MARVELL INDIA PRIVATE LIMITED,BANGALORE vs. ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-4(1)(2), BANGALORE

Aggrieved, assessee filed objections before the Dispute Resolution Panel (DRP) (objections dated 20.01.2020). The DRP, vide its directions dated 2025.03.2021, dismissed the objections raised by the assessee and confirmed the TPO adjustment proposed by the TPO. Pursuant to the DRP’s directions, the impugned Final Assessment Order was passed incorporating TP adjustment in the software development segment amounting to Rs.12,21,83,641/-.

Aggrieved by the Final Assessment Order, assessee has filed the present appeal before the Tribunal. Assessee has raised 16 grounds and various sub- grounds. However, during the course of hearing, the learned AR submitted that he is pressing only ground No.6 which reads as follows:

The learned AR submitted that assessee’s turnover for the relevant Assessment Year is only Rs.124 Crores in the software development segment and therefore the AO/TPO has erred in not excluding companies having turnover of more than Rs.200 Crores. The learned AR submitted that in assessee’s own case for the Assessment Year 2015-16 in IT(TP)A No.2577/Bang/2019 (order dated 21.10.2022), the Tribunal had remanded the matter to the Transfer Pricing Officer (TPO) directing him to exclude companies having more than Rs.200 Crores while recomputing the ALP of the international transaction in the software development segment. Therefore, it was contended that the issue raised in ground No.6 in the instant case is squarely covered in favour of the assessee by the order of the Tribunal in assessee’s own case for Assessment Year 2015-16 (supra). As regards the other grounds, the learned AR submitted that the same may be left open since if the aforesaid 8 comparables are excluded from the list, the ALP would be within the arm’s length margin.

The learned DR supported the orders of the TPO/DRP.

We have heard the rival submissions and perused the material on record. The limited contention of the assessee is only for adjudication of ground No.6 referred supra. The assessee submits that the turnover of the assessee is only Rs.124 Crores during the relevant previous year, hence, companies having turnover of more than Rs.200 Crores needs to be excluded from the comparable list while calculating the ALP of the said international transaction. We find that identical issue was considered by the Tribunal in assessee’s own case for Assessment Year 2015-16 (supra). The relevant narration of facts, the contentions raised and the findings of the Tribunal for Assessment Year 2015- 16 reads as follows:

As far as comparability of companies listed as (a) to (g) in Grd.No.8.7 raised by the Assessee is concerned, the admitted factual position is that the turnover of these companies is more than Rs. 200 Crores and the Assessee's turnover is only Rs. 24,71,71,242/-. The TPO excluded from the list of comparable companies chosen by the Assessee in its TP study companies whose turnover was less than Rs. 1 Crore. The contention of the Assessee before the DRP was that while the TPO excluded companies with low turnover, he failed to apply the same yardstick to exclude companies with high turnover compared to the Assessee. The reason for excluding companies with low turnover was that such companies do not reflect the industry trend as their low cost to sales ratio made their results less reliable. The contention of the Assessee was that there would be effect on profitability wherever there is high or low turnover and therefore companies with high turnover should also be excluded from the list of comparable companies. The DRP primarily relied on the decision rendered by the Hon'ble Delhi High Court in the case of Chryscapital Investment Advisors India (P.) Ltd. v. Dy. CIT [2017] 82 taxmann.com 167 wherein it was held that high turnover ipso facto does not lead to the conclusion that a company which is otherwise comparable on FAR analysis can be excluded and that the effect of such high turnover on the margin should be seen. The DRP therefore held that a company which is otherwise functionally comparable cannot be excluded only on the basis of high turnover. The Assessee has raised Grd.No.4 before the Tribunal challenging the aforesaid view of the DRP.

The Assessee’s turnover was around Rs.110 Crores. Therefore the action of the CIT(A) in directing TPO to exclude companies having turnover of more than Rs.200 crores as not comparable with the Assessee was justified. As rightly pointed out by the learned counsel for the Assessee, there are two views expressed by two Hon’ble High Courts of Bombay and Delhi and both are nonjurisdictional High Courts. The view expressed by the Bombay High Court is in favour of the Assessee and therefore following the said view, the action of the CIT(A) excluding companies with turnover of above Rs.200 crores from the list of comparable companies is held to correct and such action does not call for any interference.”

