GST Helpdesk   Subscription   Demo   New User   Login      
Tax Management India .com
TMI - Tax Management India. Com
Extracts
Home List
← Previous Next →

2015 (11) TMI 431 - ITAT BANGALORE

2015 (11) TMI 431 - ITAT BANGALORE - TMI - Computation of deduction u/s.10A - profits derived from development and export of computer software - AO excluded telecommunication expenses and travelling expenses incurred in foreign currency - Held that:- As decided by the Hon’ble High Court of Karnataka in the case of Tata Elxsi (2011 (8) TMI 782 - KARNATAKA HIGH COURT) wherein it has been held that whatever is excluded from export turnover should also be excluded from the total turnover. Thus exclu .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

rounds of appeal of the revenue are accordingly dismissed. See CIT Vs. Yokogawa India Ltd. [2011 (8) TMI 845 - Karnataka High Court] - Decided in favour of assessee.

Transfer pricing adjustment - Held that:- Bodhtree Consulting Ltd cannot be regarded as a comparable. In this regards, the fact that the assessee had itself proposed this company as comparable, in our opinion, should not be the basis on which the said company should be retained as a comparable, when factually it is shown .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

td. has been considered as not comparable to a pure software development services company, thus we hold that KALS Information Systems Ltd. should not be regarded as a comparable.

Tata Elxsi Ltd. - in assessee’s own case for the A.Y. 2007-08, this company was not regarded as a comparable in its software development services as are functionally different from that of the assessee and hence they deserve to be deleted

Persistent Systems Ltd. be excluded from the final list of c .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

f economies of scale and diversity and geographical dispersion of customers.

Accentia Technologies Ltd is directed to be excluded from the list of comparables as pursuant to the scheme of amalgamation of the erstwhile Asscent Infoserve Private Limited (subsidiary of the company) with the company as approved by the shareholder in the court convened meeting held on the 25th day of April, 2009 and subsequently sanctioned by the honorable high court of Judicature at Mumbai vide order dt 2 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

tiate his claim. Accordingly, the prayer for rejection of this company as a comparable is rejected.

Eclerx Services Ltd. should be excluded from the final list of comparables as this company was functionally different and was accordingly engaged in providing high end services involving specialized knowledge and domain expertise in its field

Disallowance of full credit in respect of TDS and foreign tax credit - Held that:- If credit was not given for the reason that the same .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

rd. - IT(TP)A No.67/Bang/2015, IT(TP)A No.70/Bang/2015 - Dated:- 30-9-2015 - SHRI N.V. VASUDEVAN, JUDICIAL MEMBER AND SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER For The Revenue : Shri G.R.Reddy, CIT(DR) For The Assessee : Shri Kanchan Kaushal, CA ORDER Per N.V. Vasudevan, Judicial Member These are cross appeals by the Revenue and assessee against the order dated 14.11.2014 of the CIT(Appeals)-IV, Bangalore relating to assessment year 2009-10. ITA 70/B/15 (Revenue s appeal) 2. First we shall take .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

. While computing the export turnover for the purpose of allowing deduction u/s. 10A of the Act, the AO excluded telecommunication expenses and travelling expenses incurred in foreign currency. 4. The Assessee submitted that Explanation 2 to section 10A defines export turnover to mean consideration in respect of export of articles or things or computer software received in, or brought into India by the assessee in convertible foreign exchange in accordance with sub-section (3), but does not incl .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

over. The AO did not accept the claim of the Assessee and excluded the aforesaid items from the Export turnover while computing deduction u/s.10A of the Act. 5. The CIT(A) allowed the alternative prayer of the Assessee by holding that the aforesaid expenses should be excluded both from the export turnover as well as from the total turnover. Aggrieved by the order of the CIT(A) directing exclusion of the aforesaid items of expenditure both from the export turnover and also from the total turnover .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

nd the same is accordingly dismissed. 7. Ground No.3 raised by the Revenue is with regard the order of the CIT(A) in directing the AO not to set off loss of non-STPI units against the profits of the STPI units while computing deduction u/s.10A of the Act in respect of the profits of the STPI Units. The assessee is a company engaged in the business of software development. It is not in dispute that the assessee had STPI units which was entitled to claim deduction in respect of its profits u/s. 10 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

