2013-VIL-976-ITAT-MUM

Equivalent Citation: [2014] 30 ITR (Trib) 129 (ITAT [Mum])

Income Tax Appellate Tribunal MUMBAI

ITA No. 4547/Mum/2012

Date: 13.11.2013

WILLIS PROCESSING SERVICES INDIA PVT. LTD.

Vs

DY. COMMISSIONER OF INCOME TAX

For the Appellant : F.V. Irani
For the Respondent : A.K. Jain

BENCH

Rajendra Singh And Vijay Pal Rao, JJ.

JUDGMENT

PER : VIJAY PAL RAO

This Miscellaneous application by the assessee is in respect of the order of this Tribunal dated 01.3.2013 whereby the appeal of the assessee was disposed off for the assessment year 2007-08.

2. The assessee has stated in the miscellaneous application that various mistakes crept in the impugned order are to be rectified. The first grievance as raised in the miscellaneous application is regarding the finding of this Tribunal on the issue of disallowance of deduction under section 10A of the Act. The ld. Counsel for the assessee has submitted that the AO has disallowed the deduction under section 10A in respect of Vikroli Unit whereas for the assessment year 2000-01 the deduction under section 10A was allowed by the AO. The ld. AR has further submitted that even in the subsequent assessment years deduction under section 10A was allowed up to assessment year 2003-04. For the assessment year 2004-05 and 2005-06 though the AO disallowed the deduction under section 10A but the same was restricted to exclusion of satellite link charges and technical fee from export turnover. However, the ld. CIT(A) and further this Tribunal allowed the full claim of the assessee for the assessment year 2004-05. Similarly for the assessment year 2005-06, the ld. CIT(A) allowed the full deduction. The ld. AR has submitted that for the assessment year 2006-07 this Tribunal has remanded the issue to the record of the AO to the extent of computation of deduction though on principle the claim of the assessee was allowed. Thus the ld. AR has submitted that once the claim of the assessee under section 10A was allowed in the first year which is the year of formation of Vikroli unit then the same cannot be disallowed in the subsequent years in view of the decision of the Hon'ble Jurisdictional High Court in case of CIT v. Paul Bros. [1995] 216 ITR 548 as well as the decision dated 14.08.2010 in case of CIT v. Western Outdoor Interactive (P.) Ltd. [2012] 349 ITR 309 (Bom.). The ld. AR has submitted that the Tribunal has committed an error in the impugned order while setting aside the issue to the record of the AO for examination and adjudication of the issue. He has forcefully contended that the eligibility has to be decided in the first year and, therefore, the order is erroneous so far as setting aside the issue to the AO and contrary to the decisions of the Hon'ble High Court.

3. On the other hand the ld. DR has submitted that the Tribunal has already considered all the decisions relied upon by the assessee and principally decided the issue that if the claim of the assessee was allowed for the first year then without withdrawing the claim granted for the earlier year it can not be denied in the subsequent year when there is no change in the facts and circumstances which were existing during the first year and in the subsequent year when the claim was denied. The ld. DR has submitted that since certain new facts have been pointed out and brought on record by the ld. CIT(A) regarding consolidation of two existing units and, therefore, this factual aspect has been remanded for verification at the level of the AO. Thus, the ld. DR has submitted that there is no apparent error in the finding of the Tribunal in respect of the issue of deduction under section 10A which can be rectified under section 254(2).

3.1 We have considered the rival submissions and carefully gone through the records. The grievance and submission of the assessee in the miscellaneous application is against remanding the matter to the record of the AO for examination of the aspect of consolidation of two existing units as observed by the ld. CIT(A). It is pertinent to note that the submission which has been made in the proceedings of the miscellaneous application have already been considered by the Tribunal while deciding the appeal of the assessee by the impugned order. The assessee's grievance is against the finding of the Tribunal and not against the factual mistake apparent on record in the order. As far as the issue of eligibility of deduction under section 10A of the Act, the Tribunal has principally agreed with the contention of the assessee that once the claim of the assessee was allowed in the first year, then it cannot be denied in the subsequent year if there is no change in the facts and circumstances. The decisions relied upon by the assessee have been duly considered in the impugned order. For the assessment year 2006-07 the Tribunal has remanded the issue to the record of the AO for the purpose of computation of deduction as the AO did not examine the apportionment of export turnover and expenses of the unit. For the year under consideration, the Tribunal after considering the decision of the Tribunal in assessment year 2006-07 as well as decisions of the Hon'ble Jurisdictional High Court in the case of Paul Bros. (supra), as well as in the case of Western Outdoor Interactive (P.) Ltd. (supra), has concluded in para-7 to 8 as under :—

   "7 Thus, it is clear that, if the claim of the assessee was allowed for the first year, then without withdrawing the claim granted for the earlier AY, the revenue cannot deny the benefit of sec. 10A of the subsequent years, if there is no change in the facts and circumstances, which were in existence during the first Assessment Year and the assessment in which the claim has been denied. Hence, in case there is no change in the facts and circumstances subsequent to first year which could have rendered the assessee ineligible for deduction u/s 10A, the claim of the assessee cannot be denied in the subsequent Assessment Year when the claim is accepted for the first Asst Year.

     7.1 However, in the case of the assessee, the CIT(A) has pointed out a new aspect to the issue for the first time during the AY under consideration that the assessee has formed a consolidated unit by restructuring of two existing units. But this fact is not clear from the record whether this new development had occurred during the year under consideration or it was already in existence right from the first year of assessment.

     8. Since it is not clear whether the non-eligible unit at Andheri was still in existence or closed by the assessee to bring into existence the alleged consolidated unit as held by the CIT(A); therefore, this fact is required to be examined by considering inter-alia the number of employees working in the two units when the new unit was established by the assessee at vikroli only after comparing the number of employees and machinery installed in both the units, it can be determined whether the two existing units were merged and consolidated to bring into existence a new unit and thereby a new unit has been set up by restructuring of the existing unit during the year under consideration. Accordingly, on both the aspects; one considered by the Tribunal in the AY 2006-07; and the other one which has been brought out by the CIT(A) for the first time during the year under consideration, the matter is remanded to the records of the Assessing Officer for examination, verification and then decide the issue as per law."

3.2 It is clear from the concluding findings on the issue that the Tribunal has accepted the contention of the assessee that in case there is no change in the facts and circumstances subsequent to the first year, which could have rendered the assessee ineligible for deduction under section 10A, the claim of the assessee can not be denied in the subsequent assessment year when the same is accepted in the first assessment year. The issue was remanded to the record of the AO only on two aspects one, as it was already set aside by the Tribunal in the assessment year 2006-07 regarding apportionment of turnover expenses of the units and another, formation of the consolidated unit by merging of two units during the year under consideration as pointed out by the ld. CIT(A). Since this aspect was brought on record for the first time in the year under consideration and was not examined by the CIT(A), therefore, the same was remanded to the AO for examination of the limited fact of formation of consolidated unit by merging two existing units during the year under consideration. Therefore, this direction of the Tribunal does not affect the claim of the assessee if there is no change in the facts and circumstances during the year under consideration as existed in the first year of formation of the Vikroli Unit. Even otherwise the assessee has not made out a case of apparent error which can be rectified under section 254(2) of the Income tax Act. Hence, we do not find any merit or substance in the miscellaneous application with regard to the finding of the Tribunal on the issue of deduction under section 10A.

4. The next grievance of the assessee is regarding the transfer pricing issue and particularly on inclusion/exclusion of certain comparable cases. The first comparable against which the assessee raised the grievance in the miscellaneous application is Asit C. Mehta Financial Services Ltd. The ld. AR for the assessee has submitted that the said company is not functionally comparable with that of the assessee, therefore, cannot be included as comparable for the purpose of determination of ALP. He has submitted that this company is into ITES and software services apart from portfolio management services and investment activity. Hence, this company is functionally not comparable to the assessee. The ld. AR has pointed out that the Tribunal while deciding the comparability of this company has considered that 96% of the revenue of the said company is from ITES whereas as per the annual report 96% of the total revenue is derived from ITES and software services and no further segmental breakup is given. The ld. AR has submitted that in case of Apex Knowledge Solution Pvt. Ltd. the Tribunal has rejected this company on the ground of non-availability of segment break-up of ITES and software services. Thus, the ld. AR has submitted that Asit C. Mehta Financial Services is not functionally comparable with the assessee and should be excluded. On the other hand the ld. DR submitted that the segmental results were available on record. He has referred to Page-135 of the miscellaneous application and submitted that the segmental reserves are available on record. He has also referred to the annual report wherein the segmental revenue details are given and the entire revenue of Rs. 60.09 crores is only from IT enabled services and not from software. The TPO has considered the revenue derived from IT enabled services, therefore, when segmental results are considered by the TPO which is 96% of the total revenue pertains to the IT enable services then this company is functionally comparable to the assessee.

