Income-tax Officer, V. Avalara Techonologies Pvt. Ltd., Pune

ITA 1800/PUN/2013

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 2453 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 5 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-03-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 03-02-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 04-10-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M K BIJU
• Keywords: Transfer pricing; Rectification of order; International transaction
• Section: 92C; 143(3); 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A , PUNE , , BEFORE MS. SUSHMA CHOWLA, JM AND SHRI PRADIP KUMAR KEDIA , A M . / ITA NO. 1800 /PN/201 3 / ASSESSMENT YEAR : 20 1 0 - 1 1 THE INCOME TAX OFFICER, WARD 1(1), PUNE . / APPELLANT VS. AVALARA TECHNOLOGIES PVT. LTD., PRIDE PORTAL, 3 RD FLOOR, SHIVAJI HOUSING SOCIETY, BAHIRATWADI, SEN APATI BAPAT ROAD, PUNE 411016 . / RESPONDENT PAN: AAFCA5552K . / ITA NO. 299 /PN/201 5 / ASSESSMENT YEAR : 20 10 - 11 AVALARA TECHNOLOGIES PVT. LTD., AVALARA TECHNOLOGIES PVT. LTD., PRIDE PORTAL, 3 RD FLOOR, SHIVAJI HOUSING SOCIETY, BAHIRATWA DI, SENAPATI BAPAT ROAD, PUNE 411016 . / APPELLANT PAN: AAFCA5552K VS. THE INCOME TAX OFFICER, WARD 1(1), PUNE . / RESPONDENT . / ITA NO. 399 /PN/201 5 / ASSESSMENT YEAR : 20 10 - 11 THE INCOME TAX OFFICER, WARD 1(1), PUNE . / APPELLANT VS. AVALARA TECHNOLOGIES PVT. LTD., PRIDE PORTAL, 3 RD FLOOR, SHIVAJI HOUSING SOCIETY, BAHIRATWADI, SENAPATI BAPAT ROAD, PUNE 411016 . / RESPONDENT PAN: AAFCA5552K ITA NO. 1800 /PN/20 1 3 ITA NOS.299 & 399/PN/2015 AVALARA TECHNOLOGIES PVT. LTD. 2 ASSESSEE BY : S HRI NIKHIL PATHAK REVENUE BY : SHRI M.K. BIJU, JCIT / DATE OF HEARING : 03 . 0 2 .201 6 / DATE OF PRONOUNCEMENT: 31 . 0 3 .201 6 / ORDER PER SUSHMA CHOWLA, J M : OUT OF THIS BUNCH OF THREE APPEALS, ONE A PPEAL FILED BY THE REVENUE IS AGAINST THE ORDER OF CIT(A) - IT/TP, PUNE , DATED 31.07.2013 RELATING TO ASSESSMENT YEAR 20 1 0 - 1 1 AGAINST ORDER PASSED UNDER SECTION 143(3) OF T HE INCOME - TAX ACT , 1961 (IN SHORT THE ACT) . THE CROSS APPEALS FILED BY THE ASSESSEE AND THE REVENUE ARE AGAINST THE ORDER OF CIT(A) - 13 , PUNE, DATED 15 .0 1 .201 5 RELATING TO ASSESSMENT YEAR 20 10 - 11 AGAINST ORDER PASSED UNDER SECTION 154 R.W.S. 250 OF T HE ACT. SECTION 154 R.W.S. 250 OF T HE ACT. 2. TH I S BUNCH OF THREE APPEALS RELATING TO THE SAME ASSESSEE ON ISSUE OF TRANSFER PRICING ADJUSTMENT WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. 3. THE REVENUE IN ITA NO.1800/PN/2013 HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: - 1. THE ORDER OF THE LEARNED COMMISSIONER OF INC OME - TAX (APPEALS) IS CONTRARY TO LAW AND TO THE FACTS AND CIRCUMSTANCES OF THE CASE. 2. THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) GROSSLY ERRED IN DIRECTING THE ASSESSING OFFICER TO EXCLUDE THE FOLLOWING COMPANIES FROM THE LIST OF COMPARABLES FOR THE REASON THAT THE TURNOVER OF THESE COMPANIES EXCEEDED RS.200 CRS. : BODHTREE CONSULTING LTD., INFOSYS TECHNOLOGIES L TD., LARSEN & TOUBRO INFOTECH LTD., SONATA SOFTWARE LTD., TATA ELXI LTD. AND PERSISTENT SYSTEMS LTD. ITA NO. 1800 /PN/20 1 3 ITA NOS.299 & 399/PN/2015 AVALARA TECHNOLOGIES PVT. LTD. 3 3. THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) GROSSLY ERRED IN DIRECTING AS ABOVE BY RELYING ON THE DECISION OF THE BANGALORE BENCH OF THE HON'BLE TRIBUNAL IN THE CASE OF GENESIS INTEGRATING SYSTEMS LTD. AND IN NOT FOLLOWING THE DECISION OF THE HON'BLE INCOME - TAX APPELLATE TRIBUNA L, MUMBAI BENCH 'K', IN THE CASE OF CAPGEMINI INDIA PVT. LTD. VS. ACIT (ITA NO.7861/MUM/2011, A.Y. 2 0 07 - 08) WHEREIN THE HON'BLE TRIBUNAL REJECTED THE ARGUMENT FOR APPLYING TURNOVER FILTER FOR SELECTION OF COMPARABLES FOR THE PURPOSE OF COMPARING THEIR MARG INS IN THE CASE OF SERVICE COMPANIES . 