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TMI Blog2019 (6) TMI 1673X X X X Extracts X X X X X X X X Extracts X X X X ..... mit. We, therefore, direct the AO to re-compute ALP by excluding above six companies from the list of comparable companies by applying the turnover filter. No other arguments were advanced on the determination of ALP. - ITA No. 3171/Bang/2018 - - - Dated:- 28-6-2019 - N.V. VASUDEVAN, VICE PRESIDENT AND B.R. BASKARAN, MEMBER (A) For the Appellant : K.R. Girish, CA For the Respondent : Arun Kumar, CIT ORDER N.V. Vasudevan, Vice President 1. ITA No. 3171/Bang/2018 is an appeal by the Assessee against the final order of assessment dated 28.9.2018 passed by the Deputy Commissioner of Income Tax, Circle-3(1)(2), Bangalore u/s. 143 r.w.s. 144C(13) of the Income-tax Act 1961 (the Act) for the asst. year 2014-15. 2. The only issue that arises for in the appeal by the Assessee is with regard to determination of Arm's Length Price (ALP) in respect of an international transaction of rendering Software Development services (SWD services) by the Assessee to its Associated Enterprise (AE). It is not in dispute that the transaction of rendering of software development services by the Assessee to its AE was an international transaction and in view of the prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3,64,619 89,741 2 4.61% 3 Mindtree Ltd. 2,99,010 2,48,290 5,072 20.43% 4 Persistent Systems Ltd. 1,18,412 87,649 3,07,625 35.10% 5 R S Software (India) Ltd. 35,188 28,321 6,867 24.25% 6 Cigniti Technologies Ltd. 5,563 4,359 1,204 27.62% 7 S Q S India B F S 20,061 16,394 3,667 22.37% 8 Thirdware Solution Ltd. 19,883 13,742 6,140 44.68% Average 29.40% 5. The TPO computed the addition to be made to the total income on account of determination ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eferred the present appeal before the Tribunal. It is undisputed that the turnover of these 6 companies are above Rs. 200 Crores. 10. The learned counsel for the Assessee submitted that the AO applied lower turnover filter of Rs. 1 Crore and rejected companies with turnover of less than Rs. 1 crore from the list of comparable companies and by the same logic he ought to have excluded companies with high turnover from the list of comparable companies (i.e., companies having turnover of Rs. 200 crores and above). 11. As far as the application of turnover filter is concerned, the first objection of the ld. DR was that turnover cannot be a relevant criterion in choosing comparable companies and in this regard placed reliance on the decision of the Hon'ble High Court in the case of Chrys Capital Ltd., 82 Taxmann.com 167 (Del). The learned counsel for the Assessee however pointed out that similar objection was raised by the Revenue in one of the case decided by this Tribunal in Autodesk India Pvt. Ltd. Vs. DCIT (2018) 96 taxmann.com 263(Bangalore-Trib.) and relied on the said decision. 12. We find that various aspects of application of turnover filter, was considered by this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reason why there should not be an upper limit also, as size matters in business. 17.1. The learned DR submitted that high turnover is not a relevant criterion to regard a company as not comparable, so long as the two companies are functionally comparable. If functions by two companies are identical then they have to be regarded as comparable. According to him therefore the CIT(A) was not justified in excluding 5 companies on the ground that their turnover was above Rs. 200 Crores and cannot be compared with the Assessee whose turnover was around Rs. 10.65 Crores. In support of his contention the learned DR placed reliance on the following decisions: Sl. No. Name of the case Citation Relevant paragraph 1. M/s. NTT DATA Global Delivery Services Ltd. Vs. ACIT IT(TP)A No. 1487/Bang/2013 AY 2005-06 order dated 6.4.2016 23 24 2. LSI Technologies India Pvt. Ltd. Vs. The ITO IT(TP)A. Nos. 1380 1381/Bang/2010, AY 2006-07 order dated 13.5.2016 14.3 3. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es, 1962 (Rules) it is only functions performed, assets employed and the risks assumed that are relevant criteria for comparison and turnover is not a prescribed criterion for the purpose or comparison. He fairly admitted that there are differences of opinion amongst various benches of the Tribunal on the application of turnover filter and that some Benches have held that high turnover was relevant criteria for excluding comparable companies. His prayer in the alternative was for constitution of a special bench to resolve the conflict. 