TMI Blog2017 (4) TMI 1007X X X X Extracts X X X X X X X X Extracts X X X X ..... ALP as once the adjustment is made, the PLI would be higher than that of comparable arrived at 26%. In our opinion there cannot be any upward adjustment of ₹ 2.64 crores to the value of international transaction in the assessment year under consideration. Accordingly, the ground taken by the assessee is allowed. - IT APPEAL NO. 3323 (MDS.)/2016 - - - Dated:- 22-3-2017 - CHANDRA POOJARI, ACCOUNTANT MEMBER AND G. PAVAN KUMAR, JUDICIAL MEMBER For The Appellant : Ms. S. Vidya, CA For The Respondent : Milind Madukar Bhusari, CIT DR ORDER Chandra Poojari, Accountant Member - This appeal of the assessee are directed against Assessment order dated 27.10.2016 for A.Y 2012-13, consequent to the directions of the Dispute Resolution Panel (DRP)-2, Bangalore, dated 26.09.2016 u/s. 143(3) r.w.s.1443 and 92CA(3) of the Act. 2. The only grievance of assessee in its appeal is with regard to rejecting the adjustment made by the assessee for the non-operational expenses. 3. Assessee's appeal has been filed late by 03 days. Condonation petition has been filed. We have gone through the condonation petition stating that the delay was occurred on the reason that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cquired the oil gas IT practice of Science Applications International Corporation mc, Deleware, USA Tech Mahindra Fails the RPT filte TCS Fails the RPT filte 4.2 Accordingly, an independent search conducted by the TPO rejecting the TP study made by the assessee, has applied the following filters to determine functionally similar comparables:- 1 All Industries - Services - IT, software consultancy 2 Financials not available 3 Sales above ₹ 1 crore 4 (Trading +rental)/Sales) * 100 30% selected 5 Consecutive losses were rejected 6 RPT is more than 25% where rejected 7 Export turnover above 75% are selected 8 Functionally dissimilar 4.3 The learned TPO rejected the contentions of the assessee in the Show Cause Notice dated 21.12.2015 on the ground that: The a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ese incurred in the training of employees who are not associated with the project executed and built should be treated as non-operative. The learned TPO rejected this submission for the following reasons:- (i) The financials do not throw any light on the Assessee's claim. Assessees did not choose to file its director's Report to verify any such comments. (ii) Further the assessee has listed the projects alongside which the said adjustment is claimed. However, the assessee has not been able to furnish information on whether these are projects for the AE or the non-AE. The learned TPO has come up with his own comparables as follows: Name of the company Margin (OPIOC) Evoke technologies Ltd 11.71 Mindtree Ltd 15.01 R.S. Software India Ltd 15.31 Larsen Toubro Infotech 23.82 Persistent Systems Ltd 24.59 Thirdware Solutions Ltd. 28.18 Goldstcine technologies ltd 10.88 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5.1 According to ld.A.R, the month wise details of salary cost for the A.Y under review and AY 2013-14 together with the month wise revenue for both the years is furnished before the authorities. From the said annexure, it is evident that the appellant had procured work orders during the AY under review and had recruited employees to provide training to them for the new projects. During March 2012, the appellant had paid an amount of ₹ 173 lakhs as against the average cost of ₹ 66.54 lakhs per month. From AY 2013- 14, there has been a steady increase in the revenue of the company on account of the new projects. Moreover, there has not been any revision in the pricing patern of the appellant with its associate company in any of the years. The same was not disputed by the AO in the course of the assessment proceedings for the AY 2013-14 and 2014-15. Hence, Ld.A.R pleaded that the cost claimed by the appellant is an extra ordinary cost and the same has to be excluded from the operating cost while arriving at the PLI margin. 6. On the other hand, ld.D.R submitted that in the assessee company annual report, no such special reference has been made with regard to extraordin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is regard. Therefore, ld.D.R pleaded that the consultancy charges and interior modification paid during the assessment year cannot be treated as non-operating in nature. 7. We have heard both the parties and perused the material on record. The assessee herein engaged in providing wide range of information technology solutions to a global clientele in a cost effective manner. In the assessment year under consideration, the assessee engaged in information technology and Engineering solutions and services include Customer Communication Management applications, specifically assessee engaged in the business of software development and carried out the job during the financial year both to the A.E and non-A.E customers. The assessee has employed an average 250 personals employeed for the services rendered of which 90 personals were recruited for future project requirements in the subsequent assessment years. Since the assessee is a software development, the main cost of the assessee is manpower cost, rent, communication expenses and travelling expenses, which normally varies in proportion to the turnover. Usually, the assessee keeps manpower more than 10% of the requirements as the add ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under consideration and the assessee has not filed its Director's report to verify any such comments. Hence, the TPO considered the employee salary cost and consultancy charges as part of the operating cost and PLI computed. In our opinion, this cannot be a reason to reject the claim of assessee. This impugned expenditure on employees and consultancy charges, which is not relating to the project executed and billed in the assessment year under consideration. As such, it cannot be considered as operative expenses. Further, such expenses were not incurred with reference to any specific project and it cannot be considered as work-in-progress. It is admitted that the assessee is in second year operation and comparison of financials with big undertaking, who are in pioneer in the similar kind of business, is not appropriate as the assessee was not in advantageous position as these comparables. It has to be noted that the assessee has not exercised sufficient control over the expected future benefits arising from a team of skilled staff and from training so as to consider that these items meet the identification of intangible assets. The assessee has submitted that the employee cost ..... X X X X Extracts X X X X X X X X Extracts X X X X
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