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2015 (10) TMI 1085 - AT - Income TaxTransfer pricing adjustment - selection of comparable - Held that:- Aftek Infosys Ltd. - TPO had included this company on account of it dealing in software activity after pointing out that assessee had not been able to establish how the company was functionally different. Thus, it is evident that the functional differences, as pointed out by ld. counsel for the assessee in synopsis, have not been critically examined with reference to the annual report and, therefore, we restore this matter to the file of AO to find out the factual aspects on this count and, if, the company is found to be only a software product company, then the same cannot be compared with the assessee company, which is primarily a designing and developing software on contract basis for its AE. This issue is allowed for statistical purposes. Infosys Technologies Ltd. - because of the diversified functions performed by Infosys Technologies Ltd., and also on account of ownership of branded/ proprietary products, it cannot be compared with the assessee because difference in functions performed, asset base and risk assumed by both the companies. Satyam Computers Services Ltd.- we are in agreement with ld. counsel for the assessee that due to unreliable financial data of Satyam Computers Services Ltd., which is in public domain now, the company cannot be considered as a comparable to the assessee Xansa India Ltd.- no plea was taken before ld. CIT(A) on the basis of RPT, but now this objection has been taken as annual report is available and, therefore, the matter may be restored back to the file of ld. CIT(A) in order to arrive at proper conclusion. Geodesic Information Systems Ltd. - assessee has pointed out that this company as engaged in development of software products and operated as full fledged risk taking entrepreneur having IPR and trade mark. These aspects were not considered by ld. TPO, thus the issues raised before us needs to be examined by ld. TPO because assessee itself had taken into consideration this comparable. Ecosoft Technologies Ltd. - this company was rejected since data for current year was not available. As now the current year’s data is available, so matter may be restored back to the file of ld. CIT(A). Compudyne Winfosystems Ltd -CIT(A) has not considered the segmental results of the software development unit. The assessee has filed the annual report of this comparable for FY 2002-03 in the paper book, wherein we find that in the entertainment division and analysis specific segmental details regarding software development, revenue earning and segment-wise results have been given. Therefore, the observation of ld. CIT(A) is not correct. We, accordingly, restore this issue to the file of AO for fresh adjudication Orient Information Technology Ltd. -the financial details as mentioned in the TPO’s order are available in the annual report filed by assessee and, therefore, the matter needs to be examined afresh by ld. CIT(A). Accordingly, we set aside this issue to the file of CIT(A) for decision afresh. Adjustment on account of risk environment - CIT(A) held that TPO had committed an error by allowing downward adjustment of 20% in an ad hoc fashion - Held that:- No interference is called for in the order of ld. CIT(A) on this count because assessee failed to propose the necessary adjustment by filing a scientific methodology during TP proceedings or during appellate proceedings. The onus for quantification was on assessee on the risk assumed by comparables vis a vis tested party. Accordingly, this ground is rejected. Exemption u/s 10A - Held that:- t it is not disputed that PR, supply chain, CT head and SMG were incidental services to IT enabled services and, therefore in view of Notification no. 890(E) dated 26-9-2000, these services being part of back office operation and support services are eligible to be considered as part of export turnover. In the result, this ground is allowed. Disallowance of leave encashment - Held that:- In view of clause (f) of section 43B, assessee’s claim will be disallowed as the same had actually not been paid by the assessee. The assessee had merely made a provision for payment of leave encashment. - Decided against assessee. Disallowance of foreign exchange fluctuation loss - Held that:- In case of the revenue items falling under section 37(1), para 9 of AS-11, which deals with recognition of exchange differences, needs to be considered. Under this para, exchange differences arising on foreign currency transactions have to be recognized as income or as expense in the period in which they arise. The important point to be noted is that AS-11 stipulates effect of changes in exchange rate vis-avis monetary items denominated in a foreign currency to be taken into account for giving accounting treatment on the balance sheet date. Therefore, an enterprise has to report the outstanding liability relating to import of raw materials using closing rate of exchange. Any difference, loss or gain arising on conversion of the said liability at the closing rate, should be recognized in the profit and loss account for the reporting period. See CIT Vs. Woodward Governor India (P) Ltd. [2009 (4) TMI 4 - SUPREME COURT] - Decided in favour of assessee.
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