TMI Blog2015 (3) TMI 151X X X X Extracts X X X X X X X X Extracts X X X X ..... ed. If the assesses otherwise fulfils all the legal requirements for claiming the deduction u/s.10A of the Act but inadvertently claimed the same u/s.10B of the Act which was granted to it in the past, we find no reason as to why the alternate claim of the assessee should not be accepted.However, since the lower authorities have not thoroughly examined the allowability of deduction u/s.10A of the Act and merely rejected the claim on the ground that the same was not claimed in the original return filed, therefore, we in the interest of justice deem it proper to restore the issue to the file of the AO with a direction to give an opportunity to the assessee to substantiate its eligibility for deduction u/s.10A of the I.T. Act. We hold and direct accordingly. Since we are restoring the issue to the file of the AO for deciding the alternate claim of the assessee for deduction/s.10A, therefore, we refrain ourselves from adjudicating the allowability of deduction u/s.10B of the I.T. Act. - Decided in favour of assessee for statistical purposes. Transfer pricing adjustment - selection of comparable - CIT(A) directing AO to exclude KALS Information Systems Pvt. Ltd. from the list of comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 014 (3) TMI 891 - ITAT MUMBAI] and other decisions also Thirdware Solutions Ltd. has been rejected as a comparable on the ground that it is functionally dissimilar. We therefore find force in the submission of the Ld. Counsel for the assessee that Thirdware Solutions Ltd. should not be included as a comparable.So far as exclusion of Vama Industries Ltd., as find merit in the submission of the Ld. Counsel for the assessee that when segmental data is available and the export turnover of the software development services is 69% of the total turnover of the software division, therefore, the same should not have been rejected. We therefore direct the Assessing Officer to consider the same as a comparable. - Decided in favour of assessee. Non granting of opportunity of verification - Held that:- No infirmity in order of Ld.CIT(A) on this issue. Admittedly, during TP assessment proceedings, the assessee was given show cause notice. The matter was thoroughly discussed with the authorised representative. Therefore, it cannot be said that no opportunity was granted to the assessee. Therefore, this ground is dismissed. - Decided against assessee. Rejection of multiple year data - Held t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ogrammed code, IT integration and configuration management to its AE. It filed its return of income on 23-09-2009 declaring loss of ₹ 2,86,049/-. During the course of assessment proceedings the AO noted that the assessee has claimed deduction u/s.10B of the Act at ₹ 2,30,81,297/-. On being asked by the AO, the assessee furnished full details justifying its claim of deduction u/s.10B. However, from the various details furnished by the assessee , the AO noted that the unit of the assessee is registered with Directorate of Software Technology Park of India (STPI). According to the AO for becoming eligible u/s.10B of the Act, the assessee should be a 100% Export Oriented Unit (EOU) as specified under Explanation 2 (iv) below section 10B of the Act which defines a 100% Export Oriented undertaking as a undertaking so approved by the Board appointed in this behalf by the Central Government u/s.14 of the Industries Development and Regulation Act, 1951. 3.2 The AO noted that subsequent to the delegation of this power by Ministry of Commerce and Industries to the Development Commissioners, such approvals to 100% EOU are now being granted by the Development Commissioners whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on obtaining approval either from the Board of Approval of STPI or Development Commissioner of SEZ. 5. However, the AO was not satisfied with the explanation given by the assessee. He referred to the decision of Hon ble Delhi High Court in the case of Regency Creations Ltd. reported in 27 taxmann.com 322 and noted that the Hon ble Delhi High Court has discussed all the issues raised by the assessee. Therefore, the submission of the assessee that the judgement is not applicable to it is not correct. He held that since the assessee s unit does not have the approval of Development Commissioner as 100% EOU as required under Explanation 2(iv) of section 10B, therefore, the assessee has not fulfilled the conditions specified under section 10B of the Act. He observed that nowhere it is mentioned that as a part of the Board s functions u/s.14 of the Industrial Development and Regulation Act to grant approval u/s.10B is also delegated to STPI Director. According to him, it is not clear as to function of granting approval for the section 10B also stands delegated to the STPI Director u/s.14 of