TMI Blog2020 (1) TMI 1623X X X X Extracts X X X X X X X X Extracts X X X X ..... ar with that of assessee need to be deselected from final list. As accepted filter to take RPT is only 25% companies companies exceeding it need to be rejected. Allocate unallocable expenses to each segment in proportion to segmental turnover to total turnover - HELD THAT:- As for A.Y. 2010-11 [ 2019 (5) TMI 97 - ITAT PUNE ] TPO included certain companies on segmental basis in the list of comparables in the software development services segment as well as the other segments of the assessee. While calculating the operating profits of the relevant segments of these companies, the TPO did not take into their unallocated expenses. The Tribunal held all common expenses cannot be apportioned in the universal ratio of sales or gross revenue from different segments, each having its own separate features and characteristics and the allocation depending upon the nature of expenses and appropriate allocation key and directed the AO/TPO to allocate common unallocated expenses on the basis of relevant keys as the case may be after allowing an opportunity of hearing to the assessee. Disallowance made u/s. 40(a)(i) - HELD THAT:- As relying on assessee own case for A.Y. 2010-11 [ 2019 (5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... action of CIT(A) in excluding the functionally comparable companies is general in nature, as agreed by both the parties, hence, does not require any adjudication, is dismissed. 7. Ground No. 8, it was agreed by both the parties, that the issue raised therein is wrongly taken, hence, it is dismissed. 8. Ground No. 9 raised by Revenue challenging the action of CIT(A) in excluding functionally companies in the field of software services. 9. Heard both parties and perused the material available on record. We note that the CIT(A) in its order at page No. 30 dealt the comparability of Infosys Technology Ltd. The CIT(A) by placing reliance on the decision of Hon‟ble High Court in the case of Agnity India Technologies Pvt. Ltd. reported in (2013) 219 Taxman 26 (Del.) and held the giant companies such as Infosys Technology Ltd. and Wipro Ltd. cannot be compared with the smaller size of companies. It is needless to mention the assessee‟s turnover is Rs.107.58 crores and the turnover of Infosys Technologies Ltd. is at Rs.21,140 crores. We find this Tribunal in assessee‟s own case for A.Y. 2010-11 dealt the similar issue in its order which is at page No. 65 of the pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... K Miles Software as comparable. Thus, we hold accordingly. 12. Regarding the exclusion of E-Infoship Ltd. 13. Heard both parties and perused the material available on record. The TPO had taken the comparability of e-infochip Ltd. on the ground that its revenue is more than 50% is from the provision of software and software consultancy services. The assessee contended it cannot be taken as comparable as there is functional differences and it is providing services in software products and applications and embedded systems. Further, it was contended no segmental data was available and it is engaged in the sale of software products. The TPO considering the income from software services and consultancy charges involving A.Ys. 2008-09 to 2010-11 and observed that the 70% of revenue in A.Y. 2010-11 is from software services which is more than the acceptance criteria of 50% and held the e-infochip Ltd. is a comparable company. The CIT(A) in its order at page 35 agreed with the contention of assessee that e-infochip Ltd. is engaged in many activities with the software development services, ITES and sells software products and hardware products and excluded e-infochip Ltd. from the set ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bles that are Caliber Point Business Solutions Ltd. (Seg), Fortune Infotech Ltd., Microgenetics Systems Ltd., Accentia Technologies Ltd. and Eclerx Services Ltd. totaling to nine and proposed PLI at 24.43%. The assessee objected the inclusion of Fortune Infotech Ltd. and Eclerx Services Ltd. The CIT(A) in his impugned order discussed in detail and directed the AO to exclude both Fortune Infotech Ltd. basing on its related party transactions at 98.68%. In respect of Eclerx Services Ltd. the CIT(A) held it is a Knowledge Process Outsourcing (KPO) company and it cannot be compared with functions of assessee. We find the CIT(A) excluded Fortune Infotech Ltd. on the basis of Related Party Transaction (RPT) at 98.68%. We note that the accepted filter to take RPT is only 25% whereas, the RPT of Fortune Infotech Ltd. is at 98.68% involving sales of Rs.11,56,14,146/- with RPT. Therefore, in our opinion the Fortune Infotech Ltd. fails the accepted filter of 25% on RPT sales. Therefore, we find no infirmity in the order of CIT(A) and it is justified in excluding Fortune Infotech Ltd. as comparable in the final set of comparables. 16. Regarding Eclerex Services Ltd. 17. Heard both partie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and proposed PLI at 37.72% as against the 12.42% of assessee. We note that no discussions were made by the TPO in respect of inclusion of three companies selected. The CIT(A) basing on order of DRP in assessee‟s own case for A.Y. 2010-11 excluded Asian Business Exhibition Conferences Limited. We note that the Tribunal in assessee‟s own case for A.Y. 2010- 11 justified the exclusion of said company being functionally different from the assessee in its order dated 25-04-2019 vide para 30. Therefore, we find no infirmity in the order of CIT(A) in excluding Asian Business Exhibition Conferences Limited and it is justified. 20. Ground No. 12 raised by the Revenue questioning the action of CIT(A) in excluding the company having higher turnover and higher assets being not comparable be that of having less turnover. We find that the issue of excluding companies being comparable to companies having less turnover is discussed in aforementioned paragraphs. Therefore, in our opinion any further discussion is not required, hence, dismissed. 21. Ground No. 13 is challenging the action of CIT(A) in directing the AO to allocate unallocable expenses to each segment in proport ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... termining their respective profit margins. It is but natural that while calculating operating profit margin of such companies, effect of unallocated operating expenses qua relevant segments has to be given. It is so because the assessee s corresponding profit margin has been determined after considering all the relevant operating expenses and the comparison can be done only on level playing field. We, therefore, agree in principle with the ld. DRP that allocation of common unallocated expenses is required to be made. However, we do not subscribe to the view canvassed by the DRP that all such common unallocated expenses should be apportioned on the basis of segmental turnover to total turnover. 23. Unallocated expenses obviously comprise several items of distinct nature and hence there cannot be a uniform key of apportionment. For example, `Rent paid by an assessee cannot be bifurcated on the basis of sales or revenue from different segments, such as, Manufacturing, Trading and services. The extent of area used by each business segment varies as per the nature of transaction, which may have no relation with the gross revenue. For example, a manufacturing unit will need relativel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ground No. 2 is general in nature, hence, requires no adjudication and is dismissed. 30. Further, the assessee has raised additional grounds in respect of action of CIT(A) for confirming the report of TPO for inclusion of M/s. Thirdware Solutions Ltd. and M/s. Acropetal Technologies Ltd. being comparables while determining the ALP of Software Development segments. 31. Heard both parties and perused the material available on record. On perusal of the order of this Tribunal for A.Y. 2010-11 the relevant portion at page regarding M/s. Thirdware Solutions Ltd. held the said company functionally different and also a super profit making company and cannot be comparable company in the list of comparables be that of assessee. Further, regarding M/s. Acropetal Technologies Ltd. this Tribunal held that the said company is not comparable for the reason that is engaged in the business of on-site services apart from software products vide para 12 at page 80 of the paper book. Therefore, in view of the findings of this Tribunal in assessee‟s own case for A.Y. 2010-11, we direct the AO to exclude above said two companies as comparables in the software development segment. Accordingly, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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