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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 ..... hose 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 should 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. Addition u/s 40(a) - Disallowance of provision for professional fees - non-deduction of taxes at source on such payments - assessee contended that the provisions of Section 40(a) cannot be invoked, where the assessee has merely made a provision in the books of account - HELD THAT:- 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. Forex loss - Disallowance of forex loss was on account of change in accounting method for accounting of forex gain/loss arising on account of inter-company foreign currency Receivables/Payables - HELD THAT:- This claim was rightly rejected by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 in the international transaction was at arm s length. 4. The Transfer Pricing Officer (TPO) to whom the determination of ALP was referred to by the Assessing Officer, rejected all the 04 comparable companies chosen by the assessee. He chose a set of 10 comparable companies, who s Arithmetic Mean, was 28.11% which was arrived at as follows: Sl. No. Name of the case Operating Income Operating Cost OP/OC 1 Accentia Technol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Adjusted margin 31.36% Operating Cost 2291,18,481 Arms Length Price (ALP 3009,70,037 131.36% of Operating Cost Price Received 2761,45,477 Shortfall being adjustment u/s. 92CA: 248,24,560 5% of price received 138,07,274 Since the shortfall is exceeding 5% of the International Transaction, adjustment is made The above shortfall of Rs. 248,24,560/- is treated as transfer pricing adjustment u/s.92CA in respect of ITES segment of the taxpayer s international transactions . 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 workin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of turnover filter, came to the conclusion that high turnover or low turnover is a relevant criterion for excluding companies as comparable companies. 7.2. Ld. DR relied on the order of the Ld.CIT(A). 7.3. We have given a careful consideration to the rival submissions. The Bangalore Bench of the ITAT had an occasion to deal with an identical issue in the case of DCIT Vs. M/s. Northern Operating Services (supra), wherein the Tribunal came to the conclusion that turnover was relevant criteria in choosing comparable companies and that a company, whose turnover is more than Rs. 200 Crores, cannot be compared with the company, whose turnover is less then Rs. 200 Crores. In Coming to the aforesaid conclusion, the Tribunal relied on the decision rendered by the ITAT, Bangalore Bench in the case of Autodesk India P. Ltd., Vs. DCIT (2018) [96 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the case of the Capgemini India Pvt Ltd vs ACIT (ITA No. 7861/Mum/2011 for AY 2007-08) had held that the concept of economy of scale cannot be applied to service delivering companies and that there is no empirical evidence to suggest that margins are related to turnover. However, following the decision of the jurisdictional ITAT, the objection of the assessee is accepted. The taxpayer company would fall in the category of a 'medium' sized firm, as per the Dun Brad Street categorization. Companies with a turnover lower than Rs 200 crore and higher than Rs. 2000 crores, therefore, should be excluded from the comparability analysis. 14. Aggrieved by the aforesaid order of DRP, the revenue has raised ground Nos.3 4 before the Tribunal. 15. The ld. DR submitted that the Hon ble High Court of Karnataka in the case of M/s. Acusis Software (I) 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e learned Tribunal as regards the comparable namely, Mercury Outsourcing Management Ltd., which too have been excluded by the Tribunal are quoted below for ready reference:- (ii) Mercury Outsourcing Management Ltd. 13.1 The learned Authorised Representative has submitted that the TPO has rejected this company on the similar reasoning of diminishing revenue and abnormal cost. 13.2 On the other hand, the learned DR has submitted that this company is incurring persistent losses and further the turnover of this company is less than Rs.1 Crore and therefore it does not satisfy the filter of turnover applied by the TPO. 13.3 We have considered the rival submissions as well as the relevant material on record. At the outset, we note that turnover of this company in the ITES segment is only Rs.45.33 lakhs which is any case does not satisfy any filter of turnover in comparison to the assessee s turnover more than Rs.27 Crores. Even if we apply the tolerance range of turnover of 10 times on both sides of the assessee s turnover then the company which is having less than Rs. 2.7 Crores of turnover will be outside the said range of 10 times. Accordingly, we are of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsel for the assessee would not render the findings of the Tribunal in the case before the High Court as negatory or perverse for the reason that analysing of the comparables may be in a different context. The same need not be blindly or generally adopted in all the cases, irrespective of the context or circumstances calling for exclusion/inclusion of the comparables. The finding in each case is therefore a finding of fact. He pointed out that the Tribunal in the case of Autodesk (I) P. Ltd. v. DCIT [2018] 96 taxmann.com 263 [Bang. Trib.] after analysing the entire cases on the point, came to the conclusion that the decision rendered by the Tribunal in the case of Genesis Integrated Systems (I) P. Ltd. [2012] 53 SOT 159 lays down the correct law on the application of turnover filter and that decision has to be followed. He pointed out that the DRP in the present case has followed the ruling in the case of Genesis Integrated Systems (I) P. Ltd. (supra) and therefore the order of DRP has to be upheld. 18. We have given a careful consideration to the rival submissions and are of the view that as rightly submitted by the ld. Counsel for the assessee, the decision rendered by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a) 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 Investment (supra). We have already held that the decision rendered in the case of Chriscapital Investment (supra) is obiter dicta and that the ratio decidendi laid down by the Hon ble Bombay High Court in the case of Pentair (supra) which is favourable to the Assessee has to be followed. Therefore, the decisions cited by the learned DR before us cannot be the basis to hold that high turnover is not relevant criteria for deciding on comparability of companies in determination of ALP under the Transfer Pricing regulations under the Act. For the reasons given above, we uphold the order of the CIT(A) on the issue of application of turnover filter and his action in excluding companies by following the ratio laid down in the case of Genisys Integrating (supra). 19. In the given facts and circumstances of the case, we find no grounds to interfere with the order of DRP on this issue. Consequently, ground N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e appellant was under the bonafide belief that tax on the same is not deductible. The learned AO/learned CIT(Appeals) has erred in not appreciating the fact that the appellant had provided for liability towards professional fees amounting to Rs. 8,11,455 based on the past years experience and therefore the same was not contingent in nature. Further, the learned AO/learned CIT(Appeals) has erred in not appreciating the fact that the same has been reversed in the books of account in the subsequent year with actual amount and appropriate taxes on the same was duly deducted and deposited. Hence, the year-end provision made for professional fees should not be added back in the computation of income. 8.1. As far as Ground No. 15 is concerned, the facts are Assessing Officer noticed that the assessee has paid a sum of Rs. 8,11,455/- towards Professional Fees, on which TDS had not been deducted. Assessing Officer wanted to disallow the aforesaid payment on the ground that the said sum cannot be claimed as expenditure for failure to deduct TDS and as per the provisions of Section 40(a) of the Act. 8.2. The assessee filed a reply in response pointing out that the amoun ..... X X X X Extracts X X X X X X X X Extracts X X X X
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