TMI Blog2015 (7) TMI 1276X X X X Extracts X X X X X X X X Extracts X X X X ..... Court) - Thus we direct the AO to allow the said expenditure in the hands of the assessee. TDS u/s 194C or 194I - Non-deduction of tax at source on rent paid towards service apartments - Held that:- These payments made are of ₹ 95,000/- each to three of the employees and not to the owner of the service apartments. Nothing has been brought on record by the AO that there is any contract between the assessee and the service apartment owner for rendering of any regular service during the relevant previous year. The services rendered by service apartments are similar to service rendered by Hotels and therefore clearly provisions of sec.194C are not applicable. Also even if it is exigible to tax as rent under section 194- I, the limit fixed for such application of the provision is ₹ 1,20,000/- for the relevant assessment year and therefore provisions of sec.194-I are also not applicable. - Decided in favour of assessee. - IT(TP)A No.1326/Bang/2010 - - - Dated:- 30-7-2015 - Smt. P. Madhavi Devi, Judicial Member and Shri Abraham P George, Accountant Member Appellant by: Shri Pravin Prasad. Respondent by: Shri G.R. Reddy, CIT(DR). ORDER Smt. P. Madhavi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purposes in denial of natural justice to be observed in the assessment proceedings. 4.2.1. interpreting the requirement of 'contemporaneous' data in the Rules to necessarily imply current year/ single year (i.e. FY 2005-06) data; and 4.2.2. expecting the Appellant to perform act of impossibility in terms of being able to use data subsequently available (i.e. during audit proceedings). 4.2 Disregarding application of multiple year/ prior year data as used by the Appellant in the TP documentation and holding that current year (i.e. Financial Year 2005-06) data for comparable companies should be used despite the fact that the same was not necessarily available to the Appellant at the time of preparing the TP documentation, and in doing so have grossly erred in: 4.2.1. interpreting the requirement of 'contemporaneous' data in the Rules to necessarily imply current year/ single year (i.e. FY 2005-06) data; and 4.2.2. expecting the Appellant to perform act of impossibility in terms of being able to use data subsequently available (i.e. during audit proceedings). 4. 3 Upholding the rejection of comparability analysis of the Appellant in the TP documen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n foreign currency of ₹ 16,40,0001- from the total turnover in computing deduction under section 10A of the Act. 12 The Learned AO has erred in considering interest amounting to ₹ 44,859/-, incurred on delayed remittance of tax deducted at source as penal in nature under section 37(1) of the Act and has erred has erred in adding the same to total income. 13 The Learned AO has erred in considering an amount of ₹ 285,0001/-, paid towards rent of serviced apartments, as payment made under section 194C of the Act and has erred in adding back the same to total income on account of non deduction of tax at source under 194C of the Act. 14 That the learned AO erred in consequently levying interest under section 2348 of the Act. 15 That the Appellant craves leave to add to and/or to alter, amend, rescind, modify the grounds herein above or produce further documents before or at the time of hearing of this Appeal. 3. Grounds of appeal Nos.1 to 4 are against the TP adjustment made by the Assessing Officer (AO) while grounds of appeal No.5 to 14 are against the corporate issues. 4. Brief facts of the case are that the assessee-company which is engaged in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d no fresh investigation of facts is necessary, we admit this ground of appeal and adjudicate as under: 6.1 We find that the TPO has taken the following 20 companies as comparable companies: 1. Aztec Software Ltd. 2. Geometric Software Ltd. 3. iGate Global Solutions Ltd. 4. Infosys Ltd. 5. KALS Info Systems Ltd. 6. Mindtree Consulting Ltd. 7. Persistent Systems Ltd. 8. R Systems International Ltd. 9. Sasken communication Ltd.(Seg.) 10.Tata Elxsi Ltd. (seg.) 11.Lucid Software Ltd. 12.Mediasoft Solutions Pvt.Ltd. 13.R S Software (India) Ltd. 14.SIP Technologies Exports Ltd. 15.Bodhtree Consulting Ltd. 16.Accel Transmatics Ltd.(seg.) 17.Synfosys Business Solutions Ltd. 18.Megasoft Ltd. 19.Lanco Global Solutions Ltd. 20.Flextronics Software Systems Ltd. The financial results of the assessee are as under: Description Software Development Services Others Amount Operating Revenue Rs.18,16,90,000/- Rs.31,02,000/- Rs.18,47,92,000/- Operating Cost Rs.16,49, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he same, we direct the AO to exclude these companies from the final list of comparable companies. 6.4 In addition to the above, assessee is seeking exclusion of the following companies on functional dissimilarity: 1. KALS Info Systems Ltd. 2. Tata Elxsi Ltd. (seg.) 3. Accel Transmatics Ltd. (Seg.) It is stated by the learned counsel for the assessee that the assessee had raised objections against these companies before the TPO as well as the DRP but the same has not been appreciated by the lower authorities. He relied upon various case-laws for exclusion of these companies on the ground of functional dissimilarity. The learned departmental representative, however, supported the orders of the authorities below. 