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TMI Blog2019 (7) TMI 1077X X X X Extracts X X X X X X X X Extracts X X X X ..... ). Therefore, we are of the considered view that this is not an issue for adjudication since no where it was considered by the Revenue Authorities in their respective orders and therefore, inclusion of this part in the ground of appeal is infructuous. Ground No.1 of Revenue s appeal is dismissed. Exclude of certain comparables - alleged that excluded only on the ground of higher turnover and without analyzing the FAR of the comparables - HELD THAT:- In our considered view on perusal of the relevant findings of the Ld. CIT(Appeals), apart from considering the turnover, has also looked into various other factors. He had considered that the size of the company makes difference in undertaking risks. Bigger sized company is in a position to undertake more risks in the business as compared to the smaller sized companies. The size of the company can be categorized either on the basis of the capital or asset or on the basis of turnover. CIT(Appeals) has also referred to Para 3.43 of the OECD Guidelines mentioning size in terms of sales as one of the comparability criteria. In this regard, reference was also made to Rule 10TD of the Income Tax Rules which provide higher profitability ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. CIT(Appeals). In view of the aforesaid submissions made by the Ld. AR, we proceed to first adjudicate the issues in the Revenue s appeal. ITA No.117/PUN/2017 ( By Revenue) A.Y.2011-12 3. The first ground of Revenue s appeal is with regard to that the Ld. CIT(Appeals) had directed to include the company Maveric Systems Ltd in the final list of comparables with that of the assessee. The Transfer Pricing Officer had rejected the company Maveric Systems Ltd. , as stated in this ground of appeal by the Revenue, on account of extraordinary events and also failed the filter export to sales filter of 75%. 4. The facts on record demonstrates that the Transfer Pricing Officer had rejected the comparable company selected by the assessee, Maveric Systems Ltd. , on the ground that it is a loss making company for financial year 2010-11 and that it has incurred extra-ordinary cost during the year under consideration. That before the Ld. CIT(Appeals), the assessee had filed detailed written submissions stating that the said comparable company i.e. Maveric Systems Ltd. was consistently making profits in the past years. Thus, it is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hould not be a reason to exclude the company from the final list of comparables. In view of this observation, the Ld. CIT(Appeals) directed the Assessing Officer/Transfer Pricing Officer to include this company i.e. Maveric Systems Ltd. in the final list of comparables company with that of the assessee. 5. We have perused the case records and analyzed the facts and circumstances while providing considerable thought to the relevant documents on record. The rejection by the Transfer Pricing Officer of Maveric Systems Ltd. as comparable to that with the assessee on the ground that it was consistently loss making company, is not correct, since as per tabulation on record, the company had been earning profit and at the same time, the Transfer Pricing Officer relying on the Director s Report had stated that Maveric Systems Ltd has incurred extra ordinary cost. However, on perusal of the Director s Report of the said company, no categorical/specific finding is there that extra ordinary cost has been incurred by this company. The Ld. CIT(Appeals) also has given findings perusing all the relevant factors/criterias and we do not find any infirmity in his order. Therefo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ces; - Infosys has earned abnormal profit for tile year (i.e. 43.53%) which cannot be considered as comparable; - In view of the above, Infosys cannot be considered as comparable in case of the assessee company 8. The Ld. CIT(Appeals) on the issue has held and observed as follows: 2.3.4.2 I find that the learned TPO has not applied the upper turnover filter presumably following the decisions of the honourable Tribunal which have held that the turnover filter is of no relevance in the software industry and there is no relationship of the turnover with the profit of the company as the company with lower turnover has also earned higher profit than the company with higher turnover. I agree with the view that turnover may not be a factor in a service industry, however, according to me size of company makes difference in undertaking risks. Bigger sized company is in a position to undertake more risks in the business as compared to the smaller sized companies. The size of the company can be categorized either on the basis of the capital or asset or on the basis of turnover. Para 3.43 of the OECD Guidelines mention ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... learned AO to exclude IGate Global Solutions Ltd. from the list of the comparable companies. C. Larsen and Toubro Infotech Limited : Against the selection of Larsen and Toubro Infotech Limited, the assessee has submitted before the Ld. CIT(Appeals) as under : - L T has significantly huge ( i.e.100 times higher) turnover of ₹ 2,331 Crores as compared to the turnover of the assessee as ₹ 21 Crores - L T is giant company and have developed huge brand value, assets and net-worth over the years of its operations. - L T owns significant intangible assets ( trademarks etc.) as compared to the assessee who does not own any tangible assets; - L T has incurred huge expenditure on R D, Marketing and adverting as compared to Assessee who does not undertake any R D and also does not undertake any advertising and marketing; - L T has revenue from software development services as well as software products, however, break up of revenue from respective income stream or segmental data is not available. - In view of the above, L T cannot be co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for each of the five comparables that had been directed by the First Appellate Authority to be excluded from the final set of comparable companies with regard to the assessee. It is contented by the Revenue that such decision by the Ld. CIT(Appeals) has been made on the ground of higher turnover. However, in our considered view on perusal of the relevant findings of the Ld. CIT(Appeals), apart from considering the turnover, has also looked into various other factors. He had considered that the size of the company makes difference in undertaking risks. Bigger sized company is in a position to undertake more risks in the business as compared to the smaller sized companies. The size of the company can be categorized either on the basis of the capital or asset or on the basis of turnover. The Ld. CIT(Appeals) has also referred to Para 3.43 of the OECD Guidelines mentioning size in terms of sales as one of the comparability criteria. In this regard, reference was also made to Rule 10TD of the Income Tax Rules which provide higher profitability for the companies having turnover of more than ₹ 500 Cr. So while considering size of the company, its capacity of risk ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Cost to sale ratio is much lower than the assessee company - E-infochips has earned abnormal profit for the year under consideration (i.e. 56.44%) which cannot be considered as comparable. In fact, there was extra-ordinary fluctuation in profit margins over years from loss of (-) 14.33% in 2008-09 to super profit of 56.44% in 2010-11. - In view of the above E-infochips cannot be considered as comparable in the case of the assessee company. 18. The Ld. CIT(Appeals) after considering the submissions of the assessee has observed that the said company has provided the following information in Para 12 of the Notes to Accounts in the Annual Report regarding information about Primary Segments: The company is primarily engaged in Software Development and IT enabled Servies which is considered the only reportable business segment as per Accounting Standard-AS-17 Segment Reporting mandatory Accounting Standards prescribed in Companies ( Accounting Standard) Rules, 2006 and the relevant provisions of Companies Act, 1956. The Ld. CIT(Appeals) after considering the facts of the case and Annual r ..... X X X X Extracts X X X X X X X X Extracts X X X X
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