M/S. INFORMATION EVOLUTION INDIA PVT. LTD.,COIMBATORE V. DCIT, TP-2, CHENNAI

ITTPA 94/CHNY/2024

AI Insights

The case involves Information Evolution India Pvt. Ltd., which appealed against the final assessment order passed by the Income Tax Department concerning the assessment year 2021-22. The primary issues were related to the Transfer Pricing Officer's (TPO) adjustments in the Profit Level Indicator (PLI) and the inclusion of certain comparable companies for benchmarking. The Tribunal examined the TPO's method of calculating the PLI, particularly the exclusion of prior period expenses and the selection of comparables based on turnover and functional similarity.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 396966 (ITAT-CHENNAI)
• Appeal Type: Income Tax (Transfer Pricing) Appeal
• Pronouncement Date: 26-05-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2021-2022
• Other Referred Cases: DCIT v TriZetto Services India (P.) Ltd., ACIT v Chemtex Global Engineers (P.) Ltd., CIT v Visual Graphics Computing Services India (P.) Ltd., Acusis Software India (P.) Ltd. v ITO, Virtusa Consulting Services (P.) Ltd. v DCIT, Kumaran Systems (P.) Ltd. v DCIT
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A. SASIKUMAR
• Assessee Lawyers: T. BANUSEKAR; CALLING
• Keywords: Transfer pricing; International transaction
• Section: 143(3); 43B; 80HHC

Judgement Text

" आयकर अपीलȣय अͬधकरण,‘डी’ Ûयायपीठ,चेÛनई IN THE INCOME TAX APPELLATE TRIBUNAL ‘D’ BENCH, CHENNAI ŵी मनु क ुमार िगįर ,Ɋाियक सद˟ एवं ŵी एस .आर .रघुनाथा, लेखा सद˟ क े समƗ BEFORE SHRI MANU KUMAR GIRI, JUDICIAL MEMBER AND SHRI S.R.RAGHUNATHA, ACCOUNTANT MEMBER आयकर अपील सं./IT(TP)A No.: 94/CHNY/2024 िनधाᭅरण वषᭅ/Assessment Year:2021-22 Information Evolution India Pvt. Ltd., Module No.002/2, Ground Floor, Tidel Park Coimbatore Ltd., Elcosez, Coimbatore Aerodrome S.O., Coimbatore – 641 014. PAN: AACCI 9570N Vs. The Deputy Commissioner of Income Tax, TP-2, Chennai. (अपीलाथᱮ/Appellant) (ᮧ᭜यथᱮ/Respondent) अपीलाथᱮ कᳱ ओर से/Appellant by : Shri T. Banusekar, Advocate ᮧ᭜यथᱮ कᳱ ओर से/Respondent by : Shri A. Sasikumar, CIT सुनवाई कᳱ तारीख/Date of Hearing : 05.03.2025 घोषणा कᳱ तारीख/Date of Pronouncement : 26.05.2025 आदेश /O R D E R PER S R RAGHUNATHA, ACCOUNTANT MEMBER:- This appeal filed by the assessee is directed against the final assessment order passed by the Assessment Unit, Income Tax Department, u/s. 143(3) r.w.s. 144C(13) r.w.s.144B of the Income Tax Act, 1961 (hereinafter the ‘Act’) for the assessment year 2021-12 - 2 - IT(TP)A No.94/CHNY/2024 dated 28.09.2024 in pursuant to the directions of the Dispute Resolution Panel-2, Bengaluru dated 04.09.2024. 2. The brief facts of the case are that the assessee is a company engaged in the business of creating content from scratch, updating existing information, appending new information to existing records and verifying content accuracy. The assessee also acts as consultants for projects involving a new product or improved production process. The assessee filed its return of income for the A.Y. 2021-22 on 13.01.2022 declaring a total income of Rs.65,91,310/-. Subsequently the case was selected for scrutiny under CASS to verify the transactions with the AEs in other related services, BPO etc., along with the low profit before interest and tax as compared to turnover. Later the statutory notices were issued to assessee by calling for information and the assessee furnished the details and documents from time to time. The issues pertaining to the Transfer pricing, a reference has been made to the TU for determination of the ALP. The assessee submitted the complete details and stated that the assessee renders its services exclusively to its associated enterprise (AE), Information Evolution Inc., USA through its two centres located in Coimbatore and Coonoor. The quantum of international transactions for the year under consideration was Rs.16,88,74,012/- and the same - 3 - IT(TP)A No.94/CHNY/2024 was benchmarked for determination of Arm’s Length Price (ALP) by applying the Transactional Net Margin Method (TNMM). The Transfer Pricing Officer (TPO) concurred with TNMM that was adopted by the assessee in benchmarking the international transactions but went onto conduct a fresh study using certain filters to determine the PLI of the international transactions. The difference between the computation of Profit Level Indicator (PLI) as arrived at by the assessee and the TPO is tabulated below: Particulars Assessee TPO Profit Level Indicator (PLI) 12.06% Refer Page 47 of Paper Book (After