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2015 (12) TMI 1562 - ITAT BANGALORE

2015 (12) TMI 1562 - ITAT BANGALORE - TMI - Transfer pricing adjustment - selection of comparables - Held that:- After exclusion of Celestial Biolabs Ltd. from the final set of comparables arrived at by the TPO, the arithmetic mean of the comparables, according to the assessee, would be 20.83% which is within the +5% range of 21.11% and the TP adjustment made by the AO/TPO is to be deleted. We, therefore set aside the issue to the file of the AO/TPO for verification of the assessee’s claim and d .....

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Ltd.(2011 (8) TMI 782 - KARNATAKA HIGH COURT ), held that whatever expenditure is excluded from the export turnover, has to be excluded from the total turnover as well. Respectfully following the decision of the Hon’ble jurisdictional High Court, we allow the alternate ground raised by the assessee in this regard. - Relief allowable u/s. 10A of the Act is to be computed after setting off the brought forward depreciation losses of the assessee - Held that:- The issue has to be set aside to th .....

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2-2015 - SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER AND SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER For The Appellant : Shri Sharath Rao, CA For The Respondent : Smt. Neera Malhotra, CIT(DR) ORDER Per Asha Vijayaraghavan, Judicial Member This appeal is by the assessee company directed against the order dated 29.10.2012 of the Assessing Officer passed u/s. 143(3) r.w.s. 144C of the Income-tax Act, 1961 [hereinafter referred to as "the Act"]. 2. The assessee company, Interwoven Software Servi .....

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etails pertaining to software development services and IT Enabled Services are as under (as per TP Report):- Description Software services IT Enabled Services Pre marketing activity Operating revenue 182721000 23922000 15849000 Operating expenses 158888000 20273000 14408000 Operating profit 23833000 3649000 1441000 Profit margin to cost 15% 18% 10% Segment relating to Software 5. The transactions pertaining to the software development services are analysed as under. As the method followed by the .....

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rately for TP analysis and determination of arm s length margin accordingly. In reply, the assessee submitted that for both the activities there is only one customer i.e., the AE and both the activities are interrelated as the technical support team carries out support services to the only customers of IWOV Inc. who purchase the products. The TPO accepted the assessee s contentions. He found that the assessee has a contract agreement with the AE CALLED IT Enabled backoffice service agreement dat .....

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O found that the ITES constitute only 19.75% of the revenues. Accordingly, the TPO aggregated both the segments for the transfer pricing analysis. 7. The final list of comparables selected by the TPO are as follows:- 8. Further, in the TP order u/s. 92CA, the TPO with respect to additional comparables viz., Celestial Labs, Flextronics (Aricent Technologies) and Avani Cincom stated as follows:- While searching for comparables, those selected in A.Y. 2007- 08 were also examined. It was found that .....

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opment service company for the FY 2007-08 and qualified all the filters applied by the TPO. Thus these were also proposed as comparables. The revised OECD guidelines support the use of both the approaches viz., deductive and additive. In this connection reference may be made to para 3.40-3.3.46 of the OECD guidelines. The only requirement is that the search of the comparables should be transparent and the other party should know as to how the comparable was identified. This has been done in thes .....

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) 10,661,605 9,656,093 Average Receivables (trade) 18,244.327 Average Payables (trade) 10,158,849 On the basis of above data, the TPO computed the working capital adjustment at 1.87%. 10. The ld. counsel for the assessee pointed out that the ALP determined by the TPO prior to grant of working capital adjustment was 23.65% in comparison to ALP of 14.87% as determined by the assessee. He submitted that on the analysis of comparables chosen in the TP report by the assessee, only LGS Global Ltd. was .....

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for comparability. The Honorable DRP has also erred in confirming the order of the TPO in this regard. These companies should be rejected as comparables, notwithstanding that they were not contended before the lower authorities or were contended on a different parameter. • Avani Cimcon Technologies Ltd; • Bodhtree Consulting Limited; • e-Zest Solutions Limited; • Infosys Systems Limited; • KALS Information Systems Limited; • Lucid Software Limited; • Persistent .....

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. counsel submitted pointed out to the final set of comparables selected by the TPO and contended that Celestial Biolabs Ltd. (Sl.No.3 of final set of comparables) was engaged in development of products in the field of bio-technology, pharmaceuticals etc. and it failed the test of functional similarity. It was submitted that this company also fails employee cost filter. The ld. counsel for the assessee in particular pointed out to the submissions made before the TPO for exclusion of this compara .....

