M/s Fulcurm Fund Services India Pvt Ltd , Bangalore V. Income TAX Officer Ward-3(1)(1), Bangalore

ITA 2521/BANG/2017

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 8388 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 4 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-04-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2012-2013
• Appeal Filed On: 28-11-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Transfer pricing; International transaction; Bonafide belief; Question of law; Non-deduction of tax; Bad and doubtful debts; TDS
• Section: 92

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, VICE PRESIDENT AND SHRI JASON P. BOAZ, ACCOUNTANT MEMBER IT(TP)A NO. 2521/BANG/2017 ASSESSMENT YEAR : 2012-13 FULCRUM FUND SERVICES (INDIA) PRIVATE LIMITED, FLAT NO. 102, ARADHANA APARTMENTS, SRINIVAGILU, 2 ND MAIN ROAD, S.T. BED LAYOUT, KORAMANGALA, BANGALORE [PAN: AABCF 1230B] VS. INCOME TAX OFFICER, WARD-3(1)(1), BANGALORE APPELLANT RESPONDENT APPELLANT BY : SHRI SHARATH RAO, CA RESPONDENT BY : SHRI R.N. SIDDAPPAJI, ADDL.CIT DATE OF HEARING : 08-04-2019 DATE OF PRONOUNCEMENT : 12-04-2019 O R D E R PER N V VASUDEVAN, VICE PRESIDENT : THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE ORDER DATED 03-10-2017 OF THE COMMISSIONER OF INCOME TAX (APPEA LS)-3, BENGALURU, RELATING TO ASSESSMENT YEAR 2012-13. 2. GROUND NOS. 1 TO 14 RAISED BY THE ASSESSEE IN IT S APPEAL ARE WITH REGARD TO CORRECTNESS OF THE DETERMINATION OF ARMS LENGTH PRICE : 2 : IT(TP)A NO. 2521/BANG/2017 (ALP) IN RESPECT OF AN INTERNATIONAL TRANSACTION OF RENDERING INFORMATION AND TECHNOLOGY ENABLED SERVICES (ITES) BY THE ASSESSEE TO ITS ASSOCIATED ENTERPRISE (AE). IT IS NOT IN DI SPUTE THAT THE TRANSACTION OF RENDERING ITES, IN THE FORM OF PROVI DING BACK OFFICE SUPPORT FOR HEDGE FUND RELATED FINANCIAL SERVICES T O ITS GROUP COMPANIES, IS AN INTERNATIONAL TRANSACTION AND INCO ME ARISING FROM SUCH TRANSACTION HAS TO BE DETERMINED 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 T HE PROFIT LEVEL INDICATOR (PLI) CHOSEN FOR THE PURPOSE OF COMPARING THE ASSESSEES PROFIT MARGIN WITH THE COMPARABLE COMPANIES WAS OPE RATING PROFIT ON OPERATING COST. THE ASSESSEES OPERATING PROFIT ON OPERATING COST WAS 20.53%, WHICH WAS ARRIVED AT THE FOLLOWING MANN ER: 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 ASSES SEE AND THE REVENUE FOR THE PURPOSE OF DETERMINING ALP WAS THE TRANSACTIONAL : 3 : IT(TP)A NO. 2521/BANG/2017 NET MARGIN METHOD (TNMM). THE ASSESSEE HAD CHOSEN 0 4 COMPARABLE COMPANIES AND BASED ON THE ARITHMETIC AVERAGE MEAN, PROFIT MARGIN OF THOSE 04 COMPANIES WHICH WAS ARRIVED AT 17.46% C ONCLUDED THAT THE ASSESSEES PROFIT MARGIN BEING HIGHER THAN THAT OF THE COMPARABLE COMPANIES, THE PRICE RECEIVED BY THE ASSESSEE IN TH E INTERNATIONAL TRANSACTION WAS AT ARMS LENGTH. 