Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla

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???? ?????? ????????????????? “?” ??????
IN THE INCOME TAX APPELLATE TRIBUNAL
PUNE BENCH “A”, PUNE

???? ????? ?????, ?????? ???? ??? ?????? ?? ??? ?? ????, ???? ???? ?????
BEFORE MS. SUSHMA CHOWLA, JM AND SHRIPRADIP KUMAR KEDIA, AM

???? ???? ??. / ITA No.1800/PN/2013
??????? ???/Assessment Year : 2010-11

The Income Tax Officer,
Ward 1(1), Pune …. ???????/Appellant
Vs.
Avalara Technologies Pvt. Ltd.,
Pride Portal, 3rd
Floor,
Shivaji Housing Society,
Bahiratwadi, Senapati Bapat Road,
Pune – 411016 …. ?????/ Respondent
PAN: AAFCA5552K
???? ???? ??. / ITA No.299/PN/2015
??????? ???/Assessment Year : 2010-11

Avalara Technologies Pvt. Ltd.,Avalara Technologies Pvt. Ltd.,
Pride Portal, 3rd
Floor,
Shivaji Housing Society,
Bahiratwadi, Senapati Bapat Road,
Pune – 411016 …. ???????/Appellant
PAN: AAFCA5552K
Vs.
The Income Tax Officer,
Ward 1(1), Pune …. ?????/ Respondent

???? ???? ??. / ITA No.399/PN/2015
??????? ???/Assessment Year : 2010-11
The Income Tax Officer,
Ward 1(1), Pune …. ???????/Appellant
Vs.
Avalara Technologies Pvt. Ltd.,
Pride Portal, 3rd
Floor,
Shivaji Housing Society,
Bahiratwadi, Senapati Bapat Road,
Pune – 411016 …. ?????/ Respondent
PAN: AAFCA5552K
———————Page 2———————

2
ITA No.1800/PN/2013
ITA Nos.299 & 399/PN/2015
Avalara Technologies Pvt. Ltd.

Assesseeby : Shri Nikhil Pathak
Revenue by : Shri M.K. Biju, JCIT

?????? ?? ?????/ ????? ?? ?????/
Date of Hearing : 03.02.2016 Date of Pronouncement:31.03.2016

???? / ORDER
Avalara technolo Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowlaAvalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowlagies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla
Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla Avala Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowlara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla
Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla
Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla
Avalara technolo Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowlaAvalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowlagies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla
Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla Avala Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowlara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla
Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla
Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla

Avalara technolo Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowlaAvalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowlagies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla
Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla Avala Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowlara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla
Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla
Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla
Avalara technolo Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowlaAvalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowlagies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla
Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla Avala Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowlara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla
Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla
Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla
Avalara technolo Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowlaAvalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowlagies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla
Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla Avala Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowlara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla
Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla
Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla
Avalara technolo Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowlaAvalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowlagies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla
Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla Avala Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowlara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla
Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla
Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla
Avalara technolo Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowlaAvalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowlagies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla
Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla Avala Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowlara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla
Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla
Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla Avalara technologies Pvt Ltd, sec154, tribunal pune,by shri sushma chowla

PER SUSHMA CHOWLA, JM:

Out of this bunch of three appeals, one appeal filed by the Revenue is

against the order of CIT(A)-IT/TP, Pune, dated 31.07.2013relating to

assessment year 2010-11 against order passed under section 143(3) of the

Income-tax Act, 1961 (in short ‘the Act’). The cross appeals filed by the

assesseeand the Revenue are against the order of CIT(A)-13, Pune, dated

15.01.2015relating to assessment year 2010-11against order passed under

section section 154 r.w.s. 250 154 r.w.s. 250 of tof theheAct.Act.

2. This bunch of three appeals relating to the same assessee on issue of

transferpricing adjustment were heard together and are being disposed of by

this consolidated order for the sake of convenience.

3. The Revenue in ITA No.1800/PN/2013 has raised the following grounds

of appeal:-

1. The order of the learned Commissioner of Income-tax (Appeals) is
contrary to law and to the facts and circumstances of the case.