exclusion of prior period expenses to the tune of Rs.1,21,20,183/-) 8.75% Refer Pages 7 and 8 of TP Order (After exclusion of Rs.54,29,225/- being net deduction claimed as per computation of total income) Comparables PLI Range 8.80% to 13.06% Median – 10.45% (As per TP Study) Refer Page 4 of TP Order 11.84% to 18.86% Median – 14.10% (As per TPO search) Refer Page 9 of TP Order – Conclusion Paragraph Notes: 1. In the above table, it may be noted that the assessee had inadvertently computed its PLI at 12.06% by adopting the formula [PLI = Operating Margin / Operating Income] instead of Operating Margin / Operating Cost. The actual PLI of the assessee had the correct computation been made would be 13.71% and not 12.06%. - 4 - IT(TP)A No.94/CHNY/2024 2. It may also be noted that the TPO while arriving at the PLI at 8.75% had in principle accepted the contention of the assessee in respect of exclusion of prior period expenses but however, in doing so, the TPO had arbitrarily invoked the provisions of section 43B of the Income Tax Act while computing the operating margin for determining the Arm’s Length Price of the international transactions and in effect allowed an adjustment to the tune of Rs.54,29,225/-. Thereafter, the TPO vide order u/s.92CA(3) dated 07.10.2023 had made an upward adjustment of Rs.83,05,869/- (Rs.17,71,79,881/- less Rs.16,88,74,012/-) to the quantum of international transactions for the year under consideration by computing the PLI of the assessee at 8.75% and equating the same to the median PLI of 14.10% which resulted in the value of international transactions to be Rs.17,71,79,881/- instead of Rs.16,88,74,012/- as declared by the assessee. 3. Aggrieved by the said adjustment, the assessee filed its objections before the Hon’ble Dispute Resolution Panel (DRP) contesting the upward adjustment and also the inclusion of certain comparable companies chosen by the TPO despite failing the turnover and functional dissimilarity filter. - 5 - IT(TP)A No.94/CHNY/2024 4. The DRP vide directions u/s.144C(5) dated 04.09.2024 dealt with the objections of the assessee in the following manner: a) With respect to the upward adjustment of Rs.83,05,869/- in respect of exclusion of prior period expenses pertaining to gratuity, the DRP held as under (Refer Para 2.1 at Page 2 of DRP Directions): “2.1 Panel: The Panel perused the submissions of the assessee. The assessee has contended that that amount claimed as prior period expenses was with respect to provision made for payment of gratuity. The claim of the assessee with respect to Provision for Gratuity was verified and it was found from the computation of income that not the entire amount for provision for gratuity pertaining to prior periods was disallowed and the assessee has also claimed in the income computation a sum of Rs.1,00,00,000/- as paid during the year. Hence the Panel is of the opinion that provisions being non ascertained liability cannot be considered as part of operating expenses. Hence the action of the TPO is confirmed. The grounds raised are rejected.” b) As regards the objections in respect of exclusion of certain comparable companies chosen by the assessee, the DRP dismissed the same and upheld the order of the TPO. 5. Aggrieved by the same, the assessee had filed an appeal before us. 6. The ld.AR submitted the following: Upward adjustment of Rs.83,05,869/- not warranted in the facts and circumstances of the instant case – Concise Ground Nos.2 to 6 - 6 - IT(TP)A No.94/CHNY/2024 In this connection, the ld.AR submitted that the assessee had been recognizing the provision for gratuity for its employees on the basis of the method prescribed under the Payment of Gratuity Act, 1972 which is based on a formula that takes into account the last drawn salary and the number of years of service. The opening provision for gratuity as on 01.04.2020 as per the said method was Rs.87,43,000/-. However, during the financial year 2020-21 relevant to assessment year 2021-22, the assessee in order to comply with the Projected Unit Credit Method stipulated in Accounting Standard 15–Employee Benefits, obtained an actuarial report in which the actuary had arrived at Rs.2,41,72,225/- as the amount of provision to be recognized at the year end, i.e., as on 31.03.2021 (The copy of the said report can be found at Pages 76 to 89 of the Paper Book, relevant pages being Pages 76, 80, 83 and 87). Thus, the assessee was required to provide Rs.1,54,29,225/- as the current year provision which was charged to the Profit and Loss