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TMI Blog2020 (2) TMI 1279X X X X Extracts X X X X X X X X Extracts X X X X ..... IT(TP)A.No.1410/Bang/2015 is an appeal by the Assessee while IT(TP)A.No.1520/Bang/2015 is an appeal by the Revenue. Both these appeals are directed against the final order of assessment dated 26.10.2015 of the ITO Ward 2 (1)(2), Bangalore now assessed with Deputy Commissioner of Income Tax, Circle-2(1)(1), Bangalore, passed u/s. 143(3) r.w.s. 144C of the Income-Tax Act, 1961 [ the Act ] in relation to AY 2011-12. 2. The Assessee is engaged in providing software development services (SWD services) to its Associated Enterprises (AE). The transaction of providing SWD services to its AE by the Assessee was an international transaction and the price received for rendering such services by the Assessee from its AE has to pass the Arm s Length Price (ALP) test as provided u/s.92 of the Income Tax Act, 1961 (Act). In this appeal the disputes is with regard to addition made consequent to determination of ALP and consequent upward revision and adjustment made to the price at which international transaction was carried out by the Assessee with its AE in respect of Software development Services(SWD services). TP ADJUSTMENT RELATING TO IT SERVICES (Software Development Services: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sasken Communication Technologies Ltd., 24.13 13 Tata Elxsi Ltd.(seg) 20.91 AVERAGE MARK-UP 24.82 Determination of ALP: Arm s Length Mean Margin on cost 24.82% Less: working capital Adjustment -0.48% (As per Annex -C) Adjusted margin 25.30% Operating cost ₹ 23,93,94,023/- Arms Length Price (ALP) ₹ 29,99,60,711/- 125.30% of Operating cost) Price Receive Price Received ₹ 27,41,16,163 Shortfall bei Shortfall being adjustment u/s. 92CA ₹ 2,58,44,548 5. The Assessee objected to the manner of determination of ALP by the TPO before the DRP. The DRP excluded some of the comparable companies chosen by the TPO and also held that foreign exchange gain has to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lied on the order of the DRP. 8. We are of the view that the reasons for exclusion of this company are not sound. When both the Assessee and the revenue seek inclusion of this company, there was no valid basis for the DRP to suo motto exclude this company from the list of comparable companies. In the decision cited by the learned counsel for the Assessee in the case of a SWD service provider such as the Assessee, this company was held to be a valid comparable company and included in the list of comparable companies. We therefore direct inclusion of this company in the list of comparable companies. 9. By way of additional ground No. 16, the Assessee has sought exclusion of the following three companies from the list of comparable companies viz., Larsen Toubro Infotech Ltd., Persisten Systems Ltd., and Sasken Communication Technologies Ltd. Before we deal with exclusion of these 6 companies, we have to mention that the Assessee has in its Transfer Pricing study chosen Larsen Toubro Infotech Ltd., Persistent Systems Ltd., and Sasken Communication Technologies Ltd., as comparable companies. Further the Assessee has not chosen to challenge inclusion of these companies in the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arables in the TP study would not be considered as estoppel for raising an objection by the assessee for exclusion of such company for the purpose of determination of ALP. We therefore accept the plea of the Assessee, for admission of exclusion of the aforesaid three companies. 11. As far as exclusion of the aforesaid three companies from the list of comparable companies is concerned, the plea of the Assessee was that these three companies have turnover of more than ₹ 200 Crores (Larsen Toubro Infotech Ltd. ₹ 2,331 Crores; Persistent Systems Ltd. ₹ 610.12 Crores and Sasken Communication Technologies Ltd. ₹ 394.19 Crores). The Assessee s turnover is only ₹ 27.50 crores and thereby the aforesaid three companies cannot be considered as comparable to the Assessee. The learned DR submitted that turnover is not material if the companies are functionally comparable. 12. We have heard the rival submissions. As far as ground No.2 raised by the Revenue is concerned the question boils down on application of turnover filter in choosing comparable companies. 13. As far as excluding the companies on the basis of turnover is concerned, the issue has been s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ench should continue to be followed. Since arguments were advanced on the correctness of the decisions rendered by the ITAT Mumbai and Bangalore Benches taking a view contrary to that taken in the case of Genisys Integrating (supra), we proceed to examine the said issue also. On this issue, the first aspect which we notice is that the decision rendered in the case of Genisys Integrating (supra) was the earliest decision rendered on the issue of comparability of companies on the basis of turnover in Transfer Pricing cases. The decision was rendered as early as 5.8.2011. The decisions rendered by the ITAT Mumbai Benches cited by the learned DR before us in the case of Willis Processing Services (supra) and Capegemini India Pvt.Ltd. (supra) are to be regarded as per incurium as these decisions ignore a binding co-ordinate bench decision. In this regard the decisions referred to by the learned counsel for the Assessee 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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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