TMI Blog2020 (1) TMI 248X X X X Extracts X X X X X X X X Extracts X X X X ..... arned CIT (Appeals), in so far as it is prejudicial to the interest of revenue, is opposed to law and the facts and circumstances of the case. 2.The learned CIT(A) erred in holding that the size aid turnover of the company are deciding factors for treating a company as a comparable, and accordingly erred in excluding iGate Global Solutions Ltd , M/s L T Infotech Ltd. Satyam Computers Ltd , Infosys Technologies Ltd M/s. Flextronics Software Systems Ltd as comparables in the segment. 3.The Ld. CIT (A) erred in rejecting companies on the basis of Abnormal Profit without defining what constitutes abnormal profit filter and how the same is determined and consequently erred in excluding the comparable companies Exensys Software Solutions Ltd and Thirdware Solutions Ltd. 4. The learned CIT (A) erred in rejecting the diminishing revenue filter used by the TPO to exclude companies that do not reflect the normal industry trend. 5.The honorable CIT(A) erred in computation of the margins of M/s Quintegra Solutions Ltd, by determining the same as average of margins of 6.85% and 10.68% for FY ended 30/09/2004 and 30/09/2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncerned expenses, which are required to be reduced from the export turnover as per clause (iv) of the Explanation to Section 10A to be reduced from the total turnover also. 14.The Ld. CIT (A) ought to have considered the fact that the jurisdiction High Court decision relied upon by him has not been accepted by the department and appeals have been filed before Hon'ble Supreme Court which is still pending. 15.For these and such other grounds that may be urged at the time of hearing, it is humbly prayed that the order of the CIT(A) be reversed and that of the Assessing Officer be restored. 16.The appellant craves leave to add, to alter, to amend or delete any of the grounds that may be urged at the time of hearing of the appeal. Grounds raised by assessee in its CO No.155(B)/2015 (AY: 2005-06) On the facts and circumstances of the case and in law: 1. The learned CIT(A) has erred, in law and in facts, by not accepting the Respondent's plea in entirety and confirming with the Learned AO/TPO on not accepting the economic analysis undertaken by the Respondent in ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oses. 8.The learned CIT(A) has erred, in law and facts, by not making suitable adjustments to account for differences in the risk profile of the Respondent vis- -vis the comparables. 9.The learned CIT(A) has erred, in law and facts by not considering that the adjustment to the arm's length price, if any, should be limited to the lower end of the 5 percent range as the Appellant has the right to exercise this option under the proviso to section 92C of the Act. 10.The learned CIT(A) erred in confirming the imposition of interest under section 234B and 234C of the Act; The Respondent submits that each of the above grounds is independent and without prejudice to one another. The Respondent craves leave to add, alter, vary, omit, amend or delete one or more of the above grounds of Cross-objections at any time before, or at the time of, hearing of the appeal, so as to enable the Appellate Tribunal to decide this response according to law. 2. Brief facts of the case are as under: Assessee is a company and wholly owned subsidiary of M/s Analog Grou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 473/-. 3. Aggrieved by proposed adjustment, assessee preferred appeal before Ld.CIT (A). 3.1 Ld.CIT, while deciding grounds relating to comparables, directed following comparables to be excluded from final list. He submitted that, following comparables have been rejected by Ld.CIT (A), against which revenue is in appeal. For Having high turnover: Flextronics software systems Ltd (SEG) iGate global solutions Ltd Infosys technologies Ltd L T Infotech Ltd Satyam Computers Ltd For Abnormal High Profit Thirdware Solutions Ltd. Exensys software solutions Ltd Functionally dissimilar: Tata Elxi Ltd., Fails qualitative and quantitative filters applied by Ld.TPO Bodhtree Consulting Ltd., Geometric Software Solutions Company Ltd., Revenue also seeks exclusion of; VIJIL Consulting Ltd., on functional similarity. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to be designed on custom microelectronic circuits and is responsible to evaluate the prototypes. It has been recorded by Ld.TPO that software designs developed by assessee are to be exported to its AE and thereafter AE or its affiliates shall undertake fabrication, assembly, production, testing and shipment of IC to the customers. Further Ld.TPO notes that assessee has been assigned with the right to use all inventions, improvements, developments, trade secrets except Rabbi the AE in performance of services. And assessee shall be remunerated with at 10% markup on monthly basis price. Assets owned: Assessee owns routine assets like office spaces, computers, etc all the intangibles in respect of development of software is owned by the associated enterprises. Risks assumed: Ld.TPO notes that market risk, service liability risk, customer credit risk and all risk associated with the failure/success of IC designing and software development is undertaken by the AE s. Based upon above FAR analysis, we shall analyse compatibility of assessee with comparables under objection for exclusion/inclusion. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #8377; 6859.66 crores. It has further been submitted by Ld.AR that this comparable is functionally different with that of assessee. He submitted that this comparable is dealing in both services and products had is involved in huge research and development activities. Ld.AR submitted that, this comparable owns huge risks and substantial intangibles thereby making it very different from a captive service provider who caters only to its AE, on cost plus basis with no risk at all and no intangibles. iGate global solutions Ltd: This comparable has been excluded by Ld.CIT(A) due to high turnover of about ₹ 406.14 crores. It has further been submitted by Ld.AR that this comparable is functionally different with that of assessee. Satyam Computers Services Ltd This comparable has been excluded by Ld.CIT(A) due to high turnover of about ₹ 3464.23 crores. It has further been submitted by Ld.AR that this comparable is functionally different with that of assessee. Further at page 547 of in Paper Book I (Part 2 of 2) it has been submitted that this company was found to be fal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Ltd vs ITO in IT(TP)A no. 108/Bang/2014 For assessment year 2009-10, vide order dated 12/12/14, excluded these companies following Genesis Integrating systems Indi Pvt.Ltd vs.DCIT(supra). Reliance has been placed on decision of this Tribunal in case of Autodesk India Pvt.Ltd. vs DCIT reported in (2018) 96 Taxmann.com 263 followed similar view to exclude identical comparables by applying turnover filter, wherein all the decisions relied upon by Ld. CIT DR has been considered and dealt with. Further in respect of each comparables alleged for it inclusion by revenue, we also find that they are not similar in terms of risks and assets owned. It is also observed that in some comparables segmental information are not available. Therefore, considering the totality of facts, we uphold exclusion of Flextronics software systems Ltd (SEG), iGate global solutions, Infosys technologies Ltd, L T Infotech Ltd., and such them computers services Ltd by Ld.CIT (A) from final list. Accordingly this ground raised by revenue stands dismissed. 7. Ground No. 3 This ground has been raised by revenue is Ld ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mission before Ld. CIT (A) by assessee. It is observed that this company earned revenue from software services amounting to ₹ 8, 06, 02, 781/-. As complete annual report of this company has not been placed before us, we are unable to ascertained the nature of such software services provided by this company. We therefore set aside this comparable to Ld.TPO. Ld.TPO shall call for information under section 133 (6) from this company regarding the nature of software services provided during the relevant period. Ld. TPO has also directed to analyse the risk is assumed and the assets owned for rendering such services. In the event it is found that the services rendered by this company are similar in nature and function with that of assessee, the same may be considered in the final list. Needless to say that assessee shall be granted proper opportunity of representation before Ld. AO/TPO. Accordingly this ground raised by revenue stands partly allowed for statistical purposes. 8. Ground No. 5-6 This ground has been raised by revenue for correcting margins of M/s Quintengra solutions Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) that this company does not have breakup of segmental revenues and it also fails functional tests set by Ld.TPO. CIT(A) thus held this company to be functionally not similar with that of assessee that is a captive service provider catering only to its AE on a cost +10% business model. Geometric Software Solutions Ltd Ld.CIT(A) observed that this company was functionally not comparable as it was predominantly and engineering company and not a software service company. Ld.CIT (A) from annual report observed that it is specialised in product trial life-cycle management services for mechanical design, manufacturing and industrial markets. It is also been submitted that there is no segmental breakup available in respect of various services rