TMI Blog2016 (11) TMI 1499X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee is into the software development and providing call centre services exclusively to its AE, thus companies functionally dissimilar with that of assessee need to be deselctded from final list. - ITA No.831/Hyd/2009, ITA No.835/Hyd/2009 - - - Dated:- 30-11-2016 - Smt. P. Madhavi Devi, Judicial Member AND Shri S.Rifaur Rahman, Accountant Member For The Assessee : Shri Ravi Bharadwaj For The Revenue : Smt. U. Minichandran, DR ORDER Per Smt. P. Madhavi Devi, J.M. Both are cross appeals for the A.Y 2004-05 against the order of the CIT (A) dated 24.4.2009. 2. Brief facts of the case are that the assessee company, earlier known as M/s. Apollo Health Street Ltd, engaged in the business of healthcare related information technology and I.T. enabled services, furnished its return of income for the A.Y 2004- 05 on 1.11.2004 declaring total loss of ₹ 42,75,010. During the assessment proceedings u/s 143(3) of the Act, the AO observed that the assessee has entered into an international transaction with its AE which is the wholly owned subsidiary company of the assessee in USA. The computation of Arms Length Price (ALP) was referred to the TPO u/s 92CA of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeal: Based on the facts and circumstances of the case, Sutherland Healthcare Solutions Private Limited (hereinafter referred to as 'the Appellant') respectfully craves leave to prefer an appeal against the order passed by the Commissioner of Income Tax (Appeals)- III dated April 24, 2009 (hereinafter referred to as 'CIT(Appeals)') on the following grounds. 1. The Ld. CIT(Appeals) erred in facts and in law while disposing the appeal against the Order of Ld. Assessing Officer (' AO') passed under section 143(3) of the Income Tax Act, 1961 ('Act'). 2. The Ld. CIT(Appeals) erred in confirming that the deduction under section 10A of the Act is allowable from the total income of the business and not from the profit of the undertaking. 3. The Ld. CIT (Appeals) erred in law and in facts in confirming that Ld. TPO's rejection of the overseas Associated Enterprise of the appellant as the tested party disregarding the functional profile and business model of the appellant. 4. The Ld. CIT (Appeals) erred in law and in facts in confirming that Ld. TPO's rejection of the foreign comparable companies identified by the appell ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) Saffron Global Ltd VI) Suprawin Technologies Ltd VII) Asian Cerc Information Technology Ltd 11. Not granting TDS Credit of ₹ 4,01,357 . 5. At the time of hearing, the Revenue has raised an objection about the maintainability of the appeal on the ground that the Form No.36 has been signed by the Authorized Signatory and not by the Managing Director/Director as required under the provisions of Income Tax Appellate Tribunal Rules. In reply thereto, it is stated by the learned Counsel for the assessee that the assessee has filed the appeal on 3.7.2009 and Form No.36 and grounds of appeal were signed by the Authorized Signatory as he was so authorized by the Board of Directors. It is his case that this was done inadvertently. But subsequently, when the defect has been pointed out by the Tribunal during the course of hearing, the assessee immediately rectified the defect and the Form No.36 got signed by the Director (as the assessee was not having a Managing Director at that point of time) was filed. The copy of the Board resolution is also produced before us. It is submitted that the registry had not pointed out any defects. Therefore, according to the lea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e defect and immediately thereafter, the assessee has rectified the same by filing the revised Form No.36 duly signed by the Director of the said company. In the case of Lallooram Pyarelal (Cited Supra), the Delhi Bench of the Tribunal was dealing with a case wherein the memo of appeal and verification at the back of the memo of appeal was signed by the Managing Partner, but the grounds of appeal was not signed by the Managing Partner but was signed by its Counsel. It was in these circumstances that the Tribunal held that the grounds of appeal not signed by the Managing Director is a curable defect. In our opinion, this case is distinguishable from assessee s case and cannot be applied. 8. In the case of Harilelas (Cited Supra), the Mumbai Bench of the Tribunal, while dealing with an appeal wherein the memo of appeal and verification were signed by the constituted attorney, has followed the decision of the Hon'ble Orissa High Court in the case of Addl. CIT vs. K. Padmalochan Sahu (1974) 95 ITR 113, to hold that the defect is only an irregularity. The decision in the case of Wipro Information Technologies Ltd (Supra) is also similar. 9. In the case of Suvistas Software (P) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ;ble Karnataka High Court in the case of M/s Yokogawa India Ltd and therefore, has to be followed. 12. Having regard to the rival contentions and the material on record, we find that in the case of M/s Safran Aerospace India Pvt. Ltd vs. DCIT, the Coordinate Bench of this Tribunal has considered the effect of the judgment of the Hon'ble Karnataka High Court in the case of Yokogawa India Ltd and also the Hon'ble Supreme Court s decision in the case of M/s Himatasingike Seide Ltd and has held as under: 4.5 The Hon'ble High Court of Karnataka, in the case of Yokogawa India Ltd (supra) was considering the case of an assessee which was in the business of manufacture and trading of process controlled instruments and it had filed return of income declaring loss. During the assessment proceedings u/s 143(3), the AO had observed that the assessee had claimed exemption u/s 10A for its STPI unit before set off of brought forward losses and depreciation. The AO, therein, had also observed that 10A benefit can be given only after adjusting brought forward loss and depreciation from the total income of the assessee. Aggrieved, the assessee preferred an appeal before the CIT ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se of Indian Oil Corporation Ltd vs. State of Bihar others, reported in 167 ITR 897, the decision of the Hon'ble Karnataka High Court in the case of Yokogawa India Ltd.