IDRA. 5.1 As regards the argument of the assessee that following the principle of consistency ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... For the above proposition, the assessee relied on the following case law : i CIT vs Vegetable Products 88ITR 195 (SC) ii. Suryalatha Spinning Mills Limited vs Union of India ITA No. 624/Hyd/2009 iii. ITO vs Chandanmal Champalal 11 Taxmann 32 Pune Tribunal 6.2 The assessee submitted that the conditions of allowability of deduction u/s 10B can only be examined in the year of formation of the unit. Therefore, if the deduction is granted in the initial or in the earlier years, then it cannot be disturbed thereafter in the subsequent assessment years without first withdrawing such deduction allowed in the initial year. In this connection, the assessee relied on the following decisions: i. CIT vs, Western Outdoor Interactive (P)Ltd 25 Taxmann.com 340 (Bom HC) ii. CIT vs. Paul Brothers-216 ITR 548 (Bom HC) in. Saurashtra Cement Chemcial Industries Limited vs [123 ITR 669 (Guj) HC] 6.3 The assessee has also argued that rule of consistency should be followed and the deduction once allowed cannot be disturbed. For the above proposition, the assessee placed reliance on the following decisions : i. DCIT vs Valliant Communication Ltd ITA 2706/Del/2009 ii. Radhasoam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not convinced with the arguments advanced by the assessee and rejected the claim of deduction both u/s.10B as well as u/s.10A by observing as under : 2.2.23 I have carefully considered the arguments of the Appellant and the legal position. The Appellant has submitted that the power of granting approval for the purpose of claiming deduction u/s 10B is now delegated to the STPI. Secondly, it is stated that, the judgement of the Delhi High Court in the case of Regency Creations is based on the old foreign trade policy to 1992- 1997. However, under the new foreign trade policy of 2004-2009, the power of granting approval is conferred to Chief Executive of STPI for which the Appellant has placed reliance on notification No SO 388(E) dated 30.04.1995. Further, the Appellant has placed reliance on the decision in the case of CIT vs K. Sudha Rani Andhra Pradesh High Court . 2.2.24 On perusal of the above documents and the case laws cited by the learned AO and the Appellant, I am inclined to confirm the decision of the learned AO to deny the deduction u/s 10B. The reasons of my decision are as under: 2.2.25 Firstly, I find that the approval to the Appellant's unit was grante ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Board (constituted under section 14 of the /OR Act), for purposes of approvals under section 10-B. Though the considerations which apply for granting approval under sections 10-A and 10-B may to an extent, overlap, yet the deliberate segregation of these two benefits by the statute reflects Parliamentary intention that to qualify for benefit under either, the specific procedure enacted for that purpose has to be followed. There is nothing in any of the circulars or instructions relied on by the Tribunal in all the orders, implying that approval for purposes of an STP also entitled the unit to a benefit under section 10-B. The orders of the Tribunal are consequently, erroneous, and its reasoning, unsupportable. 2.2.28 Therefore, the argument relied on by the Appellant that since units were approved by the SPI Director is not upheld by the above decision of the High Court. The Appellant has also relied on the decision of Enable exports. I have perused the judgment. In this case, the High Court has held that the Approval granted by the Development Commissioner for conversion of assessee-company from a Domestic Tariff Area (DTA) to 100% EOU is a valid approval for claiming exem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or granting the deduction u/s10A. I have considered the Appellant's plea. I am unable to accept the Appellant's argument because the provisions of Section10A and Section 10B though similar in many aspects, they are fundamentally different on some of the issues. Section 10A is available to the unit established in free trade zone, whereas Section 10B is available to the unit approved as discussed above. It is seen from the approval letter issued by the STPI, Pune that the Appellant's unit is located at Bhandarkar Road, Erandwane, Pune. Therefore, it will not meet the fundamental condition of having been located in free trade zone for claiming the deduction u/s 10A. Needless to say that availability of the deduction from one section to another cannot be switched to easily because otherwise the legislature would not have provided two different Sections in the first place. The Legislature has enacted different sections to achieve different objectives. Therefore, the Appellant's contention of alternatively granting deduction u/.s 10A cannot be accepted. 