TMI Blog2017 (5) TMI 66X X X X Extracts X X X X X X X X Extracts X X X X ..... panies. Therefore, we see no reason to interfere with the order of the CIT (A) and the assessee’s ground of appeal No.1 is thus rejected. Computing deduction u/s 10A - treating the forex fluctuation gain as export turnover as well as total turnover - Held that:- We find that the forex gain is on account of the export turnover of the assessee and therefore, it is to be part of the export and total turnover as rightly held by the CIT (A). The CIT (A) had followed the decisions of various High Courts and the Tribunal which are reproduced at Para 6.4 of the CIT (A)’s order. The CIT (A) has also brought out the distinguishing facts in the case of Shah Originals (2010 (4) TMI 216 - BOMBAY HIGH COURT) that in that case the forex gain or loss was on account of re-statement of EEFC account and not as to whether it pertains to difference in billed amount as per the invoices and realized amount. Therefore, we see no reason to interfere with this finding of the CIT (A). However, as regards the miscellaneous income of ₹ 32,65,209 is concerned, there is no breakup of the income and as to the exact nature of such income. Therefore, we are of the opinion that the same is to be excluded bo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by virtue of the Hon'ble High Court order dated 18.12.2009. Vide letter dated 29.03.2010, this fact was brought to the notice of the AO and it was requested to transfer the file u/s 127 of the Act relating to all open and pending assessments and other proceedings under the Act. Accordingly, the case was transferred to the TPO at Hyderabad and the proceedings in the name of the merged company were taken up and completed. However, the PAN of the assessed company is mentioned as AACCC 3062 D. Aggrieved by the assessment, the assessee raised a ground before the CIT (A) that the assessment proceeding in the name of BACI (formerly known as CFC) which is a nonexisting entity is null and void. The assessee had stated that though the assessment is made in the name of BACI (amalgamated company), the PAN No. of CFC is mentioned and not of the amalgamated company. It was submitted that on merger, the identity of Transferor Company is lost as it seizes to exist in the eyes of law and therefore, the assessment made in the name of the non-existent company is not valid. 5. The CIT (A), after considering the above facts observed that the letter dated 29.03.2010 was only to transfer the files ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ge fluctuation gain of ₹ 1,51,95,408 and miscellaneous income of ₹ 32,65,209 as part of total turnover, erred in not considering the said foreign exchange fluctuation gain and miscellaneous income as part of export turnover for the purpose of computation of deduction u/s 10A of the Act. 4 On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in upholding the order of Ld. AO of not allowing deduction u/s 10A of the Act as per the revised computation filed by the Appellant during the course of assessment proceedings and thereby: a) The Ld. CIT(A) erred in not computing and allowing deduction u/s l0A of the Act separately for each STPI units. b) The Ld. CIT(A) erred in not setting off the loss of the Hyderabad unit B with the income from other sources and also erred in not allowing the carry forward of the net business loss/depreciation allowance to subsequent assessment year. 5 On the facts and in the circumstances of the case and in law, the Ld. TPO/Ld. AO erred in making a Transfer Pricing ('TP') adjustment amounting of Rs, 13,06,52,257 on Information Technology Enabled Services CITES') provided by the Com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the export turnover of the assessee and therefore, it is to be part of the export and total turnover as rightly held by the CIT (A). The CIT (A) had followed the decisions of various High Courts and the Tribunal which are reproduced at Para 6.4 of the CIT (A) s order. The CIT (A) has also brought out the distinguishing facts in the case of Shah Originals (2010) 191 Taxmann.com 81 that in that case the forex gain or loss was on account of re-statement of EEFC account and not as to whether it pertains to difference in billed amount as per the invoices and realized amount. Therefore, we see no reason to interfere with this finding of the CIT (A). However, as regards the miscellaneous income of ₹ 32,65,209 is concerned, there is no breakup of the income and as to the exact nature of such income. Therefore, we are of the opinion that the same is to be excluded both from the export turnover as well as the total turnover for computing the deduction u/s 10A of the Act. Ground of appeal No.3 is accordingly treated as allowed for statistical purposes. 