Account of the assessee for the year under consideration. Due to the change in methodology in recognizing provision, some portion of the current year’s charge of provision to the Profit and Loss Account pertained to earlier years. The provision pertaining to prior - 7 - IT(TP)A No.94/CHNY/2024 periods to the tune of Rs.1,21,20,183/- was ascertained on a pro-rata calculation, basis of which can be found at Page 54 of the Paper Book. Further the ld.AR stated that taking into account the above determination of prior period expenses in the form of provision for gratuity, the assessee sought for exclusion of the same while computing the operating margins for the year under consideration in determination of PLI of the assessee for the purposes of benchmarking of international transactions. However, the TPO as stated in the foregoing paragraphs had in principle agreed to the contention of the assessee but resorted to a different method of computation of the adjustment claimed in this regard. The TPO failed to appreciate that the provisions of section 43B of the Income Tax Act are not applicable while computing the operating margins in determining the Arm’s Length Price of international transactions and that the same have no relevance. It may be noted that the computation of PLI of a company for transfer pricing purposes for a revenue transaction is arrived by using the below formula: PLI = Operating Margin / Operating Cost - 8 - IT(TP)A No.94/CHNY/2024 where Operating Margin is the difference between operating revenue and operating cost. The ld.AR further submitted that the computation of PLI is done using the books of accounts as the basis and it has nothing to do with the total income computed under the Act where various other adjustments may be made to the total income. It may further be noted that when the TPO has computed the PLI of the comparable companies using the data from the books of accounts, a different approach cannot be resorted to while computing the PLI of the appellant by using the income returned as the basis of computation. In fact, it is to be noted that the DRP was also in agreement with the plea of the assessee that the amount of prior period expenses ought to be excluded while computing operating margins, relevant portion of the DRP directions in this regard are reproduced as under (Refer Para 2.1 at Page 2 of DRP Directions): “2.1 Panel: The Panel perused the submissions of the assessee. The assessee has contended that that amount claimed as prior period expenses was with respect to provision made for payment of gratuity. The claim of the assessee with respect to Provision for Gratuity was verified and it was found from the computation of income that not the entire amount for provision for gratuity pertaining to prior periods was disallowed and the assessee has also claimed in the income computation a sum of Rs.1,00,00,000/- as paid during the year. Hence the Panel is of the opinion that provisions being non-ascertained - 9 - IT(TP)A No.94/CHNY/2024 liability cannot be considered as part of operating expenses. Hence the action of the TPO is confirmed. The grounds raised are rejected.” (Emphasis supplied) From the above, it can be seen that the DRP in no unclear terms had stated that a provision being a non-ascertained liability cannot be considered as part of operating expenses. Despite stating the same, the DRP erred in not allowing the exclusion of prior period expenses to the tune of Rs.1,21,20,183/- and consequently also erred in not directing the TPO in deleting the upward adjustment made in the instant case. The principle that extraordinary items such as exclusion of prior period expenses in respect of provision for gratuity in the instant case ought not to be considered for computation of operating margins has been held in the following cases (Refer S.Nos.1 and 2 of Case Law Book): 1. DCIT v TriZetto Services India (P.) Ltd. [2019] 110 taxmann.com 1 (Pune Trib.) – Refer Paras 25 to 27 at Page 10 of Case Law Book 2. ACIT v Chemtex Global Engineers (P.) Ltd. [2013] 35 taxmann.com 351 (Mumbai Trib.) – Refer Para 24 at Page 18 of Case Law Book Therefore, in light of the above, it is most humbly submitted that the assessee’s claim of exclusion of prior period expenditure of Rs.1,21,20,183/- in respect of provision of gratuity that had occurred due to change in methodology of recognizing such provision by using - 10 - IT(TP)A No.94/CHNY/2024 Projected Unit Completion Method as per AS 15 instead of determining provision based on Payment of Gratuity Act is valid and warranted in the facts of the instant case. The ld.AR submitted that if the adjustment towards prior period expenditure in respect of provision of gratuity is allowed, then the PLI of the assessee would be 13.71% which would eventually fall within the 35th and 65th percentile range as computed by the TPO and thereby the PLI of the international transactions in the instant case would be at Arm’s Length. 