determining factor for deciding whether a particular company is comparable or not. He submitted that a company with small turnover cannot be compared with a company with large turnover. He further submitted that the tribunal in assessee's own case for the AY 2005-06 and 2006-07 vide order dt. 15/01/2013 (supra) have accepted that turnover filter is a relevant filter for selecting comparables. In this context he drew our attention to the finding of the Tribunal in para 11 and 12 of the order passed for the assessment years 2005-06 and 2006-07 a copy of which is at page 170 of the paper book. The learned AR also relied upon a decision of the Hon'ble Delhi High Court in case of CIT v. Agnity India Technologies (P.) Ltd. to contend that big companies like Infosys, Satyam and Wipro cannot be treated as comparable with the assessee. 9. With regard to the risk filter, the learned AR submitted that the assessee is not exposed to any risk. Referring to the FAR analysis at pages 68 and 69 of the paper book, he su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bench has rejected such contention of the assessee in para 25 of the said order, which is as follows: "25. We have heard rival submissions and perused the materials on record. We have also examined the decisions relied upon by the assessee. Our finding on the issue is though it is a fact that assessee's income is exempt u/s 10A of the Act but that does not necessarily mean that the Assessing Officer has to prove the shifting of profits by the assessee to its AE before applying Transfer Pricing Provision. The Hon'ble P & H High Court in the case of Coca Cola India Inc v. ACIT (309 ITR page 14) while considering somewhat similar issue held in the following manner:- "We do not find any ambiguity or absurd consequence of application of Chapter-X to persons who are subject to jurisdiction of taxing authorities in India nor we find any statutory requirement of establishing that there is transfer of profit outside India or that there is evasion of tax. Only condition precedent for invoking provisions of Chapter X is that there should be income arising from International transaction and such income is to be compute ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 006-07 (supra), which fact has been accepted by the learned AR. Accordingly, following our earlier order we hold that TNMM is the most appropriate method to determine the ALP. 17. As regards the third issue pertaining to Turnover Filter, we find that the Tribunal in assessee's own case for AY 2005-06 and 2006-07 (supra) has accepted turnover filter as a relevant factor following the decision of the ITAT, Hyderabad Bench in case of Dy. CIT v. Deloitte Consulting (61 DTR 101) The Hon'ble Delhi High Court has also upheld this view in case of Agnity India Technologies (P.) Ltd. (supra), a copy of which has been placed on record. We, therefore, remit this issue to the file of the AO for consideration afresh keeping in view our order dated 15/01/2013 in assessee's own case for the assessment years 2005-06 and 2006-07 as well as the decision of the Hon'ble Delhi High Court (supra). However, we would like to make it clear that while applying the turnover filter a fixed upper limit cannot be applied uniformly and across the board in all cases. The upper limit has to be fixed reasonably, keeping in view the turnover of the assessee in a given case. 18. As regards 4th issue relating to risk ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also stands on the same footing as relevant data/information are not available in respect of all the companies in the database. It is also a fact that though the TPO has himself not applied this filter by observing that the companies having onsite income of more than 75% cannot be treated as comparables but two of the companies i.e. M/s Foursoft Limited and Sankya Infotech Limited selected as comparables by the TPO were having onsite income/expenses of more than 75%. In this view of the matter, the CIT (A) was correct in holding that rejection of comparables selected by the assessee by applying this filter is not correct. We also fully subscribe to the view of the CIT (A) that loss making companies and companies having super normal profits cannot be considered as comparables in view of the ratio laid down in case of Mentor Graphics (Noida) (P. )Ltd. v. Dy. CIT [2007] 109 ITD 101 (Delhi) and Philips Software Centre (P.) Ltd. v. Asstt. CIT [2008] 26 SOT 226 (Bang.). In aforesaid view of the matter, the companies selected by the CIT (A) as comparables is rational and appropriate in the facts of the present case. We therefore uphold the order of the CIT (A) in directing the Assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X
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