TMI Blog2014 (11) TMI 690X X X X Extracts X X X X X X X X Extracts X X X X ..... vice, however, alternate plea was made that if the same was excluded from the export turnover, the same was also to be excluded from the total turnover while computing deduction u/s 10A - Following the decision in ITO vs. Saksoft [2009 (3) TMI 243 - ITAT MADRAS-D] - CIT(A) gave direction to exclude communication charges from the total turnover as well - there is no need to interfere with the direction of CIT(A) – Decided against revenue. Selection of comparables – Accentia Technologies Ltd. – Extra ordinary events - Held that:- Extra- ordinary event like merger and de-merger will have an effect on the profitability of the company in the financial year in which such event takes place - It is the contention of the assessee that in case of the company, there is amalgamation which has impacted the financial result - This fact has to be verified by the TPO - If it is found upon such verification that the amalgamation in fact ahs taken place, then the aforesaid comparable has to be excluded - the previous year there were extra ordinary events that took place in this company which warrants exclusion of this company as a comparable - this company cannot be considered as a comparable. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le in various decisions of coordinate benches, A.O. / TPO is directed to exclude the above comparables and reworkout the ALP - Assessee should be given an opportunity to make submissions on the risk adjustments/working capital adjustment if so required before finalising the order – Decided in favour of assessee. - ITA. No. 1018/Hyd/2013, ITA. No. 990/Hyd/2013 - - - Dated:- 19-11-2014 - Shri B. Ramakotaiah And Shri Saktijit Dey,JJ. For the Petitioner : Mr. Ravi Bharadwaj For the Respondent : Mr. D. Sudhakar Rao ORDER Per B. Ramakotaiah, A. M. These are cross-appeals by Assessee and Revenue against the order of Ld. CIT(A)-II, Hyderabad dated 26.03.2013. The issue in appeal is with reference to T.P. adjustments made by A.O./TPO on assessee s international transactions under the provisions of section 92C of the Act. Assessee choose to prefer appeal before the Ld. CIT(A) rather than going before the Disputes Resolution Panel and accordingly, Ld. CIT(A) adjudicated the issues. 2. Briefly stated, Flagstone incorporated on October 10, 2005, is based in Hyderabad, Andhra Pradesh. Assessee is a wholly owned subsidiary of Flagstone Group [Flagstone Capital Ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2. Acropetal Technologies Ltd. (Seg.) 20.80 35.30 3. Aditya Birla Minacs 183.17 -0.55 4. Asit C. Mehta 4.82 9.10 5. Caliber Point Business Solution (Seg.) 53.00 10.97 6. Coral Hub (Vishal Info) 13.07 51.84 7. Cosmic Global 5.86 24.30 8. Crossdomain Solution P. Ltd 27.40 26.96 9. Datamatics Financial (BPO Div.) 16.72 34.87 10. e4e (earlier known Nitanny Outsourcing) 25.99 17.50 11. Eclerx 123.45 66.50 12. Genesys International 47.52 51.91 13. HCL Comnet Systems Services Ltd., (seg.) 388.05 32.97 14. ICRA Online Ltd. (Seg.) 82.29 11.22 15. Infosys BPO Ltd., 825.08 20.03 16. I-service India Pvt. Ltd., 13.39 10.92 17. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rables out of 9 objected and issued directions accordingly. 3.4. In addition to the adjustments on T.P. Assessing Officer also excluded communication charges from export turnover while working out the deductions under section 10A. Considering the objections raised by assessee and principles governed by various decisions on the issue, Ld. CIT(A) directed the A.O. to exclude the communication charges from total turnover as well. 4. Revenue is aggrieved on the exclusion of two comparables and direction of Ld. CIT(A) on exclusion of communication charges from both export turnover as well as total turnover for the purpose of computing deduction under section 10A of the I.T. Act. Revenue has raised 5 grounds in their appeal on this issue. 5. On considering the rival contentions, we are of the of the opinion that there is no need to interfere with the orders of Ld. CIT(A) on the above issues. As far as Coral Hub is concerned, Ld. CIT(A) discussed the same vide para 5.1 and followed the decision of DRP in the case of Zavata India P. Ltd., for A.Y. 2008-09 and decision of ITAT A Bench, Hyderabad in the case of Capital IQ Information Systems India P. Ltd., It was held that Coral H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no need to interfere with the direction of Ld. CIT(A) and accordingly, Revenue appeal is dismissed. 7. Now coming to assessee s appeal, it was submitted that Ld. CIT(A) has wrongly considered exclusion of only two comparables when assessee has objected to 9 comparables. Ld. AR pointed out that assessee has given written submissions that not only the above two comparables but also working capital adjustments as suggested by assessee would make the ALP within the band approved under I.T. Act. However, Ld. CIT(A) did not consider the issue of working capital adjustment. Therefore, assessee is contesting the inclusion of other comparables objected before Ld. CIT(A). Ld. Counsel referred to the submissions made before Ld. CIT(A) to submit that if the working capital adjustment was provided then the ALP would be within the norms as approved. However, since the issue of working capital adjustment was not adjudicated by Ld. CIT(A), assessee is objecting to the balance of comparables. It was submitted that 7 comparables objected by assessee before Ld. CIT(A) were already rejected as comparables in the case of Hyundai Motors India Engineering P. Ltd., Hyderabad vs. ITO, Ward 2(2), Hyderab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en that the DRP while considering similar objection placed by the assessee in the case of another company, viz. Mold Tek Technologies Ltd., in the proceedings relating to the assessment year 2008-09, has observed in the following manner- 17.5. In addition to the above, the