2.2.33 With the result, I dismiss the Ground of Appeal for availing the deduction u/s 10B. I also confirm the learned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s capable of being given effect to. It is not open to any person to contend that there is no decision of the High Court and the subordinate forum is entitled to take a contrary view than the one adopted in the earlier proceedings which have been affirmed by the High Court by a process of dismissal of the appeal simpliciter . 8.2 In his alternate contention, the Ld. Counsel for the assessee submitted that since he is fulfilling all the conditions for getting deduction u/s.10A, therefore, the same should be allowed to him. Referring to paper book pages 1110 to 1112 the Ld. Counsel for the assessee drew the attention of the Bench to the appeal in the case of CIT Vs. Valliant Communications Ltd. vide ITA No.2002/2010 order dated 04-01-2013 and drew the attention of the Bench to the observation of the Hon ble High Court : Issue notice. Sh. Kiran Babu, Sr. Standing Counsel accepts notice on behalf of the Revenue. The applicant assessee had succeeded before the Tribunal in the contention that it was entitled to the benefit of Section 10B of the Income Tax Act. It had urged that the supporting materials disclose that there was STP clearance/approval under Section 10A and that suc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of the Hyderabad Bench of the Tribunal in the case of Cloud Softtech India Pvt. Ltd., vide ITA No.483/Hyd/2013 order dated 13-09-2013 the Ld. Counsel for the assessee drew the attention of the Bench to para 9 to 11 of the order which reads as under : 9. The grievance of the revenue authorities is that as the assessee has not furnished necessary approval of the Board as required under the Act, the deduction u/s. 10B cannot be granted. 10. We have heard the arguments of both the parties, perused the record and have gone through the orders of the authorities below. We also find support from the decision of the Delhi High Courtin the case of CIT vs. Valiant Communications in ITA.No. 2002/2010 in Civil Miscellaneous Petition No. 12 of 2013 in which the facts are similar to that of this case. In that case, the assessee had claimed deduction under section 10B, whereas, they have not been approved by the Board appointed on this behalf by the Government as required under section 10B but was registered with STPI. In their original order, the Delhi High Court rejected the claim of the assessee for deduction under section 10B. However, on a review petition filed by the assessee the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rely because the revenue had not filed any appeal in the past, the Hon ble High Court dismissed the appeal filed by the Revenue. Therefore, that cannot be considered as a precedent and the decision of the Hon ble Delhi High Court will be a binding precedent. 9.1 As regards the alternate claim of the assessee that deduction u/s.10A should be allowed to it, the Ld. Departmental Representative submitted that the same should have been claimed in the return filed u/s.139(1) of the I.T. Act. Nobody has examined the eligibility for deduction u/s.10A. He accordingly submitted that the alternate claim of the assessee also should be rejected. 10. The Ld. Counsel for the assessee in his rejoinder submitted that the CIT(A) has not given any finding regarding the eligibility of the assessee for getting the benefit u/s.10A as per the alternate claim. He has also not examined the allowability of the provisions although he has mentioned that the provisions of section 10A and 10B are similar in many aspects. 11. We have considered the rival arguments made by both the sides, perused the orders of the Assessing Officer and the CIT(A) and the Paper Book filed on behalf of the assessee. We hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... velopment of software exported outside India. In respect of business income earned from export the said undertaking claimed exemption u/s.10A of the I.T. Act. In July, 2001 the company K transferred its entire undertaking engaged in the export business of medical transcription along with all transcriptions, contracts, books , records, all rights, all permits, warranties including computer software and export obligation to the assessee company. The transfer was recognised and allowed by the STPI. The assessee claimed deduction u/s.10B in respect of income from export. However, the AO rejected the claim on the ground that approval obtained from STPI for purpose of section 10B would not be sufficient to grant relief. According to him, the transfer was only related to machinery and thus the claim could not be sustained. He however granted deduction u/s.80HHE on alternative claim of the assessee. In appeal the Ld.CIT(A) referring to CDBT Circular File No.15/5/63(IT)(A-1) held that the benefit with the vendor company in respect of individual undertaking engaged in the manufacture of articles could be claimed by successor company for the remaining tax holiday period since the entire under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... refore, we refrain ourselves from adjudicating the allowability of deduction u/s.10B of the I.T. Act. The grounds raised by the assessee are accordingly allowed for statistical purposes. 