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2015 (10) TMI 483 - AT - Income TaxTransfer pricing adjustment - selection of comparable - Held that:- 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. Acropetal Technologies Ltd. (Seg.) - On a perusal of the Note No.15 of notes to accounts which gives segmental revenue of this company, it is clear that the major source of income for this company is from providing Engineering Design Service and Information Technology Services. The functions performed by the Engineering Design Services segment of the company cannot be considered as comparable to the ITES/BPO functions performed by the Assessee. The performance of Engineering Design Services is regarded as providing high end services among the BPO which requires high skill whereas the services performed by the Assessee are routine low end ITES functions. We therefore hold that this company could not have been selected as a comparable, especially when it performs engineering design services which only a Knowledge Process Outsourcing [KPO] would do and not a Business Process Outsourcing [BPO]. Coral Hubs Ltd. cannot be considered as a comparable - It may also be relevant to point out that the TPO in his order has observed that this company is retained as a comparable on the basis of detailed discussion in the TP order for the A.Y. 2007-08. In fact in A.Y. 2007-08, there was no determination of ALP and therefore there was no occasion for any order being passed by the TPO. It is also seen that this company entered into an area of business known as New Vertical Digital Library & Print on Demand in F.Y. 2007-08. Crossdomain Solutions Ltd. - It is seen that the business profile of this company is re-engineered payroll service. This company is also engaged in the development of information systems. These activities are totally different from the activities of the assessee which perform very limited/low end functions back office services. The business of Cross Domain ranges from high end KPO services, development of product suites and routine low end ITES service. However, there is no bifurcation available for such verticals of services. Therefore the assessee contends that Cross Domain cannot be compared to a routine ITES service provider. We are of the view that in the absence of any reasons given to the contrary either by the TPO or the DRP for regarding this company as a comparable, this company should be excluded from the list of comparables, accepting the plea of the Assessee Eclerx Services Ltd. cannot be regarded as a comparable for the reason that it was functionally different. Infosys BPO Ltd. - chedule 13 to the profit & loss account of this company for the F.Y. 2007-08 shows that this company incurred huge selling and marketing expenses. Page 133 of the annual report of this company for the F.Y. 2007-08 shows that this company realizing its brand value has chosen to value the same on the basis of its earnings and that of Infosys. The brand value of the Assessee and Infosys has been valued at ₹ 31,863 Crores. Infosys BPO, being a subsidiary of Infosys, has an element of brand value associated with it. This is also clear from the presence of brand related expenses incurred by this company. Presence of a brand commands premium price and the customers would be willing to pay, for the services/products of the company. Mold-tek Technologies Ltd. - submission of the assessee before us is that it is in the business of Knowledge Process Outsourcing and cannot be considered as a comparable. Wipro Ltd. company owns substantial intellectual property on software products. This company cannot therefore be regarded as a comparable. For the reasons given while disregarding Infosys BPO Ltd. as a comparable, this company is also directed to be excluded from the list of comparables. Hon’ble High Court of Karnataka in the case of CIT v. Tata EIxsi Ltd [2011 (8) TMI 782 - KARNATAKA HIGH COURT ] has held that while computing deduction under section 10A of Act, expenditure incurred by the assessee, if excluded from the export turnover, should also be excluded from the total turnover. In view of the aforesaid decision of the Hon’ble High Court of Karnataka, the AO is directed to reduce the expenses incurred for travelling and internet connection charges from the export turnover as well as the total turnover, while computing deduction u/s. 10A of the Act. We hold and direct accordingly. Similarly in the additional ground, the assessee has prayed that the foreign exchange loss should also be added to the total turnover and export turnover as against the action of the AO in excluding the said loss only from the Export turnover following the decision in the case of TATA ELXSI (supra) of the Hon’ble Karnataka High Court. We held that the said loss should be excluded both from ETO and TTO. We hold and direct accordingly. - Decided in favour of assessee
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