2. The learned Commissioner of Income-tax (Appeals) grossly erred in
directing the Assessing Officer to exclude the following companies from
the list of comparables forthe reason that the turnover of these
companies exceeded Rs.200 Crs. : Bodhtree Consulting Ltd., Infosys
Technologies Ltd., Larsen & Toubro Infotech Ltd., Sonata Software Ltd.,
Tata Elxi Ltd. and Persistent Systems Ltd.
———————Page 3———————

3
ITA No.1800/PN/2013
ITA Nos.299 & 399/PN/2015
Avalara Technologies Pvt. Ltd.

3. The learned Commissioner of Income-tax (Appeals) grossly erred in
directing as above by relying on the decision of the Bangalore Bench of
the Hon’ble Tribunal in the case of Genesis Integrating Systems Ltd.
and in not following the decision of the Hon’ble Income-tax Appellate
Tribunal, Mumbai Bench ‘K’, in the case of Capgemini India Pvt. Ltd. Vs.
ACIT (ITA No.7861/Mum/2011, A.Y. 2007-08) wherein the Hon’ble
Tribunal rejected the argument for applying turnover filter for selection
of comparables for the purpose of comparing their margins in the case
of service companies.

4. For these and such other grounds as may be urged at the time of the
hearing, the order (If the learned Commissioner of Income-tax (Appeals)
may be vacated and that of the Assessing Officer be restored.

4. The assessee in ITA No.299/PN/2015 has raised the following grounds

of appeal:-

1] The learned CIT(A) ought to have directed the A.O. to include the
various companies selected by the assessee and rejected by the A.O.
in the list of final comparable entities.

1.1] The assessee submits that the learned A.O. was not justified in
rejecting CGVAK Software & Exports Ltd. on the ground that it wasa
loss making company and the learned CIT(A) ought to have directedthe
learned A.O. to consider the said company as comparable with the
assessee company.

1.2] The assessee submits that the learned A.O. was not justified in
rejecting R.S. Software (India) Ltd. and Datamatics Global Services
Ltd. from the list of final comparable entities even though these
companies satisfied all the filters applied by the A.O. and the learned
CIT(A) ought to have directed the learned A.O. to consider these
companies as comparable with the assessee company.

2] The learned CIT(A) erred in directing the learned A.O. to verify
whether the additional companies suggested by the assessee satisfy all
the filters adopted by the A.O. without appreciating that since all the
facts were on record, the learned CIT(A) could have himself given the
finding regarding comparability of the various companies.

3] The learned CIT(A) erred in holding that interest cost should be
excluded from the operating cost while determining the operating
margin of the assessee company and the comparable entities.

4] The learned CIT(A) erred in not allowing appropriate risk adjustment
towards the differences in market risk, price risk, credit risk, warranty
risk, business risk, etc. undertaken by the comparable entities and the
assessee company while computing the ALP of the international
transactions entered into bythe assessee.

5. The Revenue in ITA No.399/PN/2015 has raised the following grounds

of appeal:-
———————Page 4———————

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ITA No.1800/PN/2013
ITA Nos.299 & 399/PN/2015
Avalara Technologies Pvt. Ltd.

1 The order of the learned Commissioner of Income Tax (Appeals) is
contrary to law and to the facts and circumstances of the case.

2 The learned Commissioner of Income Tax (Appeals) grossly erred in
holding that the companies such as CAT Technologies, Exensys
Software Solutions Ltd., Kirtee Software Technologies Ltd., Netripples
Softwares Ltd., Silverline Technologies, Spry Resources India Pvt. Ltd.,
should be included in the list of comparable companies cases if these
companies arepart of accept-reject martrix inspite of the facts that the
assesseecompany in its Transfer Pricing Report has itself rejected
these companies from the list of comparable.

3. For these and such other grounds as may be urged at the time of
hearing, the order of the learned CIT (Appeals) may be vacated and
that of the Assessing Officer be restored.

6. The Revenue is in appeal in ITA No.1800/PN/2013 against the order of

CIT(A) indirecting the Assessing Officer / Transfer Pricing Officer (TPO)to

exclude certain companies where the turnover of the companies exceeded

Rs.200 crores.