4. FOR THESE AND SUCH OTHER GROUNDS AS MAY BE URGED AT THE TIME OF THE HEARING, THE ORDER (IF THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) MAY BE VACATED AND THAT OF THE ASSESSING OFFICE R BE RESTORED. 4. THE AS SESSEE IN ITA NO.299/PN/2015 HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: - 1] THE LEARNED CIT(A) OUGHT TO HAVE DIRECTED THE A.O. TO INCLUDE THE VARIOUS COMPANIES SELECTED BY THE ASSESSEE AND REJECTED BY THE A.O. IN THE LIST OF FINAL COMPARABLE ENTITIES . 1.1] THE ASSESSEE SUBMITS THAT THE LEARNED A.O. WAS NOT JUSTIFIED IN REJECTING CGVAK SOFTWARE & EXPORTS LTD. ON THE GROUND THAT IT WAS A LOSS MAKING COMPANY AND THE LEARNED CIT(A) OUGHT TO HAVE DIRECTED THE LEARNED A.O. TO CONSIDER THE SAID COMPANY AS COMP ARABLE WITH THE ASSESSEE COMPANY. 1.2] THE ASSESSEE SUBMITS THAT THE LEARNED A.O. WAS NOT JUSTIFIED IN REJECTING R.S. SOFTWARE (INDIA) LTD. AND DATAMATICS GLOBAL SERVICES LTD. FROM THE LIST OF FINAL COMPARABLE ENTITIES EVEN THOUGH THESE COMPANIES SATIS FIED ALL THE FILTERS APPLIED BY THE A.O. AND THE LEARNED CIT(A) OUGHT TO HAVE DIRECTED THE LEARNED A.O. TO CONSIDER THESE COMPANIES AS COMPARABLE WITH THE ASSESSEE COMPANY. 2] THE LEARNED CIT(A) ERRED IN DIRECTING THE LEARNED A.O. TO VERIFY WHETHER TH E ADDITIONAL COMPANIES SUGGESTED BY THE ASSESSEE SATISFY ALL THE FILTERS ADOPTED BY THE A.O. WITHOUT APPRECIATING THAT SINCE ALL THE FACTS WERE ON RECORD, THE LEARNED CIT(A) COULD HAVE HIMSELF GIVEN THE FINDING REGARDING COMPARABILITY OF THE VARIOUS CO MPANIES. 3] THE LEARNED CIT(A) ERRED IN HOLDING THAT INTEREST COST SHOULD BE EXCLUDED FROM THE OPERATING COST WHILE DETERMINING THE OPERATIN G MARGIN OF THE ASSESSEE COMPANY AND THE COMPARABLE ENTITIES . 4] THE LEARNED CIT(A) ERRED IN NOT ALLOWING APPROPRI ATE RISK ADJUSTMENT TOWARDS THE DIFFERENCES IN MARKET RISK, PRICE RISK, CREDIT RISK, WARRANTY RISK, BUSINESS RISK, ETC. UNDERTAKEN BY THE COMPARABLE ENTITIES AND THE ASSESSEE COMPANY WHILE COMPUTING THE ALP OF THE INTERNATIONAL TRANSACTIONS ENTERED INTO BY THE ASSESSEE. 5. THE REVENUE IN ITA NO. 399 /PN/201 5 HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: - ITA NO. 1800 /PN/20 1 3 ITA NOS.299 & 399/PN/2015 AVALARA TECHNOLOGIES PVT. LTD. 4 1 THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) IS CONTRARY TO LAW AND TO THE FACTS AND CIRCUMSTANCES OF THE CASE. 2 THE LEARNED COMMISSION ER OF INCOME TAX (APPEALS) GROSSLY ERRED IN HOLDING THAT THE COMPANIES SUCH AS CAT TECHNOLOGIES, EXENSYS SOFTWARE SOLUTIONS LTD., KIRTEE SOFTWARE TECHNOLOGIES LTD., NETRIPPLES SOFTWARES LTD., SILVERLINE TECHNOLOGIES, SPRY RESOURCES INDIA PVT. LTD., SHOULD BE INCLUDED IN THE LIST OF COMPARABLE COMPANIES CASES IF THESE COMPANIES ARE P ART OF ACCE P T - RE J E CT MARTRIX INSPITE OF THE FACTS THAT THE ASSESSEE COMPANY IN ITS TRANSFER PRICING REPORT HAS ITSELF REJECTED THESE COMPANIES FROM THE LIST OF COMPARABLE. 3. FO R THESE AND SUCH OTHER GROUNDS AS MAY BE URGED AT THE TIME OF HEARING, THE ORDER OF THE LEARNED CIT (APPEALS) MAY BE VACATED AND THAT OF THE ASSESSING OFFICER BE RESTORED. 6. THE REVENUE IS IN APPEAL IN ITA NO.1800/PN/2013 AGAINST THE ORDER OF CIT(A) IN DIRECTING THE ASSESSING OFFICER / TRANSFER PRICING OFFICER (TPO) TO EXCLUDE CERTAIN COMPANIES WHERE THE TURNOVER OF THE COMPANIES EXCEEDED RS.200 CRORES. 