TMI Blog2016 (3) TMI 1205X X X X Extracts X X X X X X X X Extracts X X X X ..... raised the following grounds of appeal: 1) The order of the Learned CIT (Appeals) in so far as it is prejudicial to the interest of revenue, is opposed to law and the facts and circumstances of the case. 2) The CIT(A) erred in directing the AO to re-compute the deduction allowable u/s 10A of the I.T. Act after reducing the communication charges from the total turnover also. 3) The Ld. CIT(A) ought to have appreciated that there is no provision in section 10B which requires the concerned expenses, which are required to be reduced from the export turnover as per clause (iv) of the Explanation to Section 10B to be reduced from the total turnover also. 4) The Ld.CIT(A) ought to have considered the fact that the jurisdictional High Court decision relied upon by him has not been accepted by the department and a SLP has been filed before the Hon'ble Supreme Court which is still pending. 5) The learned CIT(A) erred in holding that the size, turnover of the company are deciding factors for treating a company as a comparable, and accordingly erred in excluding Wipro BPO Solution Ltd and Sutherland Global Services Pvt. Ltd., as comparables in the segment. 6) The Ld CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nology Pvt. Ltd. is an appropriate comparable in contradiction to the information available in the consolidated financial statement that the primary operations of the group falls under a single business segment viz Export of computer software and therefore the company has a different functional profile as compared to the taxpayer. 15) The CIT(A) has erred in holding that M/s Apex Advanced Technology Pvt. Ltd. is an appropriate comparable given the facts that the comparable does not pass through all the filters applied by the TPO for the purposes of comparability analysis. 16) For these and such other grounds that may be urged at the time of hearing, it is humbly prayed that the order of the CIT(A) be reversed and that of the Assessing Officer be restored. 17) The appellant craves leave to add, to alter, to amend or delete any of the grounds that may be urged, at the time of hearing of the appeal. 3. Briefly facts of the case are that the respondent-assesseecompany is a company incorporated under the provisions of the Companies Act, 1956. It is a subsidiary of M/s.Speedera Network, Inc., USA. It is engaged in the business of providing back office support services which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3. CMC Ltd. 17.68% 1.46% 4. CS Software Enterprise Ltd. 11.21% 14.55% 5. Compudyne Winfosystems Ltd. -42.27% -123.00% 6. Fortune Infotech Systems 68.34% 17l.43% 7. Genesys International Corporation Ltd. 35.89% -2.06% 8. Mercury Outsourcing Mgt Ltd. 4.88% -36.94% 9. Nucleus Netsoft GIS Ltd. -0.17% 40.06% 10 Spanco Telesystems and Solution Ltd. 25.62% 22.89% 11 Transworks Information Services Ltd. -5.30% 2.87% 12 Vishal Information Tech Ltd. 33.87% 45.65% Total ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... finally selected at 23.01%. On the above said basis, the TPO computed the transfer pricing adjustment as follows: Arms length price @ 123.01% of operating cost . Rs.6,07,20,555/- Price received . Rs.5,43,38,993/- Shortfall being adjustment u/s 92CA ₹ 63,81,562/- 6. The AO passed an order u/s 143(3) dated 17/12/2008 incorporating the above adjustment and also reducing the communication expenses from the export turnover for the purpose of computing the deduction u/s 10A of the IT Act, 1961. 7. Being aggrieved, an appeal was preferred before the ld.CIT(A)-IV, Bangalore. It was contended before the ld.CIT(A), inter alia, that the very reference made by the AO to TPO is invalid in law. The ld.CIT(A), after upholding the validity of reference to the TPO, had held that the TPO was justified in rejecting the transfer pricing study analysis conducted by the respondent/assessee-company. On the issue of selection of comparables, the ld.CIT(A) upheld the application of the filter of export sales of 25% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t Technologies Ltd. 7.85 6 R Systems International Ltd. 8.12 7 Safron Global Ltd. 24.88 8 Transworks Information Services Ltd. 2.81 9 Vishal Information Technologies Ltd. 45.62 Arithmetic mean 17.91 The ld.CIT(A) further held that pre-operative and preliminary expenditure does not form part of the operating cost and consequently, the operating margin on total cost was calculated at 13.29%. 8. Being aggrieved by this order, the revenue is in appeal before us in the present appeal. 