7. Further, the assessee is in appeal in ITA No.299/PN/2015against the

order of CIT(A) passed under section 154 of the Act and the Revenue has filed

cross appeal in ITA No.399/PN/2015against the said order passed under

section 154 of the Act by the CIT(A). The learned Authorized Representative

for the assessee at the outset pointed out that though several grounds of

appeal have been raised in its appeal, but the only issue which is being

pressed is in ground of appeal No.1.2 i.e. against arbitrary rejection of two

comparables i.e. R.S. Software (India) Ltd. and Datamatics Global Services

Ltd.from the final list of comparables even though the said concerns satisfied

all the filters applied by the Assessing Officer. In respect of grounds of appeal

No.1, 1.2, 2, 3 and 4, the learned Authorized Representative for the assessee

did not press the said grounds of appeal, hence, the same are dismissed as not

pressed. However, the grievance of the Revenue in its appeal against the

rectification order of CIT(A) is against the direction of inclusion of companies in
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ITA No.1800/PN/2013
ITA Nos.299 & 399/PN/2015
Avalara Technologies Pvt. Ltd.

the final set of comparables with direction tothe Assessing Officer that the

same should be accepted if they are part of accept – reject matrix. The

Revenue is aggrieved by the said direction of CIT(A) on the ground that the

assessee in its transfer pricing report itself had rejected these companiesfrom

the final set of comparables. It may be pointed out that all these three appeals

relate to assessment year 2010-11.

8. Briefly, in the facts of the case, the assessee had furnished return of

income declaring total income at Rs.Nil. The assessee company was engaged

in providing various software development and other ITES services to its

associate enterprises. The assessee was a captive service provider to its

associate enterprise M/s. Avalara INC. During the year under consideration,

the assessee had entered into international transaction of providing services for

software development and ITES support services to its associate enterprises to

the tune of Rs.3,30,32,398/-. The assessee had applied TNMM method for

establishing arm’s length price of international transaction. The assessee had

applied Operating Profit / Operating Cost and had determined the PLI at 9.57%.

The OP / OC ratio in respect of list of comparables selected by the assessee

was 6.77% and as such, it was claimed that the international transaction

entered into by the assessee was at arm’s length. The Assessing Officer

during the assessment proceedings noted that the assessee had merely

applied three search criteria for arriving at the final set of comparablesi.e. (i)

companies which were primarily engaged in activities relating to computer

software; (ii)companies having financial data for the period ending 31.03.2010

and (iii)companies engaged in similar service line. The Assessing Officer was

of the view that criteria applied for selecting the companies with similar service

line were very vagueand the assessee had failed to apply quantitative criteria
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ITA No.1800/PN/2013
ITA Nos.299 & 399/PN/2015
Avalara Technologies Pvt. Ltd.

like turnover, volume of export business, extent of R&D expenses, etc. for

benchmarking its international transaction and hence, it affected the reliability of

entire process of selection of comparables. Relying on the provisions of

section 92C(3)(c) of the Act, the Assessing Officer came to the conclusion that

modified and additional filters had to be allowed for selecting appropriate

comparables functionally similar to that of the assessee. Show cause notice in

this regard was issued to the assessee, which is enlisted at page 14 of the

TPO’s order and finally 11 companies were selected by the TPO whose

arithmetic mean of OP/TC worked out 27.71%. The assessee was thus,

confronted as to why arm’s length price should not be computed in the case of

assessee by taking PLI of comparables at 27.71% as against PLI shown by the

assessee at 9.57%. Theobjection of the assessee to the said exercise was

that data for the companies selected by the Assessing Officer was not available

in public domain and further, the companies whose turnover exceededRs.200

crores were not to be considered as comparable companies. Another list of six

companies were picked up by the assessee, which fulfilled the criteria applied

by the Assessing Officer as in the show cause notice and it was contended that

the comparability analysis of the said companies should be considered in the

final list of comparables. The Assessing Officer rejected the plea of the

assessee vis-à-vis companies selected by him and held that they were

comparable in respect of companies selected by the assessee. The Assessing

Officer noted that the assessee had computed OP/TC ratio for the additional

companies whereas, in fact it had considered the profit before tax, hence, there

was mistake in working out the margins of the said companies. Further, the

companies selected by the assessee were rejected by the TPO vide his

comments under para 9.1.5at pages 19 and 20 of the assessment order. The

Assessing Officer further accepted the plea of assessee that companies having
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ITA No.1800/PN/2013
ITA Nos.299 & 399/PN/2015
Avalara Technologies Pvt. Ltd.

turnover more than Rs.200 crores were not to be considered as comparable.