6.5 Having regard to the rival contentions and the material on record, we find that with regard to KALS Info Systems Ltd., even before the TPO, the assessee has claimed that it was functionally different as it was engaged in production of software products and similarly with regard to Accel Transmatics Ltd., the assessee has claimed that it was into software product as well as that it has income from sale of IP rights and further that related party transa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. The assessee has objected to its inclusion on the basis that functionally the company is not comparable. With reference to pages 185-186 of the Paper Book, it is explained that the said company is engaged in development of software products and services and is not comparable to software development services provided by the assessee. The appellant has submitted an extract on pages 185-186 of the Paper Book from the website of the company to establish that it is engaged in providing of I T enabled services and that the said company is into development of software products, etc. All these aspects have not been factually rebutted and, in our view, the said concern is liable to be excluded from the final set of comparables, and thus on this aspect, assessee succeeds. Based on all the above, it was submitted on behalf of the assessee that KALS Information Systems Limited should be rejected as a comparable. We have given a careful consideration to the submission made on behalf of the Assessee. We find that the TPO has drawn conclusions on the basis of information obtained by issue of notice u/s.133(6) of the Act. This information which was not available in public domain could no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... permitted level and therefore should not be taken for comparability purposes. The submission of the ld. counsel for the assessee was that if the above company should not be considered as comparable. The ld. DR, on the other hand, relied on the order of the TPO. 50. We have considered the submissions and are of the view that the plea of the assessee that the aforesaid company should not be treated as comparables was considered by the Tribunal in Capgemini India Ltd (supra) where the assessee was software developer. The Tribunal, in the said decision referred to by the ld. counsel for the assessee, has accepted that this company was not comparable in the case of the assessees engaged in software development services business. Accepting the argument of the ld. counsel for the assessee, we hold that the aforesaid company should be excluded as comparables. 13. The facts and circumstances under which the aforesaid companies were considered as comparable is identical in the case of the Assessee as well as in the case of Triology E-Business Software India Pvt.Ltd. (supra). Respectfully following the decision of the Tribunal referred to above in the case of Triiology E-Business Soft ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and it was also functionally different from the assessee as it owns IPR s and intangibles and is involved in diversified operations; is also engaged in development of software products and is also engaged in research and development activity. He has also placed reliance upon the decision of the Hon ble Delhi High Court in the case of Agnity India Ltd. (ITA No.1204/2011 dated 10th July 2013), for exclusion of the said company from the list of comparables. We find that the Hon ble High Court, in the case of Agnity had held as under: 6. Learned counsel for the Revenue has submitted that the tribunal after recording the aforesaid table has not affirmed or given any finding on the differences. This is partly correct as the tribunal has stated that Infosys Technologies Ltd. should be excluded from the list of comparables for the reason latter was a giant company in the area of development of software and it assumed all risks leading to higher profits, whereas the respondent-assessee was a captive unit of the parent company and assumed only a limited risk. It has also stated that Infosys Technologies Ltd. cannot be compared with the respondent- assessee as seen from the financial da ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of appeal i.e. ground No.11 to grounds No.6 to 10 is covered in favour of the assessee by the decision of the jurisdictional High Court in the case of Tata Elxsi Ltd. reported in 349 ITR 98, respectfully following the same, we direct the AO to reduce these expenses both from export turnover as well as total turnover for computation of deduction u/s 10A of the Act. Thus grounds 6 to 10 are rejected and ground No.11 is allowed. 9. Ground No.12 is against the disallowance of ₹ 44,859/- incurred by the assessee on delayed remittance of tax deducted at source as penal in nature. The learned counsel for the assessee submitted that interest amount paid on delayed remittance of tax is compensatory in nature and is not penal in nature and therefore it is not disallowable u/s 37(1) of the Act. He submitted that interest has arisen due to non-deposit of TDS into the Government account in time and therefore it cannot be held as penal in nature. The learned departmental representative, however, supported the order of the AO. 10. Having regard to the rival contentions and the material on record, we agree with the contention of the learned counsel for the assessee that interest pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eimbursed to the employees for the expenses incurred by them towards stay during their training period. Therefore, according to him, it is not in the nature of rent and the provisions of sec.194C are not applicable. He further submitted that the amount paid to each of the employees was only ₹ 95,000/- whereas the limit fixed under the Act for exemption is ₹ 1,20,000/-. He, therefore, submitted that these amounts cannot be treated as rent and TDS provisions cannot be applied. The learned departmental representative, however, supported the orders of the authorities below. 12. Having regard to the rival contentions, we find that the AO has invoked the provisions of sec.194C to disallow the amounts paid by the assessee to its employees towards the use of service apartments during their training period. The payments made are of ₹ 95,000/- each to three of the employees and not to the owner of the service apartments. Further, nothing has been brought on record by the AO that there is any contract between the assessee and the service apartment owner for rendering of any regular service during the relevant previous year. We find that the services rendered by service ap ..... X X X X Extracts X X X X X X X X Extracts X X X X
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