TMI Blog2015 (4) TMI 8X X X X Extracts X X X X X X X X Extracts X X X X ..... te Data Converters P. Ltd.was initially not selected as a comparable by the Transfer Pricing Officer. Subsequently, the Transfer Pricing Officer conducted search in the data base for finding additional comparables on applying 25 per cent. employee cost filter. After examining the information obtained from the company the Transfer Pricing Officer treated it as a comparable by observing that the said company is engaged in data processing which is in the nature of information technology enabled services similar to the assessee. It is very much clear from the order of the Transfer Pricing Officer that the aforesaid company was selected as a comparable without inviting objections of the assessee. - remit this issue to the file of the Assessing Officer who shall decide the acceptability or otherwise of the company as comparable after considering the assessee's objection. Vishal Information Technologies Ltd. (now known as Coral Hub Ltd) cannot be taken as a comparable and direct for excluding the same for determining the arm's length price as relying on Capital IQ Information Systems (India) P. Ltd. v. Deputy CIT [2014 (3) TMI 626 - ITAT HYDERABAD] HCL Comnet Systems & Ser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le of the Assessing Officer who shall consider afresh the assessee's contention with regard to acceptability or otherwise of Geneysis as a comparable and take a decision on the same after considering all the facts and materials before him in the light of the decisions which may be relied upon by the assessee. Accentia Technologies Ltd. remit the matter to the Assessing Officer to verify the fact of amalgamation and acquisition and take a decision in the matter after considering the submissions of the assessee. The Assessing Officer while deciding the acceptability of the aforesaid company shall also consider the contentions of the assessee with regard to functional difference between the two. Reduction of communication charges from export turnover while computing deduction under section 10A - Held that:- communication charges though has to be excluded from the export turnover for the purpose of computing deduction under section 10A of the Act, the same has also to be reduced from the total turnover. We, therefore, direct the Assessing Officer to compute the deduction under section 10A after reducing the communication expenses both from the export turnover as well as total ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icer the assessee submitted its transfer pricing study. In the transfer pricing study the assessee adopted the transactional net margin method (TNMM) as the most appropriate method. For comparability analysis the assessee selected 12 companies engaged in information technology enabled back office services which were found functionally comparable to the assessee as comparables having an average profit margin of 12.40 per cent. Since the assessee's operating cost at 23.90 per cent. was found to be higher than the price charged for the international transaction was found to be at arm's length. 3. The Transfer Pricing Officer, however, rejected the transfer pricing study of the assessee and undertook a fresh search of the data base for selecting comparables. In the process, the Transfer Pricing Officer selected 27 companies as comparables including five companies selected by the assessee with arithmetic mean profit level indicator of 30.21 per cent. which was enhanced to 34.62 per cent. after working capital adjustment and determined the arm's length price at ₹ 1,64,33,09,033. This resulted in an upward transfer pricing adjustment of ₹ 13,08,64,590. The Asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng (KPO) division. The KPO division also renders three different services, which are (a) engineering services, (b) BPO services, and (c) data processing services. Therefore, excepting BPO services, which is comparable with the assessee the other two activities are not comparable. He further submitted that in the information obtained by the Transfer Pricing Officer under section 133(6) of the Act, Mold-Tek itself has acknowledged that it is engaged in structural engineering services, which cannot be compared to the information technology enabled services provided by the assessee. The learned authorised representative again referred to the decision of the Income-tax Appellate Tribunal, Hyderabad Bench in the case of Capital IQ Information Systems (India) P. Ltd. v. Deputy CIT [2013] 25 ITR (Trib) 185 (Hyd) wherein Mold-Tek has been rejected as a comparable being functionally different. The learned authorised representative further submitted that in fact the Dispute Resolution Panel in the assessee's own case for the assessment year 2008-09 has excluded Mold-Tek as comparable by holding the company is functionally dissimilar to the assessee. 9. The learned Departmental represen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... functionally non-comparable with the assessee who is engaged in only providing back office support services. 12. The learned Departmental representative, on the other hand, supported the orders of the Revenue authorities. 13. We have heard submissions of the parties and perused the material on record. In the case of Capital IQ Information Systems (India) P. Ltd. v. Deputy CIT [2013] 25 ITR (Trib) 185 (Hyd) the co-ordinate Bench of this Tribunal held that this company cannot be treated as a comparable as it was earning super normal profit and is also functionally dissimilar as it is engaged in providing KPO services. These facts have not been controverted by the learned Departmental representative. Hence, following the decision of the coordinate bench in case of Capital IQ Information Systems (India) P. Ltd. v. Deputy CIT we hold that this company cannot be treated as a comparable. 