TRINITI ADVANCED SOFTWARELABS PRIVATE LIMITED ,HYDERABAD vs. INCOME TAX OFFICERS ,WARD -2(4), HYDERABAD
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Income Tax Appellate Tribunal, HYDERABAD BENCHES “A”, HYDERABAD
Before: SHRI K. NARASIMHA CHARY & SHRI MADHUSUDAN SAWDIA
आयकर अपीलीय अधिकरण, हैदराबाद पीठ में IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES “A”, HYDERABAD BEFORE SHRI K. NARASIMHA CHARY, JUDICIAL MEMBER & SHRI MADHUSUDAN SAWDIA, ACCOUNTANT MEMBER
आ.अपी.सं / ITA No. 397/Hyd/2021 (धििाारण वर्ा / Assessment Year: 2016-17) Triniti Advanced Software Labs Vs. Income Tax Officer, Private Limited, Ward-2(4), Hyderabad Hyderabad [PAN No. AAACE7968E] अपीलार्थी / Appellant प्रत्यर्थी / Respondent धििााररती द्वारा / Assessee by: Shri Kranthi, AR राजस्व द्वारा / Revenue by: Smt. L. Sunitha Rao, CIT-DR (appeared through virtual mode) सुिवाई की तारीख/Date of hearing: 21/05/2024 घोर्णा की तारीख/Pronouncement on: 20/06/2024 आदेश / ORDER PER K. NARASIMHA CHARY, J.M: Aggrieved by the final assessment order dated 26/03/2021 passed consequent to the directions of Hon'ble Dispute Resolution Panel, Bengaluru (“DRP”), in the case of Triniti Advanced Software Labs Private Limited, (“the assessee”) for the assessment year 2016-17, under section 143(3) r.w.s. 144C(13) r.w.s. 143(3A) & 143(3B) of the Income Tax Act, 1961 (for short “the Act”), assessee filed this appeal.
It could be seen from the record that there is a delay of 129 days in preferring this appeal and the reason attributed for the delay in filing the
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appeal to the pandemic. As a matter of fact, though the learned DR does not concede to condone the delay, there is no denial of the fact that the Hon'ble Supreme Court in the Suo Motu proceedings in the case of M.A.No. 21/2022 in M.A.No. 665/2021 in SMW(C) No.3 of 2020 by order dated 10/01/2022 held that in cases, where the limitation would have expired during the period between 15/03/2020 and 28/02/2022, notwithstanding the actual balance period of limitation remaining, all persons shall have a limitation period of 90 days from 01/03/2022, and in the event of actual balance period of limitation remaining with effect from 01/03/2022 is greater than 90 days, that longer period shall apply. The limitation period applicable to this appeal, is covered by the above decision and, therefore, this appeal shall be treated as filed within the period of limitation. We, therefore, now shall proceed to hear the appeal and decide the same on merits.
Brief facts of the case are that the assessee is a company, engaged in the business of providing ERP software consultancy services to its Associated Enterprise (AE), M/s. Triniti Inc, USA. In view of the international transactions conducted by the assessee with its AE, determination of Arm’s Length Price (ALP) was referred to the learned Transfer Pricing Officer (learned TPO). Learned TPO by selecting 15 comparables, determined the ALP thereby at Rs. 3,84,41,049/- by deleting the PLI @ 26.36% by adopting TNMM whereas according to the assessee, it was only 9.75% by taking OP/OC as PLI.
Assessee filed objections before the learned DRP and contended that non-application of the maximum turnover filter in ALP charged to the AE is bad under law. Learned DRP on this aspect observed that since there
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is no dispute as to the functionality between the assessee and the entity selected by the learned TPO, when the only dispute is in respect of the turnover filter, which does not fix any upper turnover limit, such a contention of the assessee has to be rejected and the adjustment proposed by the learned TPO has to be confirmed. Pursuant there to, the learned Assessing Officer passed the final assessment order on 26/03/2021.
It is the argument of the learned AR that as compared to the turnover of the assessee at Rs. 25.40 crores, the turnover of Infosys BPM Ltd., is Rs. 53,983 crores, L&T Infotech Ltd., Rs. 5,568.50 crores and Tata Elxsi Ltd., SDS Segment Rs. 1008.17 crores, respectively.
