TMI Blog2017 (2) TMI 1351X X X X Extracts X X X X X X X X Extracts X X X X ..... on the facts of the case. 2. The Ld DRP/ Ld AO ought to have accepted the Profit margin of 3.09% adopted by the appellant as having complied with the arms length principle. 3. The Ld DRP/ Ld AO are not justified in law in considering wrong comparables and consequently arriving at a high arithmetic mean of 18.84% as a ratio of OP/OC. 4. The Ld DRP /Ld AO is not justified in law in making an adjustment u/s 92CA of ₹ 3,81,82,837/- to the price received by the appellant. 5. The Ld DRP erred in not accepting the assessee's contention of rejecting 12 companies on the grounds of functional comparability, Super Profit, High turnover companies. 6. Any other ground that may be urged at the time of hearing with the prior approval of the Hon'ble Tribunal . Additional Grounds 1. The learned TPO/DRP erred in making/ confirming an adjustment when the appellant company was claiming exemption u/s 10A and hence there is no intention to shift profits outside India and more so when the tax rates in USA where the AE is located were higher than those prevailing in India. 2. The learned AO as well as the CIT (A) failed to apply their mind to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Tribunal at Delhi in the case of Gruner India Pvt. Ltd vs. DCIT in ITA No.6794/Del/2015 dated 29.04.2016 and it has been held that the said decision is not applicable. 5. She also placed reliance upon the decision of the Hon'ble Punjab Haryana High Court in the case of Coco Cola Ltd vs. ACIT reported in (2009) 309 ITR 0194 wherein it was held that it is sufficient if opportunity is given by the TPO before making any ALP adjustment and it is not necessary that the AO should give an opportunity before making reference to the TPO. As regards the assessee s contention that the tax rates are very high in USA as compared to the tax rates in India, the learned DR has placed before us a document stating that in USA the statutory and corporate income tax rate is ranging from 15 to 35%. Therefore, according to her, the tax rates in US are not higher than in India and therefore, the assessee s contention that it cannot have any intention to shift profit from India to US cannot be accepted. The learned DR also submitted that the decision in the case of Aztech Software Technology Services Ltd Anr. Vs. ACIT covers the issue as the Special Bench of the Tribunal at Bangalore, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ational transaction of an assessee who is eligible for the benefit of deduction section 10A/10B or any other section of Chapter-VIA of the Act. Section 92(1) clearly provides that any income arising from an international transaction is required to be computed having regard to its arm's length price. There is no provision exempting the computation of total income arising from an international transaction having regard to its ALP, in the case of an assessee entitled to deduction u/s 80IC or any other such relevant provision. Section 92C dealing with computation of ALP clearly provides that the ALP in relation to an international transaction shall be determined by one of the methods given in this provision. This section also does not immune an international transaction from the computation of its ALP when income is otherwise eligible for deduction. On the contrary, we find that sub- section (4) of section 92C plainly stipulates that where an ALP is determined, the AO may compute the total income of the assessee having regard to the ALP so determined. This shows that the total income of an assessee entering into an international transaction, is required to be necessarily computed h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iew is fortified by the Special Bench order in the case of Aztech Software and Technology Services Ltd. vs. ACIT (2007) 107 ITD 141 (SB) (Bangalore) in which similar issue has been decided by the Special Bench by holding that availability of exemption u/s 10A to the assessee is no bar to applicability of sections 92C and 92CA. Similar view has been taken by Pune Bench of the Tribunal in the case of ACIT vs. MSS India (P) Ltd. (2009) 123 TTJ 657 (Pune) and several other orders. The reliance of the ld. AR on the order of the Mumbai Bench of the Tribunal in the case of DCIT vs. Tata Consultants Services Ltd. (ITA No. 7513/M/2010) dated 4.11.2015, in our considered opinion is misconceived, because, in that case, the Tribunal primarily found that the AO erred in not himself examining the issue of TP and failed to apply his mind to the TP report filed by the assessee. The last sentence in para 54 of the order upholding the assessee's contention that no TP adjustment can be made where the assessee enjoys benefit of deduction u/s 10A or 80HHE, etc., is only obiter dicta inasmuch as the addition was found to be not sustainable on the other main grounds as discussed in the body of the or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 23.7.2013 and 5.12.2013. After considering the T.P. report filed by the assessee and also the assessee s submissions at length, the AO observed that the assessee is offering span technology consulting, application services, systems integration, software development, maintenance, re-engineering, independent testing services, IT Infrastructure services and business process outsourcing. He observed that the services include maintenance, re-engineering technology, architecture, designing, testing, and