(A) reversed the order of the AO and held that the losses of non STPI units should not be set off against the eligible profits of the STPI unit while allowing deduction u/s.10A of the Act. In doing so the CIT(A) followed the decision of the Hon ble Karnataka High Court in the case of CIT Vs. Yokogawa India Ltd., 341 ITR 385 (Karn.) wherein it was held that provisions of Sec.10A of the Act are in the nature of exemption provisions and not in the nature of deductions under Chapter VIA of the Act a .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

tion u/s.10A of the Act. 9. The ld. counsel for the assessee submitted that exemption u/s. 10A is in the nature of exemption and not a deduction and therefore profits of 10A unit will be outside the computation of total income and therefore there is no question of setting off of losses of non-STPI unit. In other words, it was the submission that exemption u/s. 10A of the Act is not in the nature of a deduction under Chapter VI of the Act and therefore set off as done by the revenue authorities s .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

he following decisions in assessee s own case, it has been held that deduction under section 10A should be allowed in respect of profits of the business of the eligible undertaking without reducing the losses of other units/brought forward losses/unabsorbed depreciation allowance:- • Asstt. CIT v. Yokogawa India Ltd. [2007] 111 TTJ (Bang.) 548/ 13 SOT 470 (Bang.). • Yokogawa India Ltd. v. Asstt. CIT [IT Appeal No. 1157 (Bang.) of 2007, dated 29-8-2008]. 9.1 Deduction under section 10A .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ible to the benefits of section IOA; • Under sub-section 4, it is profits of the business of the undertaking that qualify for deduction. Similarly, the definition of export turnover refers to the sale proceeds of the exports made by the undertaking; • Under sub-section 5, an audit report is to be furnished in support of claim of deduction. Such an audit report is to be submitted for each eligible undertaking. 9.2 The decision relied on by the learned DR mainly in the case of Himatsingi .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

rred. The facts of the present case and the facts before the Karnataka High Court in Himatsingike Seide Ltd. s case (supra) are different. Similar is the factual situation insofar as the order of the Tribunal in Intellinet Technologies India (P.) Ltd. case (supra). 10. We have given a careful consideration to the rival submissions. The issue as to whether the provisions of Sec.10B of the Act are deduction provisions or exemption provisions will assume great importance. The reason is that if the .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

of set off of loss of non-eligible unit against the profit of the eligible unit on which deduction u/s.10B was to be allowed. The Hon ble Court in para 10 to 20 of its judgment dealt with the issue. The Hon ble Court noticed that Sec.10- A(1) of the Act (which is in pari materia with Sec.10-B of the Act) read as follows: 10B. Special provisions in respect of newly established undertaking in free trade zone etc.,-(1) Subject to the provisions of this section, a deduction of such profits and gain .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e aforesaid provisions was considered by the Hon ble High Court and it held in para 13 to 15 of its judgment that the expression shall be allowed from the total income of the Assessee does not mean total income as defined u/s.2(45) of the Act but that expression means profits and gains of the STP undertaking as understood in its commercial sense or the total income of the STP unit. Thus the view expressed is that income of the STP undertaking gets quarantined and will not be allowed to be set of .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ing of the loss of non-eligible unit. The Hon ble Karnataka High Court in the case of Yokogawa (supra) was concerned with similar situation as set out above. In view of the aforesaid decision of the Hon ble Karnataka High Court, we are of the view that the claim as made by the Assessee for carry forward of loss of the non-eligible unit had to be allowed without set off of profits of the 10A/10B unit. We hold accordingly and dismiss the relevant ground of appeal of the revenue. 13. We may also ob .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

