|CORAM:||N. Barathvaja Sankar (VP), N. V. Vasudevan (JM)|
|CATCH WORDS:||Comparables, Transfer Pricing, Turnover Filter|
|DATE:||November 23, 2012 (Date of pronouncement)|
|DATE:||October 20, 2014 (Date of publication)|
|FILE:||Click here to download the file in pdf format|
|Transfer Pricing: Turnover filter is an important criteria in choosing comparables|
(i) The ICAI TP Guidelines note on this aspect lay down in para 15.4 that a transaction entered into by a Rs. 1,000 crore company cannot be compared with the transaction entered into by a Rs. 10 crore company. The two most obvious reasons are the size of the two companies and the relative economies of scale under which they operate. The fact that they operate in the same market may not make them comparable enterprises.
(ii) A reading of the provisions of Rule 10B(2) of the Rules shows that uncontrolled transaction has to be compared with international transaction having regard to the factors set out therein. Before us there is no dispute that the TNMM is the most appropriate method for determining the ALP of the international transaction. The disputes are with regard to the comparability of the comparable relied upon by the TPO.
(iii) In this regard we find that the provisions of law as the decisions clearly lay down the principle that the turnover filter is an important criteria in choosing the comparables. The assessee’s turnover is RS. 47,46,66,638. It would therefore fall within the category of companies in the range of turnover between 1 crore and 200 crores (as laid down in the case of Genesis Integrating Systems (India) Pvt. Ltd. v. DCIT, ITA No.1231/Bang/2010). Thus, companies having turnover of more than 200 crores have to be eliminated from the list of comparables as laid down in several decisions referred to by the ld. counsel for the assessee.