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2015 (11) TMI 1136 - AT - Income TaxComputing deduction u/s 10A - exclusion of tele-communication charges and insurance expenditure incurred in foreign currency from the export turnover as well as the total turnover as directed by the CIT(A) - Held that:- This issue is now covered by the decision in the case of ACIT vs. Tata Elxsi [ 2011 (8) TMI 782 - KARNATAKA HIGH COURT] wherein held there should be uniformity in the ingredients of both the numerator and the denominator of the formula, Section 10-A is a beneficial section. It is intended to provide incentives to promote exports. If the export turnover in the numerator is to be arrived at after excluding certain expenses, the same should also be excluded in computing the export turnover as a component of total turnover in the denominator. The reason being the total turnover includes export turnover. The components of the export turnover in the numerator and the denominator cannot be different. Formula will be Profits of the business of the undertaking × Export turn over / (Export turnover + domestic turn over) Total Turn Over Transfer pricing adjustment - assessee has raised objections against inclusion of 4 companies viz., Infosys Ltd., Persistent Systems Ltd., Tata Elxsi and Wipro Ltd. - Held that:- Infosys Technologies Ltd. is not functionally comparable with the assessee because it owns significant intangibles as well as brands earning revenue from software products apart from software development services. Since no separate segment of SDS and software products is available, therefore, this company cannot be considered as a good comparable for the purpose of ALP in respect of international transaction of rendering SDS. Accordingly, when this company is functionally not comparable with the assessee, we decline to interfere with the impugned order of the CIT(A) directing the AO/TPO to exclude this company on the basis of turnover filter Persistent Systems Ltd. be excluded from the list of comparables as relying on 3DPLM Software Solution Ltd. v DCIT [2014 (12) TMI 612 - ITAT BANGALORE] as it is engaged in product development and product design services while the assessee is a software development services provide. Also the segmental details are not given separately. Tata Elxsi Ltd company is predominantly engaged in product designing services and not purely software development services. The details in the Annual Report show that the segment “software development services” relates to design services and are not similar to software development services performed by the assessee. Wipro Ltd. company is engaged both in software development and product development services. There is no information on the segmental bifurcation of revenue from sale of product and software services. The TPO appears to have adopted this company as a comparable without demonstrating how the company satisfies the software development sales 75% of the total revenue filter adopted by him. Another major flaw in the comparability analysis carried out by the TPO is that he adopted comparison of the consolidated financial statements of Wipro with the stand alone financials of the assessee; which is not an appropriate comparison. Also this company owns intellectual property in the form of registered patents and several pending applications for grant of patents a company owning intangibles cannot be compared to a low risk captive service provider who does not own any such intangible and hence does not have an additional advantage in the market. As the assessee in the case on hand does not own any intangibles, following the aforesaid decision of the co-ordinate bench of the Tribunal i.e. 24/7 Customer.Com Pvt. Ltd. (2013 (1) TMI 45 - ITAT BANGALORE), we hold that this company cannot be considered as a comparable to the assessee M/s.VGL Software Ltd. company was neither selected by the assessee in the TP analysis nor by the TPO while passing the TP order under section 92CA of the Act. However, the CIT(A) included the same in the list of comparables while passing the impugned order without giving any opportunity of being heard to the AO/TPO. Since comparability of this company has not been examined at the level of the TPO/AO, therefore, without going into merits of the issue of comparability, we set aside the issue of comparability of this company to the record of the AO/TPO for considering the functional and other criteria of comparability for including the said company in the list of comparables for determining the ALP in respect of international transaction of the assessee. Avani Cincom Technologies Ltd. and Celestial Biolabs Ltd. companies cannot be considered as functionally comparable with the assessee. Accordingly, we do not find any error or illegality in the order of the CIT(A) and decline to interfere with the order of the CIT(A) qua this issue. KALS Information Systems Ltd. company was developing software products and was not purely or mainly a software service provider, hence functionally dissimilar.
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