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Dy. Commissioner of Income Tax, Circle 11 (1) , Bangalore. Versus. M/s. Amba Research India Pvt. Ltd.,

2015 (10) TMI 461 - ITAT BANGALORE

Transfer Pricing Issues - whether CIT(A) erred in holding that foreign exchange loss / gain to be operating in nature without ascertaining the nexus between the forex gain/loss with the business activity of the assessee and without appreciating that this gain/loss is not derived from the operating activity of the assessee? - Held that:- It has not been disputed that the foreign exchange gain has arisen as a consequence of the realization of the consideration for rendering ITES services and there .....

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sion of the Hon'ble Karnataka High Court in the case of CIT V Tata Elxsi Ltd. [2011 (8) TMI 782 - KARNATAKA HIGH COURT ], wherein the Hon'ble Court has held that telecommunication expenses reduced from export turnover should also be reduced from export turnover while computing deduction under Section 10A of the Act. Respectfully following the aforesaid decision of the Hon'ble Karnataka High Court in the case of Tata Elxsi Ltd. (supra) the deduction under Section 10A of the Act by excluding the t .....

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ent Year 2009-10. 2. The facts of the case, briefly, are as under :- 2.1 The assessee company, a subsidiary of Amba Holdings Inc., is engaged in the business of providing Information Technology Enabled Services ( ITES ) to its Associated Enterprises ( AE ). For Assessment Year 2009-10, the assessee filed the return of income on 29.9.2009 declaring income of ₹ 60,56,224 after claiming deduction of ₹ 8,82,24,106 under Section 10A of the Income Tax Act, 1961 (in short 'the Act') .....

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ide order under Section 92CA of the Act dt.29.1.2013 proposed a T.P. Adjustment of ₹ 4,08,55,503 in respect of the ITES segment of the assessee's international transactions. The Assessing Officer then proceeded to complete the assessment under Section 143(3) rws 144C of the Act vide order dt.30.4.2013 wherein the income of the assessee was determined at ₹ 5,06,90,105 as against the returned income of ₹ 60,56,224 in view of the following additions / disallowances :- (i) T.P. .....

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peals) - IV, Bangalore dt.4.9.2014 for Assessment Year 2009-10, has preferred this appeal raising the following grounds :- 1. The order of the CIT (Appeals) is opposed to law and the facts and circumstances of the case. 2. The CIT (Appeals) erred in holding that foreign exchange loss / gain is operating in nature without ascertain the nexus of the forex gain / loss with the business activity of the taxpayer and without appreciating that such loss / gain though attributable to the operating activ .....

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g the principles emerging from the orders of the Delhi Bench of the Hon'ble Tribunal in Haworth (India) Pvt. Ltd. V DCIT 11 ITR (Trib) 757 and the Bangalore Bench of the Hon'ble Tribunal in Trilogy E Business Software V DCIT 23 ITR (Trib.) 464 without appreciating that in transfer pricing every case is unique and requires to be decided independently and that the directions issued are beyond the mandate of the provisions of section 251(1)(a) of the IT Act which do not empower the CIT (App .....

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s clause (iv) of the explanation to section 10A provides that such expenses are to be reduced only form the export turnover also. 6. The CIT (Appeals) erred in not appreciating the fact that the jurisdictional High Court s decision in the case of Tata Elxsi Ltd. 349 ITR 98 has not been accepted by the department and an appeal has been filed before the Hon'ble Supreme Court. 7. For these and such other grounds that may be urged at the time of hearing, it is humbly prayed that the order of the .....

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it in the year under consideration :- S.No. Type of Transaction Amount (Rs.) 1. ITES - Research Services 49,35,00,659 2. Cross charges for travelling, training and communication expenses (paid) 3,40,139. 3. Reimbursement of Expenses (Received) 1,69,01,265 5.2 The assessee conducted its TP Study applying TNMM as the Most Appropriate Method (MAM) and conducted its search of the data bases for comparable companies. The search yielded the following set of 8 comparable companies. S.No. Name of the co .....

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5.3 The TPO after examining the assessee's T.P. Study, rejected it. After conducting a search for fresh comparables and considering the assessee's objections in this regard, the TPO arrived at the final list of 8 comparable companies and their profit margins, the details of which are extracted hereunder :- S.No. Name of the Company Margin % 1. Infosys BPO Ltd. 24.41 2. Aditya Birla Minacs Worldwide Ltd. 23.86 3. Microland Ltd. (both segments) 1.53 4. Allsec Technologies Ltd. - 16.63 5. .....

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s in the ITES field. 5.5 In the Grounds raised at S.Nos.2 to 4, Revenue contends that the learned CIT(A) erred in holding that foreign exchange loss / gain to be operating in nature without ascertaining the nexus between the forex gain/loss with the business activity of the assessee and without appreciating that this gain/loss is not derived from the operating activity of the assessee. Revenue further contends that the learned CIT (A) erred in directing the TPO/Assessing Officer to decide the ma .....

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pose of computing the assessee's margin for comparison with the margin of the comparable companies. The learned Authorised Representative contended that revenue s appeal on this issue is liable to be dismissed as the issue of foreign exchange gain being part of the operating revenue s for the purpose of computing the assessee's margin has been held in favour of the assessee by the decision of the coordinate benches of this Tribunal in the case of Mindteck (India) Ltd. in IT(T.P) A No.70/ .....

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lization of the consideration for rendering ITES services and therefore there is no reason for its exclusion from the operating revenues for the purpose of calculating the operating margin of the assessee. We find that this proposition has been upheld by a co-ordinate bench of this Tribunal in the case of Mindteck (India) Ltd. in IT(TP)A No.70/Bang/2014 dt.21.8.2014 wherein at para 11 thereof it has been held as under :- 11. We have considered the rival submissions. It is not disputed by the Rev .....

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ew, foreign exchange gain on realization of consideration for rendering software development services should be regarding as part of the operating revenue. Following the decision of the ITAT, Bangalore Bench in the case of SAP Labs (supra), we hold that the operating revenue for the assessee be computed by including the foreign exchange gain. Following the decision of the co-ordinate benches of this Tribunal in the case of Sap Labs India (Pvt.) Ltd. (surpa), Triology E Business Software India Pv .....

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