7. Exclusion of certain comparable chosen by TPO on account of turnover and functional dissimilarity criteria – Concise Ground No.7 The ld.AR submitted that the assessee had sought for exclusion of 2 comparable chosen by the TPO in the final list of comparable namely TTEC India Customer Solutions Pvt. Ltd. and Tech Mahindra Business Services Ltd. on account of the following: a) Turnover Criteria TTEC India Customer Solutions Pvt. Ltd. Turnover: Rs.343.96 crores (21 times approx.) Refer Page 102 of Paper Book Assessee’s Turnover: Rs.16.88 crores Refer Page 56 of Paper Book Tech Mahindra Business Services Ltd. Turnover: Rs.785.50 crores (47 times approx.) Refer Page 115 of Paper Book - 11 - IT(TP)A No.94/CHNY/2024 From the above, the ld.AR stated that the comparable chosen by the TPO namely TTEC India Customer Solutions Pvt. Ltd. (turnover of 21 times approx.) and Tech Mahindra Business Services Ltd. (turnover of 47 times approx.) are companies having huge turnover and the same are incomparable to that of the size of the assessee. In this connection, the ld.AR relied on the Hon’ble Madras High Court in the case of CIT v Visual Graphics Computing Services India (P.) Ltd. [2020] 274 Taxman 481 (Mad) after relying on various decisions in principle agreed that the turnover filter should be applied and in essence ruling that large turnover of companies cannot be considered as appropriate comparable – Refer Paras 7 to 9 at Page 22 of Case Law Book. The ld.AR placed further reliance on the following decisions where the turnover filter was applied at a tolerance range of 10 times on both sides of the assessee’s turnover and companies falling outside the said range were excluded: 1. Acusis Software India (P.) Ltd. v ITO [2018] 98 taxmann.com 183 (Kar) – Refer Paras 14 & 15 at Page 28 of Case Law Book 2. Virtusa Consulting Services (P.) Ltd. v DCIT [2024] 168 taxmann.com 709 (Chennai Trib.) – Refer Paras 8 to 8.2 at Page 36 of Case Law Book - 12 - IT(TP)A No.94/CHNY/2024 The ld.AR drew our attention to the decision of this Hon’ble Tribunal in the case of Kumaran Systems (P.) Ltd. v DCIT [2021] 191 ITD 514 (Chennai Trib.) (Copy enclosed separately) where it was held that when the assessee is having a small turnover and also catering to needs of its AEs, it cannot be compared with giant companies which are having huge turnover. In that case, the assessee’s turnover was Rs.33.24 crores, whereas TPO had included 4 comparable whose turnover ranged from Rs.207 crores to Rs.3,032 crores. It was held that the TPO had erred in not applying turnover filter for selection of comparable and was directed to apply turnover filter of 0 to 200 crores for selection of comparable – Refer Para 8 at Page 3 of the decision Taking into consideration the facts of the instant case, the ld.AR submitted that the TPO may be directed to apply the turnover range of 0 to 200 crores and thereby exclude the comparable companies namely TTEC India Customer Solutions Pvt. Ltd. and Tech Mahindra Business Services Ltd. since the turnover of both companies are much higher than the upper limit of Rs.200 crores. a) Functional Dissimilarity Business of the assessee: The assessee creates content from scratch, updating existing information, appending new information to existing records and verifying content accuracy. It also acts as consultants for projects involving a new product or improved production process – Refer Para 1.1 at Page 2 of DRP Directions - 13 - IT(TP)A No.94/CHNY/2024 T T E C India Customer Solutions Pvt. Ltd. Nature of Business: Engaged in BPO services including transaction processing, email management, software consultancy, voice support and technical helpdesk – Refer Page 104 of Paper Book (Data from financials extract) Tech Mahindra Business Services Ltd. Nature of Business: a) Engaged in providing voice-based call centre services – Refer Page 116 of Paper Book (Data from financials extract) b) The company operates on large scale providing an entire gamut of services like infrastructure and cloud services, Experience Design Services, Business Process Services, Network services, Testing Services