TMI Blog2017 (9) TMI 1602X X X X Extracts X X X X X X X X Extracts X X X X ..... dv. For The Respondent : Shri Amrendra Kumar, CIT DR ORDER PER SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER This appeal has been preferred by the assessee against the assessment order passed u/s 144C of the Income Tax Act, 1961 ( the Act ) subsequent to the directions of the Hon ble Dispute Resolution Panel-III, New Delhi dated 24.03.2014 and pertains to assessment year 2007-08. 2.0 Mentor Graphics Corporation, USA, hereinafter collectively referred to as 'Mentor Group', along with its affiliates and individually referred to as 'Mentor Corporation' headquartered in Wilsonville, Oregon, USA was incorporated in 1981. It is a technology leader in Electronic Design Automation (EDA) providing software and hardware design solutions that enable companies to develop better electronic products faster and more cost-effectively. Mentor Group offers innovative products and solutions that help engineers to overcome the design challenges they face in the increasingly complex world of board and chip design. It has the broadest industry portfolio of best-in-class products and is the only EDA Company with an embedded software solution. 59.83% of equity of Mentor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the then AO i.e. ITO, Ward 16(2), Hyderabad referred the matter to the Addl. CIT, Transfer Pricing Hyderabad vide letter dated 15.11.2011. Subsequently, the assessment jurisdiction of the case was transferred to DCIT, Circle 6(1), Delhi. Accordingly, the Transfer Pricing Reference u/s 92CA was also transferred to Addl. CIT, Transfer Pricing Officer, l-(3). New Delhi. A Draft Order under the provisions of section 144C was served on the assessee on 06.03.2013. The assessee filed its objections before the Hon'ble Dispute Resolution Panel- III, New Delhi on 05.04.2013. The objections of the assessee were disposed of by the Hon'ble Dispute Resolution Panel-III, New Delhi vide order dated 30.12.2013. The Hon'ble Dispute Resolution Panel-III, New Delhi vide its order dated 30.12.2013 has issued directions under section 144C after considering the Transfer Pricing adjustment and other additions made by the Assessing Officer in the Draft assessment order. The Hon ble Dispute Resolution Panel-Ill, New Delhi has directed the TPO to exclude Bodhtree Consulting Ltd from the final set of comparables thereby re-compute the arm s length adjustment of the assessee company. The final set ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nation 2 to Section 10A did not include telecommunication charges and, accordingly, deduction u/s 10A was recomputed at ₹ 15,50,62,490/- as against the deduction of ₹ 16,15,31,503/- claimed by the assessee. The Hon'ble DRP did not give any relief to the assessee on this issue also. Now the assessee has approached the ITAT and has raised the following grounds of appeal:- 1. On the facts and in law, the learned Transfer Pricing Officer (hereinafter referred to as 'Ld. TPO'), the learned Assessing Officer (hereinafter referred to as 'Ld. AO') and the Hon'ble DRP have erred in making an adjustment of ₹ 5,99,75,325 to the value of international transactions pertaining to provision of software development services by the Appellant under Section 92CA(3) of the Income-Tax Act, 1961 ('the Act'). 2. On the facts and in law, the Ld. AO/ Ld. TPO and the Hon'ble DRP erred in rejecting the Transfer Pricing ('TP') Documentation maintained by the Assessee u/s 92D of the Act read with Rule 10D of the Rules, inter alia rejecting comparables namely (a) Larsen Toubro Infotech Limited, (b) ICRA Techno Analytics Limited and (c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itiate penalty proceedings under Section 271(l)(c) of the Act. Corporate Tax 13. That on facts and in law the Ld. AO/ Hon'ble DRP erred in upholding that while computing deduction under section 10A of the Act, communication expenses of ₹ 36,370,508/- are to be excluded from within the ambit of export turnover as defined in Explanation 2 (iv) to section 10A of the Act. 13.1 That on facts and in law the Ld. AO/ Hon'ble DRP erred in not appreciating that recovery of expenses in respect of communication expenses were not included in the figure of export turnover considered by the Appellant while computing deduction under section 10A of the Act. 13.2 That notwithstanding and without prejudice to the above, the Ld. AO/ Hon'ble DRP has erred in not reducing the communication expenses from the total turnover (though said expenses have been reduced from export turnover) while computing the deduction under Section 10A of the Act. 13.3 That on the facts and circumstances of the case and in law, the Ld. AO/ Hon'ble DRP has erred in not considering various judicial pronouncements, including the jurisdictional High Court's decision in case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s own appeal for assessment year 2006-07 in ITA No. 1565/Hyd/2010b wherein vide order dated 21.9.2016, ITAT Delhi Bench I-1 had ruled that communication charges need to be excluded from both the export turnover as well as from the total turnover for the purpose of computing exemption u/s 10A of the Act. Ld. AR further submitted that this adjudication of the Tribunal had also been upheld by the Hon'ble Delhi High Court in the department s appeal against the said order of the Tribunal in I.T.A. No. 318/2017 vide order dated 2.5.2017. 