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2019 (4) TMI 1752 - AT - Income TaxTP Adjustment - Comparable selection - HELD THAT:- Companies functionally dissimilar with that of assessee's software development segment and ITES segment need to be deselected from final list. Deduction u/s 10A on account of adjustment of export turnover - AO excluded the value of telecommunication expenses from export turnover only - HELD THAT:- This issue is squarely covered by the Jurisdictional High Court in the case of CIT Vs. Tata Elxsi Ltd. [2011 (8) TMI 782 - KARNATAKA HIGH COURT] as 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 Foreign exchange loss / gain - Whether not be considered as operating gain / loss? - HELD THAT:- CIT(A) has followed various Tribunal orders and held that foreign exchange fluctuation gain / loss is operating profit / operating loss. To this extent, there is no quarrel but whether such foreign exchange fluctuation gain / loss should be considered for the purpose of TP analysis, it has to be ascertained as to whether such gain / loss is in respect of current year’s turnover or in respect of earlier year’s turnover because for TP analysis, we are not comparing the operating profit alone of the tested party with the operating profit of the comparables. We are comparing the profit percentage of tested party with profit percentage of comparable companies. The profit percentage is worked out on the basis of operating profit divided by turnover and hence, if any part of the operating profit is computed by considering the item of income or loss, which is not arising out of the present year’s turnover, it will give absurd result because such exchange fluctuation gain / loss will increase or decrease the operating profit being the numerator but the corresponding turnover will not be part of denominator if the same is not in relation to the current year’s turnover - Set aside the order of CIT(A) on this issue and restore back the matter to his file for fresh decision in the light of above discussion after providing reasonable opportunity of being heard to both sides. Accordingly, ground nos. 3, 4 and 5 are allowed for statistical purposes. Rejecting comparable companies identified by the assessee using export earnings greater than 75% of the sales as a comparability criterion - HELD THAT:- We find that there is no finding of CIT(A) as to which comparables are affected by change in the export earnings filter in ITES segment. Hence it amounts to setting aside of the matter to the AO and as per the provisions of section 251(1A) of IT Act, the CIT(A) can confirm, reduce or enhance the assessment but he cannot remand the matter to the file of AO. Hence on this issue, the order of CIT(A) is not sustainable and therefore, we reverse the same and restore to the order of AO on this issue. - Decided in favour of revenue
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