4. THE TRANSFER PRICING OFFICER (TPO) TO WHOM THE D ETERMINATION OF ALP WAS REFERRED TO BY THE ASSESSING OFFICER, RE JECTED ALL THE 04 COMPARABLE COMPANIES CHOSEN BY THE ASSESSEE. HE CH OSE A SET OF 10 COMPARABLE COMPANIES, WHOS 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 TECHNOLOGIES LTD., 126,38,02,000 112,89,16,000 11.75 2 UNIVERSAL PRINT SYSTEMS LTD (SEG)(BPO) 6,17,67,000 3,87,49,000 52.46 3 INFORMED TECHNOLOGIES INDIA LTD., 1,96,36,431 1,82,45,770 6.08 4 INFOSYS BPO LTD., 1316,75,11,974 962,91,06,964 36.30 5 JINDAL INTELLICOM LTD., 30,27,51,875 30,29,02,990 -0.05 6 MICROGENETIC SYSTEMS LTD 1,29,93,217 1,08,63,390 19.61 7 TCS E-SERVE LTD., 15,78,44,000 9,64,28,000 63.69 8 BNR UDYOG LTD (SEG)(MEDICAL TRANSCRIPTION) 1,47,04,000 97,87,000 41.58 9 EXCEL INFOWAYS LTD (SEG)(IT/BVPO) 790,96,95,000 559,06,04,000 29.79 10 E4E HEALTHCARE SERVICES PVT LIMITED 89,50,04,209 74,59,23,078 19.85 AVERAGE PLI 28.11% : 4 : IT(TP)A NO. 2521/BANG/2017 4.1. BASED ON THE ABOVE COMPARABLE COMPANIES AND TH EIR PROFIT MEAN AND AFTER GIVING WORKING CAPITAL ADJUSTMENT OF (-)3 .25%, THE TPO ARRIVED AT AN ADDITION TO BE MADE TO THE TOTAL INCO ME ON ACCOUNT OF DETERMINATION OF ALP AT A SUM OF RS. 2,48,24,560/-, WHICH WAS ARRIVED AT IN THE FOLLOWING MANNER: 12.4. COMPUTATION OF ARMS LENGTH PRICE: THE ARITHMETIC MEAN OF THE PROFIT LEVEL INDICATORS IS TAKEN AS THE ARMS LENGTH MARGIN. PLEASE SEE ANNEXURE B FOR DETAILS O F COMPUTATION OF PLI OF THE COMPARABLES. BASED ON THIS, THE ARMS LENGTH PR ICE OF THE SERVICES RENDERED BY THE TAXPAYER TO ITS AE(S) IS COMPUTED A S UNDER: IT ENABLED SERVICES ARMS LENGTH MEAN M ARGIN ON COST 28.11% LESS: WORKING CAPITAL ADJUSTMENT -3.25% (AS PER ANNEX.C) 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 ADJUST MENT 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 T HE TAXPAYERS INTERNATIONAL TRANSACTIONS. 4.2. AGGRIEVED BY THE AFORESAID ADDITION MADE BY TH E ASSESSING OFFICER, CONSEQUENT TO DETERMINATION OF ALP, THE AS SESSEE FILED AN APPEAL BEFORE THE CIT(A). : 5 : IT(TP)A NO. 2521/BANG/2017 5. THE CIT(A) UPHELD THE ORDER OF TPO REGARDING CHO OSING OF COMPARABLE COMPANIES. 5.1. WITH REGARD TO ALLOWING NEGATIVE WORKING CAPIT AL ADJUSTMENT, THE CIT(A) HELD THAT THE NEGATIVE WORKING CAPITAL A DJUSTMENT DONE BY THE TPO WAS NOT PROPER. AS A RESULT, THE ARITHMETI C 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 UPHOLDI NG THE COMPARABLES CHOSEN BY THE TPO, ASSESSEE HAS PREFERR ED 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 SELECTIN G 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 WHIL E CHOOSING COMPARABLE COMPANIES, APPLIED A FILTER WHEREBY HE E XCLUDED COMPANIES, WHOSE TURNOVER WAS LESS THEN RS. 1 CRORE , AS COMPANIES WHICH HAVE TO BE REGARDED AS SMALL, COMPARED TO THE TURNOVER OF THE ASSESSEE, WHICH WAS RS. 27.61 CRORES. THE ASSESSEE S CONTENTIONS FOR THE CIT(A) WAS THAT - WHEN A LOWER TURNOVER LIMIT IS APPLIED FOR : 6 : IT(TP)A NO. 2521/BANG/2017 SELECTING COMPANIES, HIGHER TURNOVER LIMIT OR UPPER LIMIT SHOULD ALSO BE APPLIED . THIS ARGUMENT WAS REJECTED BY THE TPO FOR THE RE ASON THAT IN A DECISION RENDERED BY THE ITAT, BANGALORE BENCH IN THE CASE OF SOCIETE GENERAL GLOBAL SOLUTION CENTRE P. LTD., VS. DCIT IN IT(TP) APPEAL NO. 1188/BANG/2011, ORDER DT. 22-04-2016, IT WAS HELD THAT TURNOVER IS NOT A RELEVANT CRITERIA BY FOLLOWING TH E DECISION RENDERED BY THE ITAT, MUMBAI IN THE CASE OF WILLIS PROCESSIN G SERVICES (I) (P) LTD., VS. DCIT (2013) [30 TAXMANN.COM 350] (MUM-TRI B). T HE CIT(A) ALSO PLACED RELIANCE ON THE DECISION OF THE ITAT, MUMBAI RENDERED IN THE CASE OF SYMANTEC SOFTWARE SOLUTIONS (P) LTD., VS. ACIT (2011) [11 TAXMANN.COM 264] (MUMBAI), WHEREIN