Hence, final set of comparables were worked out which were as under:-

Sr. No. Company’s Name % OP/OC
1 Acropetal Technologies Ltd. 37.30
2 Bodhtree Consulting Limited 29.07
3 Compucom Software 34.52
4 Infosys Tech 51.26
5 Kals Information Sysystem Ltd. 11.89
6 Larson and Toubro Infotech Ltd. 23.76
7 Sonata Software Ltd. 32.16
8 Tata Elxi 15.15
9 ThinkSoft Global Services Ltd. 12.69
10 Thirdware Solutions Ltd. 27.15
11 Persistent System Ltd. 29.83

Arithmetic Mean 27.71%

9. The OP/OC margins of final list of comparables was 27.71% as against

the margins of assessee of 9.57% and as such, an adjustment of

Rs.54,78,992/- was made by the Assessing Officer and the assessee for the

year under consideration had claimed exemption under section 10A of the Act.

However, no such deduction was alHowever, no such deduction was allowed on the addition made on account of lowed on the addition made on account of

transfer pricing adjustment under section 92C of the Act.

10. Before the CIT(A), the assessee made elaborate submissionsand

objected to the non-application of turnover filter. The assessee claimed that its

total turnover was Rs.3.34 crores and the Assessing Officer had compared the

margins of assessee with companies having turnover of more than Rs.200

crores. In this regard, the claim of assessee was that certain companies having

turnover more than Rs.200 crores had to be excluded from the final list of

comparables, which are as under:-

Name of the Company Turnover from software development
services (Amount in crores)
Bodhtree Consulting Limited 225.68
Infosys Technologies Limited 22,050.00
Larsen & Toubro Infotech Limited 1,776.76
Sonata Software Limited 236.09
Tata Elxi Limited 376.37
Persistent Systems Limited 504.20
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ITA No.1800/PN/2013
ITA Nos.299 & 399/PN/2015
Avalara Technologies Pvt. Ltd.

11. It was further claimed by the assessee that the TPO had selected

Bodhtree Consulting Ltd.and Compucom Softwareas comparable. However,

these companies did not fulfill the filter of having minimum 75% of export

revenue, which filter was applied by the Assessing Officer himself. Accordingly,

both these companies should be excluded from final set of comparables.

12. The CIT(A) vide para 2.3.6noted that the Assessing Officer had not

applied turnover filter at all. He further was of the view that the companies

having relatively low turnover could not be compared with the companies with

very high turnover and in this regard, reliance was placed on the ratio laid down

in Genesis Integrating Systems Limited reported in 152 TTJ (Bangalore) 215.,

wherein it was laid down that for a company having turnover of Rs.8.15 crores,

filter of Rs.1-200 crores was appropriate. Applying the said ratio, the CIT(A)

directed the Assessing Officer to exclude companies having turnover of more

than Rs.200 crores and hence, Bodhtree Consulting Ltd., Infosys Technologies

Ltd., Larsen & Toubro Infotech Ltd., Sonata Software Ltd., Tata Elxi Ltd. and

Persistent Systems Ltd.were excluded from final list of comparables.

13. With regard to other two companies i.e. Bodhtree Consulting Ltd. and

Compucom Software, the CIT(A) stated that these two also fail the filter of

minimum 75% of revenue from export and hence, the same were also to be

excluded from final set of comparables. In respect of Bodhtree Consulting Ltd.,

the CIT(A) held that it also did not fulfill the turnover filter of Rs.1-200 crores.

