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TMI Blog2023 (3) TMI 1086X X X X Extracts X X X X X X X X Extracts X X X X ..... ted enterprises, either or both of whom are non-residents, in the nature of purchase, sale or lease of tangible or intangible property, or provision of services, or lending or borrowing money, or any other transaction having a bearing on the profits, income, losses or assets of such enterprises, and shall include a mutual agreement or arrangement between two or more associated enterprises for the allocation or apportionment of, or any contribution to, any cost or expense incurred or to be incurred in connection with a benefit, service or facility provided or to be provided to any one or more of such enterprises. In terms of Sec.92(1) of the Act, any income arising from an international transaction shall be computed having regard to the arm's length price. In this appeal by the Assessee, the dispute is with regard to determination of Arms' Length Price (ALP) in respect of the international transaction of rendering ITeS to the AE. 3. As far as the provision of ITeS are concerned, the Assessee filed a Transfer Pricing Study (TP Study) to justify the price paid in the international Transaction as at ALP by adopting the Transaction Net Margin Method (TNMM) as the Most Appropriate Metho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bsp;38.8 45.72 16 Eclerx Services Limited 39.94 49.55 55.38 46.85 17 MPS Ltd 56.89 62.2 66.53 61.83 35th 20.95 Median 26.34 65th 33.28 5. The TPO computed the Addition to total income on account of adjustment to ALP as follows: "23.4 Computation of Arm's Length Price: 23.4.1 The median of the weighted average Profit Level Indicators is taken as the Arm's Length margin. Please see Annexure A for details of computation of PLI of the comparables. Based on this, the Arm's Length Price of the services rendered by the Taxpayer to its AE(s) is computed as under: ITeS SEGMENT Particulars Formula Amount (in Rs.) Taxpayers Operating Revenue OR 9,26,39,213 Taxpayers Operating Cost OC 8,42,17,467 Taxpayers Operating Profit OP 84,21,746 Taxpayers PLI PLI=OP/OC 10.00% 35th Percentile Margin of comparable set 20.95% Adjustment Required (if PLI< 35th Percentile) Yes Median Margin of comparable set M 26.34% Arm's Length Price ALP=(1+M)*OC 10,64,00,348 Price Received OR 9,26,39,213 Shortfall being adjustment ALP-OR 1,37,61,135 23.4.2 The above shortfal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .200 Crores as mentioned in ground No.4.5. Microland Ltd., ii. Infosys B P M Services Pvt. Ltd., iii. Motif India Infotech Pvt. Ltd., iv. Eclerx Services Ltd., v. MPS Ltd., vi. Tech Mahindra Business Services Ltd., vii. A G S Health Pvt. Ltd., 8. The Assessee in grounds 4.1 and 4.2 has projected its grievance that the TPO rejected the following 12 comparable companies chosen by the Assessee in its TP study on the ground that the data base in respect of these 12 companies was not available. Sl. No. Name of Comparable Companies 1 Excel Callnet Pvt Ltd 2 IServices India Pvt Ltd 3 Sureprep (India) Pvt Ltd. 4 iSN Global Solutions Pvt Ltd 5 RProcess Outsourcing Services Pvt Ltd 6 MAA Business Solutions Pvt Ltd 7 Intec InfraTechnologies Pvt Ltd. 8 Apex Covantage India Pvt Ltd. 9 Mobileum (India) Pvt Ltd. 10 Toluna India Pvt Ltd 11 CES Ltd. 12 AXS Online Pvt Ltd. 9. Before the DRP, in objection II ground 1.3, the Assessee has contended before the DRP as follows: "1.3. The Learned TPO is not justified in completely ignoring the comparable companies selected by the assessee on the pretext of data not available in database whereas the Assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arable company. This submission of the Assessee was however not considered by the TPO. In objection II, ground 1.4, Assessee has specifically raised this issue before the DRP that the export turnover of this company was 97.65% of the total sales. This submission was however not considered by the DRP. We are of the view that inclusion of this company to the TPO/AO for fresh consideration as the plea of the Assessee has neither been considered by the TPO nor by the DRP. The TPO/AO will afford opportunity of being heard to the Assessee in the set aside proceedings. 14. The next issue that requires consideration is ground No.4.5 with regard to exclusion of 7 companies on the ground that the turnover of these 7 companies was more than Rs.200 Crores and therefore these companies cannot be regarded as comparable to the Assessee whose turnover in the ITeS was only Rs.9.6 Crores. 15. As far as the plea of the Assessee for exclusion of companies whose turnover was more than Rs.200 Crores is concerned, the 7 companies listed in the chart in the earlier paragraph of this order, the relevant provisions of the Act in so far as comparability of international transaction with a transaction of si ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ms are formal or in writing) of the transactions which lay down explicitly or implicitly how the responsibilities, risks and benefits are to be divided between the respective parties to the transactions; (d) conditions prevailing in the markets in which the respective parties to the transactions operate, including the geographical location and size of the markets, the laws and Government orders in force, costs of labour and capital in the markets, overall economic development and level of competition and whether the markets are wholesale or retail. (3) An uncontrolled transaction shall be comparable to an international transaction [or a specified domestic transaction] if- (i) none of the differences, if any, between the transactions being compared, or between the enterprises entering into such transactions are likely to materially affect the price or cost charged or paid in, or the profit arising from, such transactions in the open market; or (ii) reasonably accurate adjustments can be made to eliminate the material effects of such differences. 16. A reading of Rule 10B(1)(e)(iii) of the Rules read with Sec.92CA of the Act, would clearly shows that the net profit margi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cluded from the list of comparable companies. The DRP primarily relied on the decision rendered by the Hon'ble Delhi High Court in the case of Chryscapital Investment Advisors India Pvt.Ltd Vs. DCIT 82 Taxmann.com 167(Del), wherein it was held that high turnover ipso facto does not lead to the conclusion that a company which is otherwise comparable on FAR analysis can be excluded and that the effect of such high turnover on the margin should be seen. The DRP therefore held that a company which is otherwise functionally comparable cannot be excluded only on the basis of high turnover. The Assessee has raised Grd.No.4, 4.1 to 4.3 before the Tribunal challenging the aforesaid view of the DRP. 19. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fferent 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 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 non-jurisdictional 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 correc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndered 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 in Willis Processing Services (supra) and have to be regarded as per incurium. These three decisions also ..... X X X X Extracts X X X X X X X X Extracts X X X X
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