5 years. In AY 1994-95, the assessee computed the profits of the EOU without adjusting the brought forward unabsorbed depreciation of AY 1988-89. It claimed that as s. 10B conferred exemption for the profits of the EOU, the said brought forward depreciation could not be set-off from the profits of the EOU but was available to be set-off against income from other sources. It was also claimed that the profits had to be computed on a commercial basis. The AO accepted the claim though the CIT revis .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

decision of the Hon ble Karnataka High Court, the Hon ble Supreme Court observed as follows while dismissing the appeal:- Having perused the records and in view of the facts and circumstances of the case, we are of opinion that the civil appeal being devoid of any merit deserves to be dismissed and is dismissed accordingly. 14. In view of the above, we are of the view that the assessee is eligible for deduction u/s. 10A of the Act in respect of the profits of STPI units without setting off the .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

y the TPO by way of adjustment of arm s length price (ALP) in respect of international transaction of rendering software development services by the assessee to its AE. In ground No.4 raised by the revenue in its appeal, it has urged that the CIT(A) erred in holding that the size and turnover of a company are deciding factors for treating a company as a comparable company and on that reasoning excluding Infosys Ltd., as a comparable company in the Software Development Segment of the Assessee. 19 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

and one in Mumbai. The Bangalore division primarily provides Software and BPO Services while Mumbai division is primarily engaged in purchase and resale of Unisys Products and Provision of Support Services. 20. The international transactions, in the IT and ITES segments with associated enterprises (AEs) reported in Form 3CEB relevant to this appeal were as follows:- 1. Software Developments services (IT segment) ₹ 85,14,82,906 2. BPO Services (ITES segment) Rs.129,56,97,209 21. The details .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

pment Services (IT Segment) 23. In support of the claim of the Assessee that the price paid as above was at Arm s Length, the Assessee filed a Transfer Pricing analysis. The Assessee adopted TNMM as the most appropriate method. The Profit Level Indicator (PLI) chosen was Operating profit to operating cost. The TPO arrived at a final set of 11 comparables and their operating margins as follows:- Sl. No. Name of the Comparable Sales (in Rs.) Cost (in Rs.) Margin 1 Kals Information Systems Ltd 2,14 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

seg) 7,93,22,79,326 5,74,06,73,058 5.52% 10 Larsen and Toubro Infotech 19,50,83,81,374 15,64,12,76,626 24.72% 11 Infosys Ltd. 2,02,64,00,00,000 1,39,17,00,00,000 45.61% 24.32% 24. The margins of the Assessee as computed by the TPO was 13.70%, which was not within the (+) or (-) 5% range of the arithmetic mean of the final set of comparable companies chosen by the TPO. The TPO therefore proceeded to determine the ALP of the international transaction by applying the arithmetic mean of the final li .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

t criteria in choosing comparable companies and accordingly excluded Infosys Ltd., from the list of comparable companies. The revenue, as we have already seen has raised ground No.4 before the Tribunal in its appeal against the aforesaid decision of the CIT(A). The CIT(A) confirmed the order of the AO/TPO in so far as it relates to selection of comparable companies and other aspects of objections raised by the Assessee against the order of the AO/TPO. Aggrieved by the order of the CIT(A), the As .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

sen as a comparable company before the TPO (at page 13 of the TPO s order) that this company is functionally different, but did not raise a specific objection before the DRP An additional ground was filed before the Tribunal raising a specific ground that Persistent Systems Ltd., should be excluded from the list of comparable companies on the ground that the said company is functionally different and in this regard has also placed reliance on decisions of tribunals rendered on the issue of this .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

opped from pointing out a mistake in the assessment though such mistake is the result of evidence adduced by the taxpayer. The learned counsel further submitted that the aforesaid two companies were held to be software product companies and therefore not comparable with software development service provider such as the Assessee in several decisions rendered by the Tribunal. The decisions rendered by the Tribunal are later in point of time to the Transfer Pricing Study undertaken by the Assessee. .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

a very careful consideration to the rival submissions. We are of the view that the question as to whether the aforesaid two companies are comparable or not with the Assessee company in terms of FAR analysis, has to be decided on the basis of data which is available in the public domain i.e., published annual report of these two companies.. Therefore facts necessary to apply the filter sought to be relied upon by the Assessee in the additional ground of appeal are already available on record. The .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