implementation Technology and broad functional demeanor. Therefore, according to the TPO, the assessee is providing wide range of services to its AEs. The international transactions reported by the assessee are for an amount of ₹ 25,02,22,520 from the provision of software development services. The assessee has reported a margin of 3.09% by adopting the TNMM method. The assessee had adopted 5 companies as comparables and since the ALP of the assessee was within 5% range of the arithmetic mean margin of the comparables, the assessee treated the international transaction to be at ALP. The TPO, however, observed that the mode of search adopted by the assessee suffers from defects ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , in effect, the assessee is in appeal against the companies included by the TPO while the Revenue is in appeal against the exclusion of only Infosys Technologies Ltd and L T Infotech Ltd. The companies which are challenged by the assessee before us are as under: a) Comp-U-Learn Tech India Ltd b) E-Infochips Bangalore Ltd c) Evok Tech d) E-Zest Solutions Ltd e) Infosys Technologies Ltd f) Kals Information Systems Ltd (Seg.) g) Kulzia Tech h) L T Infotech Ltd i) Mindtree Ltd (Seg.) j) Sasken k) Tata Elxsi (Seg.) l) Zylog m) Persistent Systems Ltd 10. The learned Counsel for the assessee submitted that the assessee s turnover from the international transaction is only a sum of ₹ 25,02,22,520 whereas the turnover of the following 5 companies is more than 300 crores as given below: S.No Name of the company Operating Revenue OP/OC 1 Mindtree Ltd (Seg.) 7,38,41,68,041 20.47 2 Sasken 4,19,37,03,000 25.23 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only ₹ 25.00 crores as compared to the companies selected by the TPO which have more than 12 times the assessee s turnover. Therefore, we are satisfied that these 5 companies are to be excluded from the final list of comparables on the ground of high turnover. The AO is directed to exclude them from the final list of comparables. 14. Further, we also find that the Coordinate Bench of the Tribunal in the case of Pegasystems Worldwide (P) Ltd and also Symphony Services Pune (P) Ltd, Pune, have also held these companies to be functionally dissimilar as well. On this account also, these companies are liable to be excluded. 15. As regards E-Infochips Bangalore Ltd, it is the case of the assessee that this company is engaged in software product design for ISVs for semiconductor vendors and also in GUI software design for managing devices in medical, aerospace and defence, media and broadcasting and security surveillance industry verticals. Therefore, this company is having super profit of 73.2% and apart from this, the activities carried out by the said company are functionally dissimilar to that of the assessee company. It is also submitted that the Coordinate Bench of thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of comparables. Assessee also placed reliance upon the decision of the Pegasystems Worldwide (Supra) in support of its contention. 19. Having regard to the rival contentions and the material on record, we find that the Coordinate Bench of this Tribunal in the case of Pegasystems Worldwide has in fact observed and directed that these companies are functionally dissimilar to the software development companies like the assessee and have directed their exclusion from the final list of comparables. Respectfully following the same, we direct that these 2 companies are to be excluded. 20. The other two companies which are sought to be excluded are Evok Tech and Kuliza Tech on the ground of functional dissimilarities. According to the learned Counsel for the assessee, Evok Tech is engaged in activities such as application, development and maintenance, quality assurance and software testing, e-commerce, Product Engineering, Oracle EBS Analytics Big Data, Business Process Management etc., as is evident from the website. Therefore, according to the assessee, it is engaged in activities different in line to the activities of the assessee company and is therefore, to be rejected as a co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ounsel for the assessee, the filters adopted by the TPO for rejection of these two companies are not satisfied as the AO/TPO applied incorrect information to reject these 2 companies. The learned DR however, submitted that the TPO/AO have clearly brought out the distinguishing features particularly that these two companies are into development of products and therefore, have rejected the same. 25. Having regard to the rival contentions and the material on record, we find that the assessee has filed all the details relating to these two companies both before the TPO as well as the DRP. The TPO has rejected the companies on the ground that India Commet Intl. Pvt. Ltd fails diminishing revenue and persistent loss filter applied by the TPO, while Intertech Technologies Ltd failed the forex filter adopted by the TPO. We find that the assessee filed all the details before the DRP to substantiate its claim, but the DRP has failed to consider the same. In view of the same, we deem it fit and proper to remit the issue of comparability of these two companies also to the file of the TPO with a direction to consider the same de novo after giving the assessee a fair opportunity of hearing. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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