4.1 In rebuttal the ld. AR has submitted that in Schedule-VIII the revenue of Rs. 60.09 crores has been shown as derived from information technology enabled services and software services and no further division is given in Schedule-VIII. The details produced by the ld. DR are not reliable and cannot be considered.

4.2 We have considered the rival submissions and carefully perused the relevant record. The Tribunal has given the finding on this comparable in para-27 to 27.2 as under :—

     "27. We have considered the rival submissions and carefully perused the relevant material on record. Though, the TPO has taken the entity level results in the case of this comparable; however, the ld DR has brought the details, which show that the income from ITES is about 96% of the total revenue. Therefore, as far as the functional comparability of this company is concerned, we find that this company is functionally comparable with the assessee.

     27.1 Moreover, when segment results are available, then the same can be taken into consideration for the purpose of determination of the ALP.

     27.2 As regards the related party transactions are concerned, since the related party transactions are in respect of the total business and it is not clear as how much percentage of the related party transactions is in the ITES segment. Therefore, this matter is required verification and examination on the facts as brought before us by the ld DR. Accordingly, we remit this comparable to the record of the Assessing Officer/TPO to reconsider the same after taking into account the segment results and related party transactions in ITES segments and accordingly decide the comparability of this company in view of our observations."

4.3 It is clear from the facts recorded in the order that the issue has been remanded to the record of AO/TPO to consider the segmental results of this company. If the assessee has any doubt about the reliability of the data/details produced by the ld. DR before us, then the same would have been raised before the TPO/AO. In view of the fact that the issue has been remanded for considering the segmental results and related party transactions in ITES segment then we do not find any substance in the submission of the assessee and the grievance raised in the miscellaneous application.

5. The next grievance of the assessee is regarding the finding of the Tribunal on the issue of comparability of Infosys and Wipro. The ld. AR has submitted that the Tribunal has taken a divergent view from the earlier orders of the Tribunal in case of Capital IQ Information, Agnity India Technology, Trinit Advance Software Lab and Genesys Integrating System India Pvt. Ltd. which is contrary to the decision of the Hon'ble High Court in case of Mercedes Benz. The ld. AR has forcefully contended that this Tribunal cannot take a different view taken by the co-ordinate Benches on the same issue. He has reiterated his contentions as raised during the hearing of the appeal and submitted that the issue of turnover filter was duly deliberated by the co-ordinate Benches of this Tribunal and, therefore, a different view is not permitted. Apart from the turnover filter - the ld. AR has submitted that while deciding the issue the Tribunal has not considered the objection of the assessee on brand value of Infosys and Wipro which make them different and non-comparable to the assessee. On the other hand the ld. DR has submitted that during the hearing the ld. AR of the assessee has heavily relied upon the case of Capital IQ Systems only which is on the issue of high turnover. The ld. DR has submitted that at the time of hearing the decision of the Delhi Bench in case of Actis Advisers ITA No.4654/del./2010 was relied upon wherein these two companies were considered as good comparable by rejecting the objections of the assessee on the issue of high turnover and brand value.

5.1 We have considered the rival submissions and carefully gone through the relevant record. As regards high turnover objection the Tribunal has considered this aspect in the light of the new facts brought on record by the ld. DR wherein the details clearly show that the difference in turnover has no direct relation with the margin. Even in the issue of turnover filter there are decisions of the Tribunal having divergent view which has been duly considered by the Tribunal in the case of the assessee and thereafter by considering the additional details and facts the Tribunal has arrived at the conclusion that the assessee has not made out a case as to how the high or low turnover has influenced the operating margins. On the contrary it was found that there is no direct relation between turnover and margin at least in services sector. The Tribunal has analyzed the facts in detail and then arrived at the conclusion in para - 47 to 47.7 as under :—

     “47. We have considered the rival submissions as well as the relevant material on record. The assessee has mainly emphasised the objection of high turnover of Infosys BPO Ltd in comparison to the assessee; therefore, this company cannot be treated as a comparable. The reliance was placed on the decision of the Hyderabad Benches of this Tribunal in case of Capital IQ Information (supra) as well as in the case of Agnity India Technologies (supra)

     47.1 We note that in the case of Capital IQ Information (supra) the Tribunal has relied upon the decision in the case of Agnity India Technologies (supra) as well as in the case of Triniti Advanced Software Labs P Ltd (supra). We further note that all these decisions have primarily relied upon the decision of Bangalore Benches of this Tribunal in the case of Genesys Integrating Systems India P Ltd (supra) which has been relied upon by the Tribunal in case of Capital IQ Information in para 21 as under:

         "21. On considering the submissions of the assessee in relation to these three companies, we find that the TPO has excluded the companies whose turnover is less than Rs. One Crore, on the ground that they may not be representing the industry trend. That very logic also applies to the companies having high turnover of over Rs. 200 crores as against the assessee's turnover of only Rs. 60 crores, and therefore, it would be fair enough to exclude those companies also. In the case of Agnity India Technologies P. Ltd. (supra), the Delhi Bench of the Tribunal, while considering the comparability with companies which are market leaders in their field, and having substantially high turnover, observed as follows—

               "5.2. Various arguments, as stated earlier, were taken before the DRP which inter-alia included rejection of comparable cases; application of arbitrary filter of wage to sales ratio; ignoring that the assessee is a limited risk company; inclusion of Infosys Technologies ltd.; and inclusion of Satyam Computers Services Ltd. in spite of the fact that its data is not reliable as publicly known. On the basis of these arguments, the DRP excluded the case of Satyam Computers Services Ltd., thereby reducing the arm's length margin to 25.6°Io. It is argued that the case of the assessee is not comparable with Infosys Technologies Ltd., the reason being that the later is giant in the area of development of software and it assumes all risks, leading to higher profit. On the other hand, the assessee is a captive unit of its parent company in the USA and it assumes only limited currency risk. Having considered these points, we are of the view that the case of the aforesaid Infosys and the assessee are not comparable at all as seen from the financial data etc. of the two companies mentioned earlier in the order. Therefore, we are of the view that this case is required to be excluded."

         Similar view has also been expressed by the Hyderabad Bench of the Tribunal in the case of Trinity Advanced Labs P. Ltd. (supra). In the case of Genesys Integrating India P. Ltd. (supra), the Bangalore Bench of the Tribunal has observed in the following manner—

               "9. Having heard both the parties and having considered the rival contentions and also the juridical precedents on the issue, we find that the TPO himself has rejected the companies which are making losses as comparables. This shows that there is a limit for the lower end for identifying the comparables. In such a situation, we are unable to understand as to why there should not be an upper limit also. What should be upper limit is another factor to be considered. We agree with the contention of the learned counsel for the assessee that the size matters in business. A big company would be in a position to bargain for the price and also attract more customers. It would also have a broad base of skilled employees who are able to give better output. A small company may not have these benefits and therefore, the turnover also would come down reducing profit margin. Thus, as held by the various benches of the Tribunal when companies which are loss making are excluded from comparables, then the super profit making companies should also be excluded. For the purpose of classification of companies on the basis of net sales or turnover, we find that a reasonable classification has to be made. Dun & Bradstreet and NASSCOM has given different ranges. Taking the Indian scenario into consideration, we feel that the classification made by Dun & Bradstreet is more suitable and reasonable. In view of the same, we hold that the turnover filter is very important and the companies having a turnover of Rs. 1.00 crore to 200 crores have to be taken as a particular range and the assessee being in the range having turnover of 8.15 crores, the companies which also have turnover of 1.00 to 200.00 crores only should be taken into consideration for the purpose of making TP study."

         In view of the aforesaid consistent decisions of the Tribunal, we accept the contention of the learned Authorised Representative for the assessee that the aforesaid three companies cannot be treated as comparable, considering their substantially high turnover as compared to that of the assessee. We also agree that the turnover filter of Rs. 1 crore to Rs. 200 crore as applied by the ITAT Bangalore Bench in the aforesaid decision, should also apply to the facts of the present case, considering the assessee's turnover of mere Rs. 60 crores. We therefor4e, hold that companies having turnover of Rs. 1 crore to Rs. 200 crore alone can be considered as comparable, in the case of the assessee."