The CIT(A) further allowed adjustment on account of working capital in

accordance with provisions of the Act. The CIT(A) further observed after giving

effect to these adjustments, the assessee’s profit margins would fall within +/-
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9
ITA No.1800/PN/2013
ITA Nos.299 & 399/PN/2015
Avalara Technologies Pvt. Ltd.

5% of average margins ofcomparable companies and accordingly, the

adjustment made on account of transfer pricing would be deleted.

14. The Revenue is in appeal against the order of CIT(A).

15. The learned Departmental Representative for the Revenue pointed out

that the Assessing Officer had passed the order afterissuing show cause

notice to the assessee by proposing new filters, which are enlisted at page 11

of the assessment order. However, the CIT(A) had allowed the relief and had

not considered the ratio laid down by Mumbai Bench of Tribunal in Capgemini

India (P.) Ltd. Vs. ACIT (2013)33 taxmann.com 5 (Mumbai – Trib).

16. The learned Authorized Representative for the assessee pointed out that

the total turnover of the assessee was Rs.3.30 crores and the Assessing

Officer at page 16 has enlisted 11 companies selected by it, whereas the

CIT(A) had directed that 6 companies should be excluded from the final list of

comparables, where the turnover of all those companies was more than Rs.200

crores. In this regard, the learned Authorized Representative for the assessee

placed reliance onthe ratio laid down by Bangalore Bench of Tribunal in DCIT

Vs. Trident Microsystems India (P.) Ltd. (2015) 60 taxmann.com 218

(Bangalore – Trib.), wherein the turnover was Rs.8.15 crores and the range

was selected between Rs.1-200 crores. The CIT(A) had directed exclusion of

said sixcomparables whose turnover was more Rs.200 crores and also

excluded two more concerns Bodhtree Consulting Ltd. and Compucom

Softwareon failing to comply with the filter of having minimum 75% of export

revenue. It was further pointed out by him that the Revenue is not in appeal

against exclusion of the said two concerns, one of which i.e. Bodhtree
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ITA No.1800/PN/2013
ITA Nos.299 & 399/PN/2015
Avalara Technologies Pvt. Ltd.

Consulting Ltd.was also excluded for high turnover. Referring to the ratio laid

down by the Mumbai Bench of Tribunal in Capgemini India (P.) Ltd. Vs. ACIT

(supra), the learned Authorized Representative for the assessee pointed out

that turnover of the said company was more than Rs.500 crores and had in

turn, selected Infosys and Wipro. However, the Tribunal itself vide para 5.3.9

had directed that the companies with turnover of Rs.3.6 crores had to be

excluded and two more companies were rejected having small turnoveras per

para 5.3.10 of the said decision. Hence, it was the plea of learned Authorized

Representative for the assessee that the Tribunal had applied turnover filter,

but in the context of Capgemini India (P.) Ltd. Vs. ACIT (supra)i.e. companies

with small turnover had to be excluded.

17. We have heard the rival contentions and perused the record. The

limited issue arising before us is in relation to transfer pricing adjustment made

in the hands of assessee with regard to selection of comparables for

benchmarking the international transaction entered into by the assessee. The

assessee is a captive service provider toits associate enterprise M/s. Avalara

INC. During the year under consideration, the assessee had entered into

international transaction of provision of software development and other ITES

services to the tune of Rs.3,30,32,398/-. The assessee had applied TNMM

method and the PLI of the assessee worked out to 9.57% by adopting OP/OC

as indicator. The assessee had picked up certain concerns as comparables

and was of the view that its international transaction was at arm’s length. The

Assessing Officer on the other hand, revised the filters to be applied and

consequently, selected 11 concerns as comparable whose arithmetic mean of

operating margin was 27.71%. Consequently, the Assessing Officer made an

addition under section 92C of the Act to the tune of Rs.54,78,990/-. Before the
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ITA No.1800/PN/2013
ITA Nos.299 & 399/PN/2015
Avalara Technologies Pvt. Ltd.