The Tribunal in the case of Autodesk India Pvt.Ltd. Vs. DCIT (2018) 96 Taxmann.com 263 (Bangalore-Tribunal), took note of all the conflicting decision on the issue and rendered its decision and in paragraph 17.7. of the decision held as that high turnover is a ground for excluding companies as not comparable with a company that has low turnover. The following were the relevant observations: 17.7. We have considered the rival submissions. The substantial question of law (Question No.1 to 3) which was framed by the Hon'ble Delhi High Court in the case of Chryscapital Investment Advisors (India) Pvt.Ltd., (supra) was as to whether comparable can be rejected on the ground that they have exceptionally high profit margins or fluctuation profit margins, as compared to the Assessee in transfer pricing analysis. Therefore as rightly submitted by the learned counsel for the Assessee the observations of the Hon'ble High Court, in so far as it refers to turnover, were in the nature of obiter dictum. Judicial discipline requires that the Tribunal should follow the decision of a non-jurisdiction High Court, even though the said decision is of a non-jurisdictional High Court. We however find that the Hon'ble Bombay High Court in the case of CIT Vs. Pentair Water India Pvt.Ltd. Tax Appeal No.18 of 2015 judgment dated 16.9.2015 has taken the view that turnover is a relevant criterion for choosing companies as comparable companies in determination of ALP in transfer pricing cases. There is no decision of the jurisdictional High Court on this issue. In the circumstances, following the principle that where two views are available on an issue, the view favourable to the Assessee has to be adopted, we respectfully follow the view of the Hon'ble Bombay High Court on the issue. Respectfully following the aforesaid decision, we uphold the order of the DRP excluding 5 companies from the list of IT(TP)A No.343/Bang/2021 Page 10 of 11 comparable companies chosen by the TPO on the basis that the 5 companies turnover was much higher compared to that the Assessee. 17.8. In view of the above conclusion, there may not be any necessity to examine as to whether the decision rendered in the case of Genisys Integrating (supra) by the ITAT Bangalore Bench should continue to be followed. Since arguments were advanced on the correctness of the decisions rendered by the ITAT Mumbai and Bangalore Benches taking a view contrary to that taken in the case of Genisys Integrating (supra), we proceed to examine the said issue also. On this issue, the first aspect which we notice is that the decision rendered in the case of Genisys Integrating (supra) was the earliest decision rendered on the issue of comparability of companies on the basis of turnover in Transfer Pricing cases. The decision was rendered as early as 5.8.2011. The decisions rendered by the ITAT Mumbai Benches cited by the learned DR before us in the case of Willis Processing Services (supra) and Capegemini India Pvt.Ltd. (supra) are to be regarded as per incurium as these decisions ignore a binding co- ordinate bench decision. In this regard the decisions referred to by the learned counsel for the Assessee supports the plea of the learned counsel for the Assessee. The decisions rendered in the case of M/S.NTT Data (supra), Societe Generale Global Solutions (supra) and LSI Technologies (supra) were rendered later in point of time. Those decisions follow the ratio laid down in Willis Processing Services (supra) and have to be regarded as per incurium. These three decisions also place reliance on the decision of the Hon’ble Delhi High Court in the case of Chriscapital Investment (supra). We have already held that the decision rendered in the case of Chriscapital Investment (supra) is obiter dicta and that the ratio decidendi laid down by the Hon’ble Bombay High Court in the case of Pentair (supra) which is favourable to the Assessee has to be followed. Therefore, the decisions cited by the learned DR before us cannot be the basis to hold that high turnover is not relevant criteria for deciding on 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 issue of application of turnover filter and his action in excluding companies by following the ratio laid down in the case of Genisys Integrating (supra).

In view of the aforesaid decision, we hold that companies listed in Sl.No.(a) to (g) of Grd.No.8.7 raised by the Assessee whose turnover in the current year is more than Rs.200 Crores should be excluded from the list of comparable companies.”

We notice that in the above decision the Tribunal has excluded the comparable companies based on the upper turnover filter of Rs.200 crores. In assessee’s case from the table submitted, it is evident that the turnover all 10 comparable companies is more than Rs.200 crores. Therefore respectfully

In view of the above order of the Tribunal in assessee’s own case, we restore the matter to the TPO and direct him to adopt upper turnover filter of Rs.200 Crores. The TPO is directed to exclude from the comparable list companies whose turnover is exceeding 200 Crores and accordingly recalculate the ALP of the international transaction in the software development segment. It is ordered accordingly.

The other grounds raised are not adjudicated and are left open.

In the result, appeal of the assessee is partly allowed.