     47.2 In the case of Genesys Integrating Systems India P Ltd (supra), the Tribunal has made a classification of company is having turnover of Rs. 1 crore to Rs 200 crores as the comparable range of size of companies and further from Rs. 200 crores to Rs. 2000 crores as another slab of turnover. This classification is based on dun & Bradstreet having given different ranges of size of companies i.e. large, medium and smaller. Such classification by dun & Bradstreet was not made in the context of comparables under T P Regulations.

     47.3 It is pertinent to note that as per this classification of the company on the basis of turnover from Rs. 1 crore to Rs. 200 crores, an entity having Rs. 1 crore can be compared with an entity having Rs. 200 crores turnover ; but at the same time, an entity having Rs. 200 crores turnover cannot be compared with the entity having Rs. 201 crores turnover. Thus, this classification gives unrealistic result as far as the comparability of two entities having difference of Rs. one crore only cannot be compared. In our view for the purpose of comparing the profit margin of functionally similar entity the classification of such slab range is not practically workable. Therefore, as it is apparent from this classification that two entities can be compared having difference in the turnover upto Rs. 199 crores; but at the same time, cannot be compared even if the difference of turnover of one cr. Therefore, with due respect, we are unable to accept such classification of comparables on the basis of fixed slabs of turnover.

     47.4 Further, as brought to our notice by the ld DR through the details and graphic chart there is no direct proportionate relation between the turnover and margin. The details applied by the ld DR as shown in the graphic chart are as under:

S.No.	Name of the Company	Margin	Sales	Mean Margin	Sales Upto
1.	Datamatics Financial Services Ltd. (Seg.)	5.07	2.92
2.	Bodhtree Consulting (Segmental)	29.58	2.94
3.	Informed Technologies India Ltd.	35.56	4.07
4.	Cosmic Global Ltd.	12.04	4.27
5.	Asit C Mehta (Nucleus Netsoft)	24.21	6.09
6.	Apex Knowledge Solutions P. Ltd.	12.83	6.63
7.	Mold-Tek technologies Ltd.	113.49	11.4
8.	Maple Esoutions Ltd.	34.05	12.21
9.	I Services India Pvt. Ltd.	50.27	16.29
10.	Accentia Technologies Limited	38.26	16.57
11.	R. Systems International Ltd. (Seg.)	20.18	17.33
12.	Genesys International Corporation Limited	13.35	19.17
13.	Flextronics Software (Seg)	14.54	21.41
14.	Vishal Information Technologies Ltd.	51.19	30.6
15.	Spanco Ltd. (Seg.)	25.81	35
16.	Caliber Point Business Solutions Ltd.	21.26	39.29
17.	Apollo Healthstreet Ltd.	13.55	47.84	31.36	upto 50
18.	Triton Corpn. Ltd.	34.93	53.36
19.	ICRA Techno Analyties Ltd. (Seg.)	12.24	72.32
20.	Eclerx Services Ltd.	90.43	86.2	31.29	Upto 100
21.	Allsec Technology Ltd.	27.31	113.27	31.10	Upto 120
22.	Aditya Birla Minacs	11.98	197.06	30.23	Upto 200
23.	HCl Comnet (seg)	44.99	260.18	30.87	Upto 300
24.	Infosys BPO Ltd.	28.78	649.56	30.78	Upto 650
25.	Wipro Ltd. (Seg.)	29.7	939.77	30.74	Upto 940

     47.5 It is manifest from this details and the comparative chart that there is no relation between the turnover and margin of an entity as it shows that the highest margin of the entity having Rs.50 crores turnover and the lowest margin in case of the turnover upto Rs. 200 crores. It makes further clear that there is not much difference in the margin of the various entities having turnover upto Rs. 940 crores as the average margin of the entities upto the turnover of Rs.50 crores is 31.36%; whereas the margin of the entities having turnover upto Rs. 940 crores is 30.74%. Thus, there is not much difference in the margin whereas there is a vast difference in the turnover. The turnover is not a criteria as prescribed under the Rule 10B(2) for selecting the comparables. It is settled proposition that the decisive factor for determining inclusion or exclusion of any case as a comparable are prescribed under Rule 10B(2) which does not specify any such factor of turnover on the basis of which a particular case can be included or excluded in the list of comparables.

     47.6 In the case of M/s Symantec Software Solutions P Ltd (supra), this Tribunal (one of us- JM-is the party) has considered and decided the issue of turnover filter in para 12.15.1 as under:

         "12. Next objection of the assessee is regarding turnover filtering as well as difference in functions and risk profile of comparables.

         13. The main contention of the Id AR of the assessee is that the comparables having more than 50 crores and less than 5 crores of turnover should be excluded for determining the ALP because the assessee's revenue from marketing support services is about Rs. 20 crores. He has pointed out that as per Rule 10B(3), if there are material difference between the transaction being compared, then, reasonably accurate adjustments should be made to eliminate the material difference. The Id AR asserted that since the TPO has not made any such adjustment; therefore, the comparables, which are having more than 50 crores and less than 5 crores of turnover should be discarded.

         14. Undisputedly, the comparables considered by the TPO are selected by the assessee and in its TP study; the assessee did not exclude the comparables on such basis of turnover. The assessee's contention is that the assessee is a risk free entity whereas the comparables are not free from various risks and therefore appropriate adjustment on account of difference in function and risk profile should be made. We note that the assessee did not make any such adjustment of difference in function and risk profile of the comparables in the TP study. It is only when the TPO proposed to exclude some of the comparables as agreed by the assessee and to take only current year updated data into consideration for determining the ALP, the assessee raised these objections. There is no quarrel on the point that if the comparables proposed to be taken into consideration by the TPO are having an abnormal differences of turnover in comparison to the turnover of the assessee, and if it is apparent due to such abnormal difference in the turnover, the operating profits of the comparables is got distorted then in such a case, those comparables should be excluded from the list of the ALP.

         15. In the case in hand, the assessee raised these objections only because some of the comparables are having high profit and also high difference in the turnover and not because of the high or low turnover has influenced the operating margin of the comparables. All the objections and contentions raised by the assessee in respect of this issue are general in nature and no specific fact has been brought on record to show that due to the difference in turnover the comparables become non-comparables. The assessee has not demonstrated as to how the difference in the turnover has influenced the result of the comparables. It is accepted economic principles and commercial practice that in highly competitive market condition, one can survive and sustain only by keeping low margin but high turnover. Thus, high turnover and low margin are necessity of the highly competitive market to survive.

         15.1 Similarly, low turnover does not necessarily mean high margin in competitive market condition. Therefore, unless and until it is brought on record that the turnover of such comparables has undue influence on the margins, it is not the general rule to exclude the same that too when the comparables are selected by the assessee itself."

     47.7 When the assessee has not made out a case as how the high or low turnover has influenced operating margin and on the contrary there is no direct relation between the turnover and margin as clear from the details and graphic chart reproduced above, then a comparable cannot be rejected solely on the basis of high turnover. Even otherwise, the larger turnover and size of the entity may has an impact of economical cost of production in the manufacturing industry due to huge cost of fixed asset but not in service sector.'

5.2 Thus, it is clear that the finding has been given on examination and analysis of the facts and the assessee has not pointed out in the miscellaneous application any factual mistake in the facts which are considered by the Tribunal while giving the finding. The ld. Authorized Representative has also advanced the contention that the Tribunal is bound by the decision of the Co-ordinate Bench and therefore, cannot take a divergent view when a decision of Co-ordinate Bench is available on the issue of turn over filter. In support of his contention he has relied upon the decision of Hon'ble High Court in case of Mercedes Benz v. Union of India [IT Appeal No. 1614 of 2010, dated 17-3-2010]. To counter the arguments of the Ld. AR, the Ld. DR has relied upon the decision of Third Member of Delhi Bench of this Tribunal in case of Napar Drugs (P.) Ltd. v. Dy. CIT [2008] 98 ITD 285 and submitted that when new material facts are available before the Tribunal which were not available in the earlier cases then the Tribunal can take a different view of the matter. There is no quarrel on the point that if precedent is available on a legal point then the Tribunal has to maintain rule of consistency. In case the Tribunal does not agree with the view of the Co-ordinate Bench then the proper course is to refer the matter to the Larger Bench. However, in the case in hand the issue has been decided on the basis of peculiar, relevant and vital facts brought before the Tribunal which were not available in the case relied upon by the Ld. Authorized Representative. The Third Member decision in the case of Napar Drugs (supra), after considering the various decisions of Hon'ble Supreme Court and Hon'ble High Court on the point has concluded in pare 49 to 51 as under:—

