TMI Blog2017 (1) TMI 1673X X X X Extracts X X X X X X X X Extracts X X X X ..... delivery of computer software abroad is reduced from export turnover an equal amount should also be reduced from total turnover while computing the deduction u/s 10A is covered in favour of the assessee by the decision in the case of Tata Elxsi Ltd. [ 2011 (8) TMI 782 - KARNATAKA HIGH COURT]. Exclusion of 7 companies from the set of 10 comparables selected by the TPO - HELD THAT:- Exclusion of Functionally dissimilar /indifferent companies not comparable with a captive service provider as that of assessee. Companies also excluded as not satisfying the tolerance range of 15% RPT filter. E-clerx Services Limited - As discussed by the Special Bench in the case of Maersk Global Centres (India ) (P) Ltd [ 2015 (1) TMI 917 - ITAT MUMBAI] this company provides data analysis, operating management, audits, reconciliation, metrics management and operating services. It has two business verticals financial services, retail and manufacturing. It was found to have being providing complete business solutions in the nature of high end services. The nature and different field of services provided by this company clearly show that it is not functionally comparable with the ITES. Accordi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e NCP 1 Aditya Birla Minacs Worldwide Ltd 8.76% 2 Cosmic Global Ltd. 32.38% 3 Informed Technolo ies India Ltd 10.89% 4 Nittany Outsourcing Services Pvt Ltd 19.38% 5 Datamatics Financial Services Ltd -3.03% 6 Omega Healthcare Management Services Pvt Ltd 9.34% 7 Jeevan Softech Ltd 13.44 8 R Systems International Ltd. 10.43% 9 Caliber Point Business Solutions Ltd 21.16% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0% Related Party Transactions ( RPT ) filter as well as turnover filter of ₹ 2.00 Crores to ₹ 200 Crores and therefore excluded various companies on the basis of these two filters. Thus both the assessee as well as revenue are aggrieved by the directions of DRP and filed these appeals. 3. First we take up the revenue s appeal wherein the revenue has raised the following grounds : 1. Turnover filter:- The learned DRP erred in holding that the size, turnover and brand of the company are deciding factors for treating a company as a comparable and accordingly erred in excluding M/S Infosys Technologies Limited. 2. On the facts and in the circumstances of the case the Dispute Resolution Panel erred in law in directing the Assessing Officer to allow expenses on the interest portion without appreciating the finding of the Assessing officer that the vehicles were though purchased by the assessee company in its name as reflected in Registration Certificate, the same were assigned to individual employees for their personal use and not for the use of the company and the assessee was not able to produce the details of the joumey, vehicle s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... travel in foreign currency attributable to the delivery of computer software abroad is reduced from export turnover an equal amount should also be reduced from total turnover while computing the deduction under section 10A of the Act, is covered in favour of the assessee by the decision of the Hon ble Karnataka High Court in the case of Tata Elxsi Ltd. (supra). In this order, the Hon ble Court held The Bombay High Court had an occasion to consider the earning of the word total turnover in the context of section 10A, in the case of CIT Vs. Gem Plus Jewellery India Ltd. (2011) [330 ITR P. 175 (Bom)] (2010-TIOL-456HC-MUM-IT). Interpreting sub-section (4) of section 10A, it is held as under : Under sub-section (4) the proportion between the export turnover in respect of the articles or things, or as the case may be, computer software exported, to the total turnover of the business carried over by the undertaking is applied to the profits of the business of the undertaking in computing the profits of the business of the undertaking in computing the profits derived from export. In other words the profits of the business of the undertaking are multiplied by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ght and insurance, the expression export turnover cannot have a different meaning when it forms a constituent part of the total turnover for the purposes of the application of the formula. Undoubtedly, it was open to Parliament to make a provision which has been enunciated earlier must prevail as a matter of correct statutory interpretation. Any other interpretation would lead to an absurdity. If the contention of the Revenue were to be accepted, the same expression viz. export turnover would have a different connotation in the application of the same formula. The submission of the Revenue would lead to a situation where freight and insurance, though these have been specifically excluded from export turnover for the purposes of the numerator would be brought in as part of the export turnover when it forms an element of the total turnover as a denominator in the formula. A construction of a statutory provision which would lead to an absurdity must be avoided. The Special Bench of the Tribunal, in the case of ITO Vs. Sak Soft Ltd. (2009) 313 ITR (AT) 353 (Chennai) (SB) (2009-TIOL-187-ITAT-MAD-SB) also had an occasion to consider the meaning of the word total turno ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is to be arrived at after excluding certain expenses, the same should also be excluded in computing the export turnover as a component of total turnover in the denominator. The reason being the total turnover includes export turnover cannot be different. Therefore, though there is no definition of the term total turnover in section 10A, there is nothing in the said section to mandate that, what is excluded from the numerator that is export turnover would nevertheless form part of the