etc. – Refer Page 117 of Paper Book (Website Data) The ld.AR submitted that the comparable companies namely TTEC India Customer Solutions Pvt. Ltd. is also involved in Software Consultancy services (segmental accounts not available) where the margins earned are normally way higher than that of the assessee’s business and thus the said company cannot be an appropriate comparable. As regards Tech Mahindra Business Services Ltd., it may be noted that the said company is involved in voice-based call services and host of - 14 - IT(TP)A No.94/CHNY/2024 other services which are completely different from that of the business of the assessee, rendering such company to be an inappropriate comparable. In light of the above arguments, the ld.AR prayed that the above stated comparable companies namely TTEC India Customer Solutions Pvt. Ltd. and Tech Mahindra Business Services Ltd. which fail on both turnover and functional dissimilarity filter ought to be excluded as comparable. 8. Per contra, the ld.DR relied on the orders of the TPO and that of the Hon’ble DRP and prayed for confirming the same. 9. We have heard the rival contentions perused the material available on record and gone through the orders of authorities along with the paper book filed by the assessee. 9.1 The first issue before us argued by the ld.AR is with regard to Upward adjustment of Rs.83,05,869/-. Admittedly the assessee renders its services exclusively to its associated enterprise (AE), Information Evolution Inc., USA through its two centres located in Coimbatore and Coonoor. The quantum of international transactions for the year under consideration was Rs.16,88,74,012/- and the same - 15 - IT(TP)A No.94/CHNY/2024 was benchmarked for determination of Arm’s Length Price (ALP) by applying the TNMM. The TPO concurred with TNMM that was adopted by the assessee in benchmarking the international transactions but went onto conduct a fresh study using certain filters to determine the PLI of the international transactions. The computation of PLI as arrived by the assessee after exclusion of prior period expenses (provision for gratuity of earlier years) to the tune of Rs.1,21,20,183/-, however the TPO tabulated considering the exclusion of prior period expenses (provision for gratuity of earlier years) to the tune of Rs.54,29,225/- being net deduction claimed as per computation of total income as per section 43B of the Act. Thereafter, the TPO vide order u/s.92CA(3) dated 07.10.2023 had made an upward adjustment of Rs.83,05,869/- (Rs.17,71,79,881 less Rs.16,88,74,012 as declared by the assessee) to the quantum of international transactions for the year under consideration by computing the PLI of the assessee at 8.75% and equating the same to the median PLI of 14.10%. On application filed by the assessee the DRP confirmed the same. 9.2 On careful consideration of the details of the case on hand, we find that the provision for gratuity debited to the profit and loss account is an extraordinary item of expenditure. Though TPO agree with the assessee, but consider the amount as per the provisions of - 16 - IT(TP)A No.94/CHNY/2024 section 43B, instead of the amounts as per the books of accounts. Hence, we do not agree with the TPO as well as Hon’ble DRP. The principle that extraordinary items such as exclusion of prior period expenses in respect of provision for gratuity in the instant case ought not to be considered for computation of operating margins has been held in the following cases (Sl.Nos.1 and 2 of Case Law Book): 1. DCIT v TriZetto Services India (P.) Ltd. [2019] 110 taxmann.com 1 (Pune Trib.) “25. We heard both the sides on this issue and find similar issue of prior period expenditure items were adjudicated by the Tribunal. To support of the same, we extract the relevant operational para 7 to 11 of the said order ITA No.667/PUN/2016 15 of the Tribunal in the case of Aam Services India Pvt. Ltd. (supra) and the same are extracted hereunder :- “7. We have heard the rival contentions and perused the record. The limited issue which arises in the present appeal is against determination of PLI for the year under consideration. The assessee during the year under consideration had debited certain prior period expenses and the issue is whether the same are to be excluded while determining the PLI for the year under appeal. The perusal of details filed by the assessee and computation of income at page 31 of Paper Book reflects that the assessee had not claimed prior period expenses as expenses for the year under