IT WAS HELD THAT WHEN THE ASSESSEE IS NOT ABLE TO MAKE OUT A CASE AS TO H OW HIGH OR LOW TURNOVER HAS INFLUENCED OPERATING MARGIN, THEN, A COMPARABLE CANNOT BE REJECTED SOLELY ON THE BASIS OF HIGH TURN OVER. 7.1. LD. COUNSEL FOR THE ASSESSEE BROUGHT TO OUR NO TICE A DECISION RENDERED BY THE ITAT, BANGALORE BENCH IN THE CASE O F DCIT VS. M/S. NORTHERN OPERATING SERVICES IN IT(TP)A NO. 101/BANG /2016 FOR THE AY. 2011-12, DT. 15-02-2019, WHEREIN THE HON'BLE TR IBUNAL AFTER NOTICING SEVERAL CONFLICTING DECISIONS ON THE POINT OF APPLICATION OF TURNOVER FILTER, CAME TO THE CONCLUSION THAT HIGH TURNOVER OR LOW TURNOVER IS A RELEVANT CRITERION FOR EXCLUDING COMP ANIES AS COMPARABLE COMPANIES. 7.2. LD. DR RELIED ON THE ORDER OF THE LD.CIT(A). : 7 : IT(TP)A NO. 2521/BANG/2017 7.3. WE HAVE GIVEN A CAREFUL CONSIDERATION TO THE R IVAL SUBMISSIONS. THE BANGALORE BENCH OF THE ITAT HAD AN OCCASION TO DEAL WITH AN IDENTICAL ISSUE IN THE CASE OF DCIT VS. M/S. NORTHE RN OPERATING SERVICES (SUPRA), WHEREIN THE TRIBUNAL CAME TO THE CONCLUSION THAT TURNOVER WAS RELEVANT CRITERIA IN CHOOSING COMPARAB LE COMPANIES AND THAT A COMPANY, WHOSE TURNOVER IS MORE THAN RS. 200 CRORES, CANNOT BE COMPARED WITH THE COMPANY, WHOSE TURNOVER IS LES S THEN RS. 200 CRORES. IN COMING TO THE AFORESAID CONCLUSION, THE TRIBUNAL RE LIED 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 DECI SIONS ON THE POINT, AND CONCLUDING THAT THE APPLICATION OF TURNOVER FIL TER STILL HOLDS GOOD AND HAS NOT BEEN IN ANY MANNER DILUTED BY THE DECIS ION OF HON'BLE KARNATAKA HIGH COURT IN THE CASE OF M/S. ACUSIS SOF TWARE (I) PVT. LTD., VS. ITO IN ITA NO. 223/2017, DT. 14-08-2018, FOLLOW ING THE RELEVANT OBSERVATIONS OF THE TRIBUNAL, HELD AS UNDER: 11. AGGRIEVED BY THE AFORESAID ADDITION MADE BY T HE AO, THE ASSESSEE FILED OBJECTIONS BEFORE THE DRP. IN ITS OBJECTIONS , THE ASSESSEE POINTED OUT THAT THE TPO APPLIED THE FOLLOWING FILTERS IN THE T P STUDY:- COMPANIES WHOSE ITES SERVICE INCOME < 1 CR. WERE EX CLUDED 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 TREN D. MOREOVER THEIR LOW COST/SALES BASE MAKES THEIR RESULTS UNREL IABLE. 12. THE ASSESSEE SUBMITTED THAT THE TPO HAVING CHOS EN LOWER TURNOVER FILTER OUGHT TO HAVE EXCLUDED COMPANIES WHOSE TURNO VER WAS LESS THAN RS.200 CRORES. THE ASSESSEE SUBMITTED THAT IN THE SOFTWARE INDUSTRY, THERE WAS CLASSIFICATION OF THREE CATEGORIES VIZ., (I) CO MPANIES WITH LESS THAN : 8 : IT(TP)A NO. 2521/BANG/2017 RS.200 CRORES BEING CATEGORISED AS SMALL COMPANIES, (II) COMPANIES WITH MORE THAN 200 CRORES, BUT LESS THAN 2000 CRORES BE ING CATEGORISED AS MEDIUM COMPANIES; AND (III) COMPANIES WITH ABOVE RS .2000 CRORES BEING CATEGORISED AS LARGE SIZE COMPANIES. THE ASSESSEE P LEADED THAT COMPANIES WITH LESS THAN RS.200 CRORES TURNOVER SHO ULD BE EXCLUDED AS ASSESSEES TURNOVER WAS IN THE RANGE OF RS.328 CROR ES BEING A MEDIUM SIZE COMPANY. 