TMI Blog2018 (4) TMI 1574X X X X Extracts X X X X X X X X Extracts X X X X ..... subsidiary of Cadence Design Systems Inc. and was established in India in order to undertake software development and research services, related information technology, back office support service and related pre sales marketing and post sales technological services in India. Assessee provides R D services and ITes services from its unit located in the Noida Special Economic Zone (SEZ) and the Software Technology Parks (STP) unit located in Bangalore. Further the IT group in India provides systems supports to all the Cadence offices across the world. They derive income in the business of development and export of computer software and providing technical support and training services. Assessee is a captive service provider and risk mitigated entity inasmuch as it is compensated on a cost place markup basis for the services rendered to its associated enterprise (s).For the AY 2011-12, the assessee filed the return of income on 25.11.2011 declaring a total income of ₹ 44,54,97,708/- and during the scrutiny learned AO found that during that year the assessee had the international transactions with associated enterprises, as such, referred the matter to the learned Transfer Prici ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... round No.16 relates to the interest, which is consequential in nature. 5. First of all, we shall deal with the software research and development services. In this segment, the assessee is compensated with cost plus mark up of 15% and the actual PLI of the assessee is 15.04%. Assessee entered into an agreement with the CDS for providing the research and development services on 1.1.2011. The functions performed and risks assumed by the assessee with regard to the provision for software research and development services, as spelt out in the transfer pricing documents form are as follows: Functional analysis The functions performed by Cadence India and CDS with regard to the identified transaction are outlined below: In order to understand the relative value of the product development work performed by Cadence India, one needs to understand the overall value drivers of software development performed by Cadence India. Conceptualization of services Software product lifecycle ( SPL ) is generally a 3 phase, multi step process involving Product Management team, Marketing team and Product Engineering team. The 3 phases of Product Engineering are Product Definition, Product ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sale of its products and services and undertakes functions such as customer lead identification, marketing and securing the orders for the products to be developed. As part of its marketing function, CDS is involved in the identification of key prospective customers and understanding their requirements. Being a captive unit of CDS, Cadence India does not undertake any marketing or business development functions. Requirement analysis CDS provides the software module specifications, instructions, product specifications for the software to be developed by Cadence India. Based on instructions/information provided by CDS, the requirements are internally analyzed by Cadence India and converted into functions and features of the intended application. Upon receiving the approval from CDS, Cadence India commences work. Coding, testing and documentation Cadence India undertakes code development in accordance with product specifications defined by CDS. The code generated is subsequently tested to ensure that functions performed by the code are in accordance with the protocol design and standard specifications, Cadence India generates and makes available documentation for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s risk rests with CDS. CDS is contractually liable to final customers for the products sold by it. Re-workrisk Re-work risk arises in a situation where the product sold/service provided does not meet the requisite quality/delivery standards and requires re-work. Cadence India is reimbursed all costs including re-work costs along with a specified mark up. Cadence India does not bear any re-work risk. Credit and collection risk When an entity supplies products or services to a customer in advance of customer payment, the firm runs the risk of default of such payment. Cadence India does not bear any credit and collection risk since it bills directly to its associated enterprise i.e. CDS, which makes payment on a monthly basis or in advance. Payment to Cadence India is not contingent upon payment received by CDS from its customers. However, CDS bears credit and collection risk as it sells its products to final customers. Foreign exchange risk Exchange rate risk relates to the potential variability of profits that can arise because of changes in foreign exchange rates and arises whenever the transacting currency of an entity is different from its functional curre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 23.91% 16 Quintegra Solutions Ltd. -0.29% 17 R.S. Software (India) Ltd. 