consideration and entire prior period expenses were added while determining the gross total income of the year under consideration. The said computation of income is placed at page 31 of Paper Book. 8. The limited issue is that where the expenditure has not been claimed as deduction, then how the same could be considered while determining PLI for the year under consideration. We find no merit in the issue raised by the Revenue in this regard. The DRP has directed vide para 2.4.1 to exclude earlier year expenses for determining PLI of the year under appeal. - 17 - IT(TP)A No.94/CHNY/2024 9. We find similar issue arose before the Tribunal in ACIT Vs. Dana India Technical Centre Pvt. Ltd. (supra) and it was held as under:- “12…… The learned Authorized Representative for the assessee fairly conceded before us that out of total losses of approximately Rs.62 lakhs, losses to the tune of about Rs.35 lakhs relate to earlier year and the balance losses relate to this year. The Mumbai Special Bench of Tribunal in the case of Prakash L. Shah reported in 115 ITD 167 (SB) had held that gain due to exchange rate difference in the year of receipt on account of earlier exports and allowance of deduction under section 80HHC of the Act in such later year was not sustainable. Following the simile, we hold that while computing PLI for the year under consideration, the loss arising on account of foreign exchange fluctuation to the tune of Rs.35,31,729/- is to be excluded. However, the loss arising on account of export proceeds realized from exports of relevant year are to be considered while computing PLI of the assessee. In view thereof, we modify the order of CIT(A) and direct the Assessing Officer to re-compute the PLI in the hands of assessee and foreign exchange fluctuation losses of the earlier years are to be kept out of calculation of PLI for the year under consideration. The ground of appeal No.2 is partly allowed.” 10. Thus, we dismiss the ground of appeal raised by the Revenue. 11. In the result, appeal of Revenue is dismissed.” 26. Thus, it is the finding of the Tribunal Pune Bench that such prior period expenses/items/foreign exchanges losses are not to be reduced from the current year’s profits for determining PLI of the year under consideration. 27. Thus, the DRP granted relief to the assessee on this issue of prior period rebate claim qua the computation of the PLI of the assessee for the current year. It is a settled legal proposition that the ‘extraordinary items’ such as the prior period rebate expenses should not be considered for the computation of the operating profits for the current year. Reliance is placed on the said Pune Bench decisions (supra) and the Delhi Bench decision in the case of EDAG Engg. & Design India (P) Ltd. (ITA No.3618/Del/2009).” 2. ACIT v Chemtex Global Engineers (P.) Ltd. [2013] 35 taxmann.com 351 (Mumbai Trib.) - 18 - IT(TP)A No.94/CHNY/2024 “24. We have carefully considered the rival submissions and perused the record. In our considered opinion the order passed by the learned CIT(A) does not call for any interference for the following reasons. According to the TPO operating margin on operating cost in the case of comparable companies works out to 13.88% as against 5% in the case of the assessee company whereas, in order to arrive at the cost, the one time extraordinary expenses, which are not standard expenses for earning income, ought not have been taken into consideration and, therefore, the learned CIT(A) was justified in reducing the extraordinary expenses for the purpose of arriving at the cost and by adopting such cost as the basis, the rate of profit declared by the assessee would be at arm’s length and hence there is no need for making any adjustment.” 9.3 In light of the foregoing and with due deference to the binding judicial precedents cited supra, it is our considered view that both the TPO and the Hon’ble DRP have erred by recomputing the PLI by considering the gratuity provision as per u/s.43B Act, rather than accepting the amount of ₹1,21,20,183/- as reflected in the assessee’s books of account, which pertains to a prior period and qualifies as an extraordinary item of expenditure. Accordingly, we hereby direct the TPO to adopt the operating margin computation as furnished by the assessee for the purpose of determining the Arm’s Length Price (ALP). 