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2014 (9) TMI 43 - AT - Income TaxTransfer pricing adjustment - Selection of comparables – Huge difference in turnover – Functionally different unit - Held that:- The three companies are having huge turnover, as compared to the assessee's turnover of about ₹ 22 crores – following the decision in Capital IQ Information Systems India Ltd. V/s. DCIT [2014 (3) TMI 626 - ITAT HYDERABAD] - the companies having high turnover cannot be selected as comparable with companies having reasonably small turnover – it has been rightly held by the lower authorities that the activity of the company as a KPO service - it cannot be said that the company is comparable to the assessee as the comparable to a company providing purely ITE services, as it is engaged in providing purely KPO services. The activities undertaken by the said company vis-à-vis the activities of the assessee before it, which is engaged in providing only ITE Services to its AE, had remitted the issue to the file of the TPO for considering afresh with the following observations – thus, the matter is remitted back for fresh consideration regarding the selection of comparable - exceptional events like merger/demerger does impact the profitability of a company - it is necessary to look into this aspect before selecting a particular company as comparable - when the assessee itself has selected it as a comparable in its TP Study, it is to be assumed that the assessee has considered all the aspects including the fact of outsourcing of ITES activities to third party vendors and functional comparability - the company has outsourced the IT enabled services to third party vendors, the matter is remitted back to the AO/TPO for fresh consideration of the issue of comparability - The TPO has admitted that the company has two segments, and only the IT Enabled Services Segment, relating to engineering design services was considered by the TPO for comparability analysis - the functions performed by the Engineering Design services segment of the company cannot be considered as a comparable to the ITES/BPO functions – Decided partly in favour of Assessee. Exclusion of communication charges – Computation of deduction u/s 10A – Held that:- The AO has excluded the amount from the export turnover, on the ground that expenses are attributable to delivery of product outside India - this cannot be a ground to reject the contention of the assessee – relying upon CIT V/s. Gem Plus Jewellery [2010 (6) TMI 65 - BOMBAY HIGH COURT] - while upholding the exclusion of communication charges attributable to delivery of product outside India from the export turnover, it has to be excluded from the total turnover, while computing the deduction u/s 10A of the Act, for maintaining principle of parity - the orders passed by different benches of the Tribunal including the benches of the Tribunal at Hyderabad - the AO is directed to reduce the communication charges both from the export turnover as well as the total turnover, while computing deduction u/s 10A of the Act – Decided in favour of assessee.
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