9911796707
TMI Blog2013 (6) TMI 500X X X X Extracts X X X X X X X X Extracts X X X X ..... of the appellant that the TPO was not justified in taking net operating cost at Rs. 11,54,91,263/- for a revenue of Rs. 12,13,93,695/- as against total revenue cost of Rs. 11,54,91,263/- for a total revenue of Rs. 13,59,91,472/-. That the ld.TPO has ignored the fact that either operating cost has to be proportionately reduced or the revenue has to be increased to Rs. 13,59,91,472/-. 4. On the facts and circumstances of the case, the Hon'ble DRP and the ld.AO erred both on facts and in law in sustaining the loss of Rs. 11,60,000/- in respect of expenditure incurred on software holding the same to be a capital expenditure. 5. On the facts and circumstances of the case, the Hon'ble DRP and the ld.AO erred in not applying the proviso to s.92(c ) of the Act and has failed to allow the appellant benefit of downward variation of % in determining the arm's length prices. 6. On the facts and circumstances of the case, the Hon'ble DRP and the ld.AO erred both on facts and in law in disallowing an amount of Rs. 11,60,000/- on account of technical consulting fee. 7. On the facts and circumstances of the case, the Hon'ble DRP and the ld.AO erred both on facts and in law ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ead of adding this amount in the operating revenue, DRP added the operating cost , with the result that arm's length price instead of being reduced, got increased to Rs. 2,95,05,655/-. Despite this increase, because of the above error, the DRP recommended a reduction by Rs. 49,87,688/- the AO accordingly allowed this deduction of Rs. 49,87,688/-. Since this was an apparent error a rectification application dated 16th February, 2012 was moved by the assessee pointing out the same and the correct reduction being Rs. 78,86,081/-. The DRP, however, vide its order dated 8th August, 2012, rejected this application on the ground that this does not fall within the ambit of a rectifiable mistake. It is pleaded that it is purely an arithmetical error as is evident from the DRP order and the correct calculation was submitted in the application for rectification by the assessee. This error was admitted and corrected by TPO in the first round vide his order dt 4.3.2010 which is referred to by the Ld. Counsel. 6. The second arithmetical error which is agitated by above ground no.3 of the appellant, is glaring that the total revenue of the appellant for the year is to the extent of Rs. 13,59 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee are in line with the mean margin of comparable cases even if no adjustment is made on account of capital etc. Therefore, it is held that no adjustment was required to be made to the results declared by the assessee company." 8.2. Further, reliance is placed on the following judgements for the proposition of not considering giants like Wipro & Infosys as comparables in entities. i) DCIT v. Deloitte Consulting India (P.) Ltd. [2011] 12 taxmann.com 500 (Hyd.) ii) Telcordia Technologies India (P.) Ltd. v. Assistant Commissioner of Income-tax, Cir 3(3), Mumbai [2012] 22 taxmann.com 96 (Mum.) iii) Insilica Semiconductors India (P.) Ltd. v. Income-tax Officer, Ward 11(2), Bangalore [2012] 21 taxmann.com 139 (Bang.) iv) ACIT v. Sonata Software Ltd. [2013] 29 taxmann.com 144 (Mumbai - Trib.) v) Customer.Com (P.) Ltd. v. Deputy Commissioner of Income-tax, Circle 11(2), Bangalore [2012] 28 taxmann.com 258 (Bang.) vi) Triniti Advanced Software Labs (P.) Ltd. v. Asstt. CIT [2011] 9. Ld.Counsel further contends that the DRP has also rejected the appellant's contention of excluding comparable of KALS Information System (P) Ltd. The TPO has applied wages/ sales filter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... extract on pages 185-186 of the Paper Book from the website of the company to establish that it is engaged in providing of I T enabled services and that the said company is into development of software products, etc. All these aspects have not been factually rebutted and, in our view, the said concern is liable to be excluded from the final set of comparables, and thus on this aspect, assessee succeeds." 9.3. Above bind view case has been followed in the case of Trilogy E- Business Software India (P.) Ltd. vs DCIT [2013] 29 taxmann.com 310 , ITA No 1054/2011; the Bangalore Bench of ITAT has held: "46. As far as this company is concerned, the contention of the assessee is that the aforesaid company has revenues from both software development and software products. Besides the above, it was also pointed out that this company is engaged in providing training. It was also submitted that as per the annual repot, the salary cost debited under the software development expenditure was Rs. 45,93,351. The same was less than 25% of the software services revenue and therefore the salary cost filter test fails in this case. Reference was made to the Pune Bench Tribunal's decision of the I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... India, but still it is a common experience that in many such results certain expenditures, particularly expenditure on account of interest and head office, are generally not allocated and shown in the published results as separate expenditure. Therefore, the TPO was correct that when direct comparables were available there was no need to consider the segmented results of TCI. It is only the operating profit which can be considered. It is important to note that in this case it was the department's contention that segmented results should not be considered when direct comparable are available. As in assessee's the direct comparable are available, hence KALS Information Systems Ltd should not be taken as comparable. 10.2. By applying above proposition, the arithmetic mean of the TNMM will come down to 13.39 %, and shall be within (+/-) 5% range in terms of Section 92C of the Act and hence no adjustment is called for. 11. Apropos corporate issue Ld.Counsel contends that disallowance of Rs. 11,60,000/- out of Rs. 29 lac being 1/3rd of the expenditure incurred on software is made by TPO. Assessee, in the preceding assessment year, incurred an expenditure of Rs. 87 lac and clai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of manufacturing concern where the cost per unit product increased with rise in turnover, and therefore, profitability rises with rise in turnover which is snot a case in service providing companies where fixed costs are nominal. He referred to decision of the Tribunal in ;case of Symantic Software Services P.Ltd. in ITA no.7894/M/2010 in which the Tribunal did not accept the plea of exclusion on the ground of difference in turnover. The Tribunal observed that in a competitive market, high turnover was associated with low margin and low turnover did not necessarily mean high margin. The Ld.CIT, D.R. placed on record graph plotted between margin and turnover in respect of comprables selected by the assessee in this case which was placed on record which showed that there was no linear relationship between margin and turnover. For instance, in case of Persistent Systems P.Ltd. margin was 24.1% on turnover of Rs. 294.56 crores whereas in case of Mind tree Consulting Ltd. Margin was 17.69% on turnover of Rs. 446.41 crores. Referring to the argument of the Ld.Sr.Counsel that Infosys and Wipro had substantial on-site work in foreign jurisdiction which involved substantial dead cost as t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of CIT vs. Vegetable Products Ltd. Reported in 88 ITR 192 (S.C.) has squarely held that if two views are possible then the view favourable to the assessee is to be adopted. 15.3. The assessee has cited plethora of judgements in support of its proposition therefore contends that the T.P. addition may be deleted. 16. We heard rival contentions and perused the material available on record. Apropos the assessee's contentions about the arithmetical mistakes same have not been controverted and we find that in the first round the TPO himself agreed to correct the mistake and in second round without pointing out any reason, the same has not been corrected. Since the assessee has been able to demonstrate that though DRP agreed with the assessee's contentions about the software testing services, however, while computing the same has been reduced. Consequently the mistake in this behalf is apparent from the order of the lower authorities. Thus we find merit in the argument of the Ld.Counsel for the assessee in this behalf and these mistakes are directed to be rectified as requested by the assessee. 17. Now coming to the issue about inclusion of high turnover comparables like Wipr ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
