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2014 (5) TMI 923 - ITAT HYDERABADTransfer pricing adjustment – Selection of comparables - Software development services rendered to AE – Claim of deduction u/s 10A of the Act – Held that:- As decided in assessee’s own case as well as in Capital IQ Information Systems (India) (P.) Ltd. Versus Deputy Commissioner of Income-tax (International Taxation) [2014 (3) TMI 626 - ITAT HYDERABAD] it has been held that the case of the assessee is not comparable with Infosys Technologies Ltd., the reason being that the company is giant in the area of development of software and it assumes all risks, leading to higher profit - On the other hand, the assessee is a captive unit of its parent company in the USA and it assumes only limited currency risk - the Infosys and the assessee are not comparable at all as seen from the financial data etc. of the two companies mentioned earlier in the order - big companies like Infosys Technologies Limited cannot be considered as comparable to small captive service providers - Infosys Technologies Limited and Wipro Limited cannot be considered as comparable to the assessee - the AO/TPO is directed to compute arms' length price after excluding the two companies from the list of comparables – Decided in favour of Assessee. Reduction of communication charges from export turnover – Computation of deduction u/s 10A of the Act – Held that:- Following CIT v. Gem Plus Jewellery India Ltd. [2010 (6) TMI 65 - BOMBAY HIGH COURT] - communication charges if reduced from the export turnover is also required to be reduced from the total turnover while computing the deduction u/s 10A of the Act – thus, the AO is directed to reduce communication charges both from the export turnover as well as total turnover for computing deduction u/s 10A of the Act – Decided in favour of Assessee. Reduction of business profits – Reversal of interest accrued – Held that:- The DRP in principle has held the reversal of interest accrued as profit and gains of business and in fact has accepted that held that for the purpose of computing deduction u/s 10A, the profits of business would also include the element with regard to the reversal of interest expenses and has directed the AO to verify this and allow the benefit to the assessee – thus, the AO was not correct in excluding the amount from the business profit for the purpose of computing deduction u/s 10A of the Act - as per section 144C(5) the AO has to pass the assessment order in conformity with the direction of the DRP – the AO cannot take a contrary view and exclude the same for the purpose of computing deduction u/s 10A of the Act – thus, the AO is directed to work out the deduction u/s 10A of the Act without excluding the amount from the profit of the assessee – Decided in favour of Assessee.
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