     “49. I have in the foregoing paragraphs briefly enumerated the judgments of Hon'ble High Courts and Supreme Court where they are directly concerned with the question of the nature and scope of one decision of the Tribunal as a precedent on subsequent Bench of the Tribunal deciding the similar issue. There is unanimity and direct authority of Hon'ble Supreme Court in more than one judgments that in income-tax matters the decision of one Bench of the Tribunal does not constitute a binding precedent on subsequent Bench of the Tribunal deciding upon the same or similar issues or facts. There is, however, a strong undercurrent in judicial thinking that where there is only difference of opinion on the same facts and the same aspects, the subsequent Bench ought not to proceed to decide the matter on its own contrary to the earlier decision and should refer the matter to the President of the Tribunal for constitution of a larger Bench. At the same time there is plethora of authority that a subsequent Bench can draw different conclusion if there is adequate justification to depart from the earlier view, e.g. where subsequently new or more facts come to light. (1961) 41 ITR 685 (SC) (supra); 1974 CTR (SC) 167 : (1972) 84 ITR 273 (SC) (supra) ; (1982) 138 ITR 326 (Cal) (supra); (1986) 57 CTR (Raj) 249 : (1986) 160 ITR 243 (Raj) (supra), etc. or if the earlier bench omitted to consider certain material aspects (1961) 41 ITR 685 (SC) (supra); (1962) 44 ITR 529 (SC) (supra); (1993) 203 ITR 304 (Guj) (supra); (1994) 122 CTR (Ker) 410 : (1995) 211 ITR 635 (Ker) (supra). In the case of CIT v. Kalpetta Estates Ltd. (supra), Hon'ble Kerala High Court have further stated that the Tribunal is entitled to take a different view of the matter on a closer and more intelligent analyses.

50. Thus, from the judgments enumerated in this order, I understand that the decisions of a co-ordinate Bench of the Tribunal do not constitute binding precedent on any subsequent Bench of the Tribunal. At the same time if it is only a case of different opinion being held on the same facts, material and aspects already considered, the subsequent Bench should not proceed on its own to make a contrary decision and instead refer the matter for constitution of a larger Bench. At the same time, it is neither required nor practicable as a rule, to make a reference for constitution of a larger Bench for reason only of different conclusion being reached even when there is qualitative difference as respects issues, facts, evidence and material considered between the earlier Bench and the subsequent Bench. In other words the subsequent Bench is entitled to take a different view of the matter if there is ample justification. In this context, the judgment of Hon'ble Bombay High Court in the case of H.A. Shah & Co. v. CIT (1956) 30 ITR 618 (Bom) lays down comprehensive guideline. In that case Hiralal A. Shah used to be assessed in the status of an HUF. It was claimed that there was disruption of HUF on 16th April, 1938 and thereafter a partnership firm was constituted. The Department did not recognize the disruption and held the view that disruption took place only on 13th Oct., 1943 when the minor son of Hiralal attained majority. The Tribunal by its order dt. 29th Jan., 1952 held that the disruption of the family took place as on 16th April, 1938. For asst. yr. 1941-42 the Department made the assessment holding that Hiralal represented the HUF in the firm. As a result of the acceptance of the disruption of the HUF on an earlier date, the Tribunal held that Mr. Hira Lal was only minor's trustee. For asst. yrs. 1942-43, 1943-44 and 1944-45, the Tribunal went into the question in much greater detail and held that Hira Lal was a partner in his own right. Thereafter at the instance of the assessee, the following question was referred to Hon'ble Bombay High Court for their opinion :

     "Whether in the circumstances of the case, the Tribunal was justified in law in departing from its previous finding that Hiralal was trustee of the minor Vasantlal."

     A large number of authorities were cited before the Hon'ble Bombay High Court. The Hon'ble Bombay High Court referred to the judgment in the case of IRC vs. Sleath 17 Tax Cases 149 at 163. "The assessment is final and conclusive between the parties only in relation to the assessment for the particular year for which it is made. No doubt, a decision reached in one year would be a cogent factor in the determination of a similar point in a following year, but I cannot think that it is to be treated as an estoppel binding upon the same party for all years." Hon'ble High Court found that the principle that each assessment is a different assessment year is not merely helpful to the IT authorities but it is equally helpful to the assessee. Shri N.A. Palkhiwala, the eminent counsel for the assessee argued that the Tribunal stood on a different footing from an IT authority not bound by an earlier decision. Reliance was placed by him on a large number of authorities including the statement of the law with regard to 'res judicata' appearing in Halsbury, Vol. 13, p. 449. Hon'ble Bombay High Court held the view that the cases mentioned in Halsbury are cases of a Tribunal dealing with a specific issue which is not likely to arise again. The principle should not have application in relation to the power of one Tribunal to revise or reopen a decision given by another Tribunal in a different assessment. In the words of Hon'ble Court, "IT Tribunals deal with different assessments, and it could not be said that when the first Tribunal gave a decision, the issue was at an end and the question could not be raised again because when a fresh assessment came before the later Tribunal, the question did arise but it arose in a different assessment." While Hon'ble Bombay High Court held that the second Tribunal was not bound by the decision given by the first Tribunal in a different assessment, the Hon'ble High Court held that it did not mean that it is open to a Tribunal to come to a different conclusion to the one arrived at by that very Tribunal earlier without any limitation whatsoever. Hon'ble Bombay High Court thereafter indicated the limitations upon the right of an IT authority or Tribunal not to be bound by the earlier decision or the right to revise the earlier decision. Hon'ble Bombay High Court have declared the legal position in this regard in the following words :

     ".....it seems to us that the mere fact that the second Tribunal may look upon the decision of the first Tribunal as erroneous in law would not justify it in coming to a contrary conclusion or reversing the finding of the first Tribunal Nor are we satisfied that in order to enable the second Tribunal to depart from the finding of the first Tribunal it is essential that there must be some fresh facts which must be placed before the second Tribunal which were not placed before the first Tribunal. If the first Tribunal failed to take into consideration material facts, facts which had a considerable bearing upon the ultimate decision, and if the second Tribunal was satisfied that the decision was arrived at because of the failure to take into consideration those material facts and that if these material facts had been taken into consideration the decision would have been different, then the second Tribunal would be in the same position to revise the earlier decision as if fresh facts had been placed before it. On principle there is not much difference between fresh facts being placed before the second and the second Tribunal taking into consideration certain material facts which the first Tribunal failed to take into consideration. It may be said that even though the first Tribunal may take into consideration all the facts, still its decision may be so erroneous as to justify the subsequent Tribunal in not adhering to that decision. In a case like this, which indeed must be an extreme case, it could be said that the decision of the first Tribunal was a perverse, decision, and if the decision of the first Tribunal was either arbitrary or perverse it would justify the second Tribunal in departing from the decision arrived at by the first Tribunal. Therefore, in our opinion, an earlier decision on the same question cannot be reopened if that decision is not arbitrary or perverse, if it had been arrived at after due inquiry, if no fresh facts are placed before the Tribunal giving the later decision and if the Tribunal giving the earlier decision has taken into consideration all material evidence. We should also like to sound a note of warning, especially with regard to a Tribunal like the Appellate Tribunal, that it should be extremely slow to depart from a finding given by an earlier Tribunal. Even though the principle of res judicata may not apply, even though there may be no estoppel by record, it is very desirable that there should be finality and certainty in all litigations including litigations arising out of the IT Act. It is not a very satisfactory thing that an assessee should feel a grievance that one Tribunal came to one conclusion and another Tribunal came to a different conclusion and that the two conclusions are entirely inconsistent with one another. Therefore, the second Tribunal must be satisfied that the circumstances are such as to justify it in departing from the ordinary principles which apply to all Tribunals to try and give as far as possible a finality and. a conclusiveness to the decision arrived at. We should also like to lay down a further limitation upon the power of the Tribunal to revise the decision given earlier by that very Tribunal. The effect of revising this decision should not lead to injustice and the Court must always be anxious to avoid injustice being done to the assessee."