12. In the result, ground of appeal No. 3 is allowed for statistical purposes. 13. Ground of appeal No.4 to 10, 12, 14, 15 by the assessee and all the grounds of appeal by the revenue relate to the partial relief granted by the CIT(A) out of the TP adjustment made by the AO. These grounds of appeal are as under : Grounds by Revenue : 1. The order of the learned Commissioner of Income-tax (Appeals) is contrary to law and to the facts and circumstances of the case. 2. The learned Commissioner of Income-tax (Appeals) grossly erred in directing the Assessing Officer to exclude KALS Information Systems Pvt. Ltd. from the list of comparable companies by routinely following the decision of the Hon'ble Income-tax Appellate Tribunal, Pune in the case of Bindview India Pvt. Ltd. (ITA No.l386/PN/2010 for the A.Y. 2006-07) instead of examining the facts pertaining to the respective cases as had been clearly brought out by the Transfer Pricing Officer / Assessing Officer in their orders. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... companies as comparables, without providing cogent reasons and by ignoring the Appellant's submission for not applying the additional filters. The learned CIT(A ) has erred in confirming the action of the Ld AO/TPO in rejecting Appellant's filters for selecting companies as comparables, without providing cogent reasons. On the facts and in the circumstances of the case and in law, the Ld CIT(A)/has erred in upholding the action of the Id AO/TPO in rejecting the Appellant's criteria, of applying a filter, to select companies/segments with RPT /sales less than or equal to 5% and adopting the criteria RPT/Total transactions less than or equal to 25%. On the facts and in the circumstances of the case and in law, the Id CIT(A) has erred in confirming the action of the Id AO/TPO in rejecting the Appellant's criteria, of applying an upper turnover filter, to select companies /segments with turnover less than or equal to ₹ 50 crore and unjustly replacing the criteria without sound/logical reasons to accept companies with turnover less than or equal to ₹ 200 crores. 7. Unjust selection of new comparables On the facts and in the circumstances of the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsideration the assessee has entered into international transaction with its AE aggregating to ₹ 16,06,78,428/- as envisaged in section 92A and 92B of the I.T. Act. The assessee has adopted TNMM method for the international transaction of software development and related support services to its AE. The AO referred the matter to the TPO for determining the ALP u/s.92CA(1) of the I.T. Act. From the various details furnished by the assessee during such TP proceedings the TPO noted from the TP study report submitted by the assessee that it has selected TNMM as the most appropriate method to benchmark its international transaction relating to rendering of software development and related support services. In TNMM analysis the operating profits earned by comparables have been computed at operating cost. For benchmarking the international transaction, the assessee has identified comparable companies on the basis of FAR analysis, i.e. Functions performed, Risk assumed and assets. The TPO noted that the assessee has referred prowess and capital line plus data base to get the information of the comparable companies. He noted that the assessee has selected 8 companies as the comparables ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... panies for arriving at a final comparables set are as under : A. Companies not having financials for atleast 2out of 3years B. Sales turnover more than 75% of total income in the latest year c. Companies not having profit before tax of less than zero for at least 2 out of 3 years D. Companies with R D not more than 3% of sales of the latest year E. Companies with NFA not more than 200% of sales F. Companies with less than one crore sales G. Companies with net worth not less than zero in the latest year H. Companies having Govt ownership I. Companies having Government ownership J. Companies having different functions K. Companies not having IT-S - companies results L. Companies not partially engaged in IT-S companies results 13.3 The TPO after considering the details furnished by the assessee observed that the following additional/modified filters or criteria may lead towards selecting appropriate comparables functionally similar to that of the