13. ON THE ABOVE OBJECTION, THE DRP ACCEPTED THE ST AND OF THE ASSESSEE OBSERVING AS FOLLOWS:- 3.1 ONE OF THE OBJECTIONS OF THE ASSESSEE IS THAT THE TPO HAS NOT CONSIDERED THE TURNOVER AND SIZE OF THE COMPARA BLES SELECTED BY IT. SIMILAR OBJECTION WAS RAISED BY THE ASSESSEE FOR AY 2010- 11 BEFORE DRP AND IN ITS ORDER DRP HAD FOLLOWED THE DECISION OF HON'BLE BANGALORE ITAT IN THE CASE OF GENISYS INTEG RATING SYSTEMS (ITA NO. 1231(BANG)/2010) WHERE A GUIDELINE IN THE MATTER OF TURNOVER FILTER WAS SUGGESTED AND THAT TH E CATEGORIZATION OF SOFTWARE COMPANIES IN THE DUN & B RAD STREET STUDY BE ADOPTED AS A METHOD OF CLASSIFICATION OF C OMPANIES BY SIZE. ACCORDING TO THIS STUDY, 3 CATEGORIES OF FIRM S WERE IDENTIFIED I.E. SMALL WITH TURNOVER LESS THAN RS.200 CRORE, `M EDIUM' WITH TURNOVER RS.200 TO RS.2000 CRORE AND 'LARGE' WITH T URNOVER GREATER THAN RS.2,000 CRORE. ON THIS ISSUE A DETAI LED FINDING HAS BEEN GIVEN BY THE TPO IN HIS ORDER, JUSTIFYING THAT THERE IS NO CORRELATION BETWEEN HIGH TURNOVER AND PROFIT MARGIN S OF A COMPANY. FURTHER, THE ITAT MUMBAI IN THE CASE OF TH E CAPGEMINI INDIA PVT LTD VS ACIT (ITA NO. 7861/MUM/2 011 FOR AY 2007-08) HAD HELD THAT THE CONCEPT OF ECONOMY OF SCALE CANNOT BE APPLIED TO SERVICE DELIVERING COMPANIES A ND THAT THERE IS NO EMPIRICAL EVIDENCE TO SUGGEST THAT MARGINS AR E RELATED TO TURNOVER. HOWEVER, FOLLOWING THE DECISION OF THE JU RISDICTIONAL ITAT, THE OBJECTION OF THE ASSESSEE IS ACCEPTED. TH E TAXPAYER COMPANY WOULD FALL IN THE CATEGORY OF A 'MEDIUM' SI ZED 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 COMP ARABILITY ANALYSIS. 14. AGGRIEVED BY THE AFORESAID ORDER OF DRP, THE RE VENUE HAS RAISED GROUND NOS.3 & 4 BEFORE THE TRIBUNAL. : 9 : IT(TP)A NO. 2521/BANG/2017 15. THE LD. DR SUBMITTED THAT THE HONBLE HIGH COUR T 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 TH E TURNOVER OF THE ASSESSEE, THEN IT CANNOT BE CONSIDERED AS A COMPARA BLE COMPANY. THE LD. DR DREW OUR ATTENTION TO THE TURNOVER OF 10 COMPARA BLE 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, THE N THAT WOULD BE THE PROPER BASIS FOR EXCLUDING COMPANIES FOR THE PURPOSE OF CO MPARABILITY BASED ON TURNOVER. 16. THE LD. COUNSEL FOR THE ASSESSEE, ON THE OTHER HAND, SUBMITTED THAT THE HONBLE HIGH COURT OF KARNATAKA IN THE CASE OF ACUSIS SOFTWARE (I) P. LTD. (SUPRA) MERELY DISMISSED THE APPEAL OF ASSESSE E ON THE GROUND THAT NO SUBSTANTIAL QUESTION OF LAW ARISES FOR CONSIDERA TION. IN PARTICULAR, HE DREW OUR ATTENTION TO THE FOLLOWING PARAGRAPHS OF T HE JUDGMENT OF HONBLE HIGH COURT:- 14. THE FINDINGS OF THE LEARNED TRIBUNAL AS REGARD S THE COMPARABLE NAMELY, MERCURY OUTSOURCING MANAGEMENT LTD. , WHICH TOO HAVE BEEN EXCLUDED BY THE TRIBUNAL ARE QU OTED 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 : 10 : IT(TP)A NO. 2521/BANG/2017 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 ASSESSEES TURNOVER MORE THAN RS.27 CRORES . EVEN IF WE APPLY THE TOLERANCE RANGE OF TURNOVER OF 10 TIMES ON BOTH SIDES OF THE ASSESSEES 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 VIEW THAT THIS COMPANY WHICH IS HAVING ONLY RS. 45.33 LAKHS TURNOVER CANNOT BE CONSIDERED AS A GOOD COMPARABLE TO THE ASSESSEE. 15. FROM THE AFORESAID FINDINGS OF THE LEARNED TRIB UNAL, WE ARE SATISFIED THAT THE REASONS ASSIGNED BY THE LEARNED TRIBUNAL IN EXCLUDING THE AFORESAID COMPANY AS COMPARABLE IS AL SO REASONABLE AND THE SAME DESERVES TO BE ACCEPTED BY US. IT IS ANALYSED BY THE LEARNED TRIBUNAL IN EXTENSO WHICH A RRIVED AT A DECISION THAT THE COMPANY WHICH IS HAVING ONLY RS.4 5.33 LAKHS TURNOVER CANNOT BE CONSIDERED AS COMPARABLE TO THE ASSESSEE- COMPANY WHOSE TURNOVER IS MORE THAN RS.27 CRORES. 