TMI Blog2016 (6) TMI 1271X X X X Extracts X X X X X X X X Extracts X X X X ..... l turnover also for the purpose of computing deduction allowable to the assessee u/s 10A Rectification of mistake - A.O. has neither included any comparable nor excluded any comparable as had been directed by DRP - Held that:- There is no dispute that as per the directions of DRP, some comparables were to be excluded and some were to be included but as per the final assessment order, the A.O. has neither included any comparable nor excluded any comparable as had been directed by DRP and therefore, his order is in violation of sub section 13 of sec.144C. But this is also true that there is wrong observation in this final assessment order that DRP has confirmed the proposed assessment order. Under these facts, we find force in the submissions of the learned DR of the revenue that this is an apparent mistake in the assessment order rectifiable u/s 154 of the I T Act. Thus since the time limit of 4 years prescribed in section 154 has not elapsed, we feel it proper to restore the entire matter in this year to the AO to pass fresh assessment order as per the directions of DRP and thereafter, both sides are at liberty to file appeal before the tribunal if not satisfied with that ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arks of India ( STPI ) scheme and has availed tax benefits under section 1 OA of the Act 6.The learned AO/DRP/TPO erred in law and on facts by failing to appreciate that the Appellant has no incentive to shift profits outside India. 7.The learned AO/DRP/TPO erred in law and on facts by not appreciating that the Appellant is a captive service provider, carrying out limited functions and assuming limited risks. 8.The learned AOIDRPITPO erred in law and on facts by rejecting the Transfer Pricing documentation prepared by the Appellant in the manner as required under the provisions of the Act and Income-tax Rules, 1962 ( the Rules ). 9.The learned AO/DRPITPO erred in law by conducting a fresh search for comparable companies and by rejecting the search process carried out by the Appellant, without giving adequate reasons for the rejection. 10.The learned AO/DRP/TPO erred in law and on facts by rejecting the filters adopted by the assessee with new filters based on TPO s own judgment and perception. 11. The learned AOIDRPITPO erred in law and on facts by rejecting certain comparables considered by the Appellant, on grounds of functional dissimilarity and by applying fil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gh such information was not available in public domain to the Appellant at the time of conducting its own Transfer Pricing study. 21. The learned AO/DRPITPO erred in law and on facts, in making several observations and findings which are based on. incorrect interpretation of law and contrary to facts of the case. 22. The learned AO/DRPITPO erred, in law and on facts, by not providing the benefit of 5 percent range to the Appellant as envisaged under proviso to Section 92C(2) of the Act. 23. The learned collegium of Commissioners comprising the DRP erred in law and on facts, by not adhering to the procedure laid down in section 144C(5), 144C(6) and 144C(7) of the Act. 24. The learned AO erred in initiating penalty proceedings under section 271 (1 )(c) of the Act. CORPORATE TAX 25. The learned AO/DRP erred in re-computing the relief under section 10A at ₹ 2,057,394 as against ₹ 2,124,078 claimed by Appellant in its return of income for its STPI Unit in Pune , thereby making an addition of ₹ 66,684 to the returned income. 26. The learned AO/DRP erred in law in reducing an amount of INR 357,922 pertaining to telecommunication expenses from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee is pressing only ground nos.9,12,14 and 22 and the remaining grounds are not pressed. Accordingly, the remaining grounds are rejected, as not pressed. 5. Regarding these four grounds which are being pressed by the ld. AR of the assessee, it was submitted that that out of 28 comparables which are considered by the TPO as can be seen on pages 157 to 158 of the paper book, i.e. page no.2 3 of the TPO s order, it was pointed out that the international transaction in dispute is mainly regarding software development services of ₹ 15,03,62,370/-and the percentage of operating profit on operating cost of the assessee is noted by the TPO at 14.64% and the mean margin of 26 comparables is noted by the TPO at 25.14% before working capital adjustment and 22.74% after working capital adjustment. Thereafter, he submitted that in case of Hewlett Packard (Ind.) Software Operation Ltd., in ITA No.130(Bang)/2011 dated 09-03-2016 for the same assessment year, copy available in compilation of Case Laws paper book also, the same 26 comparables were adopted by the TPO and as per para 14 of the Tribunal s order rendered in the case of M/s Hewlet Packard (Ind.) Software Operation Lt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ). Hence, in our considered opinion, these two Tribunal orders are squarely applicable in the present case because ld. DR of the revenue failed to point out any difference in facts in the present case and in these two cases. As per para-14 of the Tribunal order in the case of M/s Hewlet Packard (Ind.) Software Operation Ltd. (Supra), the Tribunal held that 11 comparables i.e. M/s Avani Cimcon Technologies Ltd., 2) M/s Celestial Labs Ltd., 3) M/s EZest Solutions Ltd., 4) M/s Flextronics Software Systems Ltd.,(Seg.) 5)M/s Helios Matheson Information Technology Ltd.,6) M/s Infosys Technologies Ltd., 7) M/s Ishir Infotech Ltd., 8) M/s Kals Information Systems Ltd., 9) M/s Lucid Software Ltd;, 10) Persistent Systems Ltd., and 11)M/s Wipro Ltd., (Seg.) are to be excluded. Regarding M/s Megasoft Ltd., it was held by the Tribunal that M/s Megasoft Ltd can be considered for inclusion only after segmentation of its results. For the sake of ready reference, we reproduce para-14 of this Tribunal order is reproduced. In the tribunal order rendered in the case of M/s Meritor LVS India (P) Ltd., (Supra) also, para-14 of the Tribunal order is relevant which is also reproduced hereunder; 14. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duced the same from the export turnover but not from the total turnover for the purpose of computing deduction allowable to the assessee u/s 10A of the IT Act, 1961. It was held by the Hon ble jurisdictional High Court in the case of M/s Tata Elxsi ltd. (Supra) that total turnover is sum total of domestic turnover and export turnover and therefore, if an amount is excluded from the export turnover, the same gets automatically reduced from the total turnover. Respectfully following this judgment of the Hon ble jurisdictional High Court, we direct the AO/TPO to reduce this amount which was reduced from the export turnover from the total turnover also for the purpose of computing deduction allowable to the assessee u/s 10A of the IT Act, 1961. Accordingly, ground no.25 to 30 of the assessee s appeal are allowed. 11. Ground no.31 is consequential which is in respect of interest charged u/s 234B and 2345C of the IT Act, 1961 12. Now we take up cross appeals for the assessment year 2010-11 in , assessee s appeal and being revenue s appeal. Grounds raised in these two appeals are as under; IT(TP)A No.536(Bang)/2015 ( Assessment year :2010-11) 1. That on the facts and cir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... chnical services rendered outside India and should be reduced from the export turnover while computing the deduction under sec.10A of the Act. 9. That on facts and circumstances of the case and in law, the AO has erred in levying interest under section 234B and 234C of the Act. 10. That on facts and circumstances of the case and in law the AO has erred in initiating penalty proceedings under section 271(1)(c ) of the Act. Each of the above grounds are independent and without prejudice to the other grounds of appeal preferred by the assessee. The assessee prays for leave to add, alter, vary, omit, substitute or amend the above rounds of appeal, at any time before or at the time of hearing of the appeal . IT(TPA No.431(B)/2015 ( Assessment Year: 2010-11) 1. The revenue has raised the following grounds in its appeal; 1.On the facts and in the circumstances of the case the DRP erred in holding that the size and turnover of the company are deciding factors for treating the company as a comparable and accordingly, erred in excluding M/s Kals Information Systems Ltd., M/s Persistent Systems Solutions Ltd. M/s Tata Elxsi Ltd., M/s Evoke Technologies Ltd and M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4,5 6 are not pressed and the issue involved in ground no.7 8 is covered in favour of the assessee by the judgment of the Hon ble Karnataka High Court rendered in the case of CIT Vs Tata Elxsi Ltd. (349 ITR 98)(Kar.)(Supra) and ground no.9 10 are consequential. Accordingly, ground no.4,5 6 are rejected as not pressed and ground no.7 8 are allowed in line with our decision for assessment year 2007-08. 14. At the very outset, the learned AR submitted that the TPO s order is dated 30-01-2014 and the Draft Assessment Order (DAO) passed by the AO is dated 25-03-2014, wherein the DAO passed by the AO. As per the TPO s order, the TPO made an addition of ₹ 4,29,74,755/-. Thereafter, he pointed out that order of DRP is dated 10-12-2014 and as per para no.3.9 of DRP order, it was held that five comparables i.e. 1) M/s Kals Information Systems Ltd., 2) Persistent Systems Solutions Ltd., 3) M/s Tata Elxsi Ltd., 4) M/s Evoke Technologies Ltd., and 5) M/s Infosys Limited., should be excluded. He also drew our attention to para-3.1 of the DRP order, as per which the TPO was directed to include 8 cases as comparables and thereafter, to recalculate the correct transfer pricing ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... omparable nor excluded any comparable as had been directed by DRP and therefore, his order is in violation of sub section13 of sec.144C. But this is also true that there is wrong observation in this final assessment order that DRP has confirmed the proposed assessment order. Under these facts, we find force in the submissions of the learned DR of the revenue that this is an apparent mistake in the assessment order rectifiable u/s 154 of the I T Act. 17. Now we examine the applicability of various judgments cited by the learned AR of the assessee. First judgment cited by him is judgment of the Hon ble Bombay High Court rendered in the case of M/s Vodaone India Service Pvt.Ltd., Vs Union of India and Others (Supra). Learned AR of the assessee has drawn our attention to that para of this judgment where it is observed by the Hon ble Bombay High Court that conformity is synonymous to the word Compliance . There is no dispute on this aspect. Finally in Para 106 of this judgment, it was held that DRP would have the jurisdiction to rectify the error and issue necessary direction to the AO to complete the assessment in accordance with law. In para 107, it was held that there is no warra ..... X X X X Extracts X X X X X X X X Extracts X X X X
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