TMI Blog2016 (3) TMI 1271X X X X Extracts X X X X X X X X Extracts X X X X ..... expenditure can be attributable to the telecommunication expenses which the provisions require exclusion from export turnover. However, since the amount of ₹ 1,38,70,965/- was considered as ‘telecommunication expenses’, which are reduced from export turnover, we direct the AO/TPO to exclude the same from also the total turnover while computing the deduction u/s. 10A of the Act. The jurisdictional High Court in the case of CIT Vs. Tata Elxsi Ltd. [2011 (8) TMI 782 - KARNATAKA HIGH COURT] has held that whatever is excluded from export turnover should also be excluded from the total turnover. Consequently, AO is directed to exclude the same from total turnover as well. Levy of interest u/s. 234B & 234D - Held that:- These are consequential in nature. However, AO is directed to give the working to assessee if any interests are being levied or charged while giving effect to this order. - IT(TP)A No.1036/Bang/2011 - - - Dated:- 18-3-2016 - SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SHRI NARENDRA KUMAR CHOUDHURY, JUDICIAL MEMBER For The Assessee : Shri Raghunathan S. For The Revenue : Ms. Neera Malhotra, CIT-II ORDER Per B. Ramakotaiah, Accountant Member ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TP adjustment of ₹ 20,71,18,264/-; and b. Adjustment of deduction u/s. 10A of the Act of ₹ 1,02,21,521/-; Assessee aggrieved and raised various grounds. 3. In assessee s grounds, assessee has raised general grounds with reference to TP studies under two segments and various filters, rejection of its TP study. It also raised additional grounds with reference to individual comparable companies both under IT Sector and ITeS Sector and these additional grounds, after taking due objections from the DR, are admitted as they did not involve any fresh examination of facts. TP adjustment in software development sector: 4. Final selection of comparable companies in software development segment is as under: Sl. No. as per TP order Name of the company Turnover (INR Crores) NCP computed by TPO (%) 1. Accel Transmatic Ltd., 9.68 21.11 2. Avani Cimcon Technologies Ltd., 3.55 52. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 62.58 26.51 25. Thirdware Solution Ltd., 36.08 25.12 26. Wipro Ltd., 9,616.09 33.65 4.1. Out of this, assessee is accepting the comparables at Sr. No. 4, 7, 13, 15, 19, 20, 21 23 Sl. No. as per TP order Name of the company Turnover (INR Crores) NCP computed by TPO (%) 4. Datamatics Ltd., (Merged) 54.51 1.38 7. Geometric Ltd., 158.38 10.71 13. LGS Global Ltd., 45.39 15.75 15. Mediasoft Solutions Pvt. Ltd., 1.85 3.66 19. Quintegra Solutions Ltd., 62.72 12.56 20. RS Software (India) Ltd., 101.04 13.47 21. R Syst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1. Company earning significant amount of brand profits. 2. Owns significant intangibles - had 44 global development centres of which 20 were located outside India. Also filed 38 patents and generated over 80 inventional disclosures during FY. 2006-07. 3. Company not comparable based on turnover criterion. 11. Ishir Infotech Ltd., 7.42 30.12 Fails employee cost filter - only 3.96% of the operating revenue of the company (schedule 15 on page 13 of the Annual Report and page 7 of the Annual Report for operating revenue) - Ishir is engaged in trading of services. 12. KALS Information Systems Ltd., 2.00 30.55 1. Functionally not comparable. -operates in two segments, namely (i) development of software and software products (ii) training services -The company is a product company - LV VISION virtual insure -company has IP 14. Lucid Software Ltd., 1.70 19.37 1. Functionally not comparable- Engaged in software product development. Com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t was admitted that these objections were considered in the Co-ordinate Bench decision in the case of Broadcom India Research Private Limited in IT(TP)A No. 1180/Bang/2011. Further, in the case of NXP Semiconductors India P. Ltd., Vs. ACIT in IT(TP)A No. 1174/Bang/2011 also examined the above comparables. Similarly in the case of Capgemini India P. Ltd., Vs. ACIT [46 SOT 195] (Mum) has also examined these comparables. In all these decision of the Co-ordinate Benches, the objections as stated in the above column were examined in detail and the above said companies were held to be not comparable to the functionality of the said assessee s company. Since the facts are similar and assessee s business is also similar and TPO has selected the same comparables, we are of the opinion that the said comparables listed above cannot be considered as suitable for inclusion in the list for TP analysis. AO/TPO is directed to exclude the above comparables. 