assessee : (a) As per Rule 10B(4) it is mandatory to use the current year data, i.e. data for A.Y. 2008-09. However, as per TP report at the time of preparation of the same the data for A.Y. 2008-09 w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 1 cr. were excluded and the companies having turnover between 1 to 200 crores were considered as comparables. (c) Companies whose software development service revenue is less than 75% of the total operating revenue or segmental revenue were excluded. (d) Companies who have more than 25% related party transactions were excluded. (e) Companies who have less than 75% of the operating revenue as export sales were excluded. (f) Companies who have persistent losses for the period under consideration were excluded. (g) Companies having different financial year ending (i.e. not March 31, 2009) or data of the company does not fall within 12 month period i.e. 01-04-2008 to 31-03-2009, were rejected. However, if the data of at least 9 months of FY 2008-09 is available for analysis, then such companies were considered acceptable provided other filters are also fulfilled. (h) Companies that are functionally different from that of taxpayer or having peculiar circumstances were excluded. 13.5 On the basis of the above filters or criteria, the TPO analysed the comparables selected by the assessee and noted that none of the companies are comparable to that of the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otential is significant. Thus it is seen that the assessee is not in the software development business. Moreover the segmental revenue is 0.77% only as compared to the total revenue. The foreign exchange earnings is also less than 75%. In the segmental result, the net profit is -63.51%. Therefore, the company is not comparable to the assessee. 7 SAARC Net Ltd. (Computer Software Segment) In this case, the segmental revenue from software service is -0.34 lakhs in total turnover of 4.58 crores. Thus it comes to -7.14% of total turnover. There are no foreign exchange earnings. Similarly there is segmental expenditure for software segment. Hence the net result of software segment is shown as -0.34 lakhs, which means that there is no profit. Therefore the company is not comparable to the assessee 8 Vama Industries Ltd. (Software Development Services Segment) In this case, the foreign exchange earnings is 36.08%. Since export turnover is less than75% of the operating revenue, the company is not considered as a comparable. The TPO accordingly held that the info ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The TPO accordingly worked out the ALP of the IT enabled services rendered by the assessee as under : Description Rs. In Crores Price charged (operating revenue of the assessee) [B] 16,06,78,428 Operating Cost (OC) 15,74,87,858 Arms Length Mean Margin (OP/OC) [D] 29.41 Arms Length Price (ALP) of the international transaction [A] (ALP =OC*(1+D)) 20,38,05,037 5% range on lower side ( the assessee's transaction falls outside the range) 19,36,14,785 Adjustment over operating income [A-B] (Shortfall being adjustment u/s 92CA) 4,31,26,609 Thus, the TPO made an adjustment of ₹ 4,31,26,609/- to the International transaction and added the same to the total income of the assessee. 15. Before CIT(A) the assessee challenged the TP adjustment made by the AO. Relying on various decisions it was submitted that the TPO erred in treating foreign exchange gain as non-operating in nature. According to the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gards Acropetal Technologies Ltd. is concerned it was submitted that the TPO has erred in considering this company as functionally comparable. It was stated that first of all the company is not appearing in the accept reject matrix of the assessee and secondly it is not functionally comparable because it is involved in Engineering Design and Product Development. The company has diversified activities in the area of e-learning and healthcare management etc. Therefore, this company cannot be considered as comparable. 15.4 As regards Thirdware Solutions Ltd. is concerned the assessee argued that the TPO s decision to accept the above company as functionally comparable is incorrect because it undertakes software development, trading of software licenses and training implementation activities apart from software development. Further, in the case of Colt Technology Services India (P) Ltd. Vs. ITO the Delhi Bench of the Tribunal has held that Thirdware Solutions Ltd. is not a comparable company. 15.5 As regards Kals Information System Ltd. is concerned, it was argued that the TPO selected this Company on the basis of the information available on the website of the Company. He was of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The elimination of such loss making companies and inclusion of only profit making companies in the set of comparables would skew the result as Arithmetic Mean would be determined at a much higher value than what should ordinarily be the case. For the above proposition the assessee relied on various decisions and para 36.4 of the OECD guidelines 2010. 