(supra) holds the field. Further, the Hon'ble Apex Court in the case of Vegetable Products Ltd., reported in 881TR 192 (SC) has held that where two reasonable constructions are possible, then the construction in favour of the assessee must be adopted. Respectfully following the said decision, we allow the ground of appeal We find that the above decision is in fact in favour of the assessee and respectfully following the same, the claim of the assessee is allowed and the AO is directed to allow 10A deductions in respect of the export business without setting of the loss from the non export business. Ground No.2 of appeal is accordingly allowed. 13. As regards Grounds 3 4 are concerned, it is the case of the assessee that for T.P. study, the party with least complex activities is to be considered as a tested party. He submitted that the assessee herein is the holding company performing the most complex of activities whereas the US subsidiary is the subsidiary with the least complex activities and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the information relating to both the tested party and also the foreign companies taken as comparables which are reproduced in the TP order. He has also drawn our attention to pages 113 to 122 of the Paper Book wherein, the filters adopted by the assessee and the basis for taking the companies as comparables are reproduced. The learned DR, however, pointed out that while explaining that the assessee has done research on the data base Global Symposium , it has clearly stated that it has not, in general, examined the published financial statements of the companies in its comparable study, nor has it otherwise enquired into the nature of the circumstances, activities or results and also further that the financial data provided in the Global Symposium for all the companies and the data is classified and treated in a manner that is unique to Global Symposium . Thus, according to the learned DR, the relevant financial statements have not been gone into by the assessee itself and therefore, the assessee s T.P. study for arriving at the comparable companies is not reliable. 16. Having regard to the above contentions and having perused the relevant documents in order to verify as to w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... zed services such as Title Plant maintenance and Electornic Data discovery which gives it an edge over other Indian Company competition thereby enabling it to generate higher revenues and margins. It was also submitted by the learned counsel for the assessee that it has a process of continuous in house R D process for upgradation of software and training its professionals to develop its own software to cater to the needs of its clients. On appraisal of the submissions and the material on record, it would certainly stand to reason that a company having unique software developed in house which also renders specialized services in its area of specialization gets that sort of competitive edge that gives it an advantage. Applying the principle that companies which are on similar standards only should be taken as comparables, we hold that this company which has unique intangibles cannot be taken as a comparable for the assessee and accordingly direct the Assessing Officer / TPO to exclude it from the list of comparables in this case . 15.3.4 M/s. Fortune Infotech Ltd. The learned counsel for the assessee contended that this company was using web based software, unique ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s comparables. Reliance for this proposition is placed on the decision of Mumbai Bench in the cases of Adobe Systems India Pvt. Ltd. v. Addl. CIT (44 SOT 49) (Delhi-URO), ITO v. Saunay Jewels Pvt. Ltd. (42 SOT 4) (Mum. - URO), Mentor Graphics, 2007-(112)-TTJ-0408-TDEL and the case of ITAT, Pune Bench in the case of E-Gain Communications vs. ITO 118 TTJ 354 and SAPIENT Corporation Pvt. Ltd. vs. DCIT (2012) 15 ITR (Trib.) 285 Delhi. 40. The DR submitted that M/s. Ultramarine Pigments Limited cannot be excluded from comparables. According to the assessee counsel, the AO was not correct in accepting this company which has 123% increase in revenue in one year, as a comparable in this case. However, the assessee itself has proposed this company as a comparable in their TP documentation. Further, it is seen that the TPO has considered only the segmental results, pertaining to F.Y 2003-04 in the case of the above company for comparability analysis in this case. As per the financial data pertaining to such segmental results, the amount of income is shown at ₹ 10.9 crores, which is comparable, keeping in view the turnover of ₹ 13.05 crores shown by the assessee for the Asst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A No.1494/Hyd/2010 wherein it has been clearly brought out that there were no related party transactions during the relevant A.Y and the TPO therein was directed to consider the same as a comparable company. For the sake of ready reference, Para 31 and 32 of the order are reproduced hereunder: 31. Regarding Ace Software Exports Ltd. the DR submitted that according to the assessee, the TPO erred in excluding this company for comparison on the ground that Director's Report of the company mentions that it has catered service exclusively to Apex Data Services Inc, a group company, that makes both Ace Exports and Apex Data as Associated Enterprises u/s. 92A(2)(i) of the Act. It was stated that the TPO has ignored the fact that, the financial statements nowhere mention that any sale/ purchase transactions have taken place with Apex Inc. during the relevant financial year. It was further submitted that the AO erred in treating the above company as functionally different from that of the assessee company. It was submitted that as seen from the annual report of Ace Software Ltd., for the year ended 31.03.2004, the sale transaction made by Ace Software Exports during the F.Y 2003-04 ..... 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