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TMI Blog2019 (4) TMI 2095X X X X Extracts X X X X X X X X Extracts X X X X ..... ed having regard to the ALP as laid down in Section 92 of the Income Tax Act, 1961 (Act). It is also not in dispute between the assessee and the Revenue that the Profit Level Indicator (PLI) chosen for the purpose of comparing the assessee's profit margin with the comparable companies was Operating Profit on Operating Cost. The assessee's Operating Profit on Operating Cost was 20.53%, which was arrived at the following manner: Particulars Amount Rs. Total Income 28,56,75,746 Less: Other Income 95,30,269 Operating Income 27,61,45,477 Expenditure 23,45,44,482 Less: Provision for doubtful debts & advances (4,65,764) Less: Loss on sale of fixed asset 58,91,765 Operating Expenses 22,91,18,481 Operating Profit 4,70,26,996 OP/OC 20.53% 3. The most appropriate method adopted by the assessee and the Revenue for the purpose of determining ALP was the Transactional Net Margin Method (TNMM). The assessee had chosen 04 comparable companies and based on the Arithmetic Average Mean, profit margin of those 04 companies which was arrived at 17.46% concluded that the assessee's profit margin being higher than that of the comparable companies, the price received by the assessee i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ransactions". 4.2. Aggrieved by the aforesaid addition made by the Assessing Officer, consequent to determination of ALP, the assessee filed an appeal before the CIT(A). 5. The CIT(A) upheld the order of TPO regarding choosing of comparable companies. 5.1. With regard to allowing negative working capital adjustment, the CIT(A) held that the negative working capital adjustment done by the TPO was not proper. As a result, the Arithmetic Average Mean on profit margins, which was arrived at TPO at 31.36% stood reduced to 28.11% [28.11 + (-)3.25%, towards negative working capital = 31.36%]. 5.2. Aggrieved by the order of Ld.CIT(A) in upholding the comparables chosen by the TPO, assessee has preferred an appeal before the Tribunal. 6. At the time of hearing of the appeal, Ld.counsel for the Assesseepressed for adjudication of only Ground No. 5, which reads as under: Gr.No. 5: The learned AO/learned TPO/Hon'ble CIT(A) erred in not applying the upper limit on turnover while selecting the comparable companies. 7. As far as Ground No. 5 is concerned, the same is with reference to application of the turnover filter. The TPO while choosing comparable companies, applied a filter w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taxmann.com 263] (Bangalore-Trib) reviewing all the conflicting decisions on the point, and concluding that the application of turnover filter still holds good and has not been in any manner diluted by the decision of Hon'ble Karnataka High Court in the case of M/s. Acusis Software (I) Pvt. Ltd., Vs. ITO in ITA No. 223/2017, dt. 14-08-2018, following the relevant observations of the Tribunal, held as under: "11. Aggrieved by the aforesaid addition made by the AO, the assessee filed objections before the DRP. In its objections, the assessee pointed out that the TPO applied the following filters in the TP study:- "Companies whose ITeS service income < 1 cr. were excluded "By taking companies whose income is less than Rs.1 crore, the analysis may not lead to a proper comparability as these companies may not be representing the industry trend. Moreover their low cost/sales base makes their results unreliable." 12. The assessee submitted that the TPO having chosen lower turnover filter ought to have excluded companies whose turnover was less than Rs.200 crores. The assessee submitted that in the software industry, there was classification of three categories viz., (i) co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... P. Ltd. V. ITO in ITA No.223/2017, judgment dated 14.08.2018, has taken the view that if the turnover of a comparable company is less or more than 10 times the turnover of the assessee, then it cannot be considered as a comparable company. The ld. DR drew our attention to the turnover of 10 comparable companies which is as follows:- Sl.no Name of the case Operating income Operating cost OP/OC 1 Accentia Technologies Ltd. 1,069,026,524 82,93,91,898 28.89% 2 Acropetal Technologies 494,399,332 389706574 26.86% 3 Cosmic Global Ltd. 62,496,615 5,69,15,360 9.81% 4 e4e Healthcare(capitaline) 613,160,587 54,56,25,872 12.38% 5 I C R A Online Ltd.