9. The revenue has raised 17 grounds of appeal. Ground No1, 16 17 are general in nature and do not require any adjudication. Ground Nos.2, 3 and 4 challenge the direction of the ld.CIT(A) that the communication charges should be reduced from the export turnover as well as the total turnover. The direction of the ld. CIT(A) is in consonance with the judgment of the jurisdictional High Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a fact that WIPRO BPO is a big company owning intangibles and having substantial brand value. It had generated considerable goodwill, reputation and brand value in the market. It is also a fact that it earns substantial revenue from products which are sold at a premium unlike the assessee which is only a contract service provider to its AE. Another relevant factor which cannot be lost sight of is, as can be seen from para 14.5 of his order, the TPO applying the turnover filter has excluded companies having turnover from ITES at less than 1 crore. Applying the same logic he should also have excluded companies having extraordinarily high turnover. While the assessee's turnover is about 5 crores, turnover of WIPRO BPO is 617.71 crores i.e almost 120 times more. Considering the aforesaid facts we are of the view that WIPRO BPO cannot be considered to be a comparable to the assessee. 10.2 In the case of Maersk Global Services Centre (India) P. Ltd. (supra), Mumbai bench of the Tribunal held that: Insofar as WIPRO BPO Solutions Limited is concerned, we find that their turnover is eleven times greater than that of the assessee. This company having such a higher brand value ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Your company was able to maintain the net profit at the same level as that of last year even though there has been substantial fall in revenue due to several cost cutting measures and improved margins in the business undertaken by the company. During the year under review the company has gone for acquisition of new products rights to strengthen its software products division. Besides these, the company has also undertaken several short-term training courses for companies and educational institutions resulting in healthy bottom line. With the Scheme of amalgamation of your company with M/s.Silicon Valley Infotech Ltd., Kolkatta, your company will be able to perform better in this area. Based on above Scheme of amalgamation, your company has made out one time settlement proposal to various institutions which will clear most of the liabilities of the company. 12.2 We have considered the rival submissions and material on record. From the above it is clear that the though there was fall in gross revenue, net profit could be maintained at the same level due to several cost cutting measures and improved margins in the business undertaken by the respondent-assessee-company. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the decision of Sapient Corporation Pvt.Ltd. vs. DCIT (11 Taxman.com 69)(Del). Subsequently, the co-ordinate (Bangalore) bench of the Tribunal in the case of Trilogy EBusiness Software India Pvt. Ltd. (140 ITD 540)(Bang.) held that there is no bar to considering companies having abnormal losses or profits as comparable as long as they are functionally comparable. The Tribunal however, held that if there are specific reasons for abnormal profits or losses or other general reasons as to why they should not be considered as comparable, then they can be excluded for comparability. It was further held that the onus lies on the tax-payer to prove the existence of abnormal factors. This decision was subsequently followed in: i. Auto desk (India) Pvt. Ltd. Vs. DCIT (ITA No.1108/ Bang/2010); ii. Yodlee Infotech (P) Ltd. Vs. ITO (31 taxmann.com 230)(Bang.Trib.) iii. BP India Services Pvt.Ltd. vs. DCIT (ITA No.4425/ Mum/2010 (Bom) iv. Rusabh Diamones vs. ACIT (TS-91-ITAT-2013- MUM-TP) v. ITO vs. Nextlinx India Pvt. Ltd. TS-722-ITAT- 2012(Bang)-TP vi. 24/7 Customer.Com Pvt.Ltd. vs. DCIT (140 ITR 344(Bang) vii. Exxon Mobil Co.India (P) Ltd . (46 SOT 294)(Mu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the AO to include this company in the list of comparables. These grounds of appeal of the Revenue are allowed. 15. Ground No.13 challenges the direction of the ld.CIT(A) directing the TPO to delete M/s.Maple e Solution Ltd., from the list of comparables. This comparable was chosen by the TPO and the ld.CIT(A) deleted from the list of comparable accepting the contention of the respondent-assessee-company that the company operated for a period of 4 months and the group to which the company belongs is under serious indictment and following the decision of the Delhi bench of Tribunal in the case of CRM Services India (P) Ltd. Vs. ITO (ITA No.4068/Del/2009). 15.1 The ld. DR vehemently argued that this company cannot be excluded from the list of comparables as the data available for 4 months can be converted into annual data. There is no allegation against the company that it is engaged in any fraudulent activities. On the other hand, ld.AR of the respondentassessee- company while reiterating the submissions made before the lower authorities, had placed reliance on the following decisions in support of the contention that this company should be excluded from the list of comparab ..... X X X X Extracts X X X X X X X X Extracts X X X X
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