4.0 Ld. CIT DR placed heavy reliance on the order of the TPO and read out extensively from the same while emphasising that each assessment order has to be looked into on a stand-alone basis and that the exclusion of comparables in the earlier years would not automatically lead to the conclusion that the same merited exclusion in the present year s appeal also. 5.0 We have heard the rival submissions and carefully perused the relevant material placed on record. As far as the issue of comparables is concerned, it is undisputed that the three comparables viz. Infosys, KALS and Tata Elxsi were excluded by the ITAT in assessee s own case for asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of Delhi in ITA No. 1204/2011. It is also seen that Infosys Limited was rejected in assessee s own case by the ITAT in ITA No. 2634/Del/2011 for AY 2005-06 and by the Hon ble DRP in assessment years 2010- 11 and 2011-12. Hence, in the light of the above judicial precedent, we order the exclusion of Infosys from the final list of comparables. 5.2 It is also pertinent to note that Infosys Limited was rejected by the ITAT in I.T.A. No. 2634/Del/2011 for assessment year 2005-06 and also by the Hon ble DRP in assessment year 2010- 11 and 2011-12. Further, the Hon'ble Delhi High Court has confirmed the order of the ITAT for assessment year 2006-07 in which this comparable was directed to be excluded. Accordingly, in light of the above judicial precedent, we order exclusion of Infosys Ltd. from the final list of comparables. 5.3 Similarly, the observations of the ITAT while excluding KALS Info Systems Ltd. are in Para 5.02 and 5.02.1. The same are being reproduced as under for a ready reference:- 5.02 KALS Info Systems Limited ( KALS ) The Ld. AR has submitted that this company has been included as a comparable on the ground that it was functionally comparable to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... segments viz. Systems Integration Support and Software Development Services. 5.04.1 It is seen that this company was excluded as a comparable on the ground that it was engaged in the development of specialized/niche products in the following rulings: JDA Software India (P) Ltd. Vs. ITO ([2016] 66 taxmann.com 327) (AY 2006-07), Yodlee Infotech P. Ltd. Vs. ITO [TS-63-ITAT-2013(Bang)-TP] (AY 2006-07), HCL EAI Services Ltd. Vs. DCIT [TS-133-ITAT-2013(bang)-TP], Goldman Sachs Services Private Limited [TS-435-ITAT- 2015(Bang)-TP] (AY 2006-07), Novell Software Development (India) P. Ltd. [TS-257-ITAT-2016 (Bang)] (AY 2007-08), Telecordia Technologies India P. Ltd. [TS-325-ITAT- 2012(Mum)] (AY 2007-08), Virtusa (India) Pvt. Ltd. Vs. DCIT [TS-253-ITAT-2013(HYD)-TP] (AY 2007-08). In Virtusa (India) Pvt. Ltd. Vs. DCIT [TS-253-ITAT-2013(HYD)-TP] the Hyderabad Bench of the ITAT in ITA No. 1962/Hyd/2011 followed the decision of the Mumbai Bench rendered in the case of Telcordia Technologies India P. Ltd. in ITA No. 7821/Mum/2011, wherein the Mumbai Bench had held that, From the facts and material on record and submissions made by the Ld. AR, it is seen that Tata Elxsi is engaged in developm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lock India Software (P) Ltd (ITA NOs 983 984/Hyd/2006) and ITO vs Sak Soft Ltd 313 ITR (AT) 353, had held that while calculating the deduction u/s 10A, if communication charges are excluded from the export turnover, the same are also to be excluded from the total turnover as both the numerator and denominator have to be of the same factor. On this issue, several benches of the ITAT are in favour of the assessee s claim including assessee s own case in Mentor Noida and we are inclined to accept the plea of the assessee that communication charges need to be excluded both from the export turnover as well as from the total turnover for the purpose of computing exemption u/s 10A and we direct the TPO/AO to recalculate the exemption by excluding the amount of impugned communication charges from both the total turnover as well as export turnover. This Ground is accordingly allowed. 5.8 Thus, this issue is also covered in favour of the assessee. Further, this adjudication of the Tribunal had also been upheld by the Hon'ble Delhi High Court in the department s appeal against the said order of the Tribunal in I.T.A. No. 318/2017 vide order dated 2.5.2017. Accordingly, this groun ..... X X X X Extracts X X X X X X X X Extracts X X X X
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