16. THE DECISION OF THE LEARNED TRIBUNAL IN THE OTH ER CASES REFERRED TO BY THE LEARNED COUNSEL FOR THE APPELLAN T-ASSESSEE WOULD NOT RENDER THE FINDINGS OF THE LEARNED TRIBUN AL IN THE PRESENT CASE NUGATORY OR PERVERSE FOR THE REASON TH AT ANALYZING OF THE COMPARABLES MAY BE IN A DIFFERENT CONTEXT AN D THE SAME NEED NOT BE BLINDLY OR GENERALLY ADOPTED IN ALL CAS ES, IRRESPECTIVE OF THE CONTEXT OR THE CIRCUMSTANCES CALLING UPON FO R THE INCLUSION/EXCLUSION OF THE COMPARABLES WHICH ABSOLU TELY IS A DECISION TO BE TAKEN BY THE LEARNED TRIBUNAL AS LAS T FACT FINDING : 11 : IT(TP)A NO. 2521/BANG/2017 AUTHORITY. THIS VIEW IS SUPPORTED BY OUR JUDGMENT D ATED 25.08.2018 ON SOFTBRANDS CASE (SUPRA), WHICH WE FIN D IT APPROPRIATE TO QUOTE HEREUNDER TO ITS RELEVANT EXTE NT:- 17. HE SUBMITTED THAT THE QUESTION OF LAW WHICH THE ASSESSEE SOUGHT TO RAISE BEFORE THE HONBLE HIGH COURT WAS JUSTIFICATI ON FOR EXCLUDING MERCURY OUTSOURCING MANAGEMENT LTD. AS A COMPARABLE COMPANY . IT IS IN THAT CONTEXT THAT THE AFORESAID DECISION WAS RENDERED BY THE HONBLE HIGH COURT. HE POINTED OUT THAT THE TRIBUNAL IN EXCLUDI NG MERCURY OUTSOURCING MANAGEMENT LTD., HAD TAKEN A VIEW THAT ITS TURNOVER WAS SMALL COMPARED TO THE ASSESSEES TURNOVER AND THEREFORE NOT COMPAR ABLE, EVEN IF THE TOLERANCE RANGE OF TURNOVER OF 10 TIMES ON BOTH THE SIDES OF ASSESSEES TURNOVER IS APPLIED. THERE IS NO POSITIVE FINDING BY THE TRIBUNAL THAT THE COMPANY CAN BE EXCLUDED FOR THE PURPOSE OF COMPARAB ILITY ON THE BASIS OF TURNOVER, ONLY IF THE TURNOVER IS 10 TIMES ON BOTH THE SIDES OF ASSESSEES TURNOVER. ON THE CONCLUSIONS OF THE TRIBUNAL, THE HONBLE HIGH COURT ONLY HELD THAT IT IS REASONABLE AND DESERVES TO BE ACCEP TED. IN PARA 16, THE HONBLE HIGH COURT HAS CLEARLY OBSERVED THAT THE DE CISIONS RENDERED IN OTHER CASES REFERRED TO BY THE LD. COUNSEL FOR THE ASSESSEE WOULD NOT RENDER THE FINDINGS OF THE TRIBUNAL IN THE CASE BEF ORE 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 BL INDLY OR GENERALLY ADOPTED IN ALL THE CASES, IRRESPECTIVE OF THE CONTE XT OR CIRCUMSTANCES CALLING FOR EXCLUSION/INCLUSION OF THE COMPARABLES. THE FI NDING IN EACH CASE IS THEREFORE A FINDING OF FACT. HE POINTED OUT THAT T HE 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 TH E CONCLUSION THAT THE DECISION RENDERED BY THE TRIBUNAL IN THE CASE OF GE NESIS INTEGRATED SYSTEMS (I) P. LTD. [2012] 53 SOT 159 LAYS DOWN THE CORRECT LAW ON THE APPLICATION OF TURNOVER FILTER AND THAT DECISION HA S TO BE FOLLOWED. HE POINTED OUT THAT THE DRP IN THE PRESENT CASE HAS FO LLOWED THE RULING IN THE CASE OF GENESIS INTEGRATED SYSTEMS (I) P. LTD. (SUP RA) AND THEREFORE THE ORDER OF DRP HAS TO BE UPHELD. 18. WE HAVE GIVEN A CAREFUL CONSIDERATION TO THE RI VAL SUBMISSIONS AND ARE OF THE VIEW THAT AS RIGHTLY SUBMITTED BY THE LD . COUNSEL FOR THE ASSESSEE, THE DECISION RENDERED BY THE HONBLE HIGH COURT OF KARNATAKA IN THE CASE OF ACUSIS SOFTWARE (I) P. LTD. (SUPRA) DOE S NOT POSITIVELY SAY THAT FOR A COMPANY TO BE EXCLUDED ON THE BASIS OF HIGH T URNOVER, THE TOLERANCE RANGE OF TURNOVER OF 10 TIMES ON BOTH THE SIDES OF ASSESSEES TURNOVER HAS TO BE SEEN. EVEN THE TRIBUNAL IN THE ORDER AGAINST WHICH THE