TP: Turnover is a relevant factor to consider comparability

Infosys & Wipro are no doubt large and distinct companies where the area of development of subject services is different and as such the profit earned there from cannot be a bench-marked or equated with the assessee.

Facts of the case:

• Assessee is engaged in the business of manufacture of fiber glass pressure vessel used for water treatment, swimming pool equipments and that the Respondent-Company is making three kinds of vessels namely (I) Code Line, (ii) Composite pressure vessels and (iii) FRP pressure vessels and set up an in-house facility for catering to its needs on the area of engineering, designing & product development.
• It is further their case that the Company has rendered such services in the relevant assessment year 2007-2008 to some of its group companies abroad and that the Respondent is the subsidiary to Pentair INC, USA and is involved in the same business. The said Respondent-Company has a unit at Verna Industrial Estate where the said manufacturing activity is taking place.
• It is further their case that the Respondent-Assess has filed returns of Income on 30.10.2007 disclosing total income of Rs.5,28,09,795/- on which total tax was Rs.1,81,13,280/-.
• An Order under Section 92CA was passed on 27.10.2010 by the TPO and the AO on 21.12.2010 added an amount of Rs.1,68,60,877/- in the Order passed under Section 143 (3) of the said Act.
• It is further the contention of the Appellant that being aggrieved by the said Order, the Respondent-Assessee preferred an Appeal before the Commissioner Income Tax Appeal and by its Order dated 16.11.2012, directed the AO to compute the TP adjustment by taking the operating margin at the comparable rate of 22.92%.
• Being aggrieved by the said Order, both the Respondent as well as the Appellant filed Appeals before the Income Tax Appellate Tribunal which came to be disposed of by Order dated 23.05.2014. Being aggrieved by the said Order, the Appellant has preferred the present Appeal.

Contentions of Appellant:

• The Income Tax Appellate Tribunal has erred in holding that the profits on costs of five comparable companies as abnormal without giving reasons how the functions discharged, assets deployed and risks assumed of such companies were different from the Respondent-Company.
• that the Tribunal has also erred in holding that the size and turnover of the company are deciding factors for treating a company as comparable and accordingly erred in excluding M/s. HCL Comnet Systems & Services Ltd., M/s Infosys BPO Limited and M/s. Wipro Ltd., as comparables.

Contention by Respondent:

• Both the Authorities have concurrently come to the conclusion that the said Companies are not comparable to the Respondent- Assessee Company and, as such, this Court cannot re-appreciate the evidence on record to come to any concurrent finding.
• These concurrent findings of facts based on the material on record cannot be reappreciated by this Court in the present Appeal as there is no substantial question of law which arises therein.
• To answer the said two substantial questions of law, this Court would have to re-appreciate the material on record which is not at all permissible.
• The bifurcation intended to be affected by the learned Counsel appearing for the Appellant was not even raised before the Tribunal and, consequently, the above Appeal deserves to be rejected.

Ruling of Honorable ITAT/Court:

• The said findings of the Tribunal in respect of HCL Comnet Systems & Services Ltd, Infosys BPO Ltd. & Wipro Ltd. are on the basis of appreciation of evidence on record. Court fined no infirmity in the said findings of the Tribunal on that count. In fact, the Tribunal has endorsed the views of the CIT Appeals whilst coming to such conclusions. The concurrent findings of facts arrived at by the Authorities below, cannot be reappreciated by this Court in the present Appeal.
• In the present Appeal, the Appellant-Revenue has not been able to controvert or deny the data relied upon by the Authorities below to come to such conclusion. The said Companies are no doubt large and distinct companies where the area of development of subject services are different and as such the profit earned there from cannot be a bench-marked or equated with the Respondent- Company.
• the condition in any uncontrolled transaction between an independent enterprises for the purpose of such comparison, economically relevant characteristics must be sufficiently comparable if two parties are to be placed in a similar situation and In fact the Tribunal whilst passing the impugned Order has considered the said principles whilst coming to the conclusion that the said three Companies cannot be treated to be comparable to the Respondent-Assessee Company. The turnover is obviously a relevant factor to consider the comparability.
• Court find that the said two substantial questions of law proposed by the learned Counsel appearing for the Appellant do not arise in the present Appeal taking note of the concurrent findings of fact arrived at by the Authorities. The Appeal stands accordingly rejected.