Basing on the decision of the Hon’ble Bombay High Court in the case of CIT vs. M/s. Pentair Water India Pvt. Ltd. (2016) 69 taxmann.com 180 followed in the case of Obopay Mobile Technology India Private Limited [TS-20-ITAT-2016 (Bang)-TP] for the assessment year 2010-11, PCIT vs. M/s. Obopay Mobile Technology India Private Ltd., in ITA No. 586/2016, dated 23/07/2018 and PCIT vs. New River Software Services (P) Ltd., (2017) 85 taxmann.com 302 (Delhi), learned AR submitted that the turnover is obviously a relevant factor to consider the comparability.
Nextly, he submitted that the Hon’ble Karnataka High Court in the case of Acusis Software India (P) Ltd., vs. ITO (2018) 98 taxmann.com 183 (Karnataka), approved the view taken by the Bangalore Bench of the Tribunal that the application of tolerance range of turnover of ten times on both sides of assessee’s turnover was proper. Same was the view taken by the Hon’ble Karnataka High Court in the case of PCIT vs. Swiss Re Global Business Solutions India (P) Ltd., (2018) 96 taxmann.com 643 (Karnataka).
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Consistent with the said view, the Hyderabad Bench of the Tribunal also in the case of iMedx Information Services (P) Ltd., vs. DCIT (2023) 150 taxmann.com 217 (Hyderabad – Trib.) held that the application of tolerance range of turnover of ten times on both ends to fix the turnover filter would meet the ends of justice.
Per contra, learned DR vehemently disputed the objection of the assessee basing on the turnover. She placed reliance on the decision of the Hon’ble Delhi High Court in the case of Chryscapital Investment Advisors (India) (P.) Ltd. vs. DCIT [2015] 56 taxmann.com 417 (Delhi), for the principle that huge profit or a huge turnover, ipso facto does not lead to its exclusion.
We have considered these contentions in the light of the decided case law. Insofar as the turnover filter is concerned, Hon’ble Delhi High Court in the case of Chryscapital Investment Advisors (India) (P.) Ltd. (supra), held that huge profit or a huge turnover, ipso facto does not lead to its exclusion; whereas in the case of Pentair Water India Pvt. Ltd. (supra), the Hon’ble Bombay High Court held that turnover is a relevant criteria for choosing companies as comparables in determining the ALP in Transfer Pricing cases. Hon’ble Karnataka High Court, however, in the case of Obopay Mobile Technology (supra), having noticed the view taken by the Hon’ble Delhi High Court in the case Chryscapital Investment Advisors (India) (P.) Ltd. (supra), and also the decision of the Hon’ble Bombay High Court in the case of M/s. Pentair Water India Pvt. Ltd. (supra), upheld the Tribunal order excluding certain entities from the list of comparables on the ground of huge turnover, while following the principle that where two
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views are possible on an issue, the view favourable to the assessee has to be adopted.
In these circumstances, following the foot prints of the Hon’ble Karnataka High Court in the case of Obopay Mobile Technology India Private Ltd., (supra), we hold that the turnover is a relevant criteria for choosing companies as comparables in determining the ALP in Transfer Pricing cases.
Now turning to the next question as to the appropriate turnover filter, in all the decisions relied upon by the learned AR, a consistent view is taken that the application of tolerance range of turnover of ten times on both sides of assessee’s turnover was proper. Following the same, we direct the learned Assessing Officer to adopt the same for a fresh search. With this view of the matter, we set aside the findings of the authorities below and direct the learned Assessing Officer/learned TPO to take the range of turnover filter at ten times on both the ends and conduct search afresh to take a plausible view.
In the result, appeal of the assessee is treated as allowed for statistical purposes.
Order pronounced in the open court on this the 20th day of June, 2024.
Sd/- Sd/- (MADHUSUDAN SAWDIA) (K. NARASIMHA CHARY) ACCOUNTANT MEMBER JUDICIAL MEMBER Hyderabad, Dated: 20/06/2024
TNMM
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