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2015 (1) TMI 1063 - AT - Income TaxTransfer Pricing Adjustment - arm's length price - selection of comparable - Held that:- For ACCENTIA TECHNOLOGIES LTD. (Seg.) as during the previous year there were extra ordinary events that took place in this company which warrants exclusion of this company as a comparable. We therefore hold that this company cannot be considered as a comparable. For ACROPETAL TECHNOLOGIES LTD. (Seg.) said company was excluded on the differentiation of high end services being provided by this company. Assessee does not provide high end services as submitted. Therefore we are of the opinion that functions of assessee are not similar to the above Company. We direct the TPO/AO to exclude this company. For COSMIC GLOBAL LTD. while there was no objection for assessee objecting to the comparable even at a later stage when it comes to know of new facts, what we noticed is that the assessee’s objections before the DRP have not been addressed by the DRP. It is for the TPO to determine whether this company falls within the filters as adopted by the TPO himself. If the company fails the employee cost filter, then the same cannot be accepted as a comparable company. In order to examine this aspect, we are of the opinion that selection of this comparable is to be restored to the file of the TPO for fresh examination, after giving due opportunity of hearing to the assessee. The issue is restored to the file of the TPO. For ECLERX SERVICES LTD. (seg.) this company cannot be regarded as a comparable for the reason that it was having extraordinary event and super normal profits. For GENESYS INTERNATIONAL CORPORATION LTD. from the notes to accounts of this company, it is seen that this company is engaged in providing geographical information services comprising of photogrammetry, remote sensing cartography, data conversion related computer based services and other related services. Further the business of this company requires skilled manpower and scientists, civil engineers, etc. Besides the above, this company also carries out R&D services and own intangibles. The aforesaid facts, in our view, will take this company out of the list of comparables. HCL Comnet Systems & Services Ltd., (Seg.) WIPRO Limited it is not disputed that these companies are having huge turnovers like that of assessee during the year. Therefore turnover filter as considered in other cases does not apply here. However as submitted the functional profile of companies as such is different. But, if the BPO division is similar to assessee the same can be considered after proper FAR analysis. Therefore we are of the opinion that TPO/AO can reconsider the comparables after giving due opportunity to assess and fairly analyzing its objections. In case the data (segmental or unit) is incomplete or functional profile etc are different AO/TPO should exclude the same. With these observations the issue of selection of these companies as comparables is restored to TPO/AO to do the needful. Inclusion of reimbursement transactions as part of operational cos - Held that:- Reimbursement costs should be excluded as they do not involve any functions to be performed so as to consider it for profitability purposes. TPO should have determined the Arms Length Price for the international transactions with associated enterprises considering only the operating cost allocable to the Associated Enterprises segment. Since the assessing officer had no occasion to verify the veracity of the segmental financials prepared by the assessee company, for limited purpose, we direct the assessing officer to verify the segmental financials prepared by the assessee company and adopt the same for arriving at the net margin on the international transaction with AEs in respect of software development services. - decided in favour of revenue for statistical purposes. Re-characterisation of foreign exchange gain - Held that:- The issue is no longer res integra and the Hon'ble Special Bench in case of ITO vs Banyan Chemicals P. Ltd., (2008 (12) TMI 296 - ITAT AHMEDABAD) has held that foreign exchange gain on account of fluctuation qua exports business is eligible for exemption u/s 10B. Thus we direct AO to treat Foreign exchange gain as business income and allow the deduction accordingly. - Decided in favour of assessee. Reduction of communication charges from the export turnover without reducing it from the total turnover while computing deduction u/s 10A of the Act - Held that:- his issue is squarely covered in favour of the assessee by the judgment of Hon’ble Bombay High Court in case of CIT vs. Gem Plus Jewellery Ltd (2010 (6) TMI 65 - BOMBAY HIGH COURT) and the decision of Income-tax Appellate Tribunal, Chennai Special Bench in case of ITO vs. Sak Soft Limited (2009 (3) TMI 243 - ITAT MADRAS-D (AT)], thus we direct the Assessing Officer to reduce communication charges both from the export turnover as well as the total turnover for computing exemption u/s 10A of the Act. - Decided in favour of assessee.
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