Quark Systems (supra) has after considering the OECD Commentaries observed as follows:- 35. In para 4.16 of latest report, the OECD provides the following guidelines : "In practice, neither countries nor taxpayers should misuse the burden of proof in the manner described above. Because of the difficulties with transfer pricing analysis, it would be appropriate for both taxpayers and tax administrations to take special care and to use restraint in relying on the burden of proof in the cours .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

y should be prepared to make good faith showing that their transfer pricing is consistent with the arm s length principle regardless of where the burden of proof lies." 36. The aforesaid decisions and guidelines may not be exactly on identical facts before us but they emphatically show that taxpayer is not estopped from pointing out a mistake in the assessment though such mistake is the result of evidence adduced by the taxpayer. 37. When substantial justice and technical considerations are .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

uded in the comparable, we make no comments on merit except observing that assessee from record has shown its prima facie case. Further claim may be examined by the Assessing Officer. This course we adopt as objection to the inclusion of Datamatics as comparable has been raised now and not before revenue authorities. Therefore, we deem it fit and proper to remit the matter to the file of the Assessing Officer for consideration of claim of the taxpayer and make a de novo adjudication of the arm s .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

n point of time to the Transfer Pricing Study undertaken by the Assessee. The Assessee is entitled to take note of the subsequent judicial pronouncement and seek to exclude a company which is functionally not comparable with that of the Assessee. Even in respect of the other companies high turnover has been held to be a criteria to reject a company as a comparable in the aforesaid decision of ITAT Bangalore in the case of Trilogy E-Business Software India Pvt.Ltd. (supra). As held by the Special .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

f the TPO in including/retaining some of the comparable chosen by the TPO in the final list of comparables chosen by him. The assessee has also submitted that some of the comparable chosen by the Assessee ought not to have been rejected by the TPO. We will deal with each of such comparable companies in the following paras. COMPANIES INCLUDED IN THE FINAL LIST OF COMPARABLES WHICH THE ASSESSEE WANTS TO BE EXCLUDED:- 31. Bodhtree Consulting Ltd.:- As far as this company is concerned, it is not in .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ITO, ITA No.7633/Mum/2012, order dated 6.11.2013. In this case, the Tribunal followed the decision rendered by the Mumbai Bench of the Tribunal in the case of Wills Processing Services (I) P. Ltd., ITA No.4547/Mum/2012. In the aforesaid decisions, the Tribunal has taken the view that Bodhtree Consulting Ltd. is in the business of software products and was engaged in providing open & end to end web solutions software consultancy and design & development of software using latest technolog .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

regarded as a comparable. In this regards, the fact that the assessee had itself proposed this company as comparable, in our opinion, should not be the basis on which the said company should be retained as a comparable, when factually it is shown that the said company is a software product company and not a software development services company. 32. Infosys Ltd.:- As far as this company is concerned, it is not in dispute before us that this company has been considered to be functionally differen .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

o the inclusion of the company in the set of comparables, on the grounds of turnover and brand attributable profit margin. The TPO, however, rejected these objections raised by the assessee on the grounds that turnover and brand aspects were not materially relevant in the software development segment. 11.2 Before us, the learned Authorised Representative contended that this company is not functionally comparable to the assessee in the case on hand. The learned Authorised Representative drew our .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

