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TMI Blog2017 (11) TMI 1636X X X X Extracts X X X X X X X X Extracts X X X X ..... nds as may be urged at the time of hearing, the order of the learned CIT(A) may be vacated and that of Assessing Officer be restored. 4. The assessee in CO No.43/PUN/2017 has raised the following grounds of objections:- 1. On the facts and in the circumstances of the case, the learned Assessing Officer („AO') has erred in objecting to the order of the Hon‟ble Commissioner of Income Tax (A)-13, [CIT(A)], wherein the Hon‟ble CIT(A) has excluded the comparables selected by the learned Transfer Pricing Officer („TPO‟) and to vacate the order of CIT(A) and that of the learned Assessing Officer („AO') be restored. 2. Without prejudice to the above, on the facts and in the circumstances of the case, the Hon'ble CIT(A) has:- 2.1 erred in rejecting certain comparable companies considered as comparable by AMC India in its transfer pricing study report. 2.2. erred in comparing the full-fledged risk bearing entities with AMC India‟s captive operations without making any risk adjustment for differences between the functional and risk profile of comparables vis-à-vis AMC India. 2.3 erred in computing the arm's length price wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ked out to 10.01%. For benchmarking the international transactions, the assessee had identified certain comparable companies on the basis of FAR analysis in the TP study report. The assessee had selected four companies as comparables and arrived at PLI of the comparables at 8.91% i.e. OP/OC based on the data for three years. The assessee claimed the international transactions to be at arm's length price. However, the first objection raised by the TPO was the use of single year data vis-à-vis multiple year data. The plea of assessee in this regard was not accepted by the TPO. Further, the TPO also rejected the external companies selected by the assessee as comparable i.e. Blue Star Design & Engineering Limited, E-Infochips Limited, Aftek Limited and Cades Digitech Private Limited. The TPO on the other hand, proposed selection of four new comparables i.e. Genesys International Corporation Ltd., Coral Hub Ltd. (Vishal Information Technology Ltd.), Accropetal Technologies and Tata Elxsi (Segmental). The TPO did not accept any of the objections raised by the assessee against the said new companies selected as comparables. The assessee also made a plea that if comparable Tata ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arable companies, in the absence of any arguments by the assessee, the same were rejected. The CIT(A) also directed the Assessing Officer to examine the assessee's contention and re-work the operating margins of comparable companies, if necessary. In respect of working capital adjustment, the TPO/Assessing Officer was directed to re-work the same. The CIT(A) upheld the order of TPO in not granting risk adjustment. In respect of deduction under section 10A of the Act, the CIT(A) upheld the order of Assessing Officer in granting set off of brought forward unabsorbed depreciation before granting deduction under section 10A of the Act. 7. The Revenue is in appeal against the order of CIT(A) in excluding the comparables selected by the TPO. 8. The learned Departmental Representative for the Revenue pointed out that in assessment year 2008-09, the assessee himself had picked up Coral Hub Ltd. as comparable. 9. The learned Authorized Representative for the assessee on the other hand, pointed out that Coral Hub Ltd. was not comparable since the financial accounting period was for period of 15 months. In this regard, he placed reliance on the ratio laid down by the Hon'ble Bombay High Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 32/2014 vide judgment dated 26.09.2016 have held that where the concern has different accounting period, then the same cannot be compared as comparable. The Hon‟ble Bombay High Court held that as per provisions of section 10B(4) of the Income Tax Rules, 1962 clearly mandates that the data to be used for comparability analysis should be of the same financial year in which the international transactions were entered into by the tested party. In view thereof, it held that where a concern has different accounting period, then the margins of said concerns are not comparable. Following the same parity of reasoning, we hold that Rolta India Ltd. Having different year closing than the assessee before us cannot be selected as comparable and consequently, direct the Assessing Officer to exclude the margins of the said concern from the mean margins of comparables." 11. Applying the said principle to the issue raised before us in the instant assessment year, we uphold the order of CIT(A) in excluding Coral Hub Ltd. from the final list of comparables. Even if concern is functionally comparable, it cannot be selected because of different accounting period. 12. The second aspect which nee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ear. The assessee further pointed out that annual report for financial year 2009-10 was available and from the same, it was pointed out that the said company was engaged in providing similar services as that of assessee and considering the fact that the annual report was also available in public domain, company should not be rejected and should be considered in the final list of comparables. The CIT(A) on the other hand, held that first of all, single year data had to be used. Therefore, the said company could not be held to be comparable on the basis of three years data. Further, he noted that the annual report for the said company of the relevant year was not available. He was of the view that where the Directors Report, Notes to accounts and Auditor's report provided useful quantitative as well as qualitative information about the business activity of the company during the year, for deciding the functional comparability of the company and for deciding the applicability of other filters and information i.e. RPT, happening of extraordinary events, etc. including segmental workings, etc. The CIT(A) held that the said information could not be gathered in the absence of annual repor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation available in public domain and accordingly, we direct the TPO to include Cades Digitech Pvt. Ltd. as comparable in the hands of assessee and re-work the mean margins of external comparables and also determine the arm's length price of international transactions. Before parting, we may also refer to the transfer pricing order for assessment year 2013-14 in assessee's own case, wherein Cades Digitech Pvt. Ltd. was considered as comparable for design engineering segment. Further, the Delhi Bench of Tribunal in Bechtel India Pvt. Ltd. Vs. DCIT in ITA No.1478/Del/2015, relating to assessment year 2010-11, order dated 21.12.2015 had also considered Cades Digitech Pvt. Ltd. as comparable for design engineering segment. In view thereof, the said concern is to be considered as comparable. Accordingly, ground of objection No.2.1 is thus, allowed. 