APPEAL WAS FILED, DID NOT PROCEED ON APPLICATION OF TURNOVER F ILTER WITH ANY SUCH CONDITION. THEREFORE, IT IS NOT CORRECT TO SAY THA T FOR APPLICATION OF TURNOVER FILTER, TOLERANCE RANGE OF TURNOVER OF 10 TIMES ON BOTH THE SIDES OF : 12 : IT(TP)A NO. 2521/BANG/2017 ASSESSEES TURNOVER HAS BEEN LAID DOWN BY THE HONB LE HIGH COURT. THE HONBLE HIGH COURT HELD THAT THE ORDER OF TRIBUNAL IS CORRECT AND CALLS FOR NO INTERFERENCE AND FURTHER HELD THAT NO QUESTION OF L AW AROSE FOR CONSIDERATION. THE DECISION RENDERED IN THE CASE O F AUTODESK (I) P. LTD. (SUPRA) OF THE TRIBUNAL AFTER ANALYSING EVERY CONFL ICTING VIEWS HAS ULTIMATELY CONCLUDED THAT THE LAW LAID DOWN IN THE CASE OF GEN ESIS INTEGRATED SYSTEMS (I) P. LTD. (SUPRA) HAS TO BE FOLLOWED. TH E FOLLOWING WERE THE RELEVANT OBSERVATIONS OF THE TRIBUNAL:- 17.8. IN VIEW OF THE ABOVE CONCLUSION, THERE MAY N OT BE ANY NECESSITY TO EXAMINE AS TO WHETHER THE DECISION REN DERED IN THE CASE OF GENISYS INTEGRATING (SUPRA) BY THE ITAT BAN GALORE BENCH SHOULD CONTINUE TO BE FOLLOWED. SINCE ARGUMENTS WER E ADVANCED ON THE CORRECTNESS OF THE DECISIONS RENDERED BY THE ITAT MUMBAI AND BANGALORE BENCHES TAKING A VIEW CONTRARY TO THA T TAKEN IN THE CASE OF GENISYS INTEGRATING (SUPRA), WE PROCEED TO EXAMINE THE SAID ISSUE ALSO. ON THIS ISSUE, THE FIRST ASPEC T WHICH WE NOTICE IS THAT THE DECISION RENDERED IN THE CASE OF GENISY S INTEGRATING (SUPRA) WAS THE EARLIEST DECISION RENDERED ON THE I SSUE OF COMPARABILITY OF COMPANIES ON THE BASIS OF TURNOVER IN TRANSFER PRICING CASES. THE DECISION WAS RENDERED AS EARLY A S 5.8.2011. THE DECISIONS RENDERED BY THE ITAT MUMBAI BENCHES C ITED BY THE LEARNED DR BEFORE US IN THE CASE OF WILLIS PROCESSI NG SERVICES (SUPRA) AND CAPEGEMINI INDIA PVT.LTD. (SUPRA) ARE T O BE REGARDED AS PER INCURIUM AS THESE DECISIONS IGNORE A BINDING CO- ORDINATE BENCH DECISION. IN THIS REGARD THE DECISIO NS REFERRED TO BY THE LEARNED COUNSEL FOR THE ASSESSEE SUPPORTS TH E PLEA OF THE LEARNED COUNSEL FOR THE ASSESSEE. THE DECISIONS REN DERED IN THE CASE OF M/S.NTT DATA (SUPRA), SOCIETE GENERALE GLOB AL 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 B E REGARDED AS PER INCURIUM. THESE THREE DECISIONS ALSO PLACE RELI ANCE ON THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CAS E OF CHRISCAPITAL INVESTMENT (SUPRA). WE HAVE ALREADY HE LD THAT THE DECISION RENDERED IN THE CASE OF CHRISCAPITAL INVES TMENT (SUPRA) IS OBITER DICTA AND THAT THE RATIO DECIDENDI LAID D OWN BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF PENTAIR (S UPRA) WHICH IS FAVOURABLE TO THE ASSESSEE HAS TO BE FOLLOWED. T HEREFORE, THE DECISIONS CITED BY THE LEARNED DR BEFORE US CANNOT BE THE BASIS TO HOLD THAT HIGH TURNOVER IS NOT RELEVANT CRITERIA FO R DECIDING ON : 13 : IT(TP)A NO. 2521/BANG/2017 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 ISS UE OF APPLICATION OF TURNOVER FILTER AND HIS ACTION IN EX CLUDING COMPANIES BY FOLLOWING THE RATIO LAID DOWN IN THE C ASE OF GENISYS INTEGRATING (SUPRA). 19. IN THE GIVEN FACTS AND CIRCUMSTANCES OF THE CAS E, WE FIND NO GROUNDS TO INTERFERE WITH THE ORDER OF DRP ON THIS ISSUE. CONSEQUENTLY, GROUND NOS.4 & 5 RAISED BY THE REVENUE ARE DISMISSED AS WI THOUT ANY MERIT. 