     51. It, therefore, follows that if while deciding a case the first Tribunal did not have a particular material before it or did not take into consideration particular facts and if the second Tribunal is satisfied that if those material facts had been taken into consideration, the decision of the first Tribunal would have been different, it would justify the second Tribunal in not adhering to the decision of the first Tribunal. On applying this legal principle I find that Hon'ble JM came to the conclusion that the facts of the case of the assessee could not be viewed in isolation when it became known that there were a large number of companies similarly placed. She found that it was too much of a coincidence that in the case of all the companies floated by the searched person, all the shareholders at the same point of time were in need of dire funds and all of them approached the searched person and left signed blank documents. In other words according to the Hon'ble JM, once it was realized that in the peculiar facts and circumstances of the case the assessee was not alone but was one of many, the whole complexion of the facts and circumstances of the case became altogether different. I see considerable force in this reasoning. The Tribunal has decided the appeals on identical facts in the case of Real Overseas (P) Ltd.; Makhni & Tyagi (P) Ltd.; Indradhan Agro Products Ltd.; (supra) Akriti Media (P) Ltd. and Garg Polymers (P) Ltd., each in isolation without examining the totality of the picture that emerges once all these cases are considered as pieces of a large mosaic. In other words, what the learned AM considered to be the strength of the case of the assessee, precisely the same has been considered by the learned JM, to be the weakness in the case of the assessee. According to the learned JM by valiant efforts made, the learned Departmental Representative could change the entire complexion of the case as compared to the cases earlier decided by the Tribunal including herself. It is needless to say that in such circumstances the case before her fell in the category of exceptions carved out by the series of judgments of Hon'ble Supreme Court and of various High Courts discussed by me at length from para 28 onwards. In my opinion, the learned AM (sic-JM) was entitled to take a different view of the matter when an altogether different case was presented before her.'

It is clear that in case of Napar Drugs (P.) Ltd. (supra) the Tribunal has considered various decisions including the decision of Hon'ble Jurisdictional High Court in case of H.A. Shah & Co. v. CIT [1956] 30 ITR 618 (Bom.) and held that if while deciding a case the First Tribunal did not have a particular material before it and if the second Tribunal is satisfied that if those material facts have been taken into consideration the decision of first Tribunal would have been different, it would justify the second Tribunal in not adhering to the decision of the first Tribunal. Accordingly when the issue has been decided after considering certain vital facts which were not before the Co-ordinate Benches relied upon by assessee then taking a different view on the basis of new facts would not amount to taking a divergent view of the matter on same facts, material and aspects already considered. As regards brand value, though the assessee has raised the objection of brand value however, nothing has been brought on record by the assessee to show how the brand value has an influence on the margins in the case of the comparables. Even no quantitative details of the adjustment if any on account of brand value are given. Therefore, we do not find any substance in the objections of the assessee against the finding of the Tribunal. The assessee's grievance is against the reasoning of the Tribunal in not accepting the contention of the assessee and not against any error or mistake which is apparent on record showing consideration of wrong facts or non consideration of relevant facts. In our humble view the grievance against the reasoning can not be raised in the proceedings under section 254(2).

6. The next grievance of the assessee is regarding finding of the Tribunal in respect of comparable Maple-Esolution Ltd. The ld. AR of the assessee has referred to para 51.1 at page-65 of the impugned order and submitted that the objection of the assessee was rejected by the Tribunal on the ground that the assessee itself has selected this company as comparable. In support of his contention he has relied upon the decision of the Special Bench in the case of Dy. CIT v. Quark systems (P.) Ltd. [2010] 38 SOT 307 (Chd.) and submitted that the Tribunal accepted the assessee's contention for exclusion of certain cases which were wrongly included in the TP study but were not comparable. On the other hand the ld. DR has submitted that the Tribunal has decided the issue of comparability first in para .51 and then rejected the objection of the assessee in para 51.1. Therefore there is no mistake in para 51.1

6.1 We have considered the rival submissions and carefully perused the relevant records. The issue has been considered and decided by the Tribunal in para 51 to 51.2 at page 65 and 66 of the impugned order as under :—

     "51 We have considered the rival submissions and relevant material on record. The first objection raised by the assessee is the involvement of the directors of this company in the fraud. The Tribunal in the case of Capital IQ Information (supra) as well as CRM rejected this company as comparable. Undisputedly, the alleged fraud relates back to the period of 1980 to 1990 and it was in respect of business in bicycle parts not connected with the business activity of this company. There was no allegation of any malpractice or fraud in the business of these companies and the allegation of fraud was against the directors in person. Though the Tribunal in the case of Capital IQ Information (supra) and CRM Services (supra) has taken one of the grounds for rejecting this company as a comparable because the director of this company was reportedly involved in the fraud, in our considered opinion the said allegation of fraud against the directors and that too in the year 1980 to 1990 would not have influenced the business and margin of these companies when there is no allegation of any malpractice or fraud in connection with the business of these companies. Further, considerable time has passed when these allegations were reported up till the AY under consideration. Therefore, solely on the basis of the allegations of fraud and malpractice against a person in respect of unconnected business activity because the said person happens to be the director of these companies, cannot render these companies as non-comparables. There is no allegation against these companies or business activity of these companies. Therefore, it cannot be considered that the business or results of these companies are in any manner influenced or affected by the allegation of fraud against the directors in respect of other business activity that too more than two decades back.

     51.1 So far as the Maple Esolution Ltd., is concerned, this company was selected by the assessee itself in TP study as comparable; therefore, we are not inclined to accept the objection raised by the assessee before us that the directors of these companies were involve din the fraud.

     51.2 However, since Triton Corpn Ltd., acquired by Maple Esolution Ltd., therefore, we are of the view that if extra ordinary events like merger and de-merger or amalgamation took place during the financial year relevant to the Assessment Year under consideration, and because of the merger/de-merger the company became functionally different then the said company should be excluded from the comparables. However, if the merger of the two functionally similar companies took place then the event of merger itself cannot be taken a factor for exclusion of the said comparable.. Accordingly, we direct the AO/TPO to verify this fact and accordingly decide the comparability of this company namely Accentia Technologies Ltd."

6.2 The objection of the assessee against the inclusion of Maple Esolutions is the allegation of fraud against the director of the said company. As it is clear from the finding of the Tribunal in para-51 the said objection was found not relevant for the business of these companies and for the year under consideration. Once the ground of allegation of fraud against directors was not accepted then the finding of the Tribunal in para-51 to 51.2 has to be read as a whole. The observation of the Tribunal in para 51.1 is based on the finding in para-51 and therefore, para 51.1 can not be read in isolation. Accordingly we do not find any substance in the submissions of the assessee on this point.

7. The next error alleged by the assessee is regarding the finding of the Tribunal in respect of comparability of Eclerx Services Ltd. The ld. AR has submitted that the assessee has raised the ground on functional comparability before the CIT(A) and also relied upon the decision of the Hyderabad Bench of the Tribunal in case of Capital IQ Information System India (P.) Ltd. wherein the Tribunal has held that Eclerx Services Ltd. could not be regarded as comparable, as it was involved in KPO Services which is different from BPO Services. However, this Tribunal has omitted to consider this decision and gave a finding completely contrary to the finding in the case of Capital IQ Information System India Pvt. Ltd. On the other hand the ld. DR has submitted that the Authorized Representative did not advance the argument on the functional comparability of Eclerx Services Ltd. but relied upon the decision of Capital IQ Information System India Pvt. Ltd. He has further contended that in the said case of Capital IQ Information System, Eclerx Services Ltd. was rejected as comparable on the ground of super normal profits and KPO services. On the issue of super normal profits there are various decision and Tribunal rulings wherein it has been held that merely on the basis of super normal profit a company cannot be excluded as a comparable. It is the reason of existing abnormal circumstances leading to super normal profit which is relevant for deciding the comparability and not super normal profit alone. He has relied on the decision of this Tribunal in case of Exxon Mobile Company India as well as four other decisions of the Tribunal.

     (i) SAP Labs-I.T.A No.398/Bang/2010

     (ii) Google India P. Ltd.-I.T.A/Bang/2010

     (iii) Adobe Systems India (P.) Ltd. v. Addl. CIT [2011] 44 SOT 49 (Delhi) (URO)

     (iv) TEVA India (P.) Ltd. v. Dy. CIT [2011] 44 SOT 105 (Mum.) (SB)

     (v) Capital IQ Information Systems (India) (P.) Ltd. (supra)

7.1 We have considered the rival submissions and carefully gone through the record. The argument of both the parties have been recorded at length in para-34 to 34.3 of the impugned order. Both parties have relied upon five decisions each of the Tribunal in support of their contentions. The aspect of functional comparability has been considered in para 34.5 and 34.6 as under :—

     "34.5 Even as per OECD TP guidelines, the extreme results might consist of losses or unusually high profits itself cannot be a factor for potential comparables; but further examination would be needed to understand the reasons for such extreme results. If some reasons are detected which indicate a defect in the comparability or exceptional conditions for such an extreme results, then only the case may be excluded from the proposed comparables. The concluding remarks given under the OECD TP guidelines in para 3.65 & 3.66 are as under:

          3.65 Generally speaking, a loss-making uncontrolled transaction should trigger further investigation in order to establish whether or not it can be a comparable. Circumstances in which loss-making transactions! enterprises should be excluded from the list of comparables include cases where losses do not reflect normal business conditions, and where the losses incurred by third parties reflect a level of risks that is not comparable to the one assumed by the taxpayer in its controlled transactions. Loss-making comparables that satisfy the comparability analysis should not however be rejected on the sole basis that they suffer losses.

