2014 (3) TMI 626 - AT - Income Tax

Computation of Arm’s length price - Selection of comparables by TPO – Accentia Technologies Ltd. – Held that:- The view of the DRP is upheld that extra-ordinary event like merger and de-merger will have an effect on the profitability of the company in the financial year in which such event takes place - It is the contention of the assessee that in case of the aforesaid company, there is amalgamation in December, 2006, which has impacted the financial result - This fact has to be verified by the TPO - If it is found upon such verification that the amalgamation in fact has taken place, then the aforesaid comparable has to be excluded.

Mold Tek Technologies Ltd. - Eclerx Services Ltd. – Held that:- The DRP has rightly accepted the assessee's contention that this company cannot be treated as comparable because of exceptional financial result due to merger/de-merger - the assessee's contention is accepted that this company cannot be treated as comparable - the company has shown super normal profit working out to 113% - Relying upon Teva India (P.) Ltd. Versus Deputy Commissioner of Income-tax, Range 8(2), Mumbai [2011 (1) TMI 1210 - ITAT MUMBAI] companies showing supernormal profit cannot be treated as comparable – thus, this company cannot be treated as a comparable.

Maple e-Solutions Ltd. & Tricom Corp Ltd. – Held that:- The decision in ITO v. CRM Services India (P) Ltd. Delhi [2011 (6) TMI 398 - ITAT DELHI] followed - overall profitability of the company cannot be applied in the case of the assessee as it will amount to comparing incomparable cases - In view of a question mark on the reputation of the owner, it would be unsafe to take their results for comparison of the profitability of the assessee - these two companies cannot be accepted as comparables.

HCL Comnet Systems & Services Limited, Infosys BPO Limited & Wipro Limited – Held that:- The TPO has excluded the companies whose turnover is less than Rs. One Crore, on the ground that they may not be representing the industry trend - That very logic also applies to the companies having high turnover of over ₹ 200 crores as against the assessee's turnover of only ₹ 60 crores, and therefore, it would be fair enough to exclude those companies also – The decision in Agnity India Technologies (Formerly Genband Pvt. Ltd.) Versus Income-tax Officer, [2010 (11) TMI 852 - ITAT DELHI] followed – thus, the orders of the DRP as well as the assessment order passed under S.143(3) read with S.144C of the Act set aside – the matter remitted back to the TPO for fresh examination of ALP – Decided in favour of Assessee.

Foreign exchange fluctuation gain/loss not considered – Held that:- The decision in Sap Labs India (P.) Ltd. v. Asstt. CIT [2010 (8) TMI 676 - ITAT, BANGALORE] followed - The foreign exchange fluctuation gains is nothing but an integral part of the sales proceeds of an assessee carrying on export business - foreign exchange fluctuation gains form part of the sale proceeds of exporter-assessee - The foreign exchange fluctuations income cannot be excluded from the computation of the operating margin of the assessee company - even for the year under appeal also the same principle should be applied, and while computing the margin for determining the ALP for the assessment year under appeal, the foreign exchange gain/loss has to be taken as part of the operating margin – the AO is directed to treat the foreign exchange fluctuation gain/loss as part of the operating margin of the comparable company – Decided in favour of Assessee.