TMI Blog2018 (10) TMI 1697X X X X Extracts X X X X X X X X Extracts X X X X ..... that of assessee it was held that Acropetal Technologies Ltd. cannot be considered as a comparable in ITeS segment. Deduction u/s 10A - HELD THAT:- The provision of set off and carry forward as contemplated under Chapter-VI of the Act would not be attracted and therefore intra head set off sought by seeking to rely on the provision of section 70(1) of the Act and seeking to restrict the deduction u/s 10A and 10AA of the Act to the extent of gross total income as contemplated u/s 80A(2) of the Act, cannot be sustained. We therefore hold that deduction u/s.10A of the Act has to be allowed without setting off the brought forward business losses and unabsorbed depreciation of non Sec. 10A units before allowing the deduction under section 10A of the Act. In view of the aforesaid decision of the Hon ble Supreme Court, YOKOGAWA INDIA LTD. [ 2016 (12) TMI 881 - SUPREME COURT] we find no merit in ground No.12 raised by the revenue. In the result, the revenue s appeal is dismissed. - IT(TP)A No.576/Bang/2016, CO No.38/Bang/2017 [in IT(TP)A No.576/Bang/2016] - - - Dated:- 31-10-2018 - SHRI N.V. VASUDEVAN, VICE PRESIDENT AND SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ins was less than the profit margin of the assessee and therefore the assessee claimed that the price paid in the international transaction was at arm s length. The TPO rejected all the comparable companies chosen by the assessee, except a company by name Cosmic Global Ltd. The TPO on his own chose 9 more comparable companies, and the profit margin of the 10 comparable companies finally chosen by the TPO was as follows:- Sl. No. Name of the case Operating Income Operating Cost OP/OC 1 Accentia Technologies Ltd. 1,069,026,524 82,93,91,898 28.89% 2 Acropetal Technologies 494,399,332 38,97,06,574 26.86% 3 Cosmic Global Ltd. 62,496,615 5,69,15,360 9.81% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) 123.30% of Operating Cost 1,366,709,762 Price received 1,231,702,919 Shortfall being adjustment u/s 92CA 135,006,843 The above shortfall of ₹ 135,006,843/- is treated as transfer pricing adjustment u/s 92CA in respect of software development segment of the taxpayer s international transactions. 7. Aggrieved by the order of TPO whose suggestion was incorporated in the draft assessment order by the AO, the assessee filed objections before the DRP. The DRP excluded 8 out of 10 comparables chosen by the TPO. The 2 companies that remained after exclusion of 8 out of 10 comparables chosen by the TPO were ICRA Online Ltd. and Jindal Telecom. The profit margin of these companies when compared with that of the assessee after providing for working capital adjustment was at arm s length and has been so recognised by the order of the TPO giving effect to the order of DRP. This order dated 22.01.2016 is at page 434 435 of the assessee s PB-I. 8. In the grounds of appeal, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the DRP is fully justified and in this connection drew our attention to the Annual Report of this company which is at page 492 of PB-II filed by the assessee. Perusal of the Annual Report shows that this company has 4 divisions viz., Engineering Design Services, Healthcare, Enterprise Solutions and Infrastructure Solutions. Perusal of the order of TPO at page 25 shows that the TPO has considered engineering design services segment profit margin of this company for the purpose of comparison with the profit margins of the assessee company. The functions performed by the Engineering Design Services of this company are as follows:- Architectural, Structural, Electrical, Plumbing, Steel Detailing, External Utilities, Design Engineering. 11. The functions performed by the assessee, as we have already seen is back office services relating to finance and human resource functions, including accounts payable to assessee, remote server access, maintenance and management services, payroll processing, credit analysis, ledger maintenance, etc. for its affiliates worldwide. It is thus clear that the information technology services provided by the assessee cannot b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ished. According to him, Acropetal Technologies Ltd, was giving engineering design services and the assessee was rendering insurance support services. Though these services did not fit in the same mould, the level of expertise required stood more or less on the same pedestal. According to him, applying the yardsticks laid down by Hon'ble Delhi High Court in the judgment of Rampgreen Solutions P. Ltd (supra), Acropetal Technologies Lid. could be taken as a good comparable. 23. We have perused the orders and heard the rival contentions. There is no dispute that M/s. Acropetal was having at least three segments, namely, engineering design services, IT service and health care. TPO had taken engineering design service as a good comparable with that of the services done by the assessee. Engineering Design Services that were being rendered by Acropetal Technologies Lid, appears at page 8 of its annual report. It comprised of architectural, structural, electrical, plumbing, steel detailing, and utilities designing. Its revenue model appears at page 9 of its annual report. It is mentioned that the said company was providing comprehensive offerings using its deep domain und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... providing only ITES services to its AE's. The AO/TPO are, therefore, directed to exclude this company from the list of comparables in the case on hand. 12. For the reasons stated above, we uphold the order of DRP excluding Acropetal Technologies Ltd. from the list of comparable companies. Consequently ground Nos. 1 to 10 raised by the revenue are dismissed. 13. The next ground projected by the revenue in ground No.12 reads as follows:- xii) Whether on the facts and circumstances of the case, the DRP was right in following the ratio laid down by the Hon ble Karnataka High Court in the case of CIT Vs M/s Yokogawa India Ltd., 341 ITR 385. Whether on the facts and circumstances of the case the DRP was right in holding that the deduction u/s 10B was to be deducted from the income of the eligible unit i.e. before computing the gross total income. 14. As far as the aforesaid ground is concerned, the question is with regard to setting off of profits of 10A units against losses incurred by non- 10A units of the assessee. It was the plea of the assessee that as per the decision of the Hon ble Karnataka High Court in the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the provisions of section 10A the aforesaid discord can be reconciled by understanding the expression total income of the assessee in section 10A as 'total income of the undertaking'. For the aforesaid reasons it is held that though section 10A, as amended, is a provision for deduction, the stage of deduction would be while computing the gross total income of the eligible undertaking under Chapter IV and' not at the stage of computation of the total income under Chapter VI. 16. The effect of the aforesaid decision would be that the provision of set off and carry forward as contemplated under Chapter-VI of the Act would not be attracted and therefore intra head set off sought by seeking to rely on the provision of section 70(1) of the Act and seeking to restrict the deduction u/s 10A and 10AA of the Act to the extent of gross total income as contemplated u/s 80A(2) of the Act, cannot be sustained. We therefore hold that deduction u/s.10A of the Act has to be allowed without setting off the brought forward business losses and unabsorbed depreciation of non Sec. 10A units before allowing the deduction under section 10A of the Act. In view o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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