          3.66 A similar investigation should be undertaken for potential comparables returning abnormally large profits relative to other potential comparables.

     Thus, it is clear that even the loss making or high profit making comparables that satisfy comparability analysis should not be rejected on the sale basis that they suffers loss or earned high profit.

     34.6 In the case of Exmxon Mobil Co. India P. Ltd. (supra), the Tribunal has discussing the issue in para 31((xi) as under:

         (xi) Now, coming to the alternative arguments of the assessee that abnormal profit making unit is also to be eliminated on the same analogy on which loss making units are excluded, we, in principle, do not dispute this proposition. The various case laws relied upon by the assessee lay down that a comparable cannot be eliminated just because it is a loss making unit. Similarly, a higher profit making unit cannot also be automatically eliminated just because the comparable company earned higher profits than the average. The reason for rejecting the two loss making units is not just because they were loss making units but for the reasons which are already stated in the preceding paragraphs. If similar reasons existed in the higher profit making unit, then, it is for the assessee to bring out those reasons and seek exclusion of the same. A general argument that, you have to exclude units which have high profit range, in case you exclude units which have made loss is a general submission which cannot be accepted. In other words, as a general principle, both loss making unit and high profit making unit cannot be eliminated from the comparables unless, there are specific reasons for eliminating the same which is other than the general reason that a comparable has incurred loss or has made abnormal profits. Thus, this ground is dismissed.

     Similarly in the case of M/s B P India Services P Ltd. (supra) the coordinate Benches of this Tribunal has adjudicated this issue in para 1.2.6 as under:

         12.6. Thus it is evident that the decisive factors for determining inclusion or exclusion of any case in/from the list of comparables are the specific characteristics of services provided, assets employed, risks assumed, the contractual terms and conditions prevailing including the geographical location and size of the markets, costs of labour and capital in the markets etc. Nowhere, the higher or lower profit rate, as presumed by the Id. CIT(A), has been prescribed as the determinative factor to make a case incomparable. Rightly so, because profit is not a factor in itself, but consequence of the effect of various factors. Only if the higher or lower profit rate results on account of the effect of factors given in rule 10B(2) read with sub-rule (3), that such case shall merit omission. If however such extreme profit rate is achieved because of factors other than those given in the rule, then such case would continue to find its place in the list of comparables."

7.2 Once the issue has been decided by the Tribunal by holding that the company providing data processing and data analysis service is similar to the services of the assessee then it becomes irrelevant whether the assessee has raised the objection before the authorities below or not. Accordingly we do not find any merit in the submission of the assessee on this issue.

8. The next mistake alleged by the assessee is regarding the finding in respect of comparability of Mold Tex Technologies Ltd. (MTL). The ld. AR for the assessee has submitted that the assessee challenged the selection of MTL on three grounds viz. (a) the company earns super normal profits; (b) the company is engaged in engineering services which is functionally different from the assessee and therefore, not comparable and (c) extra ordinary event in the form of merger.

8.1 On the other hand the ld. DR has submitted that the issue has been remanded to the record of the AO/TPO for verification of extra ordinary events of merger and then to decide the comparability of the company. Therefore, issue of comparability has to be decided only after verification of factum of merger.

8.2 We have considered the rival submissions as well as perused the relevant record. The Tribunal has considered and decided this issue in para-52 and 52.1 as under :—

     "52. The ld AR has referred threefold objections against inclusion of this company in the comparables. Firstly, this company has earned super normal profit; secondly this is not functionally comparable as it is engaged in the engineering services. He has referred page 301 & 302 of the paper book and submitted that the assessee raised these objections that there is a considerable differences in the business profile and the functions performed by this segment of Mold Tex vis-à-vis the business profile and functions performed by the assessee. The ld AR has pointed out that this company operates in two business segments; plastic division and IT division. Plastic division is engaged in the manufacture of lube & oils, paints, pet products, consumer products etc., and IT division of the company specializes in providing structural design and detailing services which can be categorized as structural engineering services and in the nature of KPO. Thus, the I T segments of this company cannot be classified as falling within the scope and ambit of ITES segment. The third objection of the ld AR is with respect to the extra ordinary events in the form of merger during the year as this fact has been recorded by the Hyderabad Bench in Capital IQ Information (supra). In support of his contention, he has relied upon the decision of the Tribunal in the case of Capital IQ Information (supra).

     51.4 On the other hand, the ld DR has submitted that in the case of Actis Advisors P Ltd (supra), the Delhi Benches of this Tribunal has considered this company as a good comparable after examining all the aspects relates to this company. He has relied upon the decision in the case of Actis Advisors P Ltd (supra),

     52. We have considered the rival submission and relevant material on record. As far as the objection regarding super normal profit is concerned, this objection cannot be a sole ground for rejection of a comparable in view of our findings while discussing the comparable Eclerx Services P Ltd in para 34.4

     52.1 As regards the extra ordinary events of merger, we have decided the identical issue while discussing the comparable Accentia Technologies Ltd in paras 17 to 18.3. Accordingly, we direct the Assessing Officer/TPO to verify this fact and accordingly decide the comparability of the company."

8.3 Since the issue of super normal profits has been decide in para 34.4 while considering comparability of Eclerx Services Ltd. therefore, no detailed finding was given for the sake of brevity and to avoid duplication. As regards the functional comparability when the fact of merger was not examined by the authorities below as it was not raised, therefore, the TPO was directed to verify this fact and accordingly decide the comparability of the company. It is pertinent to note that functional comparability can be determined only after issue of merger is verified and decided, therefore, the Tribunal did not propose to go into the issue of comparability as it was subject to event of merger. Accordingly when the issue of merger has been remanded to the record of AO/TPO for verification consequently, the issue of functional comparability has also to be decided by the AO/TPO. Hence, finding in para 52.1 is accordingly clarified.

8.4 The assessee has also raised grievance in respect of finding of the Tribunal on the issue of tolerance range of related party transaction for exclusion of comparable cases. The ld. AR of the assessee has submitted that the assessee has relied upon various decisions of the Tribunal wherein the Tribunal has held that 0-15% of the related party transaction should be considered a threshold for considering an entity as comparable. However, the Tribunal in the impugned order has applied the limit of 15% on the assumption that if good number of comparable are available an entity is having 15% related party transactions can be considered as uncontrolled entity. Thus, the ld. AR has submitted that the Tribunal has taken a contrary view to the ruling of the co-ordinate Bench of the Tribunal which were relied upon by the assessee.

8.5 On the other hand the ld. DR has submitted that the Tribunal has discussed the issue in detail and fixed the tolerance range by considering the facts and circumstances of assessee's case. Therefore, there is no error or mistake apparent on record to be rectified under section 254.

8.6 We have considered the rival submissions and perused the relevant record. The Tribunal has considered this issue in para-21 to 22.11 as under :—

     “21. We have considered the rival submissions and carefully gone through the various decisions relied upon by either of the parties. As per the TP regulations, the international transaction is required to be compared with a similar; but uncontrolled transaction between unrelated parties. Therefore, as a rule of prudence, so far as possible a comparable should be considered having no related party transaction. But as we are conscious and aware of the fact that such a situation is highly impractical and almost impossible to have a comparable without a single related party transaction. Therefore, related party transaction cannot be completely ruled out while selecting the comparables. The question arises as how much and to what extent related party transaction can be accepted for considering the company as a good comparable. This Tribunal has given various threshold limits in series of decisions.

     21.1 In the case of Avaya India P Ltd (supra), the Tribunal in para 18 has opined as under:

         18. We have carefully considered the rival submissions in the light of the material placed before us. So far as it relates to applying the filter for rejection of comparable companies having related party transactions as a percentage of sales more than 15%, we uphold the said filter. So as it relates to another filter rejecting the comparables whose current year financial data is not available we find that the said filter has been upheld by the DRP by following the decision of ITAT Delhi Bench in the case of Customer Services P Ltd v. ACIT 30 SOT 486 in which it has been held that commissioner of Income Tax (Appeals) was fully justified in holding that main rule of sec. 10B(4) was applicable to the facts of the assessee's case and it was mandatory on the part of the TPO to use data relating to financial year 2002-03 in which the international transactions were admittedly enter into by the assessee with its associate enterprises. Therefore, the second filter is also upheld."