denominator. Though when a particular word is not defined by the legislature and an ordinary meaning is to be attributed to the same, the said ordinary meaning to be attributed to such word is to be in conformity with the context in which it is used. When the statute prescribes a formula and in the said formula, export turnover is defined, and when the total turnover includes export turnover, the very same meaning given to the export turnover by the legislature is to be adopted while understanding the meaning of the total turnover, when the total turnover includes export turnover. If what is excluded in computing the export turnover is included while arriving at the total turnover, when the expo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 'ble DRP / learned AO / learned T PO have erred in rejecting the Transfer Pricing ('TP') documentation maintained by the Appellant on invoking provisions of sub-section (3) of 92C of the Act contending that the information or data used in the computation Of the arm's length price is not reliable or correct. In doing so: 2.a The Hon'ble DRP/ learned AO / learned TPO erred in rejecting comparability analysis carried in the TP documentation and in conducting a fresh comparability analysis by introducing various additional filters in determining the arm's length price for ITeS. 2b The Hon 'ble DRP/ learned AO / learned T PO erred in rejecting companies that are comparable to the Appellant while performing the comparability analysis. Specifically, the following companies ought to have been included as comparable: -Datamatics Financial Services Limited; -R Systems International Limited; -Caliber Point Business Solutions Limited; and -Ultramarine Pigments Limited. 2.c The Hon'ble DRP/ learned AO / learned TPO erred in including companies that do not satisfy the test Of comparability. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned Departmental Representative has relied upon the orders of the TPO and submitted that TPO has considered the functional comparability of all these companies and further it has applied the RPT filter of 25%. 12. We have considered the rival submissions as well as the relevant material on record. We find that the co-ordinate bench of this Tribunal in assessee's own case for the Assessment Year 2006-07 vide order dt.18.10.2016 in IT(TP)A No.1633/Bang/2012 has considered the comparability of these four companies and rejected these companies by considering the RPT at 15% as well as functional comparability. We find that the DRP has given the details of RPT of all the 10 companies at page 11 and therefore the following three companies will be excluded as not satisfying the tolerance range of 15% RPT filter. (i) Fortune Infotech Ltd. RPT 25% (ii) Icra Online Ltd. RPT 19.16% (iii) Sundaram Business Services Ltd. RPT 29.44% 13. As regards Accentia Technologies Ltd. and ICRA Online Ltd. this Tribunal in the assessee's own case for the Assessment Year 2008-09 has excluded these two companies from the set of comparables in para 5 as und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing for the clients. It is claimed that eClerx is a different company with industry specialized services for meeting complex client needs, data analytics KPO service provider specializing in two business verticals - financial services and retail and manufacturing. It is claimed to be engaged in providing solutions that do not just reduce cost, but help the clients increase sales and reduce risk by enhancing efficiencies and by providing valuable insights that empower better decisions. M/s eClerx Services Pvt. Ltd. is also claimed to have a scalable delivery model and solutions offered that include data analytics, operations management, audits and reconciliation, metrics management and reporting services. It also provides tailored process outsourcing and management services along with a multitude of data aggregation, mining and maintenance services. It is claimed that the company has a team dedicated to developing automation tools to support service delivery. These software automation tools increase productivity, allowing customers to benefit from further cost saving and output gains with better control over quality. Keeping in view the nature of services rendered by M/s eClerx Serv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rand value, whereas the assessee is merely an ITES operating its business in India and does not possess either any brand value or own any intangible or intellectual property rights (IPRs). It was also submitted by the learned Authorised Representative that :- (i) the co-ordinate bench of this Tribunal in the case of 24/7 Customer.Com Pvt. Ltd. in ITA No.227/Bang/2010 has held that a company owning intangibles cannot be compared to a low risk captive service provider who does not own any intangible and hence does not have an additional advantage in the market. It is submitted that this decision is applicable to the assessee's case, as the assessee does not own any intangibles and hence Infosys Technologies Ltd. cannot be comparable to the assessee ; (ii) the observation of the ITAT, Delhi Bench in the case of Agnity India Technologies Pvt. Ltd. in ITA No.3856 (Del)/2010 at para 5.2 thereof, that Infosys Technologies Ltd. being a giant company and market leader assuming all risks leading to higher profits cannot be considered as comparable to captive service providers assuming limited risk ; (iii) the company has generated several inventions and file ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase rentals and disallowed the principle portion. Therefore both the revenue as well as the assessee have challenged the directions of the DRP on this issue. 