Director's Report of the company for the FY 2007-08 revealed the merger and the demerger. A company known as Techmen Tools Pvt. Ltd. had amalgamated with Mold-tek Technologies Ltd. with effect form 1st October, 2006. There was a de- merger of Plastic Division of the company and the resulting company is known as Moldtek Plastics Limited. The de-merger from the Moldtek Technologies took place with effect from 1st April, 2007. The merger and the de- merger needed the approval of the Hon'ble High Court of Andhra Pradesh and also the approval of the shareholders. The shareholders of the company gave approval for the merger and the de-merger on 25.01.2008 and the Hon'ble High Court of Andhra Pradesh had approved the merger and de-merger on 25th July, 2008. Subsequently, the ITA No.1316/Bang/2012 accounts of Moldtek Technologies for FY 2007-08 were revised. On a perusal of the annual report it is noticed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The assessee is a BPO company that provides CAD/ CAE services.. As far as Acropetal Technologies Ltd. is concerned, this company does the business of export of software services. It is also seen from the segmental revenue of this company (Note 15 to the notes on accounts to Annual Report for 07-08) that it derives income from engineering design services and software development services. It is also pertinent to point out that before the TPO, the assessee raised an objection that this company performs different functions and mainly engaged in the area of software development services and engineering design services. The TPO in his order has observed that the services rendered by this company fall in the definition of ITES. We have considered the submissions of the learned counsel for the Assessee. Ld Counsel submission was that this company was excluded in the case of Symphony Marketing Solutions India(p) Ltd (supra) by the Bangalore Bench, so the same require exclusion. In the above case it was considered like this: 13. We have considered the submissions of the learned counsel for the Assessee. On a perusal of the Note No.15 of notes to accounts which gives segmental revenu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y, this company is not a comparable company as it may be outsourcing the work. The learned D.R. however, submitted that assessee has accepted the same in the TPO proceedings. Therefore, should not be excluded now. While there was no objection for assessee objecting to the comparable even at a later stage when it comes to know of new facts, what we noticed is that the assessee s objections before the DRP dated 30.07.2012 have not been addressed by the DRP. It is for the TPO to determine whether this company falls within the filters as adopted by the TPO himself. If the assessee fails the employee cost filter, then the same cannot be accepted as a comparable company. In order to examine this aspect, we are of the opinion that selection of this comparable is to be restored to the file of the TPO for fresh examination, after giving due opportunity of hearing to the assessee. The issue is restored to the file of the TPO. IV. ECLERX SERVICES LTD. : This company is listed at Sl.No.10 in the list of comparable companies chosen by the TPO. It is the stand of the assessee that this company offers solutions that include data analytics, operations management, audits and reconciliation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pany, it is seen that this company is engaged in providing geographical information services comprising of photogrammetry, remote sensing cartography, data conversion related computed based services and other related services. Further the business of this company requires skilled manpower and scientists, civil engineers, etc. Besides the above, this company also carries out R D services and own intangibles. The aforesaid facts, in our view, will take this company out of the list of comparables. Similar view was also taken in the case of Symphony Marketing Solutions India(p) Ltd (supra) by the Bangalore Bench. In view of the above, we are of the view that this company cannot be regarded as a comparable and deserves to be excluded from the list of comparables. VI HCL COMNET SYSTEMS SERVICES LIMITED : VII. WIPRO LIMITED : The assessee has objected for these two companies being taken as comparables mainly on the ground that these companies are industrial giants considering their turnover compared to that of the assessee, whose turnover is only ₹ 15 crores. It is the contention of the assessee that these companies are industrial giants in the area of software developmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... argin to 25.6%. It is argued that the case of the assessee is not comparable with Infosys Technologies Ltd., the reason being that the later is giant in the area of development of software and it assumes all risks, leading to higher profit. On the other hand, the assessee is a captive unit of its parent company in the USA and it assumes only limited currency risk. Having considered these points, we are of the view that the case of the aforesaid Infosys and the assessee are not comparable at all as seen from the financial data etc. of the two companies mentioned earlier in the order. Therefore, we are of the view that this case is required to be excluded. Similar view has also been expressed by the Hyderabad Bench of the Tribunal in the case of Trinity Advanced Labs P. Ltd. (supra). In the case of M/s. Genesys Integrating India P. Ltd. (supra), the Bangalore Bench of the Tribunal has observed in the following manner- 9. Having heard both the parties and having considered the rival contentions and also the juridical precedents on the issue, we find that the TPO himself has rejected the companies which are making losses as comparables. This shows that there is a limit for the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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