The TPO benchmarked my small captive unit against Infosys and Wipro. Can turnover be ignored?
No. Turnover is obviously a relevant factor in judging comparability, because scale drives bargaining power, risk profile and margins. Companies with turnover 23 to 65 times that of the tested party were rightly excluded, and functional similarity alone does not conclude the enquiry.
Decided by the High Court (Bombay High Court (Goa Bench) — F. M. Reis and K. L. Wadane JJ) on 2015-09-16, reported as [2016] 69 taxmann.com 180 (Bom) / [2016] 381 ITR 216 (Bom) / [2016] 282 CTR 160 (Bom); Tax Appeal No. 18 of 2015; AY 2007-08. It bears on section 92C, section 92CA of the Income Tax Act 1961, in Assessment & Scrutiny matters.
It is the High Court level answer to the TPO who defends a giant comparable purely on functional analysis. It also fixes how the point survives appeal: the exclusion was treated as a fact-based comparability finding supported by a rational filter, so no substantial question of law arose. That framing helps the assessee keep a Tribunal win and hurts where the Tribunal went the other way.
Binding within that High Court's jurisdiction. Persuasive elsewhere.
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The assessee manufactures fibre glass pressure vessels used in water treatment and swimming pool equipment, and had set up an in-house facility for engineering, designing and product development, rendering those services in assessment year 2007-08 to group companies abroad; it is a subsidiary of Pentair Inc, USA. It returned income of Rs. 5,28,09,795. The TPO's order under s.92CA of 27 October 2010 led the Assessing Officer to add Rs. 1,68,60,877 on 21 December 2010 on the basis of the mean margin of the TPO's own set of comparables. The Commissioner (Appeals) directed recomputation at an operating margin of 22.92 per cent, and on cross appeals the Tribunal, by order of 23 May 2014, excluded HCL Comnet Systems & Services Ltd (turnover Rs. 260.18 crores), Infosys BPO Ltd (Rs. 649.56 crores) and Wipro Ltd (Rs. 939.78 crores) against the assessee's turnover of about Rs. 11 crores, and remanded for recomputation. The Revenue appealed to the High Court on two proposed substantial questions of law.
The Revenue's appeal was rejected, but on the footing that no substantial question of law arose: the High Court held that the Tribunal's exclusion of HCL Comnet Systems & Services Ltd, Infosys BPO Ltd and Wipro Ltd rested on appreciation of the evidence and on concurrent findings of fact which the Court could not re-appreciate under s.260A. In its own words the Court added that the three companies were large and distinct companies whose area of development of the services was different, so their profit could not be benchmarked against the assessee, and that turnover is obviously a relevant factor in considering comparability. The turnover-filter reasoning itself - including the figures and the 23-to-65-times comparison - is the Tribunal's, reproduced in the judgment and left undisturbed. The Tribunal's order the Court affirmed had deleted the addition and sent the matter back for recomputation of the arm's length price.
The High Court quoted the Tribunal's reasons for excluding each of the three companies - HCL Comnet at a turnover of Rs. 260.18 crores against the assessee's roughly Rs. 11 crores, Infosys BPO at Rs. 649.56 crores and Wipro at Rs. 939.78 crores - and held that those findings were made on an appreciation of the evidence, that the Tribunal had endorsed the Commissioner (Appeals), and that concurrent findings of fact cannot be re-appreciated in a s.260A appeal (paras 5 and 6). It applied Vijay Kumar Talwar v. CIT [2011] 1 SCC 673 for the limited circumstances in which a finding of fact throws up a substantial question of law (para 7). The Revenue had not controverted or denied the data the authorities below relied on, and the three companies were large and distinct companies whose area of development of the subject services was different, so their profit could not be benchmarked or equated with the assessee's (para 8). The Court accepted counsel's reliance on CIT v. Agnity India Technologies (P.) Ltd. [2013] 219 Taxman 26 (Delhi) and on the principle that economically relevant characteristics must be sufficiently comparable, and observed that turnover is obviously a relevant factor in considering comparability (para 9). It concluded that the proposed questions of law did not arise and rejected the appeal (para 10).
The turn over is obviously a relevant factor to consider the comparability.
