TMI Blog2017 (9) TMI 1642X X X X Extracts X X X X X X X X Extracts X X X X ..... nt Member Narendra Jain, CA for the Appellant. G.R. Reddy, CIT (DR) (ITAT) for the Respondent. ORDER Vijay Pal Rao, Judicial Member These cross appeals are directed against the assessment order dt.31.01.2014 passed under Section 143(3) r.w.s. 144C of the Income-tax Act, 1961 (in short 'the Act') in pursuant to the directions of the Dispute Resolution Panel (in short 'DRP') dt.30.12.2013 for the Assessment Year 2009-10. 2. First we take up the assessee's appeal wherein there is a delay of 3 days in filing the appeal before this Tribunal. The assessee has filed a petition for condonation of delay supported by an Affidavit. 3. We have heard the learned Authorised Representative as well as learned Departmental Representative and considered the relevant material on record on condonation of delay and carefully perused the contents of the Affidavit explaining the cause of delay of 3 days. It has been explained by the assessee that the Director of the assessee was out of India during the period and when he came back there was Saturday and Sunday therefore the appeal could be filed only on Monday i.e. 8.4.2014. The learned Authorised R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r doubtful debts as non- operating in nature while computing operating margins of comparables as well as appellant. 14. not making proper adjustment for enterprise level and transactional level differences between the appellant and the comparable companies. 15. ignoring the business, commercial and industry realities and economic circumstances applicable to the appellant. 16. not recognizing that the appellant was insulated from risks, as against comparables, which assume these risks and therefore have to be credited with a risk premium on this account. 17. not appreciating that the law does not compel adopting many (or any minimum) companies as comparables and that the appellant could justify the price paid/charged on the basis of any one comparable only. 18. not allowing the benefit of the +/-5% range mentioned in the proviso to section 92C (2). 19. levying a sum of ₹ 5,61,190/- interest under section 234B and ₹ 16,733/- interest under section 234D. 7. The only issue raised by the assessee in this appeal is regarding Transfer Pricing Adjustment and comparables selected by the Transfer Pricing Officer (TPO). The assessee provides software developme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder Section 92CA of ₹ 1,89,15,209. The assessee challenged the action of the TPO before the DRP. The DRP rejected the objections of the assessee against the comparables selected by the TPO however the DRP has included one company in the set of comparables viz. Tinksoft Global Services Ltd. which was initially proposed by the TPO in the show cause notice but was excluded on the ground that the working capital adjustment in respect of this company is very high. Thus the assessee is challenging the selection of comparables by the TPO. The revenue is aggrieved by the directions of the DRP in respect of the company Thinksoft Global Services Ltd. to be included in the set of companies. The assessee is now seeking exclusion of 5 companies from the set of comparables which are as under: (i) Kals Information Systems Limited (ii) Bodhtree Consulting Limited (iii) Tata Elxsi Limited (Seg.) (iv) Persistent Systems Limited (v) Infosys Limited. 9. The learned Authorised Representative of the assessee has submitted that the comparability of all these 5 companies have been examined by the co-ordinate Bench of this Tribunal vide decision dt.8.9.2016 in the case of Dy. CIT v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ware (P.) Ltd. (supra) in paras 11.1.1 to 12.3. We further note that the TPO has given the details of the functions of Persistent Systems Ltd. at page 23 of the impugned order which reveals that this company has a research centre for development of Informatics specially life time product, life cycle services, medical research, chemistry and computer science to help the customers to improve drug discovery and Research and instrument diagnostics. Thus it is clear that this company is in a different field from the assessee who is providing software services for the telecommunication sector. Accordingly, in view of the decision of the co-ordinate Bench of this Tribunal as well as the facts and circumstances as discussed above, we direct the TPO/A.O. to exclude these 5 companies viz. (i) Kals Information Systems Limited (ii) Bodhtree Consulting Limited (iii) Tata Elxsi Limited (Seg.) (iv) Persistent Systems Limited and (v) Infosys Limited from the set of comparables. 12. Another issue raised by the assessee is regarding forex gain/loss as operating in nature. 13. The ld. AR of the assessee has relied upon the decision of the Hon'ble Delhi High Court decision dt.23.3.2016 in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enses of ₹ 4,7,88,085/- and expenses incurred in foreign currency of ₹ 36,78,426/- from the export turnover also while computing the deduction u/s 10A of the I.T. Act, without. The appreciating the fact that there is no provision in ..section 10A that such expenses should be reduced from the total turnover also, as clause (iv) of the Explanation to section 10A provides that such expenses are to be reduced only from the export turnover. 4. The DRP erred in not appreciating the fact that the jurisdictional High Court's decision in the case of Tata Elxsi Limited 349 ITR 98 has not been accepted by the department and an appeal has been filed before the Hon'ble Supreme Court. 5. For these and such other grounds that may be urged at the time of hearing, it is humbly prayed that the order of the DRP be reversed. 6. The appellate craves leave to add, to alter, to amend or delete any of the grounds that may be urged at the time of hearing of the appeal. 17. Ground No. 1 is general in nature and does not require any specific adjudication. 18. Ground No.2 is regarding the directions given by the DRP to include Thinksoft Global Services Ltd. as comparable to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not be therefore taken as proper comparables. Reasons given by the TPO for excluding these two companies, appear at paras 3.6.5.1, of her order which reads as under: (b) Two companies proposed in the show-cause notice are functionally similar to the taxpayer. However, when the working capital of these companies is considered, the profit margin gets distorted. It may not be out of context to mention, that our search for comparable is primarily focus on those companies whose profit margin is predominantly from operating business and not from financial activities. This prerequisite is not different in case of software development companies as they do not need any interest bearing funds to manage their working capital requirement. Therefore, with the purpose to identify only those uncontrolled comparables who are having profit margin from core operating activities and not from financial activities, the following two companies having working capital impact of more than 4% on profit have been excluded. 21. TPO has accepted that these companies were functionally similar to that of the assessee. However, according to her, the margins of these companies had not come from its core oper ..... X X X X Extracts X X X X X X X X Extracts X X X X
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