Can Comparables be excluded merely on the basis of Turnover Filter without a FAR Analysis being required to be conducted?
The issue is no longer res integra as it has been decided by Hon’ble ITAT Banglore in case of M/s Yahoo Software Development India Pvt Ltd vs DCIT (ITA No. 1129/Bang/2010) pronounced on 31st December 2014. In the instant case, the Assessee filed an appeal against the order of the Learned AO and pleaded that
“It is stated that the adoption of turnover filter as an adequate filter has been upheld by this bench of the Tribunal in the case of Genisys Integrating Systems (India) P. Ltd. Vs. Dy. CIT (152 TTJ 215) and therefore the same should be applied in the assessee’s case also to reject companies having turnover in excess of INR 200 crores as comparable to the assessee.”
The Learned AO stated that since the assesse has not adopted Turnover Filter at the time of its own TP Study and selecting the comparables and has not raised objection during adjudicating proceedings, thus the assesse should be now precluded for applying Turnover Filter. It is pertinent to note that the turnover of the assesse is INR 80 crores.
The Hon’ble Tribunal dismissed this plea of the department and held that the assesse can raise this plea at any stage of proceedings as held in case of Agile Software Enterprise Pvt. Ltd. in IT(TP)A No.1172/Bang/2010. Further, the Hon’ble Tribunal allowed the objections raised by the assesse and held that
“Having regard to the rival contentions and the material on record, we find that this Tribunal, in the case of Genisys Integrating Systems (India) P. Ltd (Supra) has held that turnover is an important filter which has to be adopted for determination of the ALP. The Tribunal has been consistently following the said decision. The FAR analysis would not alter the turnover of the company. In view of the same, we do not find it necessary to remand the issue of comparability of these companies to the AO/TPO for re-determination of the ALP. In view of the turnover being higher than Rs.200 crores in the case of the above companies, we direct the AO to exclude these companies from the list of comparables.”
Thereby allowing the appeal of the assesse.
By Aditya Singhania and Nischal Agarwal