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Handle my notice → Ask a CA on WhatsAppNo. Turnover is obviously a relevant factor in judging comparability, because scale drives bargaining power, risk profile and margins. Companies with turnover 23 to 65 times that of the tested party were rightly excluded, and functional similarity alone does not conclude the enquiry. This was decided by the High Court (Bombay High Court (Goa Bench) — F. M. Reis and K. L. Wadane JJ) and bears on section 92C, section 92CA of the Income Tax Act 1961. It is reported as [2016] 69 taxmann.com 180 (Bom) / [2016] 381 ITR 216 (Bom) / [2016] 282 CTR 160 (Bom); Tax Appeal No. 18 of 2015; AY 2007-08. It is the High Court level answer to the TPO who defends a giant comparable purely on functional analysis. It also fixes how the point survives appeal: the exclusion was treated as a fact-based comparability finding supported by a rational filter, so no substantial question of law arose. That framing helps the assessee keep a Tribunal win and hurts where the Tribunal went the other way. If it applies to you, the first step is this: Put the turnover of the tested party and of each disputed comparable in a table, with the multiple, in the submission before the TPO.
The assessee manufactures fibre glass pressure vessels used in water treatment and swimming pool equipment, and had set up an in-house facility for engineering, designing and product development, rendering those services in assessment year 2007-08 to group companies abroad; it is a subsidiary of Pentair Inc, USA. It returned income of Rs. 5,28,09,795. The TPO's order under s.92CA of 27 October 2010 led the Assessing Officer to add Rs. 1,68,60,877 on 21 December 2010 on the basis of the mean margin of the TPO's own set of comparables. The Commissioner (Appeals) directed recomputation at an operating margin of 22.92 per cent, and on cross appeals the Tribunal, by order of 23 May 2014, excluded HCL Comnet Systems & Services Ltd (turnover Rs. 260.18 crores), Infosys BPO Ltd (Rs. 649.56 crores) and Wipro Ltd (Rs. 939.78 crores) against the assessee's turnover of about Rs. 11 crores, and remanded for recomputation. The Revenue appealed to the High Court on two proposed substantial questions of law. The matter was decided on 2015-09-16 by the High Court (Bombay High Court (Goa Bench) — F. M. Reis and K. L. Wadane JJ). On those facts the High Court held as follows. The Revenue's appeal was rejected, but on the footing that no substantial question of law arose: the High Court held that the Tribunal's exclusion of HCL Comnet Systems & Services Ltd, Infosys BPO Ltd and Wipro Ltd rested on appreciation of the evidence and on concurrent findings of fact which the Court could not re-appreciate under s.260A. In its own words the Court added that the three companies were large and distinct companies whose area of development of the services was different, so their profit could not be benchmarked against the assessee, and that turnover is obviously a relevant factor in considering comparability. The turnover-filter reasoning itself - including the figures and the 23-to-65-times comparison - is the Tribunal's, reproduced in the judgment and left undisturbed. The Tribunal's order the Court affirmed had deleted the addition and sent the matter back for recomputation of the arm's length price.
The High Court quoted the Tribunal's reasons for excluding each of the three companies - HCL Comnet at a turnover of Rs. 260.18 crores against the assessee's roughly Rs. 11 crores, Infosys BPO at Rs. 649.56 crores and Wipro at Rs. 939.78 crores - and held that those findings were made on an appreciation of the evidence, that the Tribunal had endorsed the Commissioner (Appeals), and that concurrent findings of fact cannot be re-appreciated in a s.260A appeal (paras 5 and 6). It applied Vijay Kumar Talwar v. CIT [2011] 1 SCC 673 for the limited circumstances in which a finding of fact throws up a substantial question of law (para 7). The Revenue had not controverted or denied the data the authorities below relied on, and the three companies were large and distinct companies whose area of development of the subject services was different, so their profit could not be benchmarked or equated with the assessee's (para 8). The Court accepted counsel's reliance on CIT v. Agnity India Technologies (P.) Ltd. [2013] 219 Taxman 26 (Delhi) and on the principle that economically relevant characteristics must be sufficiently comparable, and observed that turnover is obviously a relevant factor in considering comparability (para 9). It concluded that the proposed questions of law did not arise and rejected the appeal (para 10). In the words reproduced by the source cited on this page: "The turn over is obviously a relevant factor to consider the comparability." The decision followed or applied CIT v. Agnity India Technologies (P.) Ltd. [2013] 219 Taxman 26/36 taxmann.com 289 (Delhi).