7. FURTHER, THE ASSESSEE IS IN APPEAL IN ITA NO.299/PN/2015 AGAINST THE ORDER OF CIT(A) PASSED UND ER SECTION 154 OF THE ACT AND THE REVENUE HAS FILED CROSS APPEAL IN ITA NO.399/PN/2015 AGAINST THE SAID ORDER PASSED UNDER SECTION 154 OF THE ACT BY THE CIT(A). THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE AT THE OUTSET POINTED OUT THAT THOUGH S EVERAL GROUNDS OF APPEAL HAVE BEEN RAISED IN ITS APPEAL, BUT THE ONLY ISSUE WHICH IS BEING PRESSED IS IN GROUND OF APPEAL NO.1.2 I.E. AGAINST ARBITRARY REJECTION OF TWO COMPARABLES I.E. R.S. SOFTWARE (INDIA) LTD. AND D A TAMATICS GLOBAL SERVICES LTD. FROM TH E FINAL LIST OF COMPARABLES EVEN THOUGH THE SAID CONCERNS SATISFIED ALL THE FILTERS APPLIED BY THE ASSESSING OFFICER. IN RESPECT OF GROUNDS OF APPEAL NO.1, 1.2, 2, 3 AND 4, THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE DID NOT PRESS THE SAID GROU NDS OF APPEAL, HENCE, THE SAME ARE DISMISSED AS NOT PRESSED. HOWEVER, THE GRIEVANCE OF THE REVENUE IN ITS APPEAL AGAINST THE RECTIFICATION ORDER OF CIT(A) IS AGAINST THE DIRECTION OF INCLUSION OF COMPANIES IN ITA NO. 1800 /PN/20 1 3 ITA NOS.299 & 399/PN/2015 AVALARA TECHNOLOGIES PVT. LTD. 5 THE FINAL SET OF COMPARABLES WITH DIRECTION TO THE ASSESSING OFFICER THAT THE SAME SHOULD BE ACCEPTED IF THEY ARE PART OF ACCEPT REJECT MATRIX. THE REVENUE IS AGGRIEVED BY THE SAID DIRECTION OF CIT(A) ON THE GROUND THAT THE ASSESSEE IN ITS TRANSFER PRICING REPORT ITSELF HAD REJECTED THESE COMPANIES FROM THE FINAL SET OF COMPARABLES. IT MAY BE POINTED OUT THAT ALL THESE THREE APPEALS RELATE TO ASSESSMENT YEAR 2010 - 11 . 8. BRIEFLY, IN THE FACTS OF THE CASE, THE ASSESSEE HAD FURNISHED RETURN OF INCOME DECLARING TOTAL INCOME AT RS.NIL. THE ASSESSEE CO MPANY WAS ENGAGED IN PROVIDING VARIOUS SOFTWARE DEVELOPMENT AND OTHER ITES SERVICES TO ITS ASSOCIATE ENTERPRISES. THE ASSESSEE WAS A CAPTIVE SERVICE PROVIDER TO ITS ASSOCIATE ENTERPRISE M/S. AVALARA INC . DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD ENTERED INTO INTERNATIONAL TRANSACTION OF PROVIDING SERVICES FOR SOFTWARE DEVELOPMENT AND ITES SUPPORT SERVICES TO ITS ASSOCIATE ENTERPRISES TO THE TUNE OF RS. 3,30,32,398/ - . THE ASSESSEE HAD APPLIED TNMM METHOD FOR ESTABLISHING ARM'S LENGTH PRICE OF I NTERNATIONAL TRANSACTION. THE ASSESSEE HAD APPLIED OPERATING PROFIT / OPERATING COST AND HAD DETERMINED THE PLI AT 9.57% . THE OP / OC RATIO IN RESPECT OF LIST OF COMPARABLES SELECTED BY THE ASSESSEE WAS 6.77% AND AS SUCH, IT WAS CLAIMED THAT THE INTERNAT IONAL TRANSACTION ENTERED INTO BY THE ASSESSEE WAS AT ARM'S LENGTH . THE ASSESSING OFFICER DURING THE ASSESSMENT PROCEEDINGS NOTED THAT THE ASSESSEE HAD MERELY APPLIED THREE SEARCH CRITERIA FOR ARRIVING AT THE FINAL SET OF COMPARABLES I.E. (I) COMPANIES WH ICH WERE PRIMARILY ENGAGED IN ACTIVITIE S RELATING TO COMPUTER SOFTWARE; (II) COMPANIES HAVING FINANCIAL DATA FOR THE PERIOD ENDING 31.03.2010 AND (III) COMPANIES ENGAGED IN SIMILAR SERVICE LINE. THE ASSESSING OFFICER WAS OF THE VIEW THAT CRITERIA APPLIED FOR SELECTING THE COMPANIES WITH SIMILAR SERVICE LINE WERE VERY VAGUE AND THE ASSESSEE HAD FAILED TO APPLY QUANTITATIVE CRITERIA ITA NO. 1800 /PN/20 1 3 ITA NOS.299 & 399/PN/2015 AVALARA TECHNOLOGIES PVT. LTD. 6 LIKE TURN OVER, VOLUME OF EXPORT BUSINESS, EXTENT OF R&D EXPENSES, ETC. FOR BENCHMARKING ITS INTERNATIONAL TRANSACTION AND HENCE , IT A FFECTED THE RELIABILITY OF ENTIRE PROCESS OF SELECTION OF COMPARABLES. RELYING ON THE PROVISIONS OF SECTION 92C(3)(C) OF THE ACT, THE ASSESSING OFFICER CAME TO THE CONCLUSION THAT MODIFIED AND ADDITIONAL FILTERS HA D TO BE ALLOWED FOR SELECTING APPRO PRIATE COMPARABLES FUNCTIONALLY SIMILAR TO THAT OF THE ASSESSEE. SHOW