dinate bench of this Tribunal in the case of 24/7 Customer.Com Pvt. Ltd. in ITA No.227/Bang/2010 has held that a company owning intangibles cannot be compared to a low risk captive service provider who does not own any intangible and hence does not have an additional advantage in the market. It is submitted that this decision is applicable to the assessee's case, as the assessee does not own any intangibles and hence Infosys Technologies Ltd. cannot be comparable to the assessee ; (ii) the o .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

and the break up of such revenues is not available ; (v) the company has incurred huge expenditure for research and development; (vi) the company has made arrangements towards acquisition of IPRs in AUTOLAY , a commercial application product used in designing high performance structural systems. In view of the above reasons, the learned Authorised Representative pleaded that, this company i.e. Infosys Technologies Ltd., be excluded form the list of comparable companies. 11.3 Per contra, opposing .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ord. We find that the assessee has brought on record sufficient evidence to establish that this company is functionally dis-similar and different from the assessee and hence is not comparable and the finding rendered in the case of Trilogy E-Business Software India Pvt. Ltd. (supra) for Assessment Year 2007-08 is applicable to this year also. We are inclined to concur with the argument put forth by the assessee that Infosys Technologies Ltd is not functionally comparable since it owns significan .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

o the facts and circumstances as it prevailed in AY 08-09 as far as this comparable company is concerned. Respectfully following the decision of the Tribunal referred to above, we hold that Infosys Ltd. be excluded from the list of comparable companies. 33. KALS Information Systems Ltd.:- As far as this company is concerned, it is not in dispute before us that this company has been considered as not comparable to a pure software development services company by the Bangalore Bench of the Tribunal .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

st debited under the software development expenditure was ₹ 45,93,351. The same was less than 25% of the software services revenue and therefore the salary cost filter test fails in this case. Reference was made to the Pune Bench Tribunal s decision of the ITAT in the case of Bindview India Private Limited Vs. DCI, ITA No. ITA No 1386/PN/1O wherein KALS as comparable was rejected for AY 2006-07 on account of it being functionally different from software companies. The relevant extract are .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

xtract on pages 185-186 of the Paper Book from the website of the company to establish that it is engaged in providing of I T enabled services and that the said company is into development of software products, etc. All these aspects have not been factually rebutted and, in our view, the said concern is liable to be excluded from the final set of comparables, and thus on this aspect, assessee succeeds. Based on all the above, it was submitted on behalf of the assessee that KALS Information Syste .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

find that in the decision referred to by the learned counsel for the Assessee, the Mumbai Bench of ITAT has held that this company was developing software products and not purely or mainly software development service provider. We therefore accept the plea of the Assessee that this company is not comparable. Following the aforesaid decision of the Tribunal, we hold that KALS Information Systems Ltd. should not be regarded as a comparable. 34. Tata Elxsi Ltd.:- As far as this company is concerned .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

(i) Tata Elxsi Ltd; and (ii) M/s. Flextronics Software Systems Ltd., deserve to be eliminated for the following reasons : (i) Tata Elxsi Ltd., : The company operates in the segments of software development services which comprises of embedded product design services, industrial design and engineering services and visual computing labs and system integration services segment. There is no sub-services break up/information provided in the annual report or the databases based on which the margin fro .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ues to be more than 75% of the "software products and services" segment revenues. Flextronics has a hybrid revenue model and hence should be rejected as functionally different. Based on the information provided under "Revenue recognition" in its annual report, it can be inferred that the software services revenues are earned on a hybrid revenue model, and the same is not similar to the regular models adopted by other software service providers. The learned representative plea .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

venue break-up is not available. He finally submitted that this was a good reason to exclude this company also from the list of comparables. 20. On the other hand, the learned DR supported the order of the lower authorities regarding the inclusion of Tata Elxsi and Flextronics Software Systems Ltd., in the list of comparables. He reiterated the contents of para 14.2.25 of the TPO's order. He also read out the following portion from the TPO's order : "Thus as stated above by the comp .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

