Sec. 92C of Income Tax Act, 1961—Transfer Pricing— Selection of comparable - If the turnover of the comparable company is less or more than 10 times the turnover of assessee, then it cannot be considered as a comparable company.

Facts: Assessee had chosen 5 companies as comparable with that of assessee. The average arithmetic mean of profit margins of those companies were 12.92%. Since the profit margin of assessee as computed by assessee was within the (+) (-) 5% range of profits permitted by the second proviso to Sec.92C(2), assessee claimed that the price charged by it in the International Transaction had to be regarded as at Arm’s Length. TPO accepted some of the comparable companies chosen by assessee and arrived at arithmetic mean of profit margin of 11 companies and determined ALP and made consequent addition. Computation of the arm's length price by the TPO and the adjustment made. AO incorporated addition in the final assessment order against which assessee preferred appeal before CIT(A) who excluded 7 out of the 11 comparable companies chosen by the TPO by applying the turnover filter. Aggrieved by the order of the CIT(A) , revenue has preferred appeal before the Tribunal.

Held, that if the turnover of the comparable company is less or more than 10 times the turnover of assessee, then it cannot be considered as a comparable company, thus, we are of the view that the aforesaid 7 companies were rightly excluded from the list of comparable companies by the CIT(A). It is the plea of the Assessee that assessee is only a captive software development service provider that does not design/develop/sell software products and does not own IPs. Based on the above submissions, the learned counsel submits that Bodhtree is functionally dissimilar to the Assessee. Tribunal directed exclusion of the said company for the very same assessment year. Respectfully following the precedent on the issue rendered in relation to same AY 2009-10, we direct exclusion of this company from the list of comparable companies. TPO is directed to compute ALP as per the directions given in this order and in accordance with law after affording opportunity of being heard to the Assessee. - MFORMATION SOFTWARE TECHNOLOGIES (I)(P.) LTD. V/s ITO - [2020] 182 ITD 078 (ITAT-BANGALORE)