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2014 (10) TMI 465 - AT - Income TaxComputation of ALP – Transfer pricing adjustment – Turnover Filter - Held that:- Following the decision in Trilogy E-Business Software India (P.) Ltd. Versus Deputy Commissioner of Income-tax. Circle 12(4). Bangalore [2013 (1) TMI 672 - ITAT BANGALORE] - The provisions of the Act and the Rules that are relevant for deciding the issue have to be first seen - Sec.92. of the Act provides that any income arising from an international transaction shall be computed having regard to the arm's length price - the provisions of law pointed out by the ld. counsel for the assessee as well as the decisions referred to by the assessee clearly lay down the principle that the turnover filter is an important criteria in choosing the comparables - The assessee's turnover is ₹ 47,46,66,638 - companies having turnover of more than 200 crores have to be eliminated from the list of comparables as laid down in several decisions referred to by the ld. counsel for the assessee - the AO is directed to compute the Arithmetic mean by excluding the aforesaid companies from the list of comparable. Selection of comparables – Avani Cimcon Technologies Ltd. – Functionally different unit - Held that:- Following the decision in Telcordia Technologies Pvt. Ltd. v. ACIT [2012 (6) TMI 388 - ITAT MUMBAI] - the Tribunal accepted the assessee's contention that this company has revenue from software product and observed that in the absence of segmental details, Avani Cincom cannot be considered as comparable to the assessee who was rendering software development services only - the margin of this company at 52.59% which represents abnormal circumstances and profits - The reasons given by the Assessee for excluding this company as comparable are found to be acceptable. KALS Information Systems Ltd. - Functionally different from software companies – Held that:- Following the decision in Bindview India Private Limited v. DCIT [2013 (6) TMI 113 - ITAT PUNE] the company is engaged in development of software products and services and is not comparable to software development services provided by the assessee - the TPO has drawn conclusions on the basis of information obtained by issue of notice u/s.133(6) of the Act - This information which was not available in public domain could not have been used by the TPO, when the same is contrary to the annual report of this company as highlighted by the Assessee in its letter dated 21.6.2010 to the TPO - this company was developing software products and not purely or mainly software development service provider – the company cannot be treated as comparable. Celestial Labs Ltd. - Research & development company – Held that:- The TPO has accepted that up to AY 06-07 this company was classified as a Research and Development company. According to the TPO in AY 07-08 this company has been classified as software development service provider in the Capitaline/Prowess database as well as in the annual report of this company - it is in the business of providing software development services – the company provides software products/services as well as bioinformatics services and that the segmental data for each activity is not available and therefore this company should not be treated as comparable - the Assessee has point out to several references highlighting the fact that this company was develops biotechnology products and provides related software development services - The TPO without any basis has however concluded that the business mentioned in the DRHP are the services or businesses that would be started by utilizing the funds garnered though the Initial Public Offer (IPO) and thus in no way connected with business operations of the company during FY 06-07 – the company was basically/admittedly in clinical research and manufacture of bio products and other products, there is no clear basis on which the TPO concluded that this company was mainly in the business of providing software development services – thus, this company cannot be treated as comparable. Accel Transmatic Ltd. – Held that:- The company was functionally different from the assessee company as it was engaged in the services in the form of ACCEL IT and ACCEL animation services for 2D and 3D animation and therefore assessee's claim that this company was functionally different was accepted – the company has related party transactions which is more than the permitted level and therefore should not be taken for comparability purposes – this company should not be treated as comparables. Exclusion of amount incurred on telecommunication charges and foreign currency from export turnover u/s 10A – Held that:- Following the decision in CIT v. Tata Elxsi Ltd [2011 (8) TMI 782 - KARNATAKA HIGH COURT] - it would be just and appropriate to direct the AO to exclude the sum incurred on telecommunication charges and another sum incurred in foreign currency both from export turnover and total turnover – Decided in favour of assessee.
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