10. As regards Ground No.4(a), brief facts are that the assessee had three STPI Units which are all entitled for benefit u/s 10A of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th effect from 1.04.2001, Section 10A of the Act continues to remain an exemption section and not a deduction section? (iv) Whether losses of other 10A Units or non 10A Units can be set off against the profits of 10A Units before deductions under Section 10A are affected? (v) Whether brought forward business losses and unabsorbed depreciation of 10A Units or non 10A Units can be set off against the profits of another 10A Units of the assessee. Thus, it is seen that Question No.4 refers to the losses of other 10A Units or non 10A units. It means that the losses of eligible units cannot be set off against the profits of other eligible units before allowing the deduction u/s 10A of the Act. The Hon'ble Supreme Court, after deliberation of the provisions of the Act, has at Paras 16 to 18 has held as under: 16. From a reading of the relevant provisions of Section 10A it is more than clear to us that the deductions contemplated therein is qua the eligible undertaking of an assessee standing on its own and without reference to the other eligible or non-eligible units or undertakings of the assessee. The benefit of deduction is given by the Act to the individual ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f each of the eligible unit is to be computed independently for allowing deduction u/s 10A of the Act with regard to an undertaking. Therefore, Ground No.4(a) is allowed and Ground No.4(b) is remanded to the file of the AO for re consideration in accordance with law and to allow the carry forward of the losses. 15. In the result, Ground No.4 (a) is allowed and Ground No.4(b) is allowed for statistical purposes. 16. As regards Ground of appeal No.5, the assessee had entered into an international transaction with its AE for providing information technology software services and I.T. enabled services. During the proceedings u/s 92CA of the Act, the TPO observed that the TNMM is the most appropriate method for determining the ALP of the ITES segment of the assessee. The TPO rejected the comparables selected by the assessee and adopted certain other comparables and arrived at the margin of the comparables at ₹ 29.16% as against the assessee s margin of ₹ 22.20%. He accordingly proposed the addition of ₹ 13,06,52,257. Aggrieved the assessee preferred an appeal before the CIT (A) challenging the comparability of the following 5 companies. (i) Mold-tek Solutions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5,76,925 AR pg. 58 Staff welfare expenses 17,08,901 AR pg.58 Total employee cost (B) 5,71,69,011 Employee cost % 16.37% 10.1. The TPO did not agree to the contentions of assessee with regard to extraordinary business operations. Assessee did not raise its contentions with regard to employee cost filter before the TPO. Ld. CIT(A) has rejected the contention of assessee with regard to Accentia's extraordinary situation. With regard to employee cost, Ld. CIT(A) has rejected the contention of assessee as it was not raised before the TPO. 10.2. Assessee has placed reliance on the following Judicial precedents for rejection of Accentia as a comparable company: Symphony Marketing Solutions India Pvt. Ltd. - IT(TP)A No. 1316/Bang/2012; Vodafone India Services Private Ltd. [Formerly Known as 3 Global Services Private Ltd, ('GSPL'/'3GSPL')] (ITA No. 7514/Mum/2013); HSBC Electronic Data Processing India P. Ltd. ITA.No.1647/Hyd/2012; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 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 proceedings relating to the assessment year 2008-09, has observed in the following manner- 17.5. In addition to the above, the Director's Report of the company for the FY 2007- 08 revealed the merger and the demerger. A company known as Techmen Tools Pvt. Ltd. had amalgamated with Mold-tek Technologies Ltd. with effect form 1st October, 2006. There was a de- merger of Plastic Division of the company and the resulting company is known as Moldtek Plastics Limited. The de-merger from the Moldtek Technologies took place with effect from 1st April, 2007. The merger and the demerger needed the approval of the Hon'ble High Court of Andhra Pradesh and also the approval of the shareholders. The shareholders of the company gave approval for the merger and the de-merger on 25.01.2008 and the Hon'ble High Court of Andhra Pradesh had approved the merger and de-merger on 25th July, 2008. Subsequently, the ITA No.1316/Bang/2012 accounts of Moldtek Technologies for FY 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es. II. Coral Hub Limited ('Coral') Formerly known as Vishal Information Technologies Limited: 11. It was submitted that Coral Hub Limited (formerly known as Vishal Information Technologies Limited) is functionally different and operates on a different business model. It primarily outsources its work to the vendor's vis-avis the Assessee which carries out the entire work on its own. The relevant details are tabulated below: Computation of outsourcing cost to total cost of Coral: Particulars Amount (Rs.) Reference Salary cost 21,68,01,923 AR pg. 84 Total cost 25,07,83,662 As per TPO s order pg.100 11.1. Even though Assessee did not raise objections on Coral before TPO, it has raised ground on Coral before Ld. CIT(A). However, Ld. CIT(A) has rejected the contentions of assessee as it was not raised before the TPO. 11.2. Assessee placed reliance on the following Judicial precedents for rejection of Coral: United Health Group Information Services Pvt. Ltd. [ITA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... conciliation, metrics management and reporting services. Further there was an extraordinary situation of merger during the year. Eclerx acquired UK-based Igentica Travel Solutions Limited on July 27,2007. The integration process was on track as of March 2008. This fact was evident as per Page Nos. 14, 18 19 of annual report of Eclerx. The TPO did not agree to the contention of assessee that Eclerx is functionally different and involved in high end KPO services. However, assessee has not raised contention on extraordinary situation before TPO. Ld. CIT(A) rejected the contentions of assessee on functional difference, however has not commented on contention of assessee with regard to extraordinary situation of Eclerx. 