9.4 Since, the adjustment towards prior period expenditure in respect of provision of gratuity is allowed, the PLI of the assessee would be 13.71% which would eventually fall within the 35th and 65th percentile range as computed by the TPO and thereby the PLI of the international transactions in the instant case would be at Arm’s - 19 - IT(TP)A No.94/CHNY/2024 Length, hence the ground in respect of upward adjustment of Rs.83,05,869/- becomes infructuous. 10. The next issue raised by the assessee is exclusion of certain comparable chosen by TPO on account of turnover and functional dissimilarity criteria. It is well settled principle of law by various courts and Tribunal that upper turnover filter of Rs.200 crores has to be adopted while selecting the comparable set of companies, for the purpose of benchmarking under TNMM method. In the case on hand the turnover of the assessee is Rs.16.88 Crores. The TPO has considered in the final list of comparable both TTEC India Customer Solutions Pvt. Ltd. and Tech Mahindra Business Services Ltd. having turnover of Rs. Rs.343.96 crores (21 times approx.) and Rs.785.50 crores (47 times approx.) respectively, is incomparable with the assessee’s turnover. 10.1 The Hon’ble Madras High Court in the case of CIT v. Visual Graphics Computing Services India (P.) Ltd. [2020] 274 Taxman 481 (Mad) after relying on various decisions in principle agreed that the turnover filter should be applied and in essence ruling that large turnover of companies cannot be considered as appropriate comparable. In the following decisions where the turnover filter was - 20 - IT(TP)A No.94/CHNY/2024 applied at a tolerance range of 10 times on both sides of assessee’s turnover and companies falling outside the said range were excluded: 1. Acusis Software India (P.) Ltd. v ITO [2018] 98 taxmann.com 183 (Kar) 2. Virtusa Consulting Services (P.) Ltd. v DCIT [2024] 168 taxmann.com 709 (Chennai Trib.) 10.2 Further, in the case of Kumaran Systems (P.) Ltd. v DCIT [2021] 191 ITD 514 (Chennai Trib.) where it was held that when the assessee is having a small turnover and also catering to needs of its AEs, it cannot be compared with giant companies which are having huge turnover. In that case, the assessee’s turnover was Rs.33.24 crores, whereas TPO had included 4 comparable whose turnover ranged from Rs.207 crores to Rs.3,032 crores. It was held that the TPO had erred in not applying turnover filter for selection of comparable and was directed to apply turnover filter of 0 to 200 crores for selection of comparable. 10.3 Taking into consideration the facts of the instant case, it is most humbly submitted that the TPO may be directed to apply the turnover range of 0 to 200 crores and thereby exclude the comparable companies namely TTEC India Customer Solutions Pvt. Ltd. and Tech - 21 - IT(TP)A No.94/CHNY/2024 Mahindra Business Services Ltd. since the turnover of both companies are much higher than the upper limit of Rs.200 crores. 10.4 On perusal submission of the ld.AR, we also find that the comparable companies namely TTEC India Customer Solutions Pvt. Ltd. is also involved in Software Consultancy services (segmental accounts not available) where the margins earned are normally way higher than that of the assessee’s business and thus the said company cannot be an appropriate comparable. M/s.Tech Mahindra Business Services Ltd., is involved in voice-based call services and host of other services which are completely different from that of the business of the assessee, rendering such company to be an inappropriate comparable. 10.5 In the facts and circumstances of the present case, and with due regard to the binding judicial pronouncements referred to supra, it is our considered opinion that the TPO and the Hon’ble DRP have erred in including M/s.TTEC India Customer Solutions Pvt. Ltd. and M/s.Tech Mahindra Business Services Ltd. as comparable entities for the purposes of transfer pricing analysis, as both entities fail to satisfy the turnover and functional similarity filters. Consequently, we direct the TPO to exclude the aforementioned companies from the list of - 22 - IT(TP)A No.94/CHNY/2024 comparable while computing the ALP, and accordingly, the related grounds of appeal raised by the assessee are allowed. 11. In the result the appeal filed by the assessee is allowed. Order pronounced in the open court on 26th May, 2025 at Chennai. Sd/- Sd/- (मनु क ुमार िगįर) (MANU KUMAR GIRI) Ɋाियक सद˟/Judicial Member (एस.आर. रघुनाथा) (S.R. RAGHUNATHA) लेखा सदèय/ACCOUNTANT MEMBER चेÛनई/Chennai, Ǒदनांक/Dated, the 26th May, 2025 RSR आदेश कȧ ĤǓतͧलͪप अĒेͪषत/Copy to: 1. अपीलाथȸ/Appellant 2. Ĥ×यथȸ/Respondent 3. आयकरआयुÈत /CIT, Chennai 4. ͪवभागीय ĤǓतǓनͬध/DR 5. गाड[ फाईल/GF. "