15.10 So far as related party transaction filter is concerned it was argued that the TPO has wrongly applied threshold of 25% of RPT in place of 15% as adopted by the assessee. Relying on various decisions it was argued that RPT of 15% should be accepted as a filter to select or reject comparable companies. 15.11 So far as turnover filter criteria is concerned, it was submitted that the assessee has applied the turnover filter of ₹ 10 crore to ₹ 50 crores thereby rejecting all the companies having turnover less than ₹ 10 crores and greater than ₹ 50 crores. However, the TPO has modified the turnover filter having turnover range from ₹ 1 crore to ₹ 200 crores following the ratio laid down in the case of Genesys Integrating Systems India Pvt. Ltd., Vs. DCIT. It was argued that the turnover of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y, the assessee submitted that it can never have an intension to avoid any taxes in India as the profit of the unit was exempt from tax. It was submitted that the international transaction entered into with its AEs were carried out at the ALP and any inference that profits have been shifted outside India is factually incorrect. It was accordingly argued that the TP pricing provisions are not applicable to it. 16. Based on the arguments advanced by the assessee, the Ld.CIT(A) directed the Assessing Officer to exclude Kals Information System Ltd. from the list of comparable companies by following the decision of the Pune Bench of the Tribunal in the case of Bindview India Pvt. Ltd., (Supra). Similarly, he also directed the Assessing Officer to give benefit of +/-5% without granting standard deduction. While doing so, he held that after introduction of the amendment to the section 92C(2A) by the Finance Act, 2012 is with retrospective effect and not prospective. He however, rejected the other grounds raised by the assessee. 17. Aggrieved with such order of the CIT(A) the assessee as well as the Revenue are in appeal before us. 18. So far as the grounds raised by the revenue a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion has held that foreign gain/loss is a part and parcel of operating revenue/operating cost. For the above proposition he referred to para 4.10 of the order placed at paper book 1176 which reads as under. 4.10 In contract to the above, we find that there is a plethora of decisions rendered by various benches of the tribunal across the country holding that forex gain/loss is part of operating revenue/cost. To cite a few, the Delhi Bench of the Tribunal in Techbooks International Pvt. Vs. ACIT (to which one of us, namely, the AM is party) has held vide its order dated 28-04-2014 that foreign exchange gain or loss is a part and parcel of operating revenue/operating cost. The Bangalore bench of the Tribunal in SAP Labs India (P) Ltd. Vs. ACIT (2010) 6 ITR (Trib) 81 (Bang) has also held that foreign exchange gain should be added to the operating revenue. The Mumbai Bench of the Tribunal in Rushabh Diamonds, Mumbai Vs. ACIT in ITA No.7217 vide its order dated 26- 04-2013 ( to which the AM is party) has also held foreign exchange gain as a part of operating profit . He accordingly submitted that the same should be considered as a part of the operating profit. 21. The Ld. Depar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... GC Network India Pvt. Ltd. - ITA No.5307/M/2008 22.1 Respectfully following the decisions of the different Benches of the Tribunal, we set aside the order of the CIT(A) on this issue and direct the Assessing Officer to consider foreign exchange fluctuation gain as part of the operating income of the assessee. 23. So far as ground of appeal No. 6 is concerned the same relates to unjust rejection of TP study filter and introduction of additional filters for selecting final set of comparables. 23.1 It is the submission of the Ld. Counsel for the assessee that on one side the TPO has argued that there is no rationale for considering R D more than 3%. Such quantitative filter for rejecting companies at 3% is not backed by any analysis/study. However, on the other hand, TPO is applying the filter of 75% export turnover without demonstrating the same on the basis of any study/analysis. He submitted that if one has to be consider predominant export companies, then even comparables with more than 50% export should be considered as predominant export comparables. Considering that the stringent applicability of export filter by the TPO, that also without any basis, resulted in inadeq ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mitted that since 100% matching is not possible. Therefore, reasonable limit of filters has to be adopted. He submitted that in software industry there are lots of difference between onshore and off shore and 100% EOU should be compared with 100% EOU. Since the Ld.CIT(A) while rejecting the claim of the assessee has followed the OECD guidelines, therefore, he submitted that the same being in order should be upheld. 