CIT(A), the grievance of the assessee was against selection of concerns as

comparable. It was pointed out by the assessee before the CIT(A) that the

margins of concerns having turnover of more than Rs.200 crorescould not be

compared with the margins of assessee company whose total turnover was

Rs.3.30 crores. The CIT(A) in turn, relied on the ratio laid down in Genesis

Integrating Systems Limited(supra)applied range turnover between Rs.1-200

crores and consequently, six of the concerns as enlisted above were rejected.

The Revenue is in appeal before us against the same.

18. The ratio of various decisions is that while benchmarking the

international transaction of concerns, turnover filter is an important criteria in

choosingcomparables, where the turnover is on a lower size, the range of

turnover to be selected is between Rs.1-200 crores. Consequently, all the

companies having turnover of more than Rs.200 crores have to be eliminated

from the final list of comparables. Thesaid ratio has been laid down by several

Tribunals, one such decision is as applied by CIT(A) in Genesis Integrating

Systems Limited (supra)and other relied upon by the learned Authorized

Representative for the assessee in DCIT Vs. Trident Microsystems India (P.)

Ltd.(supra). We also find that the Tribunal while deciding the appeal in

Capgemini India (P.) Ltd. Vs. ACIT (supra)i.e. the decision relied upon by the

learned Departmental Representative for the Revenue, where the turnover of

the said concernwas more than Rs.500 crores had in turn, selected Infosys

and Wipro as comparables. Further vide para 5.3.9had rejected the concerns

with lower turnover since the minimum size of turnover could not be compared

with well established placed in the field. The Tribunal held that minimum

turnover of Rs.100 crores had to be fixed and considering the same, the

concerns with lesser turnover were rejected. In this regard we hold that higher
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12
ITA No.1800/PN/2013
ITA Nos.299 & 399/PN/2015
Avalara Technologies Pvt. Ltd.

turnover filter has been applied in Capgemini India (P.) Ltd. Vs. ACIT (supra)

and we find no merit in the stand of Revenue that no filter is to be applied.

Upholding the order of CIT(A), we dismiss the grounds of appeal raised by the

Revenue against rejection of concerns having turnover exceeding Rs.200

crores. The grounds of appeal raised by the Revenue are thus, dismissed in

ITA No.1800/PN/2013.

19. Now, coming to the cross appeals filed by the assessee and the

Revenue against the rectification order passed by the CIT(A) under section 154

of the Act.

20. The assessee hadmoved an application for rectification which is placed

at page 312 of the Paper Book. Under the said rectification application, the

assessee was aggrieved by non-adjudication of certain grounds of appeal on

the surmise that if in case, three issues raised in the appeal were decided in

favour of the assessee, then no addition would be sustained after giving appeal

effect. It was pointed out by the learned Authorized Representative for the

assessee that even if the appeal effect in respect of three issues were given,

the addition of Rs.20,29,200/- would be sustainedout of total addition of

Rs.54,78,990/-. The assessee further stressed that it had clarified that two

companies namely R.S. Software (India) Ltd.and Datamatics GlobalServices

Ltd.have satisfied all the filters applied by the Assessing Officer and hence, the

same may be considered as comparable entities in this year. The CIT(A)

passed an appellate order, against which the assessee is in appeal before us.

21. The limited issue which arises inthe appeal filed by the assessee is that

whetherthe two concerns i.e. R.S. Software (India) Ltd. and Datamatics Global
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ITA No.1800/PN/2013
ITA Nos.299 & 399/PN/2015
Avalara Technologies Pvt. Ltd.

Services Ltd.could be accepted as part of final list of concerns. The case of

the assessee before us is that these concerns were selected by applying filters

applied by the Assessing Officer. However, the Assessing Officer summarily

did not consider the same and the CIT(A) also did not adjudicate. In the order

passed under section 154 of the Act againthis issue has not been decided by

the CIT(A) and hence, the Assessing Officer bedirected to verify the claim of

assessee.