Even if we consider the other two sub-segments pertain to IT enabled services, the 87.45% (›75%) of the segment's revenues is from software development services. 4. This segment qualifies all the filters applied by the TPO." Regarding Flextronics Software Systems, the following extract from page 143 of TPO's order was read out by him as his submissions : "It is very pertinent to mention here that the company was considered by the taxpayer as a comparable for the precedi .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

the taxpayer is arguing against this comparable as the company was not considered as a comparable by the taxpayer for the present FY 2006-07." 21. We have heard the rival submissions and considered the facts and materials on record. After considering the submissions, we find that Tata Elxsi and Flextronics are functionally different from that of the assessee and hence they deserve to be deleted from the list of six comparables and hence there remains only four companies as comparables, as .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

of 3DPLM Software Solutions Ltd. Vs DCIT [IT(TP)A 1303/Bang/2012 dated 28-11-2013] had also held that Persistent Software Systems Pvt. Ltd., was in product designing services and into software product development. In the same decision it was also held that M/s. Infosys Technologies Ltd, had considerable intangibles like IPR, and was also into software product development. It was also held that M/s. Tata Elxsi Ltd., was developing niche products and into product designing services. Hence, these c .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

in of the Assessee in accordance with the provisions of Sec.92C of the Act and allow -/ + 5% adjustment under the provisions of Sec.92C of the Act, if it is found that the Assessee is otherwise entitled to such benefit. 39. The next submission of the learned counsel for the Assessee was with regard to direction of the CIT(A) in restricting the working capital adjustment. Now coming to the issue of working capital adjustment, findings of the TPO in this regard as it appears at para 3.7, reads as .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e case of the uncontrolled comparables selected by the TPO. Hence, the working capital adjustment in the case of the taxpayer is allowed as per the calculation in annexure-C or the average cost of capital to the comparables whichever is the least. The detailed discussion on this is given in the Annexure-D to the order. The computation of the working capital adustment is annexed to this order as Annexure C. 40. The TPO had restricted the cost of capital to 1.71%. Rationality for such an upper lim .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

hile giving effect to the working capital adjustment, has restricted the said adjustment to 1.71% in case of uncontrolled comparables selected by the TPO. The learned counsel for the assessee submitted that the TPO has not given any basis for such restriction of the working capital adjustment. He submitted that the CIT(A) also has not applied his mind to this issue but has summarily confirmed the order of the AO and therefore it has to be set aside. 14. On going through the TPO s order as well a .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

O for working out the ALP after giving adjustment of working capital as per the calculation of the AO in annexure D annexed to the transfer pricing order. This ground of appeal is accordingly allowed. 41. Accordingly we direct the AO / TPO to correctly work out the PLI of the final comparables after giving due adjustment for the working capital on actual basis. Related ground of the assessee is therefore allowed. 42. No other arguments were raised on the other issues raised in the concise ground .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

pany Margin 1 Infosys B P O Ltd 24.41% 2 Aditya Birla Minacs Worldwide Ltd 23.86% Microland Ltd (both segments) 1.53% 4 Allsec Technologies Ltd -16.63% 5 Accentia Technologies Ltd 46.40% 6 Informed Technologies India Ltd 22.61% 7 Cosmic Global Ltd 40.61% 8 Eclerx Services Ltd 57.46% AVERAGE PLI 25.03% 44. After allowing adjustment on account of working capital, the TPO computed the ALP as follows : 4.8.3Computation of Arms Length Price : The arithmetic mean of the Profit Level Indicators is take .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

