TMI Blog2014 (12) TMI 134X X X X Extracts X X X X X X X X Extracts X X X X ..... ons with Virtusa, UK – thus, the matter is remitted back to the CIT(A) for fresh consideration – Decided in favour of assessee. Computation of export turnover - Exclusion of communication expenses and insurance charges – Held that:- Following the decision in CIT Vs. Gem Plus Jewellery India Ltd. [2010 (6) TMI 65 - BOMBAY HIGH COURT] wherein it was held that communication expenses and insurance charges have to be reduced both from the export turnover as well as total turnover while computing deduction u/s 10A of the Act – thus, the order of the CIT(A) is upheld – Decided against revenue. Treatment of disallowance u/s 40(a)(ia) and 43B – Loss on sale of fixed assets, provision for gratuity – Held that:- As decided in assessee’s own case for the earlier assessment year, wherein it has been held that disallowances made u/s 40(a)(ia) and 43B, since, enhances the profit of the assessee, have to be treated as part of the eligible business profits for computation of deduction u/s 10A – the order of the CIT(A) is upheld – Decided against revenue. - ITA No. 269/Hyd/2011, ITA No. 267/Hyd/2011 - - - Dated:- 16-9-2014 - SHRI B. RAMAKOTAIAH AND SHRI SAKTIJIT DEY, JJ. For The Appel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... propriate method. After rejecting the TP document of the assessee, TPO himself undertook a search in the data bases, by applying some of the filters selected by the assessee as well applying certain additional filters which resulted in selection of 17 comparables with arithmetic mean PLI of 26.59%. After allowing deduction of working capital adjustment of 2.89%, adjusted arithmetic mean PLI was worked out at 23.75%. Applying aforesaid arithmetic mean PLI to the operating cost, the ALP was determined at ₹ 104,34,80,489. Assessee having reported revenue from international transaction at ₹ 95,39,59,994, shortfall of ₹ 8,95,20,495 was treated as adjustment u/s 92C of the Act. In pursuance to the order passed by the TPO, AO completed assessment u/s 143(3) of the Act by adding TP adjustment of ₹ 8,95,20,495. Apart from the addition made on account of TP adjustment, AO also restricted the claim u/s 10A to ₹ 9,38,38,481 thereby disallowing a sum of ₹ 2,04,43,269. As a result the total income was determined at ₹ 10,99,63,764 resulting in excess demand of ₹ 5,81,53,904. Being aggrieved of the assessment order so passed assessee preferred appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... raised in this case, is dismissed as withdrawn w.e.f. 09/11/2010. Assessee challenging the dismissal of its ground on TP adjustment is in appeal before us. 5. Learned AR submitted before us that the dispute relating to MAP proceeding is confined to the international transaction with Virtusa, USA, which is covered under the DTAA between India and USA. It was submitted that apart from the transaction with Virtusa, USA, assessee has also earned revenue from international transactions with other entities, Viz., Virtusa, UK, which is not covered under the MAP proceeding. In this context, learned AR referred to the MAP order at page 601 of assessee s paper book. Learned AR submitted that as would be evident from the MAP order, the US share is only 92.86% whereas rest 7.14% relates to Virtusa, UK. It was submitted, assessee has only agreed to addition of ₹ 4,59,35,715 covered under MAP, whereas the balance TP adjustment of ₹ 63,91,764 relating to international transactions with Virtusa, UK was not withdrawn by the assessee. In other words, learned AR submitted that assessee has withdrawn ground relating to the additions in respect of transactions with Virtusa, USA, whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are as under: 1. Exensys Software solutions Ltd. 2. Sankhya Infotech Ltd. 3. Four Soft Ltd. 4. Thirdware Solutions Ltd. 5. Bodhtree Consulting Ltd. 6. Satyam Computer Development Services Ltd. 7. Infosys Technologies Ltd. Learned AR objecting to selection of the aforesaid comparables submitted that all these comparables in different orders of the Tribunal have been held to be uncomparable to a software development services provider. In this context, learned AR specifically referred to the decisions of the ITAT, Hyderabad bench in assessee s own case for AY 2007-08 in ITA No. 1962/Hyd/2011 dated 30/08/2013 and in case of Invensys Development Centre Pvt. Ltd., in ITA No. 1256?hyd/2010 dated 28/02/14. Thus, learned AR submitted that the issue relating to comparables being squarely covered by the decisions of the coordinate bench should be decided in favour of the assessee. 6. The learned DR, on the other hand submitted that the ground relating to TP adjustment having been withdrawn by the assessee before the CIT(A),the issue cannot be revived again. So far as assessee s objection to selection of certain comparables, learned DR submitted that the TPO having u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenses of ₹ 2,33,80,78. Insurance charges of ₹ 16.70.399 and TP adjustment of ₹ 8.95,20,495 from the export turnover c. Addition of other income of ₹ 362,797 to the total turnover, d. loss on sale of assets, provision for gratuity and disallowances under section 438 40(a)(ia) have not been added to the profits for arriving at income from business for ₹ 67,52,963 e. Error in computation of income from business. The learned AO deducted the 10A deduction amount computed from the business profits computed by the Company in its return instead of reducing the same from the business profits computed by him. (f) Imposition of Interest U/S 2348 In this connection, we wish to submit as follows: a) Adjustment to Arm's Length Price under section 92CA of the Act of ₹ 8,95,20,495 (Transfer Pricing adjustment) - The Company withdraws its appeal, on the transfer pricing issue as the Company is in agreement with the resolution reached between the US and Indian Competent Authorities. Further, the Company proposes to pursue the remaining matters as discussed below in its appeal filed before the Commissioner of Income-tax (Appeals) - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. Further, it is brought to our notice that assessee also filed a petition u/s 154 of the Act before the CIT(A) seeking rectification of the order which is still pending. In the aforesaid circumstances, we are of the view that the matter needs to be examined by CIT(A) on the issue of TP adjustment of ₹ 63,91,764, which as claimed by assessee, relates to transactions with Virtusa, UK. Accordingly, we remit the issue back to the file of the CIT(A) for deciding afresh after considering all facts and materials to be submitted by assessee as well as available on record and after due opportunity of being heard to the assessee. While doing so, the CIT(A) must also consider assessee s submissions in respect of selection of seven comparables, specifically objected to by the assessee, keeping in view decisions of the ITAT on the issue which assessee will rely upon. Before parting, we need to clarify our aforesaid direction is only in respect of TP adjustment of 63,91,764 claimed to be relating to Virtusa, UK. 8. In the result, assessee s appeal is considered to be partly allowed for statistical purposes. ITA No. 267/Hyd/2011 by revenue 9. The department has raised four ground ..... X X X X Extracts X X X X X X X X Extracts X X X X
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