11.99% 18 R. Systems International Ltd. (Segmental) 12.10% 19 Sasken Communications Technologies Ltd. 22.79% 20 Saven Technologies Ltd. (Consolidated segmental) 17.52% 21 Thinksoft Global Services Ltd. 11.54% 22 Thirdware Solutions Ltd. 21.75% 23 Zylong Systems Ltd. 16.64% Arithmetic Mean 12.84% 7. However, the learned TPO conducted a detailed analysis and selected following 19 comparable companies and reached the average OP/OC of 21.47%: S. No. Company Name OP/OC 1 Acropetal Technologies Ltd. (Segment) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompanies, vis., Infosys Limited, Wipro Technology Services Limited, Acroperal Technologies Limited (Segmental), E-Infochips Limited and E- zest Solutions Ltd. and also praying for inclusion of Seven companies, viz., CG VAK software Exports Ltd., Goldstone Technologies Ltd., Thinksoft Global Services Ltd., Cat Technologies Ltd., LGS Global Ltd., R. Systems International Ltd., and Blue Star Infotech Ltd. 10. Now we shall deal with the arguments relating to the inclusion or exclusion of these disputed comparables with reference to the documents available on record. Infosys Ltd.: 11. Assessee disputes the inclusion of this company on the ground of functional dissimilarity by stating that this company is engaged in technical consulting, design, development, re-engineering, maintenance systems integration, package evaluation, infrastructure Management services, etc. It is also submitted by learned AR that this company derives income from sale of software products such as Finacle Analyz, Flypp, iEngage etc. besides holding significant intangibles including brand value. This company operates at a very large scale with sales of ₹ 25,385 crores and earning super normal profi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) INFOSYS TECHNOLOGIES LIMITED (42.44%) 7. The assessee's main contention for exclusion of Infosys Technologies Limited had been that firstly, its services are incomparable with the assessee because Infosys is into technical consultancy design, development, re-engineering maintenance, system integration, package evaluation and implementation and infrastructure management services; secondly, it has huge R D work for its products, which are more than ₹ 267 crores, whereas in the case of the assessee it is Nil; thirdly, Infosys has huge intangibles and brand value is also huge whereas in the case of the assessee it is nil; and lastly, Infosys is into large scale of operations which is evident from the fact that during the year it had turnover of ₹ 20,265 crores, whereas in the case of the assessee, it is only 248.53 crores. Thus, the company having such a huge turnover cannot be held to be comparable under FAR. The TPO and DRP, held that revenue from software products of Infosys Technologies Limited is only ₹ 848 crores out of its operating revenues of ₹ 20,297 crores and its revenue from software services is ₹ 19,416 crores. Thus, software develop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The Hon'ble Delhi High Court in the case of CIT v. Agnity India technologies Pvt. Ltd. (supra) made a comparative chart while dealing with similar comparative analysis, which for sake of ready reference is reproduced hereunder:- Infosys Technologies Ltd. Assessee Basic Particular Risk Profile: Operate as full-fledged risk taking entrepreneurs Operate at minimal risks as the 100 percent services are provided to AEs Nature of services: Diversified-consulting, application design, development, re-engineering and maintenance system integration, package evaluation and implementation and business process management, etc. Contract software development services Turnover: 20,264 crores 209.83 crores Ownership branded/proprietary products: Develops/owns proprietary products like Finacle, Infosys Actice Desk, Infosys iProwe, Infosys mConnect. Also the company derives substantial por ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... super normal profits. However, learned TPO brushed aside the contention of the assessee stating that earning of super normal profits was made possible by the Wipro due to the commercial efficiency gained by them. 18. Learned DRP again placed reliance on Chrys Capital Investment Advisors (India) (P.) Ltd. case (supra) and Rampgreen Solution (P.) Ltd.'s case (supra). He observed that inasmuch as both Wipro and assessee are engaged in the development of software and software services, they are functionally similar and earning of super normal profits is of no consequence in respect of their comparability. 19. It is the argument of the learned AR that Wipro earns its entire income from services rendered to Citi Group of companies. According to him, the Wipro is engaged in IT software solutions/maintenance and technology infrastructure software services. Segmental information provided in its annuals is insufficient. Wipro with its profit rate of 54.42% earns super normal profits. He placed reliance on the decisions of the coordinate benches of this tribunal in Orange Business Services India Solutions P. Ltd. vs DCIT in ITA No.869/Del/2016 and Ness Technologies (India) P. Ltd. v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vice agreement with Citi Group Inc. for delivery of technology infrastructure services Ltd. and application of maintenance service for a period of six year under the agreement dated 21.1.2009. This fact could not be refuted by the revenue. 