It was decided by the High Court on 2015-09-16 and is reported as [2016] 69 taxmann.com 180 (Bom) / [2016] 381 ITR 216 (Bom) / [2016] 282 CTR 160 (Bom); Tax Appeal No. 18 of 2015; AY 2007-08. Binding within that High Court's jurisdiction. Persuasive elsewhere. A High Court decision binds the assessing officer, the Commissioner (Appeals) and the Income Tax Appellate Tribunal within that state, and is persuasive elsewhere. If your assessment is in a different jurisdiction, check whether your own High Court has taken the same view before relying on it. On section 92C, section 92CA, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. The Revenue's appeal was rejected, but on the footing that no substantial question of law arose: the High Court held that the Tribunal's exclusion of HCL Comnet Systems & Services Ltd, Infosys BPO Ltd and Wipro Ltd rested on appreciation of the evidence and on concurrent findings of fact which the Court could not re-appreciate under s.260A. In its own words the Court added that the three companies were large and distinct companies whose area of development of the services was different, so their profit could not be benchmarked against the assessee, and that turnover is obviously a relevant factor in considering comparability. The turnover-filter reasoning itself - including the figures and the 23-to-65-times comparison - is the Tribunal's, reproduced in the judgment and left undisturbed. The Tribunal's order the Court affirmed had deleted the addition and sent the matter back for recomputation of the arm's length price. It arises in Assessment & Scrutiny matters, on section 92C, section 92CA of the Income Tax Act 1961, and was decided by Bombay High Court (Goa Bench) — F. M. Reis and K. L. Wadane JJ. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Argue turnover alongside functional and risk differences rather than on its own, so the exclusion does not rest on one filter. Get the exclusion recorded as a finding of fact by the Tribunal, since that is what made it hard to disturb here. Do not apply a turnover band as an arithmetic rule without explaining why the scale difference matters to the margin.
Searched for later treatment; none was found. That is not the same as a source affirming it. No later decision applying, following or affirming this judgment was established. The report carries no citator banner and its CASE REVIEW block records only what this decision itself did - following CIT v. Agnity India Technologies (P.) Ltd. [2013] 219 Taxman 26 (Delhi) and affirming the Tribunal's order in Pentair Water India (P.) Ltd. v. Addl. CIT [2014] 47 taxmann.com 132 (Panaji). No note of an SLP appears against it. There is a further reason for caution about treating it as authority: the High Court decided no substantial question of law, so the turnover-filter reasoning it is cited for belongs to the Tribunal's order of 23 May 2014, which the Court declined to disturb because the findings were concurrent findings of fact. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
The particulars are settled from the report: Bombay High Court at Goa, F. M. Reis and K. L. Wadane, JJ. - both judges sat - Tax Appeal No. 18 of 2015, decided 16 September 2015, assessment year 2007-08, reported at [2016] 69 taxmann.com 180, [2016] 381 ITR 216 and [2016] 282 CTR 160. The more important point for use: this is a s.260A rejection for want of a substantial question of law, not a ruling on the turnover filter. The figures and the 23-to-65-times comparison for which the case is usually cited come from the Tribunal's order of 23 May 2014, which the High Court reproduced and declined to disturb as a concurrent finding of fact. Cite the Tribunal order, reported at [2014] 47 taxmann.com 132 (Panaji), for the filter, and this judgment only for the observation that turnover is a relevant factor in comparability. One caveat on sourcing, added on re-verification. The judgment itself is not on indiankanoon and could not be retrieved from any primary route: a title search finds only the Panaji Tribunal orders, and a full-text search for the quoted sentence returns thirty-five documents, every one a Tribunal order quoting it and none of them the judgment. The wording of the quoted sentence is corroborated from primary orders that reproduce it - Intergreon Managed Solutions (India) v. ACIT (ITAT Mumbai, 14 December 2018) and International Speciality Products v. ACIT (ITAT Mumbai, 6 June 2019), the latter reproducing the High Court's block introduced 'On perusal of the impugned Order passed by the Tribunal dated 23.05.2014 ...', which is what confirms that the turnover figures are the Tribunal's - but the paragraph numbers carried in this entry, including 'para 9' against the quote, come from the law report and have not been checked against the judgment. Treat them as unverified until someone reads the judgment. The Tribunal's order of 23 May 2014, which carries the turnover-filter reasoning, was not read here. Later treatment of this judgment was not established. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The Revenue's appeal was rejected, but on the footing that no substantial question of law arose: the High Court held that the Tribunal's exclusion of HCL Comnet Systems & Services Ltd, Infosys BPO Ltd and Wipro Ltd rested on appreciation of the evidence and on concurrent findings of fact which the Court could not re-appreciate under s.260A. In its own words the Court added that the three companies were large and distinct companies whose area of development of the services was different, so their profit could not be benchmarked against the assessee, and that turnover is obviously a relevant factor in considering comparability. The turnover-filter reasoning itself - including the figures and the 23-to-65-times comparison - is the Tribunal's, reproduced in the judgment and left undisturbed. The Tribunal's order the Court affirmed had deleted the addition and sent the matter back for recomputation of the arm's length price.
TaxSphere, “CIT v Pentair Water India P Ltd”, https://taxnotice.vittsphere.com/caselaw/case/cit-v-pentair-water-turnover-filter/ (validity last checked 2026-08-19)
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