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2021 (9) TMI 1379 - AT - Income TaxTP Adjustment - exclusion of comparable companies in the SWD services - HELD THAT:- Acropetal Technologies Ltd should be excluded from the list of comparable companies in the case of companies engaged in rendering SWD services such as the Assessee. We therefore direct exclusion of this company from the list of comparable companies. Exclusion of E-Infochips Ltd. ought to be excluded from list of comparable companies in the case of companies rendering SWD services similar to that of the Assessee. ICRA Techno Analytics Ltd. is engaged in diversified activities of software development and consultancy, licensing and sublicensing, annual maintenance for software support, web development & hosting and revenue from all the activities are reported under one segment, without any segmental information regarding the same made available. Therefore, in the absence of segmental information, it cannot be ascertained whether the company passes all the filters applied by the TPO and therefore ought to stand excluded from the final list of comparables. E-Zest Solution Ltd. is concerned, this company was directed to be excluded by this Tribunal in the case of a SWD service provider such as the Assessee as functionally not comparable and absence of segmental information of its products and software development segments and also in the light of presence of inventory showing that this company is a product company. As far as exclusion of Persistent Systems and Solutions Ltd., is concerned, we find that this company was again excluded in the decision in the case of Autodesk India Pvt. Ltd. [2018 (12) TMI 1742 - ITAT BANGALORE] for the very same reasons for exclusion of e-Zest solutions Ltd. We therefore direct exclusion of this company from the list of comparable companies. Computation of deduction u/s 10A - exclusion of telecommunication expenses and expenses incurred in foreign currency for rending technical services outside India, both from the export turnover and total turnover - HELD THAT:- It is not in dispute before us that the Hon’ble High Court of Karnataka in the case of CIT v. Tata Elxsi Ltd [2011 (8) TMI 782 - KARNATAKA HIGH COURT] has held that charges/expenses relating to telecommunication, and expenses in connection with rendering technical services outside India, should be excluded both from export turnover and total turnover while computing deduction u/s.10A of the Act i.e., whatever is removed from the numerator should also be excluded from the denominator while working total turnover and export turnover for allowing deduction u/s.10A. The aforesaid decision of the jurisdictional High Court has been upheld by the Hon’ble Supreme Court in the case of CIT v. HCL Technologies Ltd.[2018 (5) TMI 357 - SUPREME COURT] - In view of the above, we are of the view that the telecommunication charges should be excluded both from the export turnover as well as total turnover while computing deduction u/s.10A of the Act. The order of the DRP is therefore upheld. Considering gains/loss arising from fluctuation of foreign currency as being operating in nature - as submitted that the gains on account of fluctuation in foreign currency has arisen from the international transaction of provision of ITE services and SWD services - HELD THAT:- The Hon’ble Delhi High Court in the case of PCIT Vs. B.C. Management Services (P) Ltd.[2017 (12) TMI 255 - DELHI HIGH COURT] held that foreign exchange gain has to be regarded as part of operating income by following its own order in Pr. CIT v. Cashedge India (P.) Ltd. [2016 (5) TMI 1348 - DELHI HIGH COURT].Respectfully following the said decision, we uphold the directions of the DRP and dismiss Gr.No.3 to 5 raised by the Revenue. Exclusion of comparable companies in ITeS segments - Acropetal cannot be considered as a comparable to assessee performing routine low end IT enabled services function. This company is therefore to be excluded from the list of comparable companies. Jeevan Scientific Technology Ltd., we find that this company is engaged in diverse functions and the same were reported under one segment without segmental details regarding the same being made available. Without segmental details, the comparability of the company cannot be determined. In any event, the ERP segment of the company is not comparable to the assessee, the BPO segment of the company fails the filter of service income being greater than 75% of total revenue, and the company suffers from huge fluctuations which indicate that certain peculiar circumstances influencing the profit margin of the company exist, for which appropriate adjustments cannot be made to balance the effect. This company is therefore excluded as comparable company. Accentia Technologies Ltd is engaged in rendering routine low end information technology enabled services. Further, the said company not only does medical transcriptions, but has also ventured into healthcare receivables cycle management and high end consultancy to start-ups requiring field experts. As can be seen from the annual report, coding income is contributing 15% of the total income which activities are akin to software development activity while the assessee is a mere provider of IT enabled services. The company has invested huge sums in the development of EMR software. Segmental details of its various activities are unavailable, therefore, not comparable to the Assessee and rejected as a comparable. ICRA Online Ltd is functionally dissimilar for the reason that the outsourced services segment of the company is engaged in the provision of high end consultancy services which cannot be compared to the assessee who is into provision of low end IT enabled services which are routine in nature. Further, the company fails the TPO’s own filter of export turnover in excess of 75% of total sales as the export turnover of the company amount to only 61.88% of its sales. Therefore, the company cannot be held as a comparable to the assessee.
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