23. In Orange Business Service Solutions case (supra), under very similar circumstances found that Wipro Technologies Services is not a good comparable inasmuch as this company is a subsidiary to Wipro Ltd. and the entire revenue during the year is covered by a master service agreement entered into by break through with Citi Group services. Further, vide schedule No.18.9 it is clearly stated that this company is engaged in providing software related support services primarily information technology software solutions/maintenance and technology infrastructure support service to Citi group entities globally and it is considered as one segment. 24. We, therefore, find no reason not to believe that the entire revenues of this Wipro Technology services Ltd. are covered during the year by the master service agreement between Wipro Ltd. and Citi Group Inc. For this reason, we do not agree with the authorities below that this is a good comparable t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ass the filter, to exclude the same. E-Infochips Limited: 31. Assessee resisted the inclusion of this company in the list of comparables mainly contending that the company's revenue from software development services is less than 75% of its operating revenue and also that it is engaged into diversified activities as could be seen from the annual report of this company. Earning of super normal profits was also contended before the ld. TPO. However, ld. TPO observed that the assessee is also engaged in Semantics, under two heads of income i.e. income from software development and income from IT services which put together amounts to 86% of the total income, as such the assessee cannot insist on considering the income only from software development. He further observed that the other activities are of very small volume and integrally connected with the function of providing software services. 32. Ld. DRP observed that the revenue from software services of this company is as high as 85% of total receipts and there was no earning from sale of software products. Only a small component of earning is from hardware. Following Chrys Capital Investment Advisors (India) (P.) Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uring the relevant period was a small fraction of the proportionate cost incurred by the Assessee, apparently, for the reason that most of its work was outsourced to other vendors/service providers. The DRP and the Tribunal erred in brushing aside this vital difference by observing that outsourcing was common in ITeS industry and the same would not have a bearing on profitability. Plainly, a business model where services are rendered by employing own employees and using one's own infrastructure would have a different cost structure as compared to a business model where services are outsourced. There was no material for the Tribunal to conclude that the outsourcing of services by Vishal would have no bearing on the profitability of the said entity. 37. In Ness technologies (India) (P.) Ltd. case (supra) this aspect was argued before the Mumbai Tribunal. Having considered the rival contentions in the light of the annual report of this company and also the decision of a coordinate bench of Delhi Tribunal in the case of Saxo India (P.) Ltd. (supra), it was held that this company is not a good comparable and deserves to be excluded from the final set of comparables for benchmark ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opment, custom software development/bespoke software development, independent software testing, RIA/Ajax application development etc and technology expertise of this company includes the technology competency centers in relation to Microsoft competency Centre, Sun Java competency Centre, open source competency Centre, Cloud computing practice, mobility practice and BI practice. 40. Ld. TPO observed that an independent enterprise that has to survive on its own will make efforts to have different customers, i.e., unlike the assessee which actually faces a single customer risk. He further observed that the assessee has not recognized with this risk in its risk metrics. He, therefore, using his company as a comparable. 41. Ld. DRP considered all the submissions of the assessee in detail but held that this company is engaged in software development service, as such is a valid comparable to the taxpayer. 42. It is the submission of the Ld. AR that page No. 39 of the annual report of this company under the heading, shows an entry relating to increase/(decrease) in stock. Further, at page No. 42 of the annual report white schedule 7 inventory is there is an entry work in process. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... raised by the assessee on the ground that as per the information received in response to notice under section 133(6) of the Act, this company is engaged in software development services and satisfies all the filters. 14.2 Before us, the learned Authorised Representative contended that this company ought to be excluded from the list of comparables on the ground that it is functionally different to the assessee. It is submitted by the learned Authorised Representative that this company is engaged in 'e-Business Consulting Services', consisting of Web Strategy Services, I T design services and in Technology Consulting Services including product development consulting services. These services, the learned Authorised Representative contends, are high end ITES normally categorised as knowledge process Outsourcing ('KPO') services. It is further submitted that this company has not provided segmental data in its Annual Report. The learned Authorised Representative submits that since the Annual Report of the company does not contain detailed descriptive information on the business of the company, the assessee places reliance on the details available on the company' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which come under the category of capable services and on the ground is not comparable with a company which is into software development services. Though the Ld. DR stated that in the entire annual report there is no mention as to the sale of any product and entire income is from service, there is no explanation forthcoming before us justifying the entries at page No. 39,42 and 48 of the annual report on the aspect of inventories. 46. Having regard to the facts and circumstances of the case and more particularly in view of the profile of the easiest solutions as could be found in the annual report of this company in detail, where of the considered opinion that this company is rendering broad portfolio of services including product engineering and software development. It has a special expertise in emerging technologies such as cloud, SAAS, business intelligence and mobility etc and it also holds and maintains inventory. For these reasons as has been held in Symantec Software and Services India (P.) Ltd. case (supra), we find that while the assessee is into software development services, E-Zest solutions Ltd is engaged in product engineering services in the nature of High end kno ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is the submission of the assessee that the revenue from software services is more than 5 crores of rupees and the company passes the employee cost filter with the 69.45%. It is further submitted that there is no change in business model from the earlier years. In respect of AY 2009-10 the tribunal included this company in the set of comparables whereas for the AY 2010-11 Ld. DRP accepted this company. He, therefore, submits that in all fairness this company should have been included in the set of comparables. 52. We have perused the annual report of this company. At page No. 19 thereof under the head expenditure the cost of service is noted. Except this, we will not find any expenditure relating to the employee cost whether it is called salaries and wages so on and so forth. There is no dispute that this company is engaged in software development service. Further the revenue from software development, services and products is ₹ 6,29,80,650/-which includes ₹ 5,24,54,418/- from offshore software services. For AY 2009-10, in the order of the Tribunal vide paragraph No. 18 it is noted that for such assessment year the TPO and DRP rejected this company on the ground that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and is otherwise comparable with the assessee, but for want of the financial statements for the entire period of financial year 2010-11. Now it is submitted that the quarterly financial statements are available for FY 2010-11. In these circumstances, we direct the Ld. TPO to consider the quarterly financial statements for FY 2010-11 for the purpose of inclusion are otherwise of this company. Goldstone technologies Ltd 55. Assessee contends that this company is functionally comparable as is engaged only in software development activities. It is brought to our notice that fire AY 2010-11 this company was accepted as a good comparable by the Ld. DRP. Ld. ADR placed reliance on the orders of the authorities below. 56. We have gone through the order dated 11/11/2014 passed by the Ld. DRP in assessee's own case for AY 2010-11 and found from para No. 48 thereof that the Ld. DRP recorded that this company is into IT services, software development and ITES services sector which is also the domain of the taxpayer as can be seen from the profile of the taxpayer mentioned in para 2 of the order. It is not the case of the Revenue that there is any change in the business model of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . It therefore appears that the percentage of the export sales to the total operating revenue is about 87.44% and thereby this company passes the export filter. As a matter of fact, this point was argued before the Ld. DRP. However, Ld. DRP did not touch this point in the discussion but stated that this company is functionally different inasmuch as it is into software testing services. 