TMI Blog2017 (1) TMI 1565X X X X Extracts X X X X X X X X Extracts X X X X ..... Veenu Agarwal, ARs REVENUE BY : Shri Ramanjaneyulu, Senior DR ORDER Kuldip Singh, Judicial Member : The Assistant Commissioner of Income-tax, Circle 12 (1), New Delhi (hereinafter referred to as the Revenue ) by filing the present appeal sought to set aside the impugned order dated 23.02.2011, passed by the AO under section 143(3)/144C of the Income-tax Act, 1961 (for short the Act ) qua the assessment year 2007-08 in consonance with the orders passed by the ld. DRP/TPO on the grounds inter alia that :- 1. Whether Ld. CIT (A) was correct on facts and circumstances of the case and in law in directing to exclude M/s. Mold-Tex Technologies from the list of comparables? 2. Whether Ld. CIT (A) was correct on facts and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has made claim for deduction u/s 10A of the Act amounting to ₹ 2,07,56,617/- by filing Form No.56F along with the return of income. 4. However, pursuant to the order passed by the Transfer Pricing Officer (TPO), AO made an addition on account of Arms Length Price (ALP) to the tune of ₹ 2,08,34,850/- qua international transactions with Associated Enterprises (AEs) during Financial Year 2006-07. 5. Assessee company by using Transactional Net Margin Method (TNMM) as the most appropriate method with Operating Profit / Operating Cost (OP/OC) as the Profit Level Indicator (PLI) by selecting 11 comparables with three years weighted average margin at 6.88% vis- -vis assessee s margin at 12.20% and found its international transacti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the list of comparables and thereby restricting the addition from ₹ 2,08,34,850/- to ₹ 1,63,19,800/-. Now we are to examine if Mold-Tek Technologies Ltd. is a valid comparable for the purpose of determining the Arms Length Price (ALP) of international transactions of the assessee. This is TPO s comparable who has observed that as per the information and annual report submitted by the company, the IT Division of the company is mainly engaged in ITES, it qualifies all filters applied and as such, is a valid comparable. However, ld. AR for the assessee raised objections before the TPO for inclusion of this company on the ground that the margins are abnormally high. 10. However, CIT (A) accepted the assessee s contention and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ees are so extraordinary that they have accepted the lower wages and so hard for the company to generate that kind of profitability. In either situation, the company becomes not comparable to the appellant. Even on functionality ground Mold-Tek Technologies Ltd. is not comparable because the appellant is in the back office research services area whereas this comparable is mainly dealing in engineering design and detailing services, website design services, software testing, in-house software development etc. Therefore, I hold that this company should be excluded from the list of comparables. 11. When we examine the functional profile of assessee company vis- -vis Mold-Tek Technologies Ltd., both are functionally dis-similar. Undis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stems India Pvt. Ltd. (ITA No.5043/Del/2000 dated 21.01.2011), order to exclude this company from the list of comparables. 13. The contention of the ld. DR that the findings of the CIT (A) are based upon conjectures and surmises is not tenable in the light of the facts discussed herein above. So, keeping in view the functional disparity and factum of super abnormal profit and by following the decision rendered by ITAT, Hyderabad Bench in case cited as Capital IQ Information Systems (India) Private Ltd. (supra), we hereby uphold the order passed by CIT (A). GROUND NO.3 14. Expenses of ₹ 9,05,422/- on account of communication expenses has been disallowed by the AO from the export turnover but allowed by the ld. CIT (A). The ld. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of turnover. For this reason in addition, these two items would have to be excluded from the total turnover particularly in the absence of a legislative prescription to the contrary. The first question of law would therefore, have to be answered against the revenue and in favour of the assessee. 17. In view of what has been discussed above, the CIT (A) has rightly directed the AO to exclude the telecommunication expenses amounting to ₹ 9,05,422/- from the total turnover while calculating the deduction u/s 10A of the Act. So, this ground is determined against the revenue. 18. So, finding no illegality and perversity in the impugned order passed by ld. CIT (A), we hereby dismiss the appeal filed by the revenue. Order pronou ..... X X X X Extracts X X X X X X X X Extracts X X X X
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