18. The learned Authorised Representative has submitted that the assessee has taken the vehicles under finance lease for the purpose of his business. The vehicle lease payments made are annualized payments. The assessee has claimed the entire vehicle lease rental payment as deduction. The finance vehicle lease rentals paid by the assessee include both interest and principle amount. The ld. AR pointed out that the Assessing Officer has disallowed the claim on the ground that the vehicles were used for personal purpose of employees whereas the vehicles are provided to the employees for the purpose of assessee's business. In support of his contention, he has relied upon the decision of Hon'ble Rajasthan High Court in the case of Rajshree Roadways Vs. Union of India (2003) 263 ITR 206 (Raj), decision of Delhi Benches of the Tribunal in the case of Minda Corporation Ltd Vs. DCIT 69 Taxman 317 as well as the decision of Hon'ble Gujarat High Court in the case of Sayaji Iron Engg. Co. Vs. CIT 253 ITR 749 (Guj). ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... providing any rent-free accommodation, etc., (b) any expenditure incurred in providing any other benefit or amenity free of charge or at a concessional rate, (c) any expenditure which would have been incurred by the director but for such expenditure having been incurred by the company, (d) any expenditure incurred by the company for the purpose of any insurance on the life, etc. Therefore, it is clear that the expenditure incurred by the assessee-company on maintenance of vehicles which were available to the directors for their personal use would fall within the meaning of remuneration as defined in the Explanation to s. 198 of the Companies Act, and once such remuneration is fixed as provided in s. 309 of the Companies Act, it is not possible to state that the assesseecompany incurred an expenditure for the personal use of the directors i.e., even if there was any personal use by the directors, the same was as per the terms and conditions of service and insofar as the assessee-company was concerned it was a business expenditure and not disallowable as such. 9.1. There is one more aspect of the matter which requires to be considered. The assessee which is a private limi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the change in the personnel of the officers who manned the Tribunal, it is open to the new officers to come to a conclusion totally contradictory to the conclusion which had been reached by the earlier officers manning the same Tribunal on the same set of facts. It will not only shake the confidence of the public in judicial procedure as such, but it will also totally destroy such confidence. The result of this will be conclusions based on arbitrariness and whims and fancies of the individuals presiding over the Courts or the Tribunals and not reached objectively on the basis of the facts placed before the authorities. If a Bench of a Tribunal on the identical facts is allowed to come to a conclusion directly opposed to the conclusion reached by another Bench of the Tribunal on an earlier occasion, that will be destructive of the institutional integrity itself. That is the reason why in a High Court, if a single Judge takes a view different from the one taken by another Judge on a question of law, he does not finally pronounce his view and the matter is referred to a Division Bench. Similarly if a Division Bench differs from the view taken by another Division Bench it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the lessee should recognize the asset in its books and should charge depreciation on the same. In the case of operating lease, the Accounting Standard provides that the lessee should recognize the lease payments as an expense in the profit and loss account and the lessor should recognize the asset given on lease and charge depreciation in respect of the same. The aforesaid distinction between finance lease and operating lease is not recognized under the Act. Under the provisions of the Act, depreciation is admissible under section 32 of the Act only to the 'owner' of the asset. Lease charges paid for the use of the asset, without acquiring any ownership rights in the same, are allowable as revenue expenditure under section 37 of the Act. 5.3 The Circular No.2 of 2001 dated 09.02.2001 (247 ITR (St.) 53) issued by the Central Board of Direct Taxes (CBDT) has opined that the aforesaid accounting standard issued by ICAI creating distinction between finance lease and operating lease will have no implications under the provisions of the Act. The relevant excerpt of the said Circular are reproduced herein below:- Under the Income-tax Act, in all leasing transa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icle against the rest of the world, it would be the owner of the vehicle in the eye of law. A scrutiny of the sale agreement cannot be the basis of raising question against the ownership of the vehicle. The clues qua ownership lie in the lease agreement itself, which clearly point in favour of the assessee 5.6 The Hon'ble Rajasthan High Court in the case of Rajshree Roadways v. Union of India [2003] 263 ITR 206/129 Taxman 663 upheld the assessee's claim of allow ability of lease rentals paid as lessee of the Trucks as a revenue expenditure under section 37(1) of the Act, even though the lease was categorized as finance lease. Thus it is clear that the Tribunal has decided this issue by following the decision of Hon'ble Supreme Court in the case of ITDS Vs. CIT reported in 350 ITR 527 as well as decision of Hon'ble Rajasthan High Court in the case of Rajshree Roadways Vs. Union of India (supra). Following the decision of Hon'ble Gujarat High Court as well as Hon'ble Supreme Court (supra), we decide this issue in favour of the assessee and accordingly allow the claim of the assessee regarding lease rentals as an allowable revenue expendit ..... X X X X Extracts X X X X X X X X Extracts X X X X
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