2CA 12,40,10,625 45. The aforesaid addition made by the TPO was confirmed by the CIT(A). Aggrieved by the order of the CIT(A) the Assessee has preferred the present appeal before the Tribunal. 46. The Assessee has prayed before us for exclusion of certain companies from the list of comparables chosen by the TPO. The learned counsel for the assessee sought to exclude the following companies from the list of 8 comparable companies finally chosen by the TPO in the ITES segment. Infosys BPO Ltd : 47 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e assessee that this company has a brand value and therefore there would be significant influence in the pricing policy which will impact the margins. Schedule 13 to the profit and loss account of this company for the F.Y. 2007-08 shows that this company incurred huge selling and marketing expenses. Page 133 of the annual report of this company for the F.Y. 2007-08 shows that this company realizing its brand value has chosen to value the same on the basis of its earnings and that of Infosys. The .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

eadth in terms of economies of scale and diversity and geographical dispersion of customers. The presence of the aforesaid factors will take this company out of the list of comparables. We therefore accept the contention of the assessee that this company cannot be regarded as a comparable." 48. Following the aforesaid decision of the Tribunal and taking note of the fact that the facts and circumstances in the case of the assessee for the current assessment year are identical, we direct that .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

there are extra ordinary events that occurred during the previous year in this company. Our attention was draw to the annual report of this company for the A.Y. 2007-08 wherein the fact that this company had acquired Thunga Software Pvt. Ltd., GSR Physicians Billing Services Inc., GSR Systems Inc. and Denmed Inc. is mentioned. Our attention was also drawn to the decision of the Hyderabad ITAT Bench in the case of Capital IQ Information Systems India Pvt. Ltd. v. DCIT [ 2013] 32 Taxman.com 21 (Hy .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

I. Accentia Technologies Ltd. 10. It is the submission of the assessee that this company cannot be treated as a comparable because of uncomparable financial results arising out of amalgamation in the company. In this regard, the assessee has relied upon the order of the DRP for the assessment year 2008-09 in assessee's own case. It is seen that the DRP while considering similar objection placed by the assessee in the case of another company, viz. Mold Tek Technologies Ltd., in the proceedin .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

effect to the merger and demerger, the financial statements were revised and restated after six months form the end of the financial year 31.3. 2008. The assessee filed Form No.21 under the Companies Act with the Registrar of Companies on 26th August, 2008. Thus the effective date of the scheme of merger and demerger was 26th August, 2008. The Annual Report supported the argument of the assessee that there were merger and demerger in the financial year and it was an exceptional year of performan .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

which such event takes place. It is the contention of the assessee that in case of the aforesaid company, there is amalgamation in December, 2006, which has impacted the financial result. This fact has to be verified by the TPO. If it is found upon such verification that the amalgamation in fact ahs taken place, then the aforesaid comparable has to be excluded. 50. The learned DR however put forth an argument that the case decided by the Tribunal was in relation to A.Y 2008-09 and there was an a .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

Asscent Infoserve Private Limited with the Company. Pursuant to the scheme of amalgamation of the erstwhile Asscent Infoserve Private Limited (subsidiary of the company) with the company as approved by the shareholder in the court convened meeting held on the 25th day of April, 2009 and subsequently sanctioned by the honorable high court of Judicature at Mumbai vide order dt 21st August 2009 and Honorable high court of Karnataka at Bangalore vide order dt 6th February 2010, the assets and liabi .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

prayed for exclusion of this company as a comparable on the ground that this company makes abnormal profits. He was however unable to furnish any evidence to substantiate his claim. Accordingly, the prayer for rejection of this company as a comparable is rejected. Eclerx Services Ltd., : 53. The comparability of this company in ITES segment was considered by the Special bench decision of the ITAT in the case of Maerks Global (supra) and the Special Bench in para 82 and 83 of its order came to th .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

 

 

 

 

 



|| Home || Acts and Rules || Notifications || Circulars || Schedules || Tariff || Forms || Case Laws || Manuals ||

|| About us || Contact us || Disclaimer || Terms of Use || Privacy Policy || TMI Database || Members || Site Map ||

© Taxmanagementindia.com [A unit of MS Knowledge Processing Pvt. Ltd.] All rights reserved.

Go to Mobile Version