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2015 (5) TMI 720 - AT - Income TaxTransfer pricing adjustment - exclusion of three comparables namely Larsen and Tourbo Infotech Ltd., Persistent Systems Ltd. and Mindtree Ltd.- Held that:- This issue is no longer res-integra. The Hon’ble High Court [2013 (7) TMI 696 - DELHI HIGH COURT] upholding the decision of Tribunal in the case of the appellant for A.Y. 2006-07 has held that a giant company in the area of development of software which assumed all risks leading to higher profits is not comparable with the assessee which was a captive unit of the parent company and assumed only a limited risk.Having regard to the factual position and respectfully following the judgment of the Hon’ble High Court we partly allow the ground raised by the revenue and uphold the exclusion of persistent system Ltd, and direct inclusion of Larsen & Toubro Infotech Ltd and Mind tree Ltd. Inclusion of the comparables namely ICRA Techno Analytic Ltd. and E2E Infotech Ltd. - Held that:- we agree in principle with the proposition laid down by the ld CIT(A), in excluding such companies from the list of comparables in which RPT are more than 25%. However we find no discussion in the assessment order about the determination of the percentage of RPT in the case of ICRA Techno Analytic Ltd. Under such circumstances we direct the AO to determine the RPT percentage of this company afresh as per law after giving opportunity to the assessee. In case if the RPT margin is less than 25%, the ICRA should be included and if it is more than 25% RPT it should be excluded.Also, it is not disputed that turnover of E2E Infotech Ltd. was 5.69 crores which is less than 50 crores and therefore there was no disclosure requirement of RPT under AS-18.Thus in light of the above we find no infirmity in the conclusion of the CIT(A) and reject the ground raised by the revenue. Bodhtree Consulting Ltd. (“Bodhtree”) exclusion - Held that:- this company was a comparable in assessee’s own case for Assessment Year 2008-09. At that time the assessee did not contest the inclusion of this company and allowed it to remain as a comparable. However this year, just because profit margin is higher, this company does not cease to become a comparable. Therefore we find no infirmity in the order of the ld CIT(A) and we uphold the same. Disallowance u/s 14A - Held that:- in the instant year though Rule 8D is applicable, yet since the AO has not recorded any satisfaction in terms of section 14A(3) of the Act therefore disallowance is invalid. Mere general observations without examining the accounts of the appellant does not satisfy the test of section 14A(3) of the Act. The disallowance is thus deleted.
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