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2014 (12) TMI 804 - AT - Income TaxComputation of deduction u/s 10A - Exclusion of expenses on travel exenses in foreign currency – expenses towards telecommunication expenses form export turnover – Held that:- following the decision in CIT v. Tata Elxsi Ltd [2011 (8) TMI 782 - KARNATAKA HIGH COURT] the AO is directed to exclude expenses incurred in foreign currency towards travelling and expenses incurred towards telecommunication both from export turnover and total turnover – Decided in favour of assessee. Transfer pricing adjustment – Selection of comparables - Turnover Filter - addition to total income on ALP to international transaction as per u/s 92CA – Held that:- Following the decision in Trilogy E-Business Software India (P.) Ltd. Versus Deputy Commissioner of Income-tax. Circle 12(4). Bangalore [2013 (1) TMI 672 - ITAT BANGALORE] wherein it has been held that the TNMM is the most appropriate method for determining the ALP of the international transaction - the provisions of law clearly lay down the principle that the turnover filter is an important criteria in choosing the comparables - assessee’s turnover is ₹ 47,46,66,638. It would therefore fall within the category of companies in the range of turnover between 1 crore and 200 crores - thus, companies having turnover of more than 200 crores have to be eliminated from the list of comparables. Improper selection of comparables – KALS Information Systems Ltd. - Held that:- Following the decision in Trilogy E-Business Software India (P.) Ltd. Versus Deputy Commissioner of Income-tax. Circle 12(4). Bangalore [2013 (1) TMI 672 - ITAT BANGALORE] wherein it has been held that the TPO has drawn conclusions on the basis of information obtained by issue of notice u/s.133(6) of the Act – The information which was not available in public domain could not have been used by the TPO, when the same is contrary to the annual report of this company as highlighted by the Assessee in its letter dated 21.6.2010 to the TPO - this company was developing software products and not purely or mainly software development service provider. Accel Transmatic Ltd. – Held that:- The company should not be treated as comparables was considered by the Tribunal in Capgemini India (P.) Ltd. Versus Additional Commissioner of Income-tax, Range-10(2), Mumbai [2011 (5) TMI 509 - ITAT, MUMBAI] where the assessee was software developer - this company was not comparable in the case of the assessees engaged in software development services business. Tata Elxsi Limited. – Functionally not comparable - Held that:- This company is predominantly engaged in product designing services and not purely software development services - The references made to the Annual Report by the learned Authorised Representative show that the segment “software development and services” relates to design services and are not similar to software support services performed by the assessee - this company is not to be considered for inclusion in the set of comparable in the case on hand for the period under consideration and therefore direct the TPO to exclude this company from the final set of comparables for the period under consideration – the company should also be excluded for the purpose of comparison while determining the ALP of the international transaction. Megasoft Ltd. – Held that:- Following the decision in Trilogy E-Business Software India (P.) Ltd. Versus Deputy Commissioner of Income-tax. Circle 12(4). Bangalore [2013 (1) TMI 672 - ITAT BANGALORE] wherein it has been held that only segmental data of the said company should be taken for the purpose of comparison - neither the TPO nor the DRP have noticed that there is bound to be a difference between the Assessee and Megasoft and the profit arising to the Megasoft as a result of the existence of the software product segment and no finding has been given that reasonably accurate adjustments can be made to eliminate the material effects of such differences - the profit margin of 23.11% which is the margin of the software service segment be taken for comparability - segmental margins in so far as it relates to providing software services by Megasoft alone should be taken for the purpose of comparison – Decided partly in favour of assessee.
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