14. Accurate Data Converters P. Ltd. The learned authorised representative objecting to the aforesaid company being treated as comparable submitted that the Transfer Pricing Officer has selected this company as a comparable in the transfer pricing order at the fag end of the proceeding. N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... omer and vendor. The company has made payment of ₹ 13,12,07,282 to vendors, which forms 43 per cent. of the total revenue of the company. The learned authorised representative in a tabular form submitted the vendor payment charges as a percentage of sales and also the personal cost as a percentage of sales for the preceding three years to demonstrate the aforesaid fact. It was submitted that the company should be rejected as comparable as it has incurred 2.3 per cent. of the revenue during financial year 2006-07 towards employee expenditure and about 43 per cent. of revenue is expended towards payment to vendor, whereas, in case of the assessee payment to employees were 36 per cent. of the revenue. The learned authorised representative in support of such contention relied upon the decision of the co-ordinate Bench of the Tribunal in the case of Capital IQ Information Systems (India) P. Ltd. v. Deputy CIT [2013] 25 ITR (Trib) 185 (Hyd) and Asst. CIT v. Maersk Global Service Centre (India) P. Ltd. I.T.A. No. 3774/ Mum/2011 [2012] 14 ITR (Trib) 541 (Mumbai). The learned authorised representative further submitted that the Dispute Resolution Panel in the assessee's own case f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... late Tribunal Mumbai in the case of Asst. CIT v. Maersk Global Service Centre (India) P. Ltd. I.T.A. No. 3774/Mum/2011 [2012] 14 ITR (Trib) 541 (Mumbai), we accept that this company cannot be taken as a comparable. 20. As the facts are materially identical, we follow the order of the co-ordinate Bench in the case of Capital IQ Information Systems (India) P. Ltd. v. Deputy CIT [2013] 25 ITR (Trib) 185 (Hyd) and hold that the aforesaid company, i.e., Vishal Information Technology cannot be taken as a comparable and direct for excluding the same for determining the arm's length price. 21. HCL Comnet Systems Services Ltd. The learned authorised representative objecting to the aforesaid company to be treated as comparable submitted that the assessee was not provided with any information about the aforesaid company. Further, the annual report provided by the Transfer Pricing Officer was relating to the financial year 2008-09. The learned authorised representative further submitted that the aforesaid company for having related party transactions to the extent of 21.52 per cent. of the total revenue pertaining to the information technology enabled segment. Therefore, it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er of other factors. 24. The same view was also expressed by the Delhi Bench of the Income-tax Appellate Tribunal in case of Abhaya India Pvt. Ltd. TS-89-ITAT-2011. All these facts could have been placed before the Transfer Pricing Officer had he provided relevant information to the assessee. Therefore, considering the totality of facts and circumstances of the case, we are inclined to remit this issue to the file of the Assessing Officer who shall consider the acceptability or otherwise of the aforesaid company after considering all the contentions and arguments of the assessee. 25. Maple e Solution Ltd. Triton Corp Ltd. The learned authorised representative objecting to the aforesaid two companies being treated as comparables submitted that the directors of the aforesaid two companies were found to be involved in fraud, hence, financial results of the aforesaid company cannot be trusted as reliable. In support of such contention, the learned authorised representative relied upon the decision of the co-ordinate Bench in the case of Capital IQ Information Systems (India) P. Ltd. v. Deputy CIT [2013] 25 ITR (Trib) 185 (Hyd), ITO v. CRM Services India P. Ltd. I.T.A. N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee before the Dispute Resolution Panel. 19. We have considered the submissions of the assessee in relation to these two companies. In view of the aforesaid order of the Delhi Bench of the Tribunal cited above, wherein the comparability of these very same companies was examined, we agree with the contentions of the assessee and hold, that these two companies cannot be accepted as comparables. 27. In view of the aforesaid observation of the co-ordinate Bench, we hold that the aforesaid two companies cannot be treated as comparable, hence, we direct the Assessing Officer to exclude the same for determining the arm's length price. 28. Infosys BPO Ltd. and Wipro Ltd. (Seg.) The learned authorised representative objecting to the aforesaid two companies being treated as comparables submitted that these two companies are having the turnover of more than ₹ 200 crores, hence, they cannot be treated as comparables. In support of such contention the learned authorised representative relied upon the following decisions : 1. Genisys Integrating Systems (India) P. Ltd. v. Deputy CIT [2012] 15 ITR (Trib) 475 (Bang) ; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decision of the hon'ble Bombay High Court in case of Gem Plus Jewellery India Ltd. [2011] 330 ITR 175 (Bom) and the Special Bench of the Income- tax Appellate Tribunal in cake of ITO v. Sak Soft Ltd. [2009] 313 ITR (AT) 353 (Chennai). 