CAUSE NOTICE IN THIS REGARD WAS ISSUED TO THE ASSESSEE , WHICH IS ENLISTED AT PAGE 14 OF THE TPOS ORDER AND FINALLY 11 COMPANIES WERE SELECTED BY THE TPO WHOSE ARITHMETIC MEAN OF OP/TC WORKED OUT 27.71% . THE ASSESSEE WAS THUS, CONFRONTED AS TO WHY ARM'S LENGTH PRICE SHOULD NOT BE COMPUTED IN THE CASE OF ASSESSEE BY TAKING PLI OF COMPARABLES AT 27.71% AS AGAINST PLI SHOWN BY THE ASSESSEE AT 9.57% . THE OBJECTION OF THE ASSESSEE TO THE SA ID EXERCISE WAS THAT DAT A FOR THE COMPANIES SELECTED BY THE ASSESSING OFFICER WAS NOT AVAILABLE IN PUBLIC DOMAIN AND FURTHER, THE COMPANIES WHOSE TURNOVER EXCEED ED RS.200 CRORES WERE NOT TO BE CONSIDERED AS COMPARABLE COMPANIES. ANOTHER LIST OF SIX COMPAN IES WERE PICKED UP BY THE ASSESSEE, WHICH FULFILLED THE CRITERIA APPLIED BY THE ASSESSING OFFICER AS IN THE SHOW CAUSE NOTICE AND IT WAS CONTENDED THAT THE COMPARABILITY ANALYSIS OF THE SAID COMPANIES SHOULD BE CONSIDERED IN THE FINAL LIST OF COMPARABLES. THE ASSESSING OFFICER REJECTED THE PLEA OF THE ASSESSEE VIS - - VIS COMPANIES SELECTED BY HIM AND HELD THAT THEY WERE COMPARABLE IN RESPECT OF COMPANIES SELECTED BY THE ASSESSEE. THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAD COMPUTED OP/TC RATIO FOR TH E ADDITIONAL COMPANIES WHEREAS, IN FACT IT HAD CONSIDERED THE PROFIT BEFORE TAX, HENCE, THERE WAS MISTAKE IN WORKING OUT THE MARGINS OF THE SAID COMPANIES. FURTHER, THE COMPANIES SELECTED BY THE ASSESSEE WERE REJECTED BY THE TPO VIDE HIS COMMENTS UNDER PA RA 9.1.5 AT PAGES 19 AND 20 OF THE ASSESSMENT ORDER. THE ASSESSING OFFICER FURTHER ACCEPTED THE PLEA OF ASSESSEE THAT COMPANIES HAVING ITA NO. 1800 /PN/20 1 3 ITA NOS.299 & 399/PN/2015 AVALARA TECHNOLOGIES PVT. LTD. 7 TURNOVER MORE THAN RS.200 CRORES WERE NOT TO BE CONSIDERED AS COMPARABLE. HENCE, FINAL SET OF COMPARABLES WERE WORKED O UT WHICH WE RE AS UNDER: - SR. NO. COMPANYS NAME % OP/OC 1 ACROPETAL TECHNOLOGIES LTD. 37.30 2 BODHTREE CONSULTING LIMITED 29.07 3 COMPUCOM SOFTWARE 34.52 4 INFOSYS TECH 51.26 5 KALS INFORMATION SYSYSTEM LTD. 11.89 6 LARSON AND TOUBRO INFOTECH LTD. 23 .76 7 SONATA SOFTWARE LTD. 32.16 8 TATA ELXI 15.15 9 THINKSOFT GLOBAL SERVICES LTD. 12.69 10 THIRDWARE SOLUTIONS LTD. 27.15 11 PERSISTENT SYSTEM LTD. 29.83 ARITHMETIC MEAN 27.71% 9. THE OP/OC MARGINS OF FINAL LIST OF COMPARABLES WAS 27.71% AS AGAINST THE MARGINS OF ASSESSEE OF 9.57% AND AS SUCH, AN ADJUSTMENT OF RS. 54,78,992/ - WAS MADE BY THE ASSESSING OFFICER AND THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION HAD CLAIMED EXEMPTION UNDER SECTION 10A OF THE ACT. HOWEVER, NO SUCH DEDUCTION WAS AL LOWED ON THE ADDITION MADE ON ACCOUNT OF HOWEVER, NO SUCH DEDUCTION WAS AL LOWED ON THE ADDITION MADE ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT UNDER SECTION 92C OF THE ACT. 10. BEFORE THE CIT(A), THE ASSESSEE MADE ELABORATE SUBMISSIONS AND OBJECTED TO THE NON - APPLICATION OF TURNOVER FILTER. THE ASSESSEE CLAIMED THAT ITS TOTAL TURNOVER WAS RS.3.34 CRORES AND THE ASSESSING OFFICER HAD COMPARED THE MARGINS OF ASSESSEE WITH COMPANIES HAVING TURNOVER OF MORE THAN RS.200 CRORES . IN THIS REGARD, THE CLAIM OF ASSESSEE WAS THAT CERTAIN COMPANIES HAVING TURNOVER MORE THAN RS.200 CRORES HAD TO BE EXCLUDED FROM THE FINAL LIST OF COMPARABLES, WHICH ARE AS UNDER: - NAME OF THE COMPANY TURNOVER FROM SOFTWARE DEVELOPMENT SERVICES (AMOUNT IN CRORES) BODHTREE CONSULTING LIMITED 225.68 INFOSYS TECHNOLOGIES LIMITED 22,050.00 LARSEN & TOUBRO I NFOTECH LIMITED 1,776.76 SONATA SOFTWARE LIMITED 236.09 TATA ELXI LIMITED 376.37 PERSISTENT SYSTEMS LIMITED 504.20 ITA NO. 1800 /PN/20 1 3 ITA NOS.299 & 399/PN/2015 AVALARA TECHNOLOGIES PVT. LTD. 8 11. IT WAS FURTHER CLAIMED BY THE ASSESSEE THAT THE TPO HAD SELECTED BODHTREE CONSULTING LTD. AND COMPUCOM SOFTWARE AS COMPARABLE. HOWEV ER, THESE COMPANIES DID NOT FULFILL THE FILTER OF HAVING MINIMUM 75% OF EXPORT REVENUE, WHICH FILTER WAS APPLIED BY THE ASSESSING OFFICER HIMSELF. ACCORDINGLY, BOTH THESE COMPANIES SHOULD BE EXCLUDED FROM FINAL SET OF COMPARABLES. 