12.1. Assessee placed reliance on the following Judicial precedents for rejection of Eclerx as a comparable company: Maersk Global Centres (India) Private Limited vs. ACIT, Mumbai (I.T.A. No.7466/Mum/2012/AY 2008-09); United Health Group Information Services Pvt. Ltd. [ITA No.6312/Del/2012/AY 2008-09]; Calibrated Healthcare Systems India Pvt. Ltd. [ITA No.5271/De1/2012/AY 2007-08]; Hyundai Motors India Engineering P. Ltd. [ITA No. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this company cannot be regarded as a comparable for the reason that it was having extraordinary event and super normal profits. Similar view was also taken in the case of Symphony Marketing Solutions India(p) Ltd (supra) by the Bangalore Bench. 12.3. Respectfully following the decision of the Coordinate Bench, we direct the AO/TPO to exclude Eclerx Services Limited from the list of comparables. IV. Mold-tek Technologies Limited ('Moldtek'): 13. It was submitted that this company is functionally different as it is engaged in providing engineering design services for construction of buildings by using design tools like CADI CAM, Stadd Pro by employing highly skilled software engineers for the purpose. These services are in nature of KPO and sharp contrast to the nature of work undertaken by assessee. Further, Teck-men Tools Pvt. Ltd. Was amalgamated with the Moldtek with effect from 01 October, 2006. There was a de-merger of Plastic Division of Mold-Tek which has been named as Mold Tek Plastics Limited after de-merger. This de-merger from the Mold Tek took place with effect from 01 April. 2007. As per page nos. 9, 10,41 42 of the annual report shows tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hnology (IT) division: The IT division (also referred to as the KPO division by the company) of the company specializes in providing structural design and detailing services which can be categorized as structural engineering services. The structural engineering services provided by the IT division of the company cannot be classified as falling with the scope and ambit of ITES services. On the contrary, the said services would fall under the category of engineering services. Excerpts from the Annual Report of the company Page 10 of the Annual Report for the FY 2007-08 contains the following observation regarding the KPO division of the Company: 'The Company has achieved about 56.49% growth in 2007-08 to register a turnover of ₹ 17.86 crore. The company having established its credentials in structural engineering services to US clients is devising aggressive marketing strategy to achieve rapid growth. This company is also engaged in providing a host of engineering services like civil and structural engineering services, mechanical product design, plant engineering, IT services and GIS services. As we have already seen, this company is to be classifi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ERNATIONAL CORPORATION LTD. This company is listed at Sl. No.11 in the list of comparable companies chosen by the TPO. As far as this company is concerned, the stand of the assessee has been that this company is functionally not comparable and that it has a different employee skill set and that this company performs R D services and also owns intangibles. This company is a geospatial services content provider specialising in land based technologies. From the notes to accounts of this company, it is seen that this company is engaged in providing geographical information services comprising of photogrammetry, remote sensing cartography, data conversion related computed based services and other related services. Further the business of this company requires skilled manpower and scientists, civil engineers, etc. Besides the above, this company also carries out R D services and own intangibles. The aforesaid facts, in our view, will take this company out of the list of comparables. Similar view was also taken in the case of Symphony Marketing Solutions India(p) Ltd (supra) by the Bangalore Bench. In view of the above, we are of the view that this company cannot be regarded as a co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Act and thus there will be no TP adjustment to assessee. 15.4. We have considered the rival contentions and perused the orders of earlier assessment years. As far as working capital adjustments are concerned, there is no dispute about the adjustment per se. the dispute is regarding the working of adjustment only. As regards the quantum of working capital adjustment, we direct the AO/TPO to verify the correctness of the amount of working capital adjustment claimed by the assessee and then decide as per facts and law. The ground is allowed accordingly . 23. Respectfully following the same, this ground of appeal is also allowed. 24. In the result, assessee s appeal is partly allowed. 25. As regards Revenue s ground of appeal, the Revenue has raised the following grounds: (i) The order of the Ld. CIT(A) is erroneous in law and fats of the case. (ii) The Ld. CIT(A) erred in not appreciating that communication charges are to be excluded from export turnover only while computing deduction u/s. l0A of the I.T. Act and not from total turnover as well as export turnover as definition of 'turnover' is not provided in Explanation-2 of Sec.10A for exclusion of such ..... X X X X Extracts X X X X X X X X Extracts X X X X
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