4.3. The assessee is also objecting to the comparables of Flextronics Software Systems Ltd., at Sr. No. 6, IGate Global Solutions Limited at Sr. No. 9, Mindtree Limited at Sr. No. 17, Sasken Communication Technologies Limited at Sr. No. 22 on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 27.31 4. Apex Knowledge Solutions Ltd., 6.64 12.83 5. Apollo Healthstreet Ltd., 47.84 -13.55 6. Asit C Mehta Financial Services Ltd., 6.09 24.21 7. Bodhtree Consulting Ltd., 2.94 29.58 8. Caliber Business Solutions Ltd., 39.30 21.26 9. Cosmic Global Ltd., 4.28 12.40 10. Datamatics Financial Services Ltd -Seg 2.92 5.07 11. Eclerx Services Ltd., 86.12 89.33 12. Flextronics Software Systems Limited 12.93 8.62 13. Genesys International Corporation 19.17 13.35 14. HCL C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 12. Flextronics Software Systems Limited 12.93 8.62 13. Genesys International Corporation 19.17 13.35 15. ICRA Techno Analytics Ltd., 7.23 12.24 21. R Systems International Ltd., 17.34 20.18 26. Nittany Outsourcing Services Pvt Ltd., 23.23 11.50 6.2. Assessee is objecting to the balance of the comparables and objections of each of the comparables are as under: Sl. No. as per TP order Name of the company Turnover (INR Crores) TPO margins (%) (Pre WC adj) Summary of Applicant's Objections 1. Accentia Technologies Limited - Seg. 16.57 30.61 1. Extraordinary Events during the year - Amalgamation of subsidiaries resulting in growth of revenues by 100683% (r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Segment) (Pg 1162-1163 of PB 5). Thus, the TPO ought to have rejected Bodhtree as a comparable for AY. 2007-08 for the ITeS segment as well. 2. Peculiar circumstances - The company hived off certain business expenses without hiving off the revenue streame. The revenue of the company grew by 96.22% and the profitability of the company improved by 78.88% in AY. 2007-08 vis- -vis AY. 2006-07. 3. Segmental details not available in the Annual Report. 4. Segmental Information Obtained u/s. 133(6) contrary to the Annual Report. 5. Unique Intangibles (incurred trade mark expenses). 6. The entity has fluctuating margins. 11. Eclerx Services Ltd., 86.12 89.33 1. Functionally not comparable - provides industry specialized services like Data Analytics, Operations Management and Audits Reconciliation services which cannot be compared to a BPO or an IT offshoring company. 2. Launched and IPO in Dec 2007 - Reported high profits for 3 years on account of booking building for its upcoming IPO in December 2007. 3. Abnormal profits. 4. Directors involved in legal and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1. Unreliable financials - The business reputation of Rastogi group, owning Maple E Solutions and Triton Corporation was under serious indictment. In view of a question mark on the reputation of the owner for earlier years, it would be unsafe to take their results for comparison of the profitability of the Appellant. 2. Functionally not comparable - Voice - Outbound, Voice - Inbound, Data 3. Peculiar economic circumstances - Merger with Triton 4. Extraordinary growth - more than 64% growth in sales over previous year. 20. Mold-Tek Technologies Ltd., - Seg 11.14 113.49 1. Employee cost filter inconsistently applied The TPO applied the filter of employee cost to operating revenue less than 25% for the IT Segment but the same filter was not applied for the IT enabled services segment. 2. Low Employee cost -7.59% of sales. 3. Functionally not comparable - provides engineering design services for construction of building by using design tools like CAD/CAM, stadd pro by employing highly skilled software engineers. 4. Abnormal Growth - Growth of 204% in sal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mitted that these objections were considered in the Co-ordinate Bench decision in the case of i. Stream International Services (P) Ltd., [53 taxmann.com 19 (Mumbai-Trib) ; ii. M/s. Capital IQ Information (Systems) India Pvt. Ltd., - Hyd Trib. (AY. 2007-08) (ITA No. 1961/Hyd/2011); iii. Avineon India (P) Ltd., Vs. DCIT Hyd Trib (AY. 2007-08) (ITA No. 1989/Hyd/2011; iv. Zavata India (P) Ltd., Vs. DCIT Hyd Trib (AY. 2007-08) (ITA No. 1781/Hyd/2011; In all these decision of the Co-ordinate Benches, the objections as stated in the above column were examined in detail and the above said companies were held to be not comparable to the functionality of the said assessee s company. Since the facts are similar and assessee s business is also similar and TPO has selected the same comparables, we are of the opinion that the said comparables listed above cannot be considered as suitable for inclusion in the list for TP analysis. AO/TPO is directed to exclude the above comparables. 6.3. The assessee is also objecting to the following comparables of Allsec Technologies Ltd (Sr. No. 3): Assessee has objected to the above comparable on the reason that it incurs market ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an be excluded from the list of comparables. Accurate Data Convertors Ltd (Sr. No. 27): This comparable was objected to on the basis of employee cost filter as well as being in software development services. Considering the turnover of only ₹ 4.33 Crores, as compared to assessee s turnover of ₹ 161 Crores, we are of the opinion that this comparable is at the lower end of the turnover filter of ten times to assessee s turnover. In addition that considering the low employee s cost, we are of the opinion that this comparable can be excluded. 7. TPO is directed to rework out the Arithmetic Mean of the selected comparables and make the adjustment if any, after considering the proviso to Section 92C(2) of the I.T. Act. With these directions, the grounds and additional grounds raised by the assessee in this segment are considered partly allowed. Corporate Tax: 8. Assessee is objecting to computation done by the AO u/s. 10A by excluding expenditure of travel expenses, telecommunication expenses from the definition of export turnover. There is no evidence on record that travel expenses pertain to rendering of services. Travel expenses cannot be included in freight ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