12. THE CIT(A) VIDE P ARA 2.3.6 NOTED THAT THE ASSESSING OFFICER HAD NOT APPLIED TURNOVER FILTER AT ALL. HE FURTHER WAS OF THE VIEW THAT THE COMPANIES HAVING RELATIVELY LOW TURNOVER COULD NOT BE COMPARED WITH THE COMPANIES WITH VERY HIGH TURNOVER AND IN THIS REGARD, RELIANCE W AS PLACED ON THE RATIO LAID DOWN IN GENESIS INTEGRATING SYSTEMS LIMITED REPORTED IN 152 TTJ (BANG A LORE) 215 . , WHEREIN IT WAS LAID DOWN THAT FOR A COMPANY HAVING TURNOVER OF RS.8.15 CRORES , FILTER OF RS.1 - 200 CRORES WAS APPROPRIATE. APPLYING THE SAID RATIO , THE CIT(A) DIRECTED THE ASSESSING OFFICER TO EXCLUDE COMPANIES HAVING TURNOVER OF MORE THAN RS.200 CRORES AND HENCE, BODHTREE CONSULTING LTD., INFOSYS TECHNOLOGIES LTD., LARSEN & TOUBRO INFOTECH LTD., SONATA SOFTWARE LTD., TATA ELXI LTD. AND PERSISTENT S YSTEMS LTD. WERE EXCLUDED FROM FINAL LIST OF COMPARABLES. 13. WITH REGARD TO OTHER TWO COMPANIES I . E. BODHTREE CONSULTING LTD. AND COMPUCOM SOFTWARE , THE CIT(A) STATED THAT THESE TWO ALSO FAIL THE FILTER OF MINIMUM 75% OF REVENUE FROM EXPORT AND HENCE, THE SAME WE RE ALSO TO BE EXCLUDED FROM FINAL SET OF COMPARABLES. IN RESPECT OF BODHTREE CONSULTING LTD. , THE CIT(A) HELD THAT IT ALSO DID NOT FULFILL THE TURNOVER FILTER OF RS.1 - 200 CRORES. THE CIT(A) FURTHER ALLOWED ADJUSTMENT ON ACCOUNT OF WORKING CAPI TAL IN ACCORDANCE WITH PROVISIONS OF THE ACT. THE CIT(A) FURTHER OBSERVED AFTER GIVING EFFECT TO THESE ADJUSTMENTS, THE ASSESSEES PROFIT MARGINS WOULD FALL WITHIN +/ - ITA NO. 1800 /PN/20 1 3 ITA NOS.299 & 399/PN/2015 AVALARA TECHNOLOGIES PVT. LTD. 9 5% OF AVERAGE MARGINS OF COMPARABLE COMPANIES AND ACCORDINGLY, THE ADJUSTMENT MADE ON AC COUNT OF TRANSFER PRICING WOULD BE DELETED. 14. THE REVENUE IS IN APPEAL AGAINST THE ORDER OF CIT(A). 15. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE POINTED OUT THAT THE ASSESSING OFFICER HAD PASSED THE ORDER AFTER ISSUING SHOW CAUSE NOTICE TO THE ASSESSEE BY PROPOSING NEW FILTERS, WHICH ARE ENLISTED AT PAGE 11 OF THE ASSESSMENT ORDER. HOWEVER, THE CIT(A) HAD ALLOWED THE RELIEF AND HAD NOT CONSIDERED THE RATIO LAID DOWN BY MUMBAI BENCH OF TRIBUNAL IN CA P G EMINI INDIA (P.) LTD. VS. ACIT (2013) 33 TAXMANN.COM 5 (MUMBAI TRIB). 16. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT THE TOTAL TURNOVER OF THE ASSESSEE WAS RS.3.30 CRORES AND THE ASSESSING OFFICER AT PAGE 16 HAS ENLISTED 11 COMPANIES SELECTED BY IT, WHEREAS T HE CIT(A) HAD DIRECTED THAT 6 COMPANIES SHOULD BE EXCLUDED FROM THE FINAL LIST OF COMPARABLES, WHERE THE TURNOVER OF ALL THOSE COMPANIE S WAS MORE THAN RS.200 CRORES. IN THIS REGARD, THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE PLACED RELIANCE ON THE RATIO LAID DOWN BY BANGALORE BENCH OF TRIBUNAL IN DCIT VS. TRIDENT MICROSYSTEMS INDIA (P.) LTD. (2015) 60 TAXMANN.COM 218 (BANGALORE TRIB.) , WHEREIN THE TURNOVER WAS RS.8.15 CRORES AND THE RANGE WAS SELECTED BETWEEN RS.1 - 200 CRORES. THE CIT(A) HAD DIRECTED EXCLUSION OF SAID SIX COMPARABLES WHOSE TURNOVER WAS MORE RS.200 CRORES AND ALSO EXCLUDED TWO MORE CONCERNS BODHTREE CONSULTING LTD. AND COMPUCOM SOFTWARE ON FAILING TO COMPLY WITH THE FILTER OF HAVING MINIMUM 75% OF EXPORT REVENUE. IT WAS FURTHE R POINTED