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TMI Blog2019 (1) TMI 1194X X X X Extracts X X X X X X X X Extracts X X X X ..... it of turnover filter from less than 1 crore to less than 5 crore. TPO rejected companies which are making losses as comparables. This shows that there is a limit for lower end for identifying comparables. In such a situation, we are unable to understand as to why there should not be an upper limit also. What should be an appropriate upper limit is another factor to be considered. Big company would be in a position to bargain price and also attract more customers. It would also have a broad base of skilled employees who are able to give better output. A small company may not have these benefits and therefore, turnover also would come down reducing profit margin. Thus, as held by various benches of this Tribunal, when companies which are loss making are excluded from comparables, then super profit making companies should also be excluded. Thus in present case, rage of 1 crores to 200 crores would be ideal. For purposes of classification of companies on the basis of net sales or turnover, we find that a reasonable classification has to be made. In our opinion companies with revenues less than 75% from software development services would be ideal to be excluded, as economic c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tances of the case by erroneously computing related party transactions of companies selected by him 9. The Ld. Transfer Pricing Officer has erred in laws and facts of the case by ignoring Functions, Assets and Risk Profile of companies selected by Ld.TPO comparables and that of Appellant. 10. The Ld. Transfer Pricing Officer has erred in laws and facts of the case by ignoring the differences between risk profile of Appellant and companies selected by him as comparables and denying adjustment on account of such differences in risk profiles. 11. The Ld. Transfer Pricing Officer has erred in laws and facts of the case by ignoring the differences between working capital requirements of Appellant and companies selected by him as comparables and denying adjustment on account of such differences in working capital requirements 12. The above grounds are without prejudice to each other. 13. The appellant may be allowed to add/amend/withdraw any grounds at the time of hearing. 2. Brief facts of the case are as under: Assessee filed its return of income on 12/10/10 declaring total income of ₹ 4,57,361/-. Case was selected for scrutiny and notice u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4. Laser Soft Infosystems Ltd. 14.56% 24.29% Laser Soft Infosystems Ltd. 34.02% Average 11.11% 2.3 Ld. TPO rejected 3 comparables, by using various filters and selected a set of following 11 comparables including one from assessee s set with an average margin of 20.33%. S. No. Comparables OP/OC (margin) 1. Evoke Technologies Pvt. Ltd. 18.56% 2. L T Infotech Ltd. 19.06% 3. Mindtree Ltd. (Segment) 13.92% 4. Sasken Communication Technologies Ltd. 17.54% 5. Persistent Systems Limited 29.02% 6. Sonata Software 35.87% 7. Thinksoft Global Sesrvices Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ibution channels for delivering products to customers. It also involves marketing and advertising of products/services for business and promotion of brand name in market, which is carried out by Intertech alone. Further Intertech also takes up marketing and promotion activities of products developed by assessee whereas, assessee is involved in marketing sales and distribution of the same only. 6.3 Assessee also carries out accounting, administration, human resource management to manage the office and assignments. Assets: 7. Assessee owns normal routine assets like computers officer except at equipments furniture fittings vehicles software etc it does not own any intangibles and non-routine that assets and does not own any trade secrets or undertake research and development activities on its own account, that would lead to development of non-routine intangibles. Risks: 8. Assessee experiences moderate market risk low product liability risk locus, credit risk high foreign exchange risk and nil on inventory risk. 9. Ld. Counsel submitted that Ground No. 1-3 are general in nature and therefore do not require any adjudication. Accordingly the same are dism ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year data, unless it is shown by assessee that such earlier years data has an influence in determining transfer price and that, use of earlier year data is in addition to current year data. Ld.TPO rejected company, where current year data was not available and assessee had sought to rely upon preceding two years data, which in our considered opinion is appropriate as assessee has not been able to establish what is required under rule 10 B (4) of Income Tax Rules 1963. 18. Next filter that has been modified by Ld.TPO is in respect of turnover. Assessee had included companies with an average sales of less than 1 crore during the year and companies with more than 50 crores were rejected. Ld.TPO observed that companies whose income is less than 5 crore would be appropriate as otherwise analysis may not lead to proper compatibility. It is observed that Ld.TPO modified lower limit of turnover filter from less than 1 crore to less than 5 crore. 19. We have also observed that Ld.TPO rejected companies which are making losses as comparables. This shows that there is a limit for lower end for identifying comparables. In such a situation, we are unable to understand as to why there shou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... parables selected by assessee has been rejected as these fail revenue s filters. However no FAR analysis has been conducted by Ld.TPO in respect of comparables that has been rejected. 21. Comparables alleged for exclusion: 1. Evoke Technologies Pvt. Ltd. 21.1 Ld. Counsel submitted that this comparable selected by Ld.TPO is functionally dissimilar with that of assessee, as it provides services relating to ITeS and not into rendering of software development services like that of assessee. 21.2 On the other hand, Ld. DR submitted that this company has revenue from software development charges and its website reveals company to be providing quality software services to its clients. 21.3 We have perused submissions of both sides in light of records placed before us. Audited account for relevant year of this comparable is placed at page 402-416 of paper book volume 2. It is observed that revenue earned by this company is from software development charges. We are therefore not inclined to accept argument advanced by Ld. Counsel that this company is performing IT enabled services. Assessee has not been able to point out any difference in functions performed by this compan ..... X X X X Extracts X X X X X X X X Extracts X X X X
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