60. Be that as it may, there is no dispute that this company was accepted by the Ld. TPO in taxpayer's own case for the immediately preceding year and no change of circumstances either in the business model of the assessee or that of the comparable are brought to our notice. This suggests the functional comparability of the company to that of the taxpayer. We, therefore, direct the Ld. TPO to verify the export sales vis-a-vis the total operating revenue from the annual report of this company and to include it in the list of comparables if it passes the export earnings filter. Cat technologies Ltd 61. Ld. TPO rejected this company on the ground that it is functionally different and has RPT in excess of 25% of sales. Ld. TPO recorded that this company is involved in a variety of services a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the aspect of employee cost filter has to be considered. 65. It is argued on behalf of the assessee that the employee cost of LGS global Ltd is 91.41% of the total costs. It is argued that the Ld. TPO relied on the terminology used in the profit and loss account Purchase And Personal Cost to hold that it indicates a combination of two expenses, namely, Purchase and Personal Cost , but while doing so the Ld. TPO failed to appreciate that this terminology has been used for employee related costs only as there are no dealings of tangible items in this company. It is further submitted that this fact is also evident from the fact that the LGS Global does not have any inventory of stock in trade of goods are revenue from sale of such purported purchased items. This is a verifiable fact. Ld. TPO has to verify whether there is any inventory or stock in trade of goods or revenue from the sale of such purported items, in the absence of which it is reasonable to believe that the expense under the head Purchase and Personal cost would amount only employee related cost. We, therefore, set aside this issue to the TPO to cast the above verification and to treat the purchase and person ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es not bear any credit and collection risk since it transacts with its associated enterprise i.e. CDS Service liability risk Service liability risk is borne by a company when its service offerings fail to perform at accepted or advertised standards and the company is required to compensate the customer or undertake defect resolution at its own cost. CDS is the ultimate contracting entity and therefore assumes the overall responsibility for the quality of the services rendered by Cadence India. Therefore, CDS bears the ultimate service liability risk. Utilization risk Utilization risk relates to the possibility of non-recovery of fixed costs being incurred. This may happen due to circumstances such as lack of production, lack of demand, inability to recover prices, etc. Provision of services requires substantial investment in infrastructure, in terms of premises, equipment, connectivity, etc. The risk of optimal utilization of capacity is borne by the entity making the investment. Since, Cadence India is compensated on a total cost plus mark up basis by CDS, it is assured of the recovery of costs of any underutilized/unutilized resources. Thus, Cadence India is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6 Coral Hub Ltd. 41.04% 7 Cosmic Global Ltd. 32.71% 8 Fortune Infotech Ltd,. 9.95% 9 Informed Technologies India Ltd. 23.94% 10 Infosys BPO Ltd. 22.53% 11 Jeevan Softech Ltd. (Segmental) 46.34% 12 Jindal Intellicom (P.) Ltd. 6.39% 13 Microgenetics Systems Ltd. 0.87% 14 R. Systems International Ltd. (Segmental) 5.01% Arithmetic Mean 18.09% 68. However, learned TPO selected the following seven comparables with an average PLI of ₹ 31.74 and proposed an adjustment of ₹ 7,10,53,705/-. S.No. Name of the company OP/OC 1 Accentia Technologies Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erating income of the company and also that these activities are in the nature of DPO or back office services. Learned DRP observed that the profile of ATL is similar to the taxpayer and ATL is into IT enabled services. 73. It is the argument of the learned AR that Clause 5 of the notes to the accounts on segmental information reads that the company has only one segment of activity, viz. Health care Receivable Management . It is so mentioned at page no.53 and 70 of the annual report. Basing on the diversified activities of this company as enumerated particularly at page nos.23 to 34 of the annual report, learned AR argued that this company is not a good comparable. He further brought it to our notice that in assessee's own case for the Asstt. Years 2009-10 and 2010-11, this company was found to be functionally different from the assessee. 