OUT BY HIM THAT THE REVENUE IS NOT IN APPEAL AGAINST EXCLUSION OF THE SAID TWO CONCERNS, ONE OF WHICH I.E. BODHTREE ITA NO. 1800 /PN/20 1 3 ITA NOS.299 & 399/PN/2015 AVALARA TECHNOLOGIES PVT. LTD. 10 CONSULTING LTD. WAS ALSO EXCLUDED FOR HIGH TURNOVER. REFERRING TO THE RATIO LAID DOWN BY THE MUMBAI BENCH OF TRIBUNAL IN CAPGEMIN I INDIA (P.) LTD. VS. ACIT (SUPRA) , THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT TURNOVER OF THE SAID COMPANY WAS MORE THAN RS.500 CRORES AND HAD IN TURN, SELECTED INFOSYS AND WIPRO . HOWEVER, THE TRIBUNAL ITSELF VIDE PARA 5.3.9 HAD DIRECTED T HAT THE COMPANIES WITH TURNOVER OF RS.3.6 CRORES HAD TO BE EXCLUDED AND TWO MORE COMPANIES WERE REJECTED HAVING SMALL TURNOVER AS PER PARA 5.3.10 OF THE SAID DECISION. HENCE, IT WAS THE PLEA OF LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSES SEE THAT THE TRIBUNAL HAD APPLIED TURNOVER FILTER, BUT IN THE CONTEXT OF CAPGEMINI INDIA (P.) LTD. VS. ACIT (SUPRA) I.E. COMPAN IES WITH SMALL TURNOVER HAD TO BE EXCLUDED. 17. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE LIMITED ISSUE A RISING BEFORE US IS IN RELATION TO TRANSFER PRICING ADJUSTMENT MADE IN THE HANDS OF ASSESSEE WITH REGARD TO SELECTION OF COMPARABLES FOR BENCHMARKING THE INTERNATIONAL TRANSACTION ENTERED INTO BY THE ASSESSEE. THE ASSESSEE IS A CAPTIVE SERVICE PROVIDER TO ITS ASSOCIATE ENTERPRISE M/S. AVALARA INC. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD ENTERED INTO INTERNATIONAL TRANSACTION OF PROVISION OF SOFTWARE DEVELOPMENT AND OTHER ITES SERVICES TO THE TUNE OF RS. 3,30,32,398/ - . THE ASSESSEE HAD APPLIE D TNMM METHOD AND THE PLI OF THE ASSESSEE WORKED OUT TO 9.57% BY ADOPTING OP/OC AS INDICATOR. THE ASSESSEE HAD PICKED UP CERTAIN CONCERNS AS COMPARABLES AND WAS OF THE VIEW THAT ITS INTERNATIONAL TRANSACTION WAS AT ARM'S LENGTH . THE ASSESSING OFFICER ON THE OTHER HAND, REVISED THE FILTERS TO BE APPLIED AND CONSEQUENTLY, SELECTED 11 CONCERNS AS COMPARABLE WHOSE ARITHMETIC MEAN OF OPERATING MARGIN WAS 27.71% . CONSEQUENTLY, THE ASSESSING OFFICER MADE AN ADDITION UNDER SECTION 92C OF THE ACT TO THE TUNE OF R S.54,78,990/ - . BEFORE THE ITA NO. 1800 /PN/20 1 3 ITA NOS.299 & 399/PN/2015 AVALARA TECHNOLOGIES PVT. LTD. 11 CIT(A), THE GRIEVANCE OF THE ASSESSEE WAS AGAINST SELECTION OF CONCERNS AS COMPARABLE. IT WAS POINTED OUT BY THE ASSESSEE BEFORE THE CIT(A) THAT THE MARGINS OF CONCERNS HAVING TURNOVER OF MORE THAN RS.200 CRORES COULD NOT BE COM PARED WITH THE MARGINS OF ASSESSEE COMPANY WHOSE TOTAL TURNOVER WAS RS.3.30 CRORES. THE CIT(A) IN TURN, R ELIED ON THE RATIO LAID DOWN IN GENESIS INTEGRATING SYSTEMS LIMITED (SUPRA) APPLIED RANGE TURNOVER BETWEEN RS.1 - 200 CRORES AND CONSEQUENTLY, SIX OF TH E CONCERNS AS ENLISTED ABOVE WERE REJECTED. THE REVENUE IS IN APPEAL BEFORE US AGAINST THE SAME. 18. THE RATIO OF VARIOUS DECISIONS IS THAT WHILE BENCHMARKING THE INTERNATIONAL TRANSACTION OF CONCERNS, TURNOVER FILTER IS AN IMPORTANT CRITERIA IN CHOOSING COMPARABLES , W HERE THE TURNOVER IS ON A LOWER SIZE, THE RANGE OF TURNOVER TO BE SELE CTED IS BETWEEN RS.1 - 200 CRORES. CONSEQUENTLY, ALL THE COMPANIES HAVING TURNOVER OF MORE THAN RS.200 CRORES HAVE TO BE ELIMINATED FROM THE FINAL LIST OF COMPARABLES. THE SAID RATIO HAS BEE N LAID DOWN BY SEVERAL TRIBUNALS, ONE SUCH DECISION IS AS APPLIED BY CIT(A) IN GENESIS INTEGRATING SYSTEMS LIMITED (SUPRA) AND OTHER RELIED UPON BY THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE IN DCIT VS. TRIDENT MICROSYSTEMS I NDIA (P.) LTD. (SUPRA) . WE ALSO FIND THAT THE TRIBUNAL WHILE DECIDING THE APPEAL IN CAPGEMINI INDIA (P.) LTD. VS. ACIT (SUPRA) I.E. THE DECISION RELIED UPON BY THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE, WHERE THE TURNOVER OF THE SAID CONCERN WAS MORE THAN RS.500 CRORES HAD IN TURN, SELECTED INFOSYS AND WIPRO AS COMPARABLES. FURTHER VIDE PARA 5.3.9 HAD REJECTED THE CONCERNS WITH LOWER TURNOVER SINCE THE MINIMUM SIZE OF TURNOVER COULD NOT BE COMPARED WITH WELL ESTABLISHED PLACE D IN THE FIELD. THE TRIBUNAL HELD THAT MINIMUM TURNOVER OF RS.100 CRORES HAD TO BE FIXED AND CONSIDERING THE SAME, THE CONCERNS WITH LESSER TURNOVER WERE REJECTED. IN THIS REGARD WE HOLD THAT HIGHER ITA NO. 1800 /PN/20 1 3 ITA NOS.299 & 399/PN/2015 AVALARA TECHNOLOGIES PVT. LTD. 12 TURNOVER FILTER HAS BEEN APPLIED IN CAPGEMINI INDIA (P.) LTD. VS. ACIT ( SUPRA) AND WE FIND NO MERIT IN THE STAND OF REVENUE THAT NO FILTER IS TO BE APPLIED. UPHOLDING THE ORDER OF CIT(A), WE DISMISS THE GROUNDS OF APPEAL RAISED BY THE REVENUE AGAINST REJECTION OF CONCERNS HAVING TURNOVER EXCEEDING RS.200 CRORES. THE GROUNDS OF APPEAL RAISED BY THE REVENUE ARE THUS, DISMISSED IN ITA NO.1800/PN/2013. 19. NOW, COMING TO THE CROSS APPEALS FILED BY THE ASSESSEE AND THE REVENUE AGAINST THE RECTIFICATION ORDER PASSED BY THE CIT(A) UNDER SECTION 154 OF THE ACT. 20. THE ASSESSEE HAD MOVED AN APPLICATION FOR RECTIFICATION WHICH IS PLACED AT PAGE 312 OF THE PAPER BOOK. UNDER THE SAID RECTIFICATION APPLICATION, THE ASSESSEE WAS AGGRIEVED BY NON - ADJUDICATION OF CERTAIN GROUNDS OF APPEAL ON THE SURMISE THAT IF IN CASE, THREE ISSUES RAISE D IN THE APPEAL WERE DECIDED IN FAVOUR OF THE ASSESSEE, THEN NO ADDITION WOULD BE SUSTAINED AFTER GIVING APPEAL EFFECT. IT WAS POINTED OUT BY THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE THAT EVEN IF THE APPEAL EFFECT IN RESPECT OF THREE ISSUES WERE GIVEN, THE ADDITION OF RS.20,29,200/ - WOULD BE SUSTAINED OUT OF TOTAL ADDITION OF RS.54,78,990/ - . THE ASSESSEE FURTHER STRESSED THAT IT HAD CLARIFIED THAT TWO COMPANIES NAMELY R.S. SOFTWARE (INDIA) LTD. AND DATAMATICS GLOBAL SERVICES LTD. HAVE SATISF IED ALL THE FILTERS APPLIED BY THE ASSESSING OFFICER AND HENCE, THE SAME MAY BE CONSIDERED AS COMPARABLE ENTITIES IN THIS YEAR. THE CIT(A) PASSED AN APPELLATE ORDER, AGAINST WHICH THE ASSESSEE IS IN APPEAL BEFORE US . 21. THE LIMITED ISSUE WHICH ARISES IN THE APPEAL FILED BY THE ASSESSEE IS THAT WHE THER THE TWO CONCERNS I.E. R.S. SOFTWARE (INDIA) LTD. AND DATAMATICS GLOBAL ITA NO. 1800 /PN/20 1 3 ITA NOS.299 & 399/PN/2015 AVALARA TECHNOLOGIES PVT. LTD. 13 SERVICES LTD. COULD BE ACCEPTED AS PART OF FINAL LIST OF CONCERNS. THE CASE OF THE ASSESSEE BEFORE US IS THAT THESE CONCERNS WERE SELE CTED BY APPLYING FILTERS APPLIED BY THE ASSESSING OFFICER. HOWEVER, THE ASSESSING OFFICER SUMMARILY DID NOT CONSIDER THE SAME AND THE CIT(A) ALSO DID NOT ADJUDICATE. IN THE ORDER PASSED UNDER SECTION 154 OF THE ACT AGAIN THIS ISSUE HAS NOT BEEN DECIDED B Y THE CIT(A) AND HENCE, THE ASSESSING OFFICER BE DIRECTED TO VERIFY THE CLAIM OF ASSESSEE. 22. WE FIND MERIT IN THE CLAIM OF ASSESSEE THAT IN CASE CERTAIN FILTERS ARE PICKED UP BY THE ASSESSING OFFICER AND APPLIED, THEN AS PER THE REVISED FILTERS PICKED UP BY THE ASSESSING OFFICER IN CASE CERTAIN CONCERNS FALL WITHIN THOSE FILTERS, THEN THE MARGINS OF THE SAID CONCERNS NEED TO BE APPLIED FOR BENCHMARKING INTERNATIONAL TRANSACTION OF THE ASSESSEE, BY SELECTING THE SAID CONCERNS IN THE FINAL SET OF COMPARA BLES. ACCORDINGLY, WE DIRECT THE ASSESSING OFFICER TO CONSIDER THE RESULTS OF THE SAID CONCERNS AND IN CASE, THEY FULFILL THE CONDITIONS OF FILTERS APPLIED BY ASSESSING OFFICER WHILE BENCHMARKING THE INTERNATIONAL TRANSACTION OF THE ASSESSEE, THEN THE SAI D TWO CONCERNS MAY BE SO SELECTED IN THE FINAL SET OF COMPARABLES. ACCORDINGLY, GROUND OF APPEAL NO.1.2 RAISED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. AS ADMITTED BY THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE , GROUNDS OF APPEAL N OS.1, 1.2, 2, 3 AND 4 ARE DISMISSED AS NOT PRESSED, 2 3 . THE REVENUE ON THE OTHER HAND HAS ALSO FILED AN APPEAL AGAINST THE RECTIFICATION ORDER PASSED BY CIT(A) AND IS AGGRIEVED BY THE DIRECTIONS OF CIT(A) IN C ONSIDERING EXCLUSION OF THE SAID COMPANIES IN THE FINAL LIST OF COMPARABLES IN CASE THE SAID COMPANIES ARE PART OF ACCEPT REJECT MATRIX. THE CASE OF THE REVENUE BEFORE US IS THAT THE ASSESSEE IN ITS TRANSFER PRICING REPORT ITSELF HAS ITA NO. 1800 /PN/20 1 3 ITA NOS.299 & 399/PN/2015 AVALARA TECHNOLOGIES PVT. LTD. 14 REJECTED THESE CONCERNS FROM THE FINAL LIST OF COMPARABLES. WE F IND MERIT IN THE CLAIM OF THE REVENUE IN THIS REGARD. HOWEVER, IT MAY BE PUT ON RECORD THAT THE FILTERS TO BE APPLIED FOR PICKING UP THE COMPARABLES HAS BEEN REVISED BY THE ASSESSING OFFICER AND IN CASE THERE IS REVISION OF THE FILTERS AND NEW COMPANIES A RE BEING SELECTED, THEN THE SELECTION OF CONCERNS IS TO BE SEEN IN VIEW OF THE REV ISED FILTERS APPLIED BY THE ASSESSING OFFICER. THE CIT(A) HAS ONLY DIRECTED THE ASSESSING OFFICER TO APPLY MARGINS OF AFORESAID CONCERNS IN CASE THESE COMPANIES WERE PART OF ACCEPT REJECT MATRIX AND THE ISSUE OF REJECTION OF THE SAID CONCERNS IN THE TRANSFER PRICING REPORT BY THE ASSESSEE STANDS MODIFIED SINCE THE FILTERS WHICH WERE APPLIED BY THE ASSESSEE IN THE TRANSFER PRICING REPORT HAS NOT BEEN APPLIED BY THE ASSESSING OFFICER. THE ISSUE HAS BEEN SET - ASIDE TO THE FILE OF ASSESSING OFFICER, WHO SHALL DECIDE AFTER GIVING REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE AND WE DIRECT THE ASSESSING OFFICER TO LOOK INTO THESE ASPECTS AND THEN DETERMINE WHETHER THE SAID CON CERNS ARE TO BE PICKED UP FOR BENCHMARKING INTERNATIONAL TRANSACTION OF THE ASSESSEE. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT ONE CONCERN I.E. SILVER LINE TECHNOLOGIES HAS TO BE EXCLUDED FROM THE FINAL LIST OF CO MPARABLES A S IT FOLLOWS DIFFERENT FINANCIAL YEAR I.E. FROM 01.07.2009 TO 30.06.2010 , WHEREAS THE FINANCIAL YEAR OF THE ASSESSEE ENDS BY 31.03.2010. IN THIS REGARD, RELIANCE WAS PLACED ON THE RATIO LAID DOWN BY PUNE BENCH OF TRIBUNAL IN DOVER INDIA (P.) LTD. VS. DCIT (2015) 59 TAXMANN.COM 53 (PUNE TRIB.) . WE FIND MERIT IN THE CLAIM OF ASSESSEE IN THIS REGARD. HOWEVER, SINCE THE ISSUE IS BEING SET - ASIDE TO THE FILE OF ASSESSING OFFICER, THE ASSESSING OFFICER IS ALSO DIRECTED TO LOOK INTO THESE ASPECTS AND DECIDE IN LINE WITH THE RATIO LAID DOWN IN DOVER INDIA (P.) LTD. VS. DCIT (SUPRA) . CONSEQUEN T L Y, THE GROUNDS OF APPEAL RAISED BY THE REVENUE ARE ALLOWED FOR STATISTICAL PURPOSES. ITA NO. 1800 /PN/20 1 3 ITA NOS.299 & 399/PN/2015 AVALARA TECHNOLOGIES PVT. LTD. 15 2 4 . IN THE RESULT, THE APPEAL OF REVENUE IN ITA NO.1800/PN/2013 IS DISMISSED AND CRO SS APPEALS OF THE ASSESSEE AND REVENUE ARE ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON THIS 31 ST DAY OF MARCH , 201 6 . SD/ - SD/ - (PRADIP KUMAR KEDIA) (SUSHMA CHOWLA) / ACC OUNTANT MEMBER / JUDICIAL MEMBER / PUNE ; DATED : 31 ST MARCH , 201 6 . GCVSR / COPY OF THE ORDER IS FORWARDED TO : 1. THE APPELLANT ; 2. THE RESPONDENT; 3. THE DIT (INTL. TAXATION), PUNE ; 4. THE CIT(A) - IT/TP , PUNE ; 5. 6. THE CIT - I, PUNE THE DR A , ITAT, PUNE; 7 . GUARD FILE . / BY ORDER , // TRUE COPY // / SR. PRIVATE SECRETARY , / ITAT, PUNE