17.3. Per Contra the learned counsel for the Assessee submitted that ITAT Bangalore Bench in the case of Dell International Services India (P) Ltd. Vs. DCIT (2018) 89 Taxmann.com 44 (Bang-Trib) order dated 13.10.2017, considered the various aspects of application of turnover filter for excluding companies and has noted that the first decision rendered on application of this filter was in the case of Genisys Integrating Systems (I)(P) Ltd. Vs. DCIT (2010) 20 taxmann.com 715 rendered on 5.8.2011. In the case of Dell International (supra), the tribunal took note of a divergent view expressed by ITAT Bangalore Bench in the case of Robert Bosch Enginee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ract 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, the turnover also would come down reducing profit margin. Thus, as held by the various benches of the Tribunal, when companies which are loss making are excluded from comparables, then the super profit making companies should also be excluded. For the purpose of classification of companies on the basis of net sales or turnover, we find that a reasonable classification has to be made. Dun Bradstreet Bradstreet and NASSCOM have given different ranges. Taking the Indian scenario into consideration, we feel that the classification made by Dun Bradstreet is more suitable and reasonable. In view of the same, we hold that the turnover filter is very important and the companies having a turnover of Rs. 1.00 crore to 200 crores have to be taken as a particular range and the assessee being in that range having turnover of 8.15 crores, the companies which also have turnover of 1.00 to 200.00 crores only should be taken into consideration for the purpose of making TP study. 42. The Assessee's turnover was around R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt in the case of Director of Settlements A.P. and others Vs. M.R. Apparao and another (2002) 4 SCC 638. Countering the submission of the learned DR that the decision of the Hon'ble Bombay High Court rendered in the case of Pentair (supra) is not ratio decidendi as it was merely dismissal of appeal u/s. 260A of the Act on the ground that no substantial question of law arose for consideration, learned counsel drew our attention to the decision of the Bombay High Court in the case of Pentair (supra) paragraph 9, wherein the Hon'ble Bombay High Court after referring to a decision of the Hon'ble Delhi High Court rendered in the case of CIT Vs. Agnity India Technologies (P) Ltd. (2013) 36 taxmann.com 289 (Delhi), clearly observed that turnover is obviously a relevant fact to consider the comparability. Our attention was also drawn to paragraph-3 of the decision rendered in the case of Pentair (supra) wherein the department specifically contended that the Tribunal erred in holding that size and turnover of a company are deciding factors for treating a company as comparable. According to him therefore it was not a case of merely dismissal of appeal u/s. 260A of the Act as un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and pronounced by judges of co-equal strength, then the earlier view has to be followed as the later decision has to be regarded as per incuriam. The Hon'ble Supreme Court in the case of Sundeep Kumar Bafna Vs. State of Maharashtra another (2014) 16 SCC 623 (at page-642 (Para-19) held that a decision or judgment can also be per incuriam if it is not possible to reconcile its ratio with that of a previously pronounced judgment of a Co-equal or Larger Bench and when High Courts encounter two or more mutually irreconcilable decisions of the Supreme Court cited at the Bar, the inviolable recourse is to apply the earliest view as the succeeding ones would fall in the category of per incuriam. The following were the relevant observations of the Hon'ble Supreme Court: 19. It cannot be over-emphasised that the discipline demanded by a precedent or the disqualification or diminution of a decision on the application of the per incuriam rule is of great importance, since without it, certainty of law, consistency of rulings and comity of Courts would become a costly casualty. A decision or judgment can be per incuriam any provision in a statute, rule or regulation, which was not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... parable companies chosen by the TPO on the basis that the 5 companies turnover was much higher compared to that the Assessee. 17.8. In view of the above conclusion, there may not be any necessity to examine as to whether the decision rendered in the case of Genisys Integrating (supra) by the ITAT Bangalore Bench 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 incuriam as these decisions ignore a binding co-ordinate bench decision. In this regard the decisions referred to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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