18. The next issue raised vide ground of objection No.2.2 is against the claim of risk adjustment. The plea of assessee that risk adjustment should have been granted to the assessee for differences between functional and risk profile of comparable companies vis-à-vis assessee. The learned Authorized Representative for the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e vide ground of objection No.2.4 is against the order of CIT(A) in setting off of unabsorbed depreciation before allowing deduction under section 10A of the Act. 23. The learned Authorized Representative for the assessee pointed out that the deduction under section 10A of the Act is to be allowed first before adjusting unabsorbed depreciation. In this regard, he placed reliance on the following decisions:- a) CIT & Anr. Vs. Yokogawa India Ltd. (2017) 291 CTR 0001 (SC) b) CIT Vs. Techno Tarp and Polymers Pvt. Ltd. (2015) 97 CCH 0048 (Bom) c) Vishay Components India Pvt. Ltd. Vs. Addl. CIT (2015) 174 TTJ 354 (Pune) d) People Interactive (I) Pvt. Ltd. Vs. DCIT in ITA Nos.3558 & 3717/Mum/2016, relating to assessment years 2010-11 & 2011-12, order dated 28.12.2016 24. The learned Departmental Representative for the Revenue in reply, pointed out that the issue stands covered against the assessee by the ratio laid down by the Hon'ble Supreme Court Plastiblends India Ltd. Vs. Addl.CIT (2017) 86 taxmann.com 137 (SC). He further pointed out that the CIT(A) had relied on the ratio laid down by the Hon'ble Supreme Court in Himasingka Seide Limited Vs. CIT reported in 100 DTR 37 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r under appeal before us is assessment year 2005-06, wherein the said section has been amended and the deduction now is allowable to the assessee as against the said income being exempt in the earlier years. The issue is settled by the Hon‟ble Bombay High Court in CIT Vs. Black & Veatch Consulting Pvt. Ltd. (2012) 348 ITR 72 (Bom), wherein it was held as under:- "The deduction under s. 10A, has to be given effect to at the stage of computing the profits and gains of business. This is anterior to the application of the provisions of s.72 which deals with the carry forward and set off of business losses. A distinction has been made by the Legislature while incorporating the provisions of Chapter VI-A. Section 80A(1) stipulates that in computing the total income of an assessee, there shall be allowed from his gross total income, in accordance with and subject to the provisions of the Chapter, the deductions specified in ss.80C to 80U. S.80B(5) defines for the purpose of Chapter VI-A "gross total income" to mean the total income computed in accordance with the provisions of the Act, before making any deduction under the Chapter. What the Revenue in essence seeks to attain is to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court in the latest decision in CIT & Anr. Vs. Yokogawa India Ltd. (supra) while deciding the issue of whether brought forward and unabsorbed depreciation of 10A units or non 10A units could be set off against profits of another 10A units of assessee held that the amendment of section 10A of the Act by the Finance Act, 2000 w.e.f. 01.04.2001, especially used the word 'deduction of profits and gains derived by eligible unit'....., from the total income of assessee. The Apex Court thus, held that section 10A of the Act had changed its colour from being exemption section to a provision providing for deduction; yet it continue to remain in Chapter III of the Act. The Apex Court further referred to the Circular No.7, dated 16.07.2013 as well as Circular No.01/13, dated 17.01.2013, which appeared to be conflicting and contradictory to each other. The Hon'ble Supreme Court noted the contention of Revenue that by virtue of amendment made by the Finance Act, 2000, deduction under section 10A of the Act was required to be made and allowed at the stage of computation of total income under Chapter VI, notwithstanding the absence of any specific provisions in Chapter VI to the said effect. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this order, by holding that though Section 10A, as amended, is a provision for deduction, the stage of deduction would be while computing the gross total income of the eligible undertaking under Chapter IV of the Act and not at the stage of computation of the total income under Chapter VI. All the appeals shall stand disposed of accordingly." 29. The Hon'ble Supreme Court in CIT & Anr. Vs. Yokogawa India Ltd. (supra) thus, held that stage of deduction of profits and gains of the business of eligible undertaking had to be made independently i.e. immediately after stage of determination of its profits and gains. It was further laid down that provisions for set off and carry forward contained in sections 70, 72 and 74 of the Act would be premature for application. 30. The learned Departmental Representative for the Revenue on the other hand, placed reliance on the ratio laid down by the Apex Court in Plastiblends India Ltd. Vs. Addl.CIT (supra), wherein the claim of deduction was under section 80IA of the Act i.e. Chapter VI. The Apex Court held that the said deduction under section 80IA of the Act is to be allowed after reducing the depreciation for computing the profits eligi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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