25. We have considered the rival arguments made by both the sides. We find merit in the argument of the Ld. Counsel for the assessee that TPO has applied the filter of 75% export turnover without demonstrating the same on the basis of any study/analysis which resulted in inadequate number of companies for comparability. In our opinion, if sufficient number of 100% uncontrolled comparables are not found, then comparables having similar transactions should be considered. In our opinion when sufficient comparables are not available then the threshold should be relaxed and only gradually to the extent that sufficient comparables are found the limit should be relaxed. Since the threshold filter of 75% adopted by the Assessing Officer and upheld by the CIT(A) in our opinion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lity cannot be ascertained. Therefore, the results of the overall operation of the companies cannot be compared to that of the assessee. For this proposition, he relied on the following decisions : 1. Intoto Software India Private Ltd. vs The ACIT (ITA.No.ll96/Hyd/2010(Hyderabad Tribunal - PB No. 1307 Para 26. 2. Toluna India Pvt. Ltd Vs ACIT (ITA No. 5645/Del/2011) - PB Pg 1442 3. M/s 3DPLM Software Solutions Ltd. v DCIT IT (T.P) A. No.l303/Bang/2012 4. M/s. Bearingpoint Property Services Private Limited vs DCIT IT(TP)A No.1380/Bang/2012(Bangalore Tribunal) 5. Colt Technology Services India Pvt. Ltd., vs ITO, ITA No.609/Del/2011 (Delhi Tribunal) 6. M/s. Conexant Systems Pvt. Ltd., vs ITO ITA No. 1160/Hyd/2011(Hyderabad Tribunal) 7. Cordys Software India P. Ltd., vs DCIT 8. Invensys Development Centre (India) Pvt. Ltd. vs The Addl. CIT ITA.No.l256/Hyd/2010(Hyderabad Tribunal) 9. Ness Innovative Business Services P. Ltd., vs DCIT ITA.No.472/Hyd/2011(Hyderabad Tribunal) 27.2 As regards exclusion of Vama Industries Ltd., is concerned he submitted that the export turnover of software services segment of Vama Software Industries Ltd. is 69% of the total s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Special Bench is concerned and the same therefore no more survives for consideration in the present case. In generality, we are of the view that the answer to this question will depend on the facts and circumstances of each case inasmuch as potential comparable earning abnormally high profit margin should trigger further investigation in order to establish whether it can be taken as comparable or not. Such investigation should be to ascertain as to whether earning of high profit reflects a normal business condition or whether it is the result of some abnormal conditions prevailing in the relevant year. The profit margin earned by such entity in the immediately preceding year/s may also be taken into consideration to find out whether the high profit margin represents the normal business trend. The FAR analysis in such case may be reviewed to ensure that the potential comparable earning high profit satisfies the comparability conditions. If it is found on such investigation that the high margin profit making company does not satisfy the comparability analysis and or the high profit margin earned by it does not reflect the normal business condition, we are of the view that the hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le of software products during the year but the said company might have incurred expenditure towards the development of the software products. 29.2 In various other decisions also Thirdware Solutions Ltd. has been rejected as a comparable on the ground that it is functionally dissimilar. We therefore find force in the submission of the Ld. Counsel for the assessee that Thirdware Solutions Ltd. should not be included as a comparable. We accordingly set-aside the order of the CIT(A) and direct the Assessing Officer to exclude the same from the list of comparables. 29.3 So far as exclusion of Vama Industries Ltd., by the TPO is concerned we find from paper book page 969 that the said company has given the segment reporting according to which for the year ending 31-03-2009 the export turnover of software development and services is ₹ 297.83 crores and the total software development services (both export domestic) is ₹ 430.88 crores. Although such export turnover of software development and services is around 38% of the total turnover of ₹ 806.80 crores, however, since segmental data is available, it comes to about 69% of the export turnover. We therefore find ..... X X X X Extracts X X X X X X X X Extracts X X X X
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