     21.2 The Tribunal has upheld the decision of the authorities below in applying filter for rejection of Comparable Company having related party transaction more than 15% of the total sales. Similarly in the case of Sony India P Ltd (supra), the Tribunal has dealt with an identical issue in para 115.3 as under:

         "115.3 On careful consideration of rival submissions, we see no justification for excluding above named three entities from the list of comparable for working out mean operating profit. It is an admitted position that these companies satisfy screening criteria (filters) adopted by the Transfer Pricing Officer at page 10 of the order except his observation that companies were having controlled transactions with related parties. The TPO and on appeal, the learned CIT (Appeals) did not substantiate the allegation by furnishing figures of controlled transactions to show that such transaction had significant impact on the profits of these companies. The taxpayer, on the other hand, has given percentage of transaction with related parties and we are of view that they are not so high as to exclude them from the list of comparables. We are further of view that an entity can be taken as uncontrolled if its related party transaction do not exceed 10 to 15% of total revenue. Within the above limit, transactions cannot be held to be significant to influence the profitability of comparable. For the purposes of comparison, what is to be judged is the impact of the related party transaction vis-a-vis sales and not profit since profit of an enterprise is influenced by large number of other factors. No dispute having been raised by TPO or the Id. CIT(A) that the other filters of functions, economic activities, product profiles etc are satisfied, we are of view that these three entities should also be taken in the list of comparables for working average/mean operating profit. Even as per OECD Guidelines, it is emphasized that large number of similar entities should be taken to make comparison broad based. Respectfully, following the order of the Tribunal, we do not find any infirmity in CIT(A)'s order. Accordingly ground No. 1.3 of revenues appeal stands dismissed."

     22.3 In the said case, the Tribunal has viewed that an entity can be taken as uncontrolled if its related party transaction do not exceed 10 to 15% of the total revenue. In this case, the Tribunal has not fixed any criteria of threshold; but laid down a range from 10 to 15% related party transaction of total revenue for considering the entity as an uncontrolled comparable.

     22.4 In the case of Philips Software Centre Pvt Ltd (supra), the Tribunal in para 5.71 (vii) has observed that for the purpose of the comparability companies with even a single rupee of transactions with AE cannot be considered as comparable.

     22.5 In the case of CRM Services India P Ltd (Supra), the Tribunal has reaffirmed the view as taken in the case of Sony India (supra) and held that the tolerance limit of related party transactions would be in the vicinity of 10 to 15%.

     22.6 In the case of Benetton India P Ltd (supra), a similar view was taken by the Tribunal that the related party transactions should not exceed 10 to 15% of the total revenue.

     22.7 On the contrary, the Tribunal in the case of Actis Advisers (supra) has held that an entity can be taken as uncontrolled, if its related party transaction do not exceed 25% of the total revenue. This view of the Tribunal is based upon the criteria enumerated u/s 92A(2) of the IT Act wherein expression of associate Enterprises has been defined, if certain conditions and criteria as provided thereunder are satisfied. One of the criteria is if an entity holds 26% shares in another entity, then it can be considered as AE. Thus it is clear that the Benches of Tribunal have taken divergent view in various decisions and held that an entity can be taken as uncontrolled, if its related party transaction ranging from 0 to 25% of the total revenue. In the majority of the cases, the range of related party transaction has been considered between 10 to 15% of the total revenue. It is discernible from the different views taken by the Tribunal in these decisions that there cannot be a fixed criteria/parameter which can be applied as a filter in respect of related party transactions for considering an entity as uncontrolled for the purpose of determination of the ALP.

     22.8 In our view 0% related party transaction is an impossible situation and therefore, it is practically not possible to find out a comparable having no related party transaction. Therefore, a reasonable percentage of the total revenue from the related party transaction can be considered for selecting an uncontrolled comparable. There cannot be a single criteria/parameter which can be applied as general rule in all the cases. The related party transaction ranging from 10 to 25% of the total revenue can be considered having regard to the facts and circumstances of the given cases, 10% is the lowest limit and can be taken in the case where abundance number of comparables are available. Therefore, when there is no difficulty in searching the comparables, then the entity having more than 10% of the related party transaction should be excluded because the comparable should be an uncontrolled transaction and therefore, so far as it is possible, its result should not be influenced by related party transaction. In the normal circumstances, where a good number of comparables are available, then the limit of related party transactions should be 15% of the total revenue and in such case, an entity can be considered as uncontrolled, if related party transactions do not exceed 15% of the total revenue.

     22.9 We are also of the view that 15% is an average and should be generally accepted in normal cases as a related party filter. In cases where comparables are not available in sufficient number, then this threshold limit of related party transaction can be relaxed to 20% of the total revenue.

     22.10 The relaxation upto 20% is purely with a view to make it possible that a larger number of entities are taken as comparable so that the ALP so determined should be based on a broad based and technically represents price in the free market. In a extreme case where only one or few comparables are available, then an entity having related party transactions not exceeding 25% of the total revenue can be considered so that the ALP should be determined having comparison broad based, though this extreme limit of 25% can be considered only in exceptional cases.

     22.11 In the case in hand, as it is evident that the TPO has found sufficient number of comparables and finally took 30 companies as comparables; therefore, this case does not fall under the category of exceptional cases where criteria of related party transactions can be relaxed more than 15% of the total revenue of the entity. Hence, we are of the considered opinion that in the case in hand, when there is no shortage of comparables, an entity can be considered as uncontrolled, if the related party transaction do not exceed 15% of the total revenue.'

8.7 It is clear from the finding of the Tribunal that the tolerance range of 15% was taken in the case of assessee by considering the various decisions of the Tribunal wherein this range has been considered from 0-25%. The assessee's grievance is against reasoning and view of the Tribunal and not against any error or mistake apparent on record. Even in the decisions relied upon by the assessee related party transactions have been considered between 10-15% . The view taken by the Tribunal in assessee's case is not divergent from the view in other cases. Hence, the assessee failed to make out any error apparent from record on this issue.

8.8 The assessee has also raised an objection in the miscellaneous application against the finding of the Tribunal on the issue of justification of carrying out fresh search by the TPO. The ld. AR of the assessee has submitted that the assessee relied upon the decision of the Tribunal in case of Haworth (India) (P.) Ltd. and in case of Vedaris Technologies (P.) Ltd wherein the Tribunal has considered even one comparable sufficient for determining the ALP. The ld. AR has submitted that in assessee's case TPO accepted eight comparables selected by the assessee and further carried out the search to include 22 more comparables. Thus, TPO was not justified in carrying out the fresh search when eight comparables selected by assessee were accepted by TPO. The ld. AR contended that the finding of the Tribunal is contrary to the decision in case of Haworth (India) (P.) Ltd. (supra) and Vedaris Technologies (P.) Ltd. (supra) and therefore, the matter should have been referred to the Larger Bench/Special Bench. On the other hand the ld. DR has relied upon the Third Member decision in the case of Napar Drugs (P.) Ltd. (supra) and submitted that the Tribunal after considering the various decision of Hon'ble High Courts and Hon'ble Supreme Court including the decision of Hon'ble High Court of Kerala in the case of CIT v. Kalpetta Estates (211 ITR 635) has held that the Tribunal is entitled to take a different view of the matter on a closer and more intelligent analysis.

8.9 In the rebuttal the ld. AR has relied upon the following decisions :

     1. Omar Salay Mohd. Sait v. CIT [1959] 37 ITR 151 (SC);

     2. Killick Nixon and Co. v. CIT [1967] 66 ITR 714 (SC) and

     3. Udhavdas Kewalram v. CIT [1967] 66 ITR 462 (SC)

8.10 He has submitted that it has been held by the Hon'ble Supreme Court that the Tribunal being final authority on the question of fact was bound to consider all evidence and arguments raised by the parties.

8.11 We have considered the rival submissions and carefully perused the relevant records. The Tribunal has considered and decided the issue in para-14 to 14.7 as under :—

     "14 We have considered the rival submissions and carefully gone through the relevant material as well as the provisions relating to the Transfer Pricing Regulations. As per the provisions of sec. 92CA(3), the TPO has jurisdiction/power to gather and consider all relevant material and information apart from the evidence, information and documents produced by the assessee as required u/s 92D(3) to determine the ALP in relation to the international transaction.

     14.1 Sub sec. (7) of sec 92CA empowers the TPO for the purpose of determining the ALP to exercise any of the powers specified in clause (a) to (d) of sub-sec. (1) of sec 132 or sub-sec. (6) of sec 133 or 133A. Thus, under the TP regulations, there is no embargo on the powers of the TPO in carrying out fresh search for gathering more relevant information, documents etc., while determining the ALP in relation to international transactions.