(seg) 156,691,000 11,67,49,267 34.21% 6 Jeevan scientific technology Ltd 1,721,400,000 1,00,86,52,592 70.66% 7 Infosys B P 0 Ltd. 11,291,147,909 9,57,73,24,546 17.89% 8 Jindal Intellicom (capitaline) 390,358,799 35,12,69,641 11.13% 9 Mindtree Ltd (seg) 5,653,000,000 5,10,39,05,999 10.76% 10 iGate Global solutions Ltd 11,845,540,000 9,47,11,65,000 25.07% Average Margin 24.77% He submitted that if such criterion is applied, then that would be t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Appellant-Assessee would not render the findings of the learned Tribunal in the present case nugatory or perverse for the reason that analyzing of the comparables may be in a different context and the same need not be blindly or generally adopted in all cases, irrespective of the context or the circumstances calling upon for the inclusion/exclusion of the comparables which absolutely is a decision to be taken by the learned Tribunal as last fact finding authority. This view is supported by our judgment dated 25.08.2018 on Softbrands case (supra), which we find it appropriate to quote hereunder to its relevant extent:-" 17. He submitted that the question of law which the assessee sought to raise before the Hon'ble High Court was justification for excluding Mercury Outsourcing Management Ltd. as a comparable company. It is in that context that the aforesaid decision was rendered by the Hon'ble High Court. He pointed out that the Tribunal in excluding Mercury Outsourcing Management Ltd., had taken a view that its turnover was small compared to the assessee's turnover and therefore not comparable, even if the tolerance range of turnover of 10 times on both the sides of assessee's ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r held that no question of law arose for consideration. The decision rendered in the case of Autodesk (I) P. Ltd. (supra) of the Tribunal after analysing every conflicting views has ultimately concluded that the law laid down in the case of Genesis Integrated Systems (I) P. Ltd. (supra) has to be followed. The following were the relevant observations of the Tribunal:- "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 lea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cluding of companies, whose turnovers were more than Rs. 200 Crores and those companies remain un-comparable with assessee, because assessee's turnover was only Rs. 27.61 Crores. The 02 companies which would stand excluded by the application of turnover filter from the set of 10 set of companies chosen by the TPO are - (i) M/s. Infosys BPO Limited, whose turnover is Rs.1312 Crores and (ii) TCS E-Serve Limited, whose turnover is Rs.1578.40 Crores. Accordingly, we hold that the aforesaid two companies sould be removed from the list of comparable companies. The TPO is directed to compute the average Arithmetic Mean profit of the comparable companies chosen by the TPO, after excluding the aforesaid two companies. 7.4. In the result, Ground No. 5 raised by assessee is allowed. 8. Ground No. 15, raised by the assessee in the appeal reads as follows: Gr.No.15: Disallowance of provision for professional fees - Rs. 8,11,455 The learned AO/learned CIT(Appeals) has erred in disallowing Rs. 8,11,455 being payment towards professional fees considering the same as contingent and on account of non-deduction of taxes at source on such payments. The learned CIT(Appeals) has erred in uphol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n in respect of a provision made in the books of account, TDS has to be effected. On the question whether the expenditure was contingent in nature, CIT(A) found no material to show that the liability-in-question has crystalised. He therefore upheld the order of Assessing Officer. 8.4. Ld. Counsel for the assessee reiterated the contentions as appearing in the grounds of appeal (No.15) raised before the Tribunal on this issue. These contentions in the grounds of appeal are identical to the contentions put forth before the CIT(A). 8.5. We are of the view that in the absence of material to show that the liability-in-question was not contingent and had crystalised, this Tribunal has no other option to uphold the order of the CIT(A). Accordingly, the order of CIT(A) is upheld and Ground No. 15 raised by the assessee is dismissed. 9. Ground No. 16, raised by the assessee in the appeal reads as follows: Gr.No.16: Disallowance of forex loss The learned AO/learned CIT(Appeals) has erred in disallowing the forex loss amounting to Rs. 43,40,156 treating it as a prior period expenditure. The learned AO/learned CIT(Appeals) erred in not appreciating the fact that the forex loss was o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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