7.3.1. THE SUM AND SUBSTANCE OF THE CONCLUSION OF T HE ITAT IN THE PASSAGE QUOTED ABOVE IS 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 TUR NOVER FILTER AND THAT DECISION HAS TO BE FOLLOWED . IN THE DECISION RENDERED IN THE CASE OF GENESIS INTEGRATES SYSTEMS (I) PVT.LTD., IT HAS BEE N HELD THAT COMPANIES WITH TURNOVER OF ABOVE RS.200 CRORES CANN OT BE COMPARED WITH COMPANIES WITH TURNOVER OF LESS THAN RS.200 CR ORES. IN VIEW OF THE AFORESAID DECISION OF THE TRIBUNAL, WE HOLD THA T THE CIT(A) ERRED IN NOT ACCEPTING THE CLAIM OF ASSESSEE FOR EXCLUDING O F COMPANIES, WHOSE TURNOVERS WERE MORE THAN RS. 200 CRORES AND THOSE C OMPANIES REMAIN UN-COMPARABLE WITH ASSESSEE, BECAUSE ASSESSEES TUR NOVER WAS ONLY RS. 27.61 CRORES. THE 02 COMPANIES WHICH WOULD STAND E XCLUDED BY THE APPLICATION OF TURNOVER FILTER FROM THE SET OF 10 S ET OF COMPANIES CHOSEN BY THE TPO ARE (I) M/S. INFOSYS BPO LIMITE D, WHOSE TURNOVER IS RS.1312 CRORES AND (II) TCS E-SERVE LIMITED, WHO SE TURNOVER IS RS.1578.40 CRORES. ACCORDINGLY, WE HOLD THAT THE A FORESAID TWO COMPANIES SOULD BE REMOVED FROM THE LIST OF COMPARA BLE COMPANIES. : 14 : IT(TP)A NO. 2521/BANG/2017 THE TPO IS DIRECTED TO COMPUTE THE AVERAGE ARITHMET IC MEAN PROFIT OF THE COMPARABLE COMPANIES CHOSEN BY THE TPO, AFTER E XCLUDING 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 APP EAL READS AS FOLLOWS: GR.NO.15: DISALLOWANCE OF PROVISION FOR PROFESSIONA L FEES RS. 8,11,455 THE LEARNED AO/LEARNED CIT(APPEALS) HAS ERRED IN DI SALLOWING 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 UPHOLDING THE ACTION OF THE AO BY MENTIONING THAT NO SPECIFIC GROUND WAS RAISED BY TH E APPELLANT. THE LEARNED CIT(APPEALS) OUGHT TO HAVE APPRECIATED THAT APPELLA NT IN ITS GROUND OF APPEAL NO 2.2 RAISED BEFORE CIT(APPEALS) HAD CLEARL Y MENTIONED THAT LEARNED AO ERRED IN NOT APPRECIATING THE FACT THAT LIABILITY TOWARDS PROFESSIONAL FEES WAS CREATED BASED ON PAST YEARS EXPERIENCE. HOWEVER, SINCE THE EXACT AMOUNT WAS NOT ASCERTAINED AT THE E ND OF THE YEAR, THE APPELLANT WAS UNDER THE BONAFIDE BELIEF THAT TAX ON THE SAME IS NOT DEDUCTIBLE. THE LEARNED AO/LEARNED CIT(APPEALS) HAS ERRED IN NO T APPRECIATING THE FACT THAT THE APPELLANT HAD PROVIDED FOR LIABILITY TOWAR DS 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 ER RED IN NOT APPRECIATING THE FACT THAT THE SAME HAS BEEN REVERSED IN THE BOO KS OF ACCOUNT IN THE SUBSEQUENT YEAR WITH ACTUAL AMOUNT AND APPROPRIATE TAXES ON THE SAME WAS DULY DEDUCTED AND DEPOSITED. HENCE, THE YEAR-END PR OVISION MADE FOR PROFESSIONAL FEES SHOULD NOT BE ADDED BACK IN THE C OMPUTATION OF INCOME. : 15 : IT(TP)A NO. 2521/BANG/2017 8.1. AS FAR AS GROUND NO. 15 IS CONCERNED, THE FACT S ARE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS PAID A SUM OF RS. 8,11,455/- TOWARDS PROFESSIONAL FEES, ON WHICH TDS HAD NOT BEE N DEDUCTED. ASSESSING OFFICER WANTED TO DISALLOW THE AFORESAID PAYMENT ON THE GROUND THAT THE SAID SUM CANNOT BE CLAIMED AS EXPEN DITURE 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 POINTIN G OUT THAT THE AMOUNT CLAIMED BY WAY OF PROFESSIONAL FEE WAS A PRO VISION AND THEREFORE, NO TDS WAS MADE. THEREUPON, THE ASSESSIN G OFFICER HELD THAT WHILE COMPUTING INCOME FROM BUSINESS, EXPENSES WHICH ARE PURELY CONTINGENT IN NATURE AND WHICH ARE MERE PROVISIONS, CANNOT BE ALLOWED AS A DEDUCTION. ACCORDINGLY THE SUM OF RS. 8,11,45 5/- WAS DISALLOWED AND ADDED TO THE INCOME OF ASSESSEE. 