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2019 (3) TMI 1633 - ITAT PUNETransfer pricing provisions to software development unit which enjoys tax holiday u/s 10A - assessee's contention that when companies are entitled to deduction u/s 10A of the Act, no adjustment on account of transfer pricing may be made - HELD THAT:- We find that identical issue arose in assessee's own case in A.Y. 2006-07 wherein the Co-ordinate Bench of the Tribunal decided the issue against the assessee. Since the facts for the year under consideration are identical to that of earlier years, as admitted by both the parties before us, we therefore following the same reasoning as given by the Co-ordinate Bench of the Tribunal while deciding assessee's appeal in A.Y. 2006-07 and for similar reasons dismiss the ground of assessee. Thus, ground No.2 is dismissed. Non-consideration of contemporaneous nature of data and non- consideration of multiple year's data - HELD THAT:- We find that the TPO while deciding the issue against the assessee has relied on the various decisions of Tribunal cited under para 10.10 of the DRP of the order. Before us also Ld AR has submitted that the issue is covered against the assessee by various decisions. We find no reason to interfere with the order of DRP and thus these grounds are dismissed. Applying turnover filter of ₹ 25 crores to ₹ 200 crores as against turnover filter of ₹ 25 crores to ₹ 125 crores applied by assessee - HELD THAT:- The issue in the present ground is the application of turnover filters for selection of comparable companies for benchmarking the international transactions. We find that for A.Y 2006-07, the turnover of the assessee from software services was ₹ 82 crores and it had applied the turnover filter of ₹ 25 crore to ₹ 100 crores as against which the TPO had applied the turnover filter of ₹ 25 to ₹ 150 crores and the action of the TPO was upheld by the co-ordinate Bench of Tribunal. For the year under consideration, the turnover of the assessee from software services is ₹ 104 crores and assessee has adopted the turnover filter criteria of ₹ 25 crore to ₹ 125 crores as against which the TPO has adopted the turnover filter criteria of ₹ 25 crores to ₹ 200 crores. For the reasoning as followed by the coordinate bench of tribunal in assessee's own case for A.Y 2006-07 and for similar reasons we find no infirmity in the action of TPO in applying the turnover criteria filters. We thus uphold the order of TPO and thus this ground of assessee is dismissed. TP Adjustment - comparable selection - HELD THAT:- Informed Technologies - there were wide fluctuations in the margins earned by it over a period of time coupled with the fact that there was also wide fluctuation in the revenue generation during the year under consideration and past three years. It therefore held for its exclusion. In view of the aforesaid facts, we direct the exclusion of Informed Technologies as a comparable We therefore direct TPO for the exclusion of Informed Technologies as a comparable company Maple E Solutions - Annual Accounts has demonstrated that it is engaged in call centre activities, its income is from call centre services whereas Assessee is engaged in providing non voice based services. In such a situation, we hold that Maple E solutions cannot be considered to be a comparable company in view of functional dissimilarity and therefore direct its exclusion. Cyber Media Events Ltd, Educational Consultants India Ltd, NTPC Electric Supply Co Ltd - Cyber Media TPO on the basis of Directors Report has noted that it is primarily engaged in event business and therefore not comparable to Assessee. With respect to Educational Consultants, TPO on the basis of Directors Report has noted that the company is engaged in technical assistance, HRD and institutional development projects and therefore not comparable. With respect NTPC Electric supply Ltd, TPO has noted that it is engaged in implementation of rural electrification projects in India and therefore functionally different from the Assessee. Before us, Ld AR has not controverted the findings of TPO on the functional dissimilarity found with the Assessee Company. In such a situation we do not find force in the argument of the Ld AR that these companies should be considered to be comparable based on broader comparable set. In such a situation, we find no reason to interfere with the order of TPO/DRP of excluding the aforesaid 3 companies as comparable with the Assessee. Exclusion of IOL - the operations for FY 2006-07 to be quite abnormal and therefore did not reflect a normal business trend and therefore was excluded from being a comparable. In view of the aforesaid facts, we direct the exclusion of IOL as a comparable company and thus direct the TPO to exclude it from comparables. Computation of relief for working capital adjustment in relation to provision for software development services, provision for IT enabled services and Sales Support Services - HELD THAT:- As it is assessee's contention that pursuant to the directions of DRP, AO/TPO had worked out the working capital adjustment for Software Development Services, IT enabled services and Sales Support Services but AO/TPO has erred in working out the margins and has furnished the working made by AO/TPO and the correct working as per the Assessee. In view of the aforesaid submissions of Ld AR, we direct the AO/TPO to peruse the working furnished by the Assessee and consider the correct working capital adjusted operating margins of identified comparable companies for Software Development Services, IT enabled Services and Sales Support Service Computation of Sec.10A deduction by reducing telecommunication expenses and foreign currency expenses from export turnover - HELD THAT:- We find that AO while computing the deduction u/s 10A of the Act had reduced the telecommunication charges and expenditure in foreign currency from only 'export turnover' but the same was not excluded from 'total turnover' - As per CBDT vide Circular No.4/2018 dated 14.08.2018 which is binding on Revenue authorities, we are of the view that the aforesaid expenses have to be excluded both from 'export turnover' and 'total turnover' while computing deduction u/s 10A of the Act. We thus, direct accordingly. Thus, the ground of the assessee is allowed. Computation of interest u/s 234D - HELD THAT:- AR's submission that there is error in the computation of interest u/s 234D and therefore an application u/s 154 of the Act has been made before the AO and the same is yet to be disposed. In view of the aforesaid submission of Ld AR, we direct the AO to compute the interest in accordance with law and pass the necessary orders. Thus, this ground of the assessee is allowed for statistical purposes.
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