34. We have heard submissions of the parties on this issue. The hon'ble Bombay High Court in case of Gem Plus Jewellery India Ltd. [2011] 330 ITR 175 (Bom) and the Income-tax Appellate Tribunal, Special Bench in case of ITO v. Sak Soft Ltd. [2009] 313 ITR (AT) 353 (Chennai), have held that communication charges though has to be excluded from the export turnover for the purpose of computing deduction under section 10A of the Act, the same has also to be reduced from the total turnover. We, therefore, direct the Assessing Officer to compute the deduction under section 10A after reducing the communication expenses both from the export turnover as well as total turnover. Accordingly, these grounds of the assessee are partly allowed. 35. In the result, appeal being I.T.A. No. 2106/H/11 is partly allowed. I.T.A. No. 1864/HYD/2012 for the assessment year 2008-09 36. The facts involved in this appeal are identical to the facts dealt w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elopment services. These services include land development/conceptual/sub-division plans, platting and design, topographic plans, roadway design, soil erosion and sedimentation control plans, site grading designs, storm sanitary sewer design, site and survey plans, site utility plans, storm water management plan, wet land plans, google earth overlay. It was submitted that under its information technology division, Geneysis render support services for application of development maintenance and support services and testing services for the above specified services. It was further submitted that Geneysis is also engaged in research and development activities in the area of image intelligence and recognition, mobile mapping as well as LiDAR whereas the assessee is a captive low risk enterprise which does not undertake any research and development activity. He further submitted that from reply submitted by Geneysis to the notice under section 133(6) it is to be seen that the said company has made a trade mark application to the trade marks division-Intellectual Property for Registration Trade and Merchandise Marks Act, 1989, which makes it clear that the company is engaged into crea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sh the assessee's contention with regard to acceptability or otherwise of Geneysis as a comparable and take a decision on the same after considering all the facts and materials before him in the light of the decisions which may be relied upon by the assessee. 44. Accentia Technologies Ltd. The learned authorised representative submitted that this company cannot be treated as a comparable as during the year exceptional events had taken place, which had an impact on the financials of the company. He submitted that Accentia had an amalgamation of its units as well as acquired a company. Referring to the annual report of the Accentia for the assessment year 2008-09, a copy of which is also submitted in the paper book, the learned authorised representative submitted that two units, i.e., Iridium technologies and Geosoft technologies were amalgamated with Accentia during the financial year 2007-08. That besides, Accentia also acquired a company, namely, Tunga Software P. Ltd. an 8 year old company having business of medical transcription and coding. It also purchased the business in GSR Systems Inc. which became a fully owned subsidiary of Accentia after acquisition of 100 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the case of another company, viz., Moldtek 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 financial year 2007-08 revealed the merger and the demerger. A company known as Techmen Tools P. Ltd. had amal gamated with Moldtek Technologies Ltd. with effect from October 1, 2006. There was a demerger of plastic division of the company and the resulting company is known as Moldtek Plastics Ltd. The demerger from the Moldtek Technologies took place with effect from April 1, 2007. The merger and the demerger 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 demerger on January 25, 2008 and the hon'ble High Court of the Andhra Pradesh had approved the merger and demerger on July 25, 2008. Subsequently, the accounts of Moldtek Technologies for financial year 2007-08 were revised. On a perusal of the annual report it is noticed that Teckmen Tools P. Ltd. and the plastic division of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... computing deduction under section 10A of the Act without reducing it from the total turnover. 50. In view of our decision in ground Nos. 7 and 8 in ITA No. 2106/Hyd/11 for the assessment year 2007-08 (supra), we direct the Assessing Officer to reduce the communication charges of ₹ 1,63,74,206 both from the export turnover as well as from the total turnover while computing deduction under section 10A of the Act. These grounds are partly allowed. 51. In ground No. 14 the assessee has raised an issue of non-consideration in export turnover an amount of ₹ 10,80,43,605 while computing deduction under section 10A of the Act. 52. The learned authorised representative submitted that though the assessee had submitted the copies of foreign exchange inward remittance certificates (FIRCs) and details of invoices the same has neither been considered by the Dispute Resolution Panel nor by the Assessing Officer. 53. We have heard contentions of the parties. On perusal of the record we find that the order passed by the Dispute Resolution Panel is totally silent on the ground raised by the assessee on this issue. After considering the submissions of the parties, we remit the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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