74. Per contra, learned DR submitted that ATL is not a software development company and as could be seen from the financials of this company vide schedules forming part of the consolidated balance sheet at page no.67 under schedule 8 the company earns its income from health care information technology management. He further submitted th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its high end KPO functions. Even if we assume for a while that there is an element of development and support of software service in assessee's functionality, still the proportion of scale is very huge. 77. Further, no change of functionality of either the ATL or the assessee is brought to our notice so that we can take a different view from the one taken in earlier years. There is no denial of the fact in the earlier years i.e. AY 2009-10 and 2010-11 this company was held to be functionally different from the assessee. However, in 2009-10, there was acquisition of Oak technologies. The observations of the Tribunal in respect of this company in the order relating to the AY 2009-10 are extracted in the order for the AY 2010-11. Independent of the acquisition, the fact stares at the face of the revenue and that there is consistent finding that ATL is functionally different from the assessee and in the immediately preceding paragraphs we also found so. We, therefore, hold that the ATL cannot be included in the list of comparables and the same is directed to be deleted from the list. EClerx Services Ltd.: 78. Assessee objected the inclusion of this company on the ground o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contentions now advanced before us and reached a conclusion that eClerx is a best KPO company, outsourcing substantial work to third parties during that year whereas the assessee was providing back office support services with their own human resource. On that score applying the ratio of Rampgreen Solution (P.) Ltd.'s case (supra), eClerx was directed to be excluded from the list of comparables. 82. Further for AY 2010-11, vide item No.5 of paragraph no.6.9.25 at page No.44 and 45 ld. DRP considered the functionality of eClerx Services ltd. at length and in detail to held that the eClerx operates in an entirely different domain and not a good comparable. In the absence of any explanation as to the non applicability of these findings for the current year, we do not find any reason not to accept the same or to take a different view. We, therefore, direct the ld. AO/TPO to exclude this company from the list of comparables. Infosys BPO Limited and TCS E-Serve Limited: 83. Now coming to Infosys BPO Limited and TCS E-Serve Limited, these two companies are disputed by the assessee on the ground of functional dissimilarity inasmuch as Infosys BPO Ltd. is providing high end in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry of Tata consultancy services Ltd, which is one of the leading and gentle company in the world and has an inherent element of very high brand value associated with it. Such a high brand value definitely has an impact on the pricing policy, niche market, contractual terms, etc. and thereby affecting the profit margins. Annual report of this company reflects that used payments have been made by TCS e-serve to TCS Ltd further use of the brand as a royalty . This fact itself shows the effect of brand value in the pricing mechanism. And further analysis it is the same that the employee cost base is more than 64 times than the assessee and even the turnover is also more than 67 times as compared to the assessee. This only goes to suggest that assets employed by TCS e-serve along with Hughes intangibles in the form of brand value definitely has a huge effect in PLI and vitiates the comparability under FAR analysis with a company like assessee which is a captive service of either without much intangibles and risks. Another important thing which has been pointed out by Ld. counsel is that, the operation of TCS e-serve broadly comprise of transaction processing and technical services ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the opinion of Court cannot be termed as unreasonable. The rationale for exclusion is, therefore, upheld. 87. It is, therefore, clear now that in spite of a close functional similarity between the assessee and the TCS E-serve, in view of the close connection between TVS e-serve and Tata Consultancy Services Ltd., which is a high brand value; that distinguished it and marked it out for exclusion. The rationality for exclusion adopted by the Tribunal basing on the brand value associated with TCS Consultancy which reflected an impacted TCS e-serve profitability in a positive manner is upheld by the Hon'ble jurisdictional High Court which is binding on this Tribunal. Merely because the binding precedent of the Hon'ble High Court in this order dated 28.11.2017 was not brought to the notice of the Tribunal when it pronounced its order on 5.11.2018 does not make any difference on the binding nature of this decision or its applicability to the facts of the present case. As a matter of law, had such decision been brought to the notice of the Tribunal in assessee's own case for the AY 2010-11, still it