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TMI Blog2022 (4) TMI 1483X X X X Extracts X X X X X X X X Extracts X X X X ..... No.652/Bang/2017 - - - Dated:- 4-4-2022 - SHRI N. V. VASUDEVAN, VICE PRESIDENT AND SHRI B. R. BASKARAN, ACCOUNTANT MEMBER Assessee by : Shri. Cherian K Baby, CA Revenue by : Shri. Sumer Singh Meena, CIT(DR)(ITAT), Bengaluru. ORDER Per N V Vasudevan, Vice President This is an appeal by the assessee against the final Order of Assessment dated 31.03.2016 passed by the DCIT, Circle 6(1)(1), Bengaluru, under section 143(3) r.w.s. 144C(13) of the Income Tax Act, 1961 (hereinafter called the the Act ), in relation to Assessment Year 2011-14. 2. The grounds of appeal raised by the assessee are as follows: 1. The Learned AO has grievously erred in not understanding the business of your appellant and has instead stated in the Assessment order that your appellant had undertaken international transactions with AEs in windmill parts like electrical panel and generators and therefore took approval from the Pr. CIT-6 for referring the case to the TPO. It is prayed that since the very basis for reference to the TPO itself is wrong, the TP proceedings should be quashed. 2. The Hon'ble DRP has erred in law and on facts in upholding the order of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ount. 9. For these and other grounds that may be adduced during the course of the proceedings, the order of the TPO to the extent upheld by the DRP be ordered to be modified to the extent appealed against. 3. The assessee is an Indian multinational company engaged in the export of standardized herbal extracts, fine chemicals, specialty chemicals, cosmeceuticals, phytonutrients and probiotics. The assessee has modern state-of -the art manufacturing facilities in and around Bengaluru (Kunigal, Nelamangala and Dobaspet) and Hyderabad. In this appeal, the first issue that has to be adjudicated is with regard to the determination of Arm s Length Price (ALP) in respect of international transaction of sale of herbal products by the assessee to its Associated Enterprise (AE), as required under section 92 of the Act. 4. The profit margin of the assessee was as follows: Profit and loss Re-conciliation of the Taxpayer for the Asst Year 2012-13 Particulars Amount Amount Total Operating Income 1,693,291,307 Less: Other Income 37, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0.23 0.18 2 Indo Amines 230.33 216.7 0 0 0 14.76 10.28 201.95 0.07 0.07 3 Rubamin 180.49 167.6 137.08 0 36.29 -11.95 18.67 179.58 -0.07 -0.07 4 AVT Natural Prod 218.25 218.2 0 0 213.37 84.59 78.38 133.6 0.63 0.39 Shilpa Medicare 285.03 279.8 276.7 0 227.92 64.7 62.73 215.06 0.3 0.23 Average 23% 16% 7. The TPO determined the ALP of the international transac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e case of the assessee for determination of ALP. This order of the Tribunal was also followed by the Tribunal in Assessment Year 2009-10 in IT(TP)A No.61/Bang/2014 order dated 23.11.2016. We therefore dismiss ground No.2 raised by the assessee. 11. As far as ground No.4 raised by the assessee is concerned, the factual details are that the assessee had transactions with AE as well nonAE. The profit analysis of AE and non-AE segments are as follows: Particulars As Per TPO (Rs.) . Actuals AE transactions (Rs.) Actuals Non AE transactions (Rs) Total (Rs.) Operating Revenue (OR) 1,66,24,14,824 1,48,53,58,693 17,70,56,132 1,66,24,14,825 Total Costs 1,60,23,91,453 1,34,66,66,351 16,90,81,114 Less: Non- operating costs to be excluded Donations 30,000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of AVT Natural Products Ltd., and Shilpa Medicare Ltd., as comparable companies. In this regard, we find that the TPO in selecting comparables has applied a filter of companies with turnover range of one Crore to 200 Crores for choosing comparable companies. The admitted position is that the turnover of both the aforesaid companies are more than 200 Crores which would be evident from the chart of comparables chosen by the TPO given in the earlier part of this order. This Tribunal has been consistently applying the turnover filter for the purpose of choosing comparable companies. 15. On the issue of application of turnover filter, we have heard the rival submissions. The parties relied on several decisions rendered on the above issue by the various decisions of the ITAT Bangalore Benches in favour of the Assessee and in favour of the Revenue, respectively. The 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, took note of the decision of the ITAT Bangalore Bench in the case of Sysarris Software Pvt.Ltd. Vs. DCIT (2016) 67 Taxmann.com 243 (Bangalore-Trib) wherein the Tribunal after ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 Rs.110 Crores. Therefore the action of the CIT(A) in directing TPO to exclude companies having turnover of more than Rs.200 crores as not comparable with the Assessee was justified. As rightly pointed out by the learned counsel for the Assessee, there are two views expressed by two Hon ble High Courts of Bombay and Delhi and both are nonjurisdictional High Courts. The view expressed by the Bombay High Court is in favour of the Assessee and therefore following the said view, the action of the CIT(A) excluding companies with turnover of above Rs.200 crores from the list of comparable companies is held to correct and such action does not call for any interference. 16. The Tribunal in the case of Autodesk In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se 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 in Willis Processing Services (supra) and have to be regarded as per incurium. These three decisions also place reliance on the decision of the Hon ble Delhi High Court in the case of Chriscapital Inv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The amount of Rs. 88,89,439/- is the adjustment u/s 92CA of the Income Tax Act, 1961 in respect of the International transaction for financial /corporate guarantee fee. 21. The DRP confirmed the order of the TPO. At the time of hearing, it was brought to our notice that in assessee s own case for Assessment Year 2011-12, this Tribunal directed that the percentage of guarantee commission should be 0.5%. Our attention was drawn to the decision of the Tribunal for Assessment Year 2009-10 in IT(TP)A No.61/Bang/2014, order dated 23.11.2016, in which the Tribunal held as follows: We have heard the learned A.R. as well as learned D.R. and considered the relevant material on record. The assessee has furnished corporate guarantee of Rs.40,50,89,250 to bankers on behalf of the AEs. Since the assessee has not charged any fees or commission for providing the corporate guarantee the TPO/A.O. has determined the arm's length fees at 3% and made the adjustment on account of commission for guarantee. It is pertinent to note that this Tribunal in a series of decisions has taken a consistent view that providing corporate guarantee falls in the ambit of international transactions as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mining arm's length price of such transaction. 25.2 Having considered the submissions of the parties, we are unable to accept the contention of the learned AR that corporate guarantee of the nature provided by the assessee will not come within the meaning of international transaction in terms with section 92B of the Act. It is not disputed that section 92B of the Act has been amended by the Finance Act, 2012 with the insertion of Explanation I (c) with retrospective effect from 01/04/2002. Explanation (i)(c) to section 92B, reads as under: capital financing, including any type of long-term or short-term borrowing, lending or guarantee, purchase or sale of marketable securities or any type of advance, payments or deferred payment or receivable or any other debt arising during the course of business. 25.3 A reading of the aforesaid clause from the Explanation would make it clear that the corporate guarantee provided by the assessee comes within the scope and ambit of 'international transaction' as per the aforesaid clause. Therefore, the contention of the learned AR that the issue is covered in favour of the assessee by virtue of the order passed in as ..... X X X X Extracts X X X X X X X X Extracts X X X X
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