Auto Desk India Pvt. Ltd., Bangalore V. DCIT,

ITA 540/BANG/2013

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 7720 (ITAT-BANGALORE)
• Duration Of Justice: 5 year(s) 2 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-07-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2005-2006
• Appeal Filed On: 23-04-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL

Judgement Text

ITA NOS. 540 & 541, 616 & 617/BANG/2013 PAGE 5 OF 43 15 L&T INFOTECH LTD. 10.33 9.19 16 SATYAM COMPUTER SERVICES LTD. 29.44 27.81 17 INFOSYS TECHNOLOGIES LTD. 42.83 41.99 ARITHMETICAL MEAN 26.59 24.57 5. THE TPO COMPUTED THE ADDITION TO BE MADE TO THE TOTAL INCOME ON ACCOUNT OF DETERMINATION OF ALP AT RS. 1,41,03,664/ - AS FOLLOWS: COMPUTATION OF ARM'S LENGTH PRICE BY TPO AND THE A DJUSTMENT MADE: ARM'S LENGTH MEAN MARGIN 26.59% LESS: WORKING CAPITAL ADJUSTMENT 2.03% ADJUSTED MEAN MARGIN OF TH E COMPARABLES 24.57% OPERATING COST RS.9,67,99,350/ - ARM'S LENGTH PRICE (ALP) 124.57% OF OPERATING COST RS.12,05,82,950/ - PRICE RECEIVED RS. 10,64,79, 286/ - SHORT FALL BEING ADJUSTMENT U/S. 92CA RS.1,41,03,664 / - 6. THE ADDITION SUGGESTED BY THE TPO WAS ADDED TO THE TOTAL INCOME OF THE ASSESSEE BY THE AO. AGGRIEVED BY THE ORDER OF T HE AO MAKING THE AFORESAID ADDITION, THE ASSESSEE PREFERRED APPEAL B EFORE CIT(A). THE ASSESSEE CONTENDED BEFORE CIT(A) THAT THE ASSESSEE WHICH HAS A TURNOVER OF JUST RS.10.64 CRORES CANNOT BE COMPARED WITH COM PANIES WHOSE TURNOVER IS MORE THAN RS.200 CRORES. THE CIT(A) AC CEPTED THE ABOVE CONTENTION AND HE HELD THAT TURNOVER FILTER HAS TO BE APPLIED BY ADOPTED THE TURNOVER AT THE UPPER AND LOWER ENDS, I.E., THE RAN GE OF RS.1 CRORE TO RS.200 CRORES. CONSEQUENTLY, THE FOLLOWING 5 COMPA NIES WHOSE TURNOVER WAS ADMITTED ABOVE RS.200 CRORES, OUT OF THE 17 COM PANIES FINALLY CHOSEN BY THE TPO STOOD EXCLUDED. FLEXTRONICS LTD. L&T INFOTECH LTD. INFOSYS TECHNOLOGIES LTD. SATYAM COMPUTER SERVICES LTD. IGATE GLOBAL SOLUTIONS LTD. ITA NOS. 540 & 541, 616 & 617/BANG/2013 PAGE 6 OF 43 IT MAY BE MENTIONED HERE THAT ALTHOUGH THE TURNOVER OF IGATE GLOBAL SOLUTIONS LTD. ('IGATE' FOR SHORT) FOR FY 2004-05 WAS RS.406 CRORE S AND WOULD THUS STAND EXCLUDED ON APPLICATION OF THE TUR NOVER FILTER AT RS. 200 CRORES, AS WAS DIRECTED TO BE APPLIED BY THE CIT(A) , THE CIT(A) INADVERTENTLY DID NOT SPECIFICALLY SET OUT THAT IGATE WOULD BE SO EXCLUDED. HOWEVER, AS CAN BE SEEN FROM THE SET OF FINAL COMPARABLES SELEC TED BY THE CIT(A) AT PAGE 45 OF THE ORDER, IGATE HAS BEEN EXCLUDED THERE FROM. 7. IT WAS FURTHER CONTENDED BY THE ASSESSEE BEFO RE CIT(A) THAT THE FOLLOWING TWO COMPANIES, NAMELY, EXENSYS SOFTWARE SOLUTIONS LTD. AND THIRDWARE SOLUTIONS LTD., SHOULD BE EXCLUDED BECAUSE THEIR PROFITS WERE VERY ABNORMAL I.E., BEYOND 50%. THIS CLAIM OF THE ASSESSEE WAS ACCEPTED BY THE CIT(A) AND THESE TWO COMPANIES WERE EXCLUDED FOR HAVING ABNORMALLY HIGH PROFITS (BEYOND 50%). 8. THE ASSESSEE CONTENDED BEFORE CIT(A) THAT COMP ANIES WHOSE PROFITS WERE DIMINISHING OR WHO WERE MAKING CONSIST ENT LOSSES SHOULD BE EXCLUDED. THE CIT(A) ACCEPTED THE CONTENTION OF TH E ASSESSEE THAT INCREASING REVENUES DO NOT NECESSARILY REFLECT BETT ER PERFORMANCE AND, THEREFORE, DISAPPROVED THE USE OF THIS FILTER BY TH E TPO. HOWEVER, DESPITE THE SAME, MELSTAR INFORMATION TECHNOLOGIES LTD., ONE OF THE COMPARABLES SELECTED BY THE ASSESSEE IN ITS TP STUD Y BUT WHICH WAS REJECTED BY THE TPO ON APPLICATION OF THE ABOVE FIL TER, WAS NOT DIRECTED TO BE INCLUDED IN THE LIST OF COMPARABLES AS A RESULT OF HAVING REJECTED APPLICATION OF THIS FILTER. 9. THE ASSESSEE CONTENDED BEFORE CIT(A) THAT WHERE VER THE COMPANIES CHOSEN AS COMPARABLE HAD TRANSACTION OF T HE VALUE OF 10% OF ITS TOTAL REVENUES WITH RELATED PARTIES, THE RELATE D PARTY TRANSACTION FILTER (RPT) SHOULD BE APPLIED AND SUCH COMPANIES SHOULD B E EXCLUDED FROM THE LIST OF COMPARABLE COMPANIES. THE CIT(A) REJECTED THE CONTENTION OF THE