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ient information on segment details. 14. The ld. counsel for the assessee relied upon the decision of the coordinate Bench of this Tribunal in Broadcom Communications Technologies Pvt. Ltd. in IT(TP)A No.1587/Bang/2012 (AY 2008-09) order dated 26.06.2015 wherein the relevant observations of the Tribunal was as follows:- 7.4.1 We have heard the rival contentions and perused and carefully considered the material on record; including the judicial pronouncement relied on by the assessee. We find tha .....

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on by the assessee were with respect to the immediately previous assessment year, and there cannot be an assumption that it would continue to be applicable for this year as well, the same parity of reasoning is applicable to the TPO as well who seems to have selected this company as a comparable based on the reasoning given in the TPO s order for the earlier year. It is evidently clear from this, that the TPO has not carried out any independent FAR analysis for this company for this year viz. As .....

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e and also that the findings rendered in the cited decisions for the earlier years i.e. Assessment Year 2007-08 is applicable for this year also. We agree with the submissions of the assessee that this company is functionally different from the assessee. It has also been so held by coordinate benches of this Tribunal in the assessee's own case for Assessment Year 2007-08 (supra) as well as in the case of Triology E-Business Software India Pvt. Ltd. (supra). In view of the fact that the funct .....

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.4.2 Following the above decision of the co-ordinate bench of this Tribunal ……… in the case of 3DPLM Software Solutions Ltd. (supra) for Assessment Year 2008-09, we direct the Assessing Officer / TPO to omit this company from the list of comparables in the case on hand. 15. Following the decision of this Tribunal in the case of Broadcom Communications Technologies Pvt. Ltd. (supra), we direct the AO/TPO to exclude Celestial Biolabs Ltd. from the final set of comparables sele .....

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482,000 37,814,150 NCP (based on Op Cost) 15.34 21.11 Since the arm s length margin after exclusion of Celestial Biolabs Ltd. falls within the range of +/- 5% of the margin of the assessee, the entire TP adjustment of ₹ 13,330,876 made by the revenue authorities has to be deleted. 17. We have heard both the parties and perused the material on record. After exclusion of Celestial Biolabs Ltd. from the final set of comparables arrived at by the TPO, the arithmetic mean of the comparables, ac .....

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for consideration is that the revenue authorities erred in concluding that expenditure incurred in foreign currency and telecommunication charges are to be excluded from the export turnover for the purpose of computation of deduction u/s. 10A of the Act. Reliance was placed in this regard on the decision of Patni Telecom (P) Ltd. (308 ITR 414) (Hyd ITAT) and Zylog Systems Ltd., 135 TTJ 129 (Chennai ITAT). 19. Without prejudice to the above contention, the ld. counsel for the assessee submitted t .....

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the total turnover as well. Respectfully following the decision of the Hon ble jurisdictional High Court, we allow the alternate ground raised by the assessee in this regard. 21. Ground No.13 states that the Revenue authorities erred in law and on facts in holding that the relief allowable u/s. 10A of the Act is to be computed after setting off the brought forward depreciation losses of the assessee. 22. The AO had set off the brought forward depreciation of ₹ 1,711,672 while computing th .....

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e case of Safran Aerospace India Ltd. (ITA No.1261/Bang/2010 dated 31.12.2014) wherein the Tribunal after considering the decision in the case of Himatsingike Siede (56 Taxman 151) held that the decision of Hon ble Karnataka High Court in the case of Yokogawa India Ltd. (supra) will hold field since the Hon ble Supreme Court dismissed the SLP of the assessee in the case of Himatsingke Siede (supra) in limine without laying any ratio decendi based on the principle held by the Apex Court in the ca .....

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We find that similar issue came up for consideration before the Chennai Bench of the Tribunal in the case of S.R.A. Systems Ltd. in ITA No.1547/Mds/2012 and the Tribunal by its order dated 21.02.2014 held as follows:- 7. The third issue in appeal relates to the method of computation of deduction u/s.10A of the Act. The assessee has claimed deduction u/s.10A before setting off of unabsorbed depreciation and brought forward losses. The ld.AR of the assessee in order to fortify the stand of assesse .....

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