TMI Blog2015 (4) TMI 147X X X X Extracts X X X X X X X X Extracts X X X X ..... s like reputation, brand value, goodwill etc. Mega Soft Ltd.cannot as it is predominantly a product development company and the margin from software development services is only 23.11% we direct Assessing Officer/TPO to consider only segmental margin of this company for the relevant AY for computing ALP. Thus direct the Assessing Officer/TPO to compute the ALP afresh Exemption u/s 10A – manner of computation - Communication and freight expenses reduced from the export turnover only while computing deduction u/s 10A of the Act - Held that:- Following the decision of CIT Vs.Gemplus Jewellery, [2010 (6) TMI 65 - BOMBAY HIGH COURT] and ITO Vs Saksoft Ltd (32009 (3) TMI 243 - ITAT MADRAS-D) we direct the AO to exclude the communication expenses from export turnover as well as total turnover while computing deduction u/s 10A of the Act. Appeal of the assessee is partly allowed. - IT APPEAL NO. 1885 (HYD.) OF 2011 - - - Dated:- 27-6-2014 - B. RAMAKOTAIAH AND SAKTIJIT DEY , JJ. P. Murali Mohan Rao for the Appellant. P. Soma Sekhar Reddy for the Respondent. ORDER Saktijit Dey, Judicial Member - This appeal of the assessee is directed against the assessment ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pital adjustment of (-) 0.05% , the adjusted arithmetic mean PLI was worked out to 25.57%. By applying this adjusted arithmetic mean PLI to the total operating cost of ₹ 39,19,54,735/-, the TPO worked out the adjustment u/s 92CA as under: Sl. No. Item Code Remarks 1 Total Operating costs A 39,19,54,735 2 Arms Length meaning margin (OP)/Cost B 125.57% 3 Arms length total sales (AXB/100) C 49,21,77,561 4 Total operating revenues D 45,38,93,898 5 Sales with related parties E 18,29,92,020 6 Sales with unrelated parties (D-E) F 27,09,01,878 7 Arms length price of sales Made to AES (C-F) G 22,12,75,683 8 A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is having revenue from both product and services and segment wise data is not available could not be controverted by the department. Further it is seen that the coordinate bench of this Tribunal in case of Sumtotal Systems India Ltd. (supra) following another decision of the coordinate bench in case of Virtusa India (P.) Ltd. (supra) as well as some other rulings of the different benches of the Tribunal excluded this company from the list of comparables by holding as under: It is very much evident from the TP order that the assessee has been categorised as a software development service provider. Coordinate Bench of this Tribunal in the case of Virtusa (India) Pvt. Ltd. (ITA No. 1962/Hyd/2011 dated 30/08/2013) after following some other decisions of the Tribunal has held this company cannot be treated as comparable as this company is also into product development. As segmental details of operating income of software development services and sale of software products are not available, it could not be ascertained whether the profit ratio of this company can be taken into consideration for comparing with the assessee. As the aforesaid decision of the Coordinate Bench pertained t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ucts, consultancy and solution. They not only own intangibles but also assume considerable risk which results in earning higher profits. In support of such contention, learned AR relied on the following decisions: 1. Sumtotal Systems India Ltd. (supra) 2. Virtusa (India) (P.) Ltd. (supra) 3. CES Pvt. Ltd., 1445/H/10 4. Capital IQ Information Systems India Ltd. (ii) The learned Departmental Representative on the other hand supported the orders of the TPO and DRP. (iii) Having considered the submissions of the parties in the light of the orders of the coordinate bench cited before us by the learned AR, we are of the view that both these companies cannot be considered as comparables to the assessee for the reasons stated by the coordinate bench in the cited rulings. Respectfully following the view expressed by the coordinate bench as aforesaid, we direct the Assessing Officer/TPO to exclude the aforesaid companies from the list of comparables. 4. Mega Soft Ltd. (i) Objecting to the aforesaid company, the learned AR submitted that this company cannot be considered as comparable to the assessee, as it is predominantly a product development company and the margin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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