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2015 (4) TMI 916 - AT - Income TaxTransfer Pricing adjustment in relation to International Transactions - Inclusion of certain companies by TPO in the list of comparables for ALP - Denial of deduction u/s 10A of the Income Tax Act, 1961 - Held that:- The Mumbai Bench of the Tribunal in Petro-Aroldite (P) Ltd. [2015 (3) TMI 1010 - ITAT MUMBAI] has held that a company cannot be considered as comparable because of exceptional financial results due to mergers/demergers etc. Similar view has been taken by the Delhi Benches of the Tribunal in several cases including Toluna India Pvt. Ltd. [2014 (10) TMI 424 - ITAT DELHI]. It is patent that the mergers/demergers largely influence the profitability of a company during the year of happening of such event, which makes it incomparable. As there have been acquisitions by Aftek Infosys Ltd. in the year in question and the financial results of the erstwhile company stand included in the overall profitability of this company, we hold that the same cannot be considered as a comparable. We find that the predominant view of the Tribunal across the country in several cases is that the transactions of a company having more than 25% of Related Party Transactions (RPTs) are considered as controlled, thereby failing the test of comparability. This view has been taken in several decisions including by the Delhi Bench in Toluna India Pvt. Ltd. [2014 (10) TMI 424 - ITAT DELHI] and Actis Advisers Pvt. Ltd. [2012 (10) TMI 779 - ITAT, DELHI] and Mumbai Bench in Stream International Services Pvt. Ltd. [2014 (10) TMI 393 - ITAT MUMBAI]. The mechanism for calculating the percentage of Related Party Transactions has been broadly laid down in Nokia India Private Ltd. [2014 (11) TMI 101 - ITAT DELHI]. Since the authorities below have not examined the extent of the RPT percentage of this company, which the learned AR is claiming to be in excess of 25%, we set aside the impugned order and remit the matter to the file of AO/TPO for fresh determination of the percentage of Related Party Transactions of this company in consonance with the broader principles laid down in the case of Nokia India Private Ltd (supra), to the extent these are applicable. If the Related Party Transactions of this company are found to be more than 25%, then this company should be excluded from the set of comparables and in the otherwise situation, it should continue in the list of comparables. We find from its Annual report, which is available in the paper book, that the business acquisitions of three firms in USA were undertaken by this company giving a substantial boost to its operations. When we come to the Schedule of fixed assets of this company, which is available on page 523 of the paper book, it can be seen that there is an entry with the narration “Business acquisitions”, during the year with the value of ₹ 8,47,18,999/-. These facts abundantly show that this company undertook acquisitions in the relevant year making it incomparable in the light of the reasoning given above while dealing with Aftek Infosys Ltd. We, therefore, order to delete this company from the list of comparables. Section 10A dis-allowance - The only objection taken by the Assessing Officer for refusing deduction under Section 10A is that the registration was granted by the STPI Society and not the Inter-ministerial Standing Committee. We find that this issue is no more res integra in view of the judgment dated 26.2.2013 of the Hon’ble Delhi High Court in Technovate E Solution Pvt. Ltd. [2013 (3) TMI 372 - DELHI HIGH COURT], a copy of which has been placed on record by the ld. AR. In this judgment, it has been held that the approvals given by the Directors of Software Technology Parks of India are valid having the authority of the Inter-ministerial Standing Committee. This position was fairly accepted by the ld. DR also. In view of the binding precedent of the Hon’ble jurisdictional High Court, the facts of which are on all fours with those of the assessee company, we are of the considered opinion that no exception can be taken to the view canvassed by the learned CIT(A) on this score. - Decided partly in favour of assessee.
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