22. We find merit in the claim of assessee that in case certain filters are

picked up by the Assessing Officer and applied, then as per the revised filters

pickedup by the Assessing Officer in case certain concerns fall within those

filters, then the margins of the said concerns need to be applied for

benchmarking international transaction of the assessee, by selecting the said

concerns in the final set of comparables. Accordingly, we direct the Assessing

Officer to consider the results of the said concerns and in case, they fulfill the

conditions of filters applied by Assessing Officer while benchmarking the

international transaction of the assessee, then the said two concerns may be so

selected in the final set of comparables. Accordingly, ground of appeal No.1.2

raised by the assessee is allowed for statistical purposes. As admitted by the

learned Authorized Representative for the assessee, grounds of appeal Nos.1,

1.2, 2, 3 and 4are dismissed as not pressed,

23. The Revenue on the other hand has also filed an appeal against the

rectification order passed by CIT(A) and is aggrieved by the directions of CIT(A)

in considering exclusion of the said companies in the final list of comparables in

case the said companies are part of accept –reject matrix. The case of the

Revenue before us is that the assessee in its transfer pricing report itself has
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14
ITA No.1800/PN/2013
ITA Nos.299 & 399/PN/2015
Avalara Technologies Pvt. Ltd.

rejected these concerns from the final list of comparables. We find merit in the

claim of the Revenue in this regard. However, it may be put on record that the

filters to be applied for picking up the comparables has been revised by the

Assessing Officer and in case there is revision of the filters and new companies

are being selected, then the selection of concerns is to be seen in view of the

revised filters applied by the Assessing Officer. The CIT(A) has only directed

the Assessing Officer to apply margins of aforesaid concerns in case these

companies were part ofaccept – reject matrix and the issue of rejection of the

said concerns in the transfer pricing report by the assessee stands modified

since the filters which were applied by the assessee in the transfer pricing

report has not been applied by the AssessingOfficer. The issue has been set-

aside to the file of Assessing Officer, who shall decide after giving reasonable

opportunity of hearing to the assessee and we direct the Assessing Officer to

look into these aspects and then determine whether the said concerns are to be

picked up for benchmarking international transaction of the assessee. The

learned Authorized Representative for the assessee pointed outthat one

concern i.e. Silver Line Technologies has to be excluded from the final list of

comparables as it follows different financial year i.e. from 01.07.2009 to

30.06.2010, whereas the financial year of the assessee ends by 31.03.2010. In

this regard, reliance was placed on the ratio laid down by Pune Bench of

Tribunal in Dover India (P.) Ltd. Vs. DCIT(2015) 59 taxmann.com 53 (Pune –

Trib.). We find merit in the claim of assessee in this regard. However, since

the issue is beingset-aside to the file of Assessing Officer, the Assessing

Officer is also directed to look into these aspects and decide inline with the

ratio laid down in Dover India (P.) Ltd. Vs. DCIT (supra). Consequently, the

grounds of appeal raised by the Revenue are allowed for statistical purposes.
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ITA No.1800/PN/2013
ITA Nos.299 & 399/PN/2015
Avalara Technologies Pvt. Ltd.

24. In the result, the appeal of Revenue in ITA No.1800/PN/2013 is

dismissed and cross appeals of the assessee and Revenue are allowed for

statistical purposes.

Order pronounced on this31st
day of March, 2016.

Sd/- Sd/-
(PRADIP KUMAR KEDIA) (SUSHMA CHOWLA)
???? ????/ ACCOUNTANT MEMBER ?????? ????/ JUDICIAL MEMBER

????/ Pune; ?????? Dated : 31st
March, 2016.

GCVSR

???? ?? ??????? ??????/Copy of the Order is forwarded to:
1. The Appellant;
2. The Respondent;
3. The DIT (Intl. Taxation), Pune;
4. The CIT(A)-IT/TP, Pune;
5. The CIT-I, Pune
The DR‘A’, ITAT, Pune;
6.
7. Guard file.

??????????/BY ORDER,
??????? ???// True Copy//

????? ???? ???? / Sr. Private Secretary
???? ?????? ?????? ,????/ ITAT, Pune

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Ashni Shah is pursuing Chartered Accountancy and is currently engaged as Article Assistant at Rasesh Shah and Associates and can be reached at ashnishah2017@gmail.com. She loves Dancing and Gyming.

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