TRANSFER PRICING – As per Assessee’s own case in IT(TP)A No.

59/Bang/2016
order dated April 24, 2019, if AO applied lower turnover filter of Rs.1 Crore and
rejected companies with turnover of less than Rs.1 crore from the list of
comparables, then by the same logic he ought to have excluded companies with
high turnover from the list of comparable companies having turnover of Rs.200
crores and above.

Rule 10B of Income tax Rules, 1962 – Transfer Pricing – Computation of Arm’s
length price (Exclusion of comparables – Turnover filter) – Assessment year
2016–17 – Whether when AO had applied lower turnover filter of Rs.1 Crore and
rejected companies with turnover of less than Rs.1 crore, then he also ought to
have excluded companies having turnover of Rs.200 crores & above from list of
comparables – Held, Yes – Assessee company was engaged in providing Support
Services to Cenduit LLC in configuring the clinical trial study based on clients
requirement and providing Software Development Services to Cenduit LLC on a
contract basis – TPO arrived at final set of 16 comparables in SWD segment with
average of 25.60% and six comparables in ITES segment with average of 23.44%
- Whether application of turnover filter should be made in similar way to all
segments wherein ALP needs to be determined – Held, Yes (Para 13)

FACTS

 The assessee, a subsidiary of Cenduit LLC, USA was engaged in providing Support
Services to Cenduit LLC in configuring the clinical trial study based on the clients
requirement: and providing Software Development Services to Cenduit LLC on a
contract basis. The assessee works on the IRT to configure it to capture the client's
requirements pertaining to manner of conducting the study, upon completion of
which, Assessee sends intimation to Cenduit LLC or to the clients on behalf of
Cenduit LLC.

 After examination of the TP study of the assessee, the TPO arrived at the final set of
16 comparables in SWD segment with average of 25.60% and 6 comparables in ITES
segment with average of 23.44%. However, pursuant to the directions of the DRP,
while there was no variation in the ITeS segment, the TPO revised the margin
computation of the comparable companies in the IT Services.

 On appeal, the assessee submitted that the turnover filter had to be applied ranging
from 1 to 200 crores in respect of above comparables in SWD as well as ITeS
segments. Being so, the companies with 1 to 200 crores turnover had to be included
as comparables and other companies excluded.
HELD

 The issue relating to turnover filter came up for consideration before this Tribunal in
assessee’s own case in IT(TP)A No.59/Bang/2016 order dated April 24, 2019 wherein
it was held that: “…the Assessee in its cross objection, viz., the objection that the AO
applied lower turnover filter of Rs.1 Crore and rejected companies with turnover of
less than Rs.1 crore from the list of comparable companies and by the same logic he
ought to have excluded companies with high turnover from the list of comparable
companies (companies having turnover of Rs.200 crores and above). If that ground
is adjudicated two out of the 4 companies which remain after the order of the DRP,
viz., Persistent systems Ltd. and Sasken Communications Technologies Ltd., will go
out of comparability because their turnover for the relevant previous year is
Rs.610.13 Crores and 394.20 Crores respectively…” (Para 12)

 Taking a consistent view, we direct the AO/TPO to consider the comparables in both
ITS and ITeS segments having turnover of 1-200 crores and decide the issue
accordingly. (Para 13)