     14.2 The assessee has challenged the action of the TPO on the ground that after accepting 8 comparables selected by the assessee, the TPO is not justified in carrying out fresh search and adding 22 more comparables. The contention of the ld Sr counsel is based on the logic that the 8 comparables, as selected by the assessee and accepted by the TPO, are more than sufficient for determination of the ALP and therefore, there was no requirement, which justified the fresh search carried out by the TPO in inclusion of 22 more comparables

     14.3 We do not agree with the proposition advanced by the ld Sr counsel for the assessee because there cannot be a fixed number of comparables to be considered as sufficient or appropriate number for determination of the ALP as a general parameter. The sufficient number of comparables depends upon the facts and circumstances of the each case and there cannot be a fixed criteria or parameter for number of comparables, which can be universally applied to each and every case for determination of the ALP. It is an accepted rule of sampling that larger size of sample would better and adequate represent the lot or population to which the sample belongs. Therefore, to get an adequate result and better representation, the size of sample must be large enough. The same rule is applicable in the case of number of comparables selected for representing the true and correct ALP in relation to the international transaction. The endeavour should be made to bring more and more comparables so that a proper and realistic price can be determined which represents the price prevailing in the open market.

     14.4 Under the Transfer Pricing Regulations, the number of comparables may be one or more than one; but there is no upper limit prescribed u/s 92C of the I T Act. However, the first proviso to sec. 92(2) indicates that more than one price can be considered for determination of ALP and in such a case, the ALP shall be taken to be arithmetic mean of such price. Therefore, the size of number of comparables has not been prescribed under the provisions of TP Regulations provided under the I T Act. However, the sufficiency of number depend largely on the availability of the comparables where the number of comparables available is large, then it is always better to consider as many as possible number of comparables which can give an adequate and proper representation of the price prevailing in open market in the said industry, business, trade etc., to which the comparables and international transactions belong.

     14.5 In the case of Haworth India P Ltd, (supra) the Tribunal has observed that only one comparable was left which was selected by the assessee itself in its TP study and the TPO did not choose to carry out a fresh search, then the said comparable can be taken to compute the ALP. The relevant part of the Tribunal's observation in para 77 is as under:

         77. Now coming to the case Law relied upon by Id. DR which convey that only one comparable is sufficient and it has been held by the Tribunal in other cases that arm length price can be worked out even on the basis of one comparable. In the case of Vedaris Technology (P.) Ltd. v. ACIT (supra) 20 comparables were short listed and mean margin was worked out at 16.585% and out of those only one comparable was Left namely Sophia Software Ltd. on the basis of which the arm Length price was determined. Here, it is the case of Ld. AR that the said case is not applicable to assessee's case as in that case both the parties had accepted one comparable only. But that is not the only basis on which the Tribunal has rested its decision. The other case of similar nature is Parrot Systems TSI India Ltd. v. DCIT (supra). Moreover, the comparable which has been Left was selected by the assessee itself in its TP study and no reason whatsoever is given that how the said comparable could not be taken to compute arm length price of the assessee. Therefore, we reject the submission of the assessee that on the basis of one comparable, the arm length price could not be determined and fresh search was required to be taken as per submissions made before DRP. The facts of the present case do not warrant the fresh search to be taken into consideration as there is no valid reason to do so.

     14.6 The finding of the Tribunal is on the point whether in a case where only comparable is left which is selected by the assessee in the TP study, then the TPO is not bound to carry out a fresh search. Therefore, the Tribunal's decision is not on the point of restricting the power and jurisdiction of the TPO to carry out the fresh search; but it is in the peculiar facts of the said case when only one comparable was left and in view of the TPO, no fresh search was required, then the ALP can be determined on the basis of one comparable. Therefore, the said finding of the Tribunal cannot be understood and inferred as a bar on the jurisdiction of the TPO to carry out a fresh search.

     14.7 In the case of Vedaris Technology (P.) Ltd. (supra) also, the Tribunal has observed that when both the parties have accepted the sole comparable left, then it is to be a valid comparable case. Again the finding of the Tribunal is not on the point of jurisdiction of the TPO; but is on the point when one comparable which is left and accepted by both the parties and the TPO chose not to carry out a fresh search, then the ALP can be determined on the basis of one comparable. But where the TPO in his wisdom decides to exercise his power and jurisdiction to carry out a fresh search, then there is no such provision or law which restricts the powers/jurisdiction of the TPO to carry out the fresh search, if the comparables included by the TPO are found as good comparables for determination of the ALP."

8.12 From the finding (supra) it is clear that the Tribunal has not taken any divergent view from the views in the other cases because the issue and facts and circumstances in the cases relied upon by the assessee are entirely different. In those cases the TPO rejected the other comparables selected by the assessee except one and ALP was determined on the basis of one comparable selected by the assessee. Therefore, when the TPO itself did not choose to carryout further search then issue of justification of TPO did not arise before the Tribunal. In the case in hand the assessee raised the question about the jurisdiction of TPO to carryout fresh search which has been considered and decided after considering the relevant provisions, decisions as well as arguments of the assessee. Therefore, we do not find any substance in the contention of the assessee. The decision relied upon by the ld. AR in the present proceedings are undisputedly on the point of considering the evidences and necessary facts before the Tribunal. Therefore, there is no quarrel as regards the decision of Hon'ble Supreme Court relied upon by the assessee but it is not the case of the assessee that Tribunal has ignored and any fact or evidence while passing the impugned order.

8.13 The assessee has also objected against the finding of the Tribunal on the comparability of Tritone Corporation and Maple Esolutions Ltd. It has been submitted that the Tribunal has taken a divergent view from the decision in case of IQ Information System. Therefore, the matter should have been referred to the Special Bench to the extent of taking divergent view.

8.14 As we have already considered this objection of the assessee and reproduced the findings of the Tribunal in para No.6.1 of this order, the decision relied upon by the assessee has also been duly considered while giving the finding. The allegation of fraud is against the director of the company but in respect of business of bicycle spare parts and further it related to the year 1980-1990. Therefore, by considering this particular fact of a different business and lapse of considerable time as well as allegation were against director and not against the company the Tribunal has decided the issue. In our view the decision taken on merits and recording sufficient reasons cannot be assailed in the proceedings under section 254(2). Accordingly we do not find any error apparent on record qua this issue.

8.15 As it is clear from the averments made in the miscellaneous application as well as arguments/submissions advanced by the ld. AR that all these contentions and submissions are repeated by the assessee as it was advances during the hearing of the appeal. It is settled legal proposition of law that only apparent mistake on record which is obvious manifest and patent and not something which can be established by long drawn process and reasoning on the point can be rectified. The scope of section 254(2) is very limited and circumscribed. For exercising jurisdiction under section 254(2) it is mandatory condition that such mistake should be vide apparent manifest, and patent on record and not something which involve serious circumstances of disputes of question of fact or law. Section 254(2) does not confer power on the Tribunal to review its earlier order. Therefore, the Tribunal has no power to review its order passed on merits and in the garb of rectification of mistake no order can be passed under section 254(2) which amounts to reversal of order passed after discussing all facts and statutory provisions in detail. The Tribunal has no jurisdiction under section 254(2) to re-appreciate or reevaluate evidences.

8.16 It is to be noted that the contention and averments made in the miscellaneous application as well as arguments of the Ld. AR are directed to criticize the impugned order of the Tribunal which does not fall in the scope of section 254(2). If the assessee has any grievance against the impugned order, the proper and efficacious remedy is to challenge the same in appeal and not to challenge the finding of the Tribunal in the proceedings under section 254(2). Thus the primary purpose of the present miscellaneous application is an attempt to criticize the impugned order of the Tribunal without pointing out any obvious, patent or apparent mistake in the order which can be rectified under section 254(2). The assessee has expressed its grievance against the order and not pointed out any error or mistake apparent. Further, the grievance of the assessee is against reasoning and finding of the Tribunal on merits. Thus it is apparent that the miscellaneous application is a deliberate attempt to attack and criticize the Tribunal and its order. We take a serious view of the conduct of the assessee in filing frivolous miscellaneous application in the garb of rectification of mistake which is highly improper and condemnable. The miscellaneous application filed by the assessee is not only a gross misuse and abuse of process of law but also has caused wastage of the time of the Court at length.

9. In view of the above discussion we find that the miscellaneous application is devoid of any merit or substance. Accordingly, same is dismissed.

Order pronounced in the open court on 13^th November, 2013.

 

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