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2013 (10) TMI 599 - AT - Income TaxExemption u/s 10A - Transfer pricing adjustment - Business of software development with associated enterprise - Exclusion from export turnover - Held that:- if any expenditure is to be reduced from the export turnover, then the same is to be excluded from the total turnover also - As per ITO v. Sak Soft Ltd.(2009 -TMI - 70681 - ITAT MADRAS-D), There should be uniformity in the ingredients of both the numerator and the denominator of the formula, Section 10-A is a beneficial section. It is intended to provide incentives to promote exports. If the export turnover in the numerator is to be arrived at after excluding certain expenses, the same should also be excluded in computing the export turnover as a component of total turnover in the denominator. The reason being the total turnover includes export turnover. The components of the export turnover in the numerator and the denominator cannot be different - Following decision of Commissioner of Income-tax Versus Tata Elxsi Ltd. [2011 (8) TMI 782 - KARNATAKA HIGH COURT] - Decided in favour of assessee. Rejection of comparable - Held that:- TPO in his order has brought out the differences between a product company and a software development services provider. Thus, it is clear that he is aware of the functional dissimilarity between a product company and a software development service provider. Having taken note of the difference between the two functions, the Assessing Officer ought not to have taken the companies which are into both the product development as well as software development service provider as comparables unless the segmental details are available. Even if he has adopted the filter of more than 75% of the revenue from the software services for selecting a comparable company, he ought to have taken the segmental results of the software services only. The percentage of expenditure towards the development of software products may differ from company to company and also it may not be proportionate to the sales from the sale of software products. Under section 133(6) of the I.T. Act, the TPO has the power to call for the necessary details from the comparable companies. It is seen that the Assessing Officer/TPO has exercised this power to call for details with regard to the various companies. As seen from the annual report of Foursoft Limited which is reproduced inthe TPO's Order, the said company has derived income from software licence also and AMCs - The method adopted by the TPO to allocate expenditure proportionately to the software development services and software product activity cannot be said to be correct and reasonable. Wherever, the Assessing Officer/TPO cannot make suitable adjustment to the financial results of the comparable companies with the assessee-company to bring them on par with the assessee, these companies are to be excluded from the list of comparables. Therefore, we direct the Assessing Officer/TPO to exclude these three companies from the list of comparables - Decided partly in favour of assessee. Assessing Officer/TPO is directed to exclude, after due verification, comparables from the list with the related party transactions or controlled transactions in excess of 15% of the total revenue for the financial year 2006-07 - Following decision of Sony India (P) Limited. Versus Deputy Commissioner Of Income-tax, Circle - 9(1) [2008 (9) TMI 420 - ITAT DELHI-H] - Decided partly in favour of assessee.
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