would have bound the Tribunal to follow the same. In the circumstances, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or Cadence Design Systems India (P.) Ltd. (supra) relying on the Hon'ble Delhi High Court ruling in the case of Chryscapital Investment Advisors India Ltd. (supra), a Coordinate Bench of this Tribunal held that CG VAK Software Exports Ltd cannot be held to be incomparable simply on the ground of low turnover. We have gone through the order of the Tribunal on this aspect and vide paragraph no.18.3, the Tribunal recorded that, - 18.3 We have heard the rival submissions and perused the relevant finding given in the impugned order. The main reason for not including this company is that its turnover is less than ₹ 1 crore. So far as exclusion of this comparable on basis of turnover filter criteria of less than ₹ 1 crore, we find that, first of all, it was a comparable chosen by the assessee and at the time of selection process the assessee as stated had not applied any turnover filter for accepting or rejecting the comparables. Once the turnover filter has not been applied at the quantitative level then comparability has to be done on qualitative level based on FAR analysis. If on FAR analysis it is found that there are differences on account of either assets deploy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see's own case in the preceding year, we hold that these three companies cannot be held to be incomparable simply on the ground of low turnover, so long as there is no functional dissimilarity. We, therefore, direct the ld. AO/TPO to include these three companies, vis. CG VAK Software Exports Ltd., Informed Technologies India Ltd., and Microgenetics Systems Ltd. in the list of comparables. Microland Ltd., Datamatics Financial Services Cosmic Global Ltd: 93. Microland Ltd. was rejected by the ld. TPO on the ground that this company has been making persistent losses. Datamatics Financial Services Ltd. was rejected on the ground that this company failed the service income filter. And Cosmic Global Ltd. was rejected for failing the export earnings filter. Though it is submitted by the ld. AR that Datamatics and Cosmic Global were accepted by the TPO for AY 2010-11 and there is no change in the business model, it is not proved before us that in such AY 2010-11 also these two companies failed the service income filter and export turning filter respectively, but in spite of the same the ld. TPO accepted the same. Mere similarity in business model is not enough to accept the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unit and non-STPI unit of assessee were being booked into irrespective unit and no apportionment was required/done for any other cost. He submitted further that assessee was operating on cost + mark up arrangements with its overseas group companies. Under the said arrangement, the assessee was entitled to receive pre-agreed mark up on cost incurred by it. Allocating cost from non-STP unit to STP unit will result in reducing the cost based for the assessee, which will eventually lead to lower taxable income. Thus, the reason provided by the Assessing Officer for making the adjustment does not stand correct in the case of assessee. The Learned AR submitted that in the subsequent years 2009-10 and 2010-11, the claimed deduction under sec. 1OA was allowed. He referred page Nos. The Learned AR also tried to point out typographical and arithmetical errors in the working of the disallowance under sec. 10A of the Act by the Assessing Officer at page Nos. 6 to 8 of the assessment order. ** ** ** 19. Considering the above submissions, we find that in the case of CTT v. Western Outdoor Interactive (P.) Ltd. (supra), the Hon'ble High Court has been pleased to hol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts schedule provided to the Assessing Officer total addition in computer made during financial year 2007-08 in STP unit was ₹ 32,05,095; in the assessment order, the Assessing Officer stated that as per details provided to him, addition made in block of computer was of ₹ 31,73,495 which is against the facts on record; the Assessing Officer compared alleged additions of ₹ 31,73,495 with details extracts from SAP and wrongly concluded that amounts do not match. The Learned AR in his above submissions has pointed out as to how the Assessing Officer has committed mistake in coming to the conclusion that amounts do not match. The Learned AR submitted that total addition made to block of computers as per SAP details after correcting above mistakes made by the Assessing Officer is ₹ 32,05,095 which matches with fixed assets scheduled submitted to the Assessing Officer during assessment proceedings. Against the objection of Assessing Officer that invoices raised in US dollars are not verifiable with amounts recorded in books as some amounts is in INR, the submission of the assessee remained that all the details on account of service income was furnished before the A ..... X X X X Extracts X X X X X X X X Extracts X X X X
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