8.3. BEFORE THE CIT(A), THE 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. THIS ARGUMENT WAS REJECTED BY THE CIT(A) BY FOLLOWING THE DECISION OF THE BANGALORE B ENCH OF ITAT IN THE CASE OF M/S. BOSCH LIMITED VS. ITO IN ITA NO. 1 583/BANG/2014, DT. 01-03-2016, WHEREIN IT WAS HELD THAT EVEN 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-QUE STION HAS CRYSTALISED. HE THEREFORE UPHELD THE ORDER OF ASSESSING OFFICER. : 16 : IT(TP)A NO. 2521/BANG/2017 8.4. LD. COUNSEL FOR THE ASSESSEE REITERATED THE CO NTENTIONS AS APPEARING IN THE GROUNDS OF APPEAL (NO.15) RAISED B EFORE 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 MATE RIAL TO SHOW THAT THE LIABILITY-IN-QUESTION WAS NOT CONTINGENT AND HA D CRYSTALISED, THIS TRIBUNAL HAS NO OTHER OPTION TO UPHOLD THE ORDER OF THE CIT(A). ACCORDINGLY, THE ORDER OF CIT(A) IS UPHELD AND GROU ND NO. 15 RAISED BY THE ASSESSEE IS DISMISSED. 9. GROUND NO. 16, RAISED BY THE ASSESSEE IN THE APP EAL READS AS FOLLOWS: GR.NO.16: DISALLOWANCE OF FOREX LOSS THE LEARNED AO/LEARNED CIT(APPEALS) HAS ERRED IN DI SALLOWING THE FOREX LOSS AMOUNTING TO RS. 43,40,156 TREATING IT AS A PR IOR PERIOD EXPENDITURE. THE LEARNED AO/LEARNED CIT(APPEALS) ERRED IN NOT AP PRECIATING THE FACT THAT THE FOREX LOSS WAS ON ACCOUNT OF CHANGE IN ACCOUNTI NG METHOD FOR ACCOUNTING OF FOREX GAIN/LOSS ARISING ON ACCOUNT OF INTER-COMPANY FOREIGN CURRENCY RECEIVABLES/PAYABLES. THE LEARNED AO/LEARNED CIT(APPEALS) ERRED IN NOT AP PRECIATING THAT CHANGE IN ACCOUNTING POLICY WAS BASED ON THE AUDITORS OPIN ION AND THEREFORE IF FOREX LOSS IS DISALLOWED IN SUBSEQUENT YEAR DUE TO CHANGE IN ACCOUNTING POLICY, THE APPELLANT WOULD BE PUT TO UNDUE HARDSHI P AND TAXES ON THE SAME WOULD BE UNJUST. 9.1. AS FAR AS GROUND NO. 16 IS CONCERNED, THE FOR EX LOSS WHICH WAS DISALLOWED BY THE ASSESSING OFFICER IS ADMITTED LY A FOREX LOSS RELATABLE TO AY. 2011-12. THE ONLY REASON WHY IT WA S CLAIMED AS : 17 : IT(TP)A NO. 2521/BANG/2017 DEDUCTION IN AY. 2012-13 IS THAT NEW AUDITORS WERE APPOINTED AND THEY EXPRESSED THE OPINION THAT FOREX LOSS WORTH RS. 43, 40,156/- WHICH OUGHT TO HAVE BEEN CLAIMED AS LOSS IN AY. 2011-12 W AS OMITTED TO BE CLAIMED AND THEREFORE SHOULD BE CLAIMED IN THE AY. 2012-13. 9.2. THIS CLAIM WAS RIGHTLY REJECTED BY THE ASSESSI NG OFFICER ON THE BASIS THAT PRIOR PERIOD LOSSES CANNOT BE ALLOWED AS A DEDUCTION IN A CASE WHERE THE ASSESSEE FOLLOWS MERCANTILE SYSTEMS OF AC COUNTING. IT IS ONLY LOSS WHICH ACCRUES AND ARISES TO AN ASSESSEE F OR THE PERIOD RELEVANT TO THE PREVIOUS YEAR RELEVANT TO THE AY. 2 012-13 THAT CAN BE ALLOWED AS A DEDUCTION. WE ARE OF THE VIEW THAT NO FAULT CAN BE FOUND IN THE ORDER OF CIT(A). CONSEQUENTLY, GROUND NO. 16 RAISED BY ASSESSEE IS DISMISSED. 10. IN THE RESULT, THE APPEAL OF ASSESSEE IS PARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON THIS 12 TH DAY OF APRIL, 2019 SD/- SD/- ( JASON P. BOAZ ) ( N.V. VASUDEV AN) ACCOUNTANT MEMBER VICE PRESIDENT BANGALORE, DATED, THE 12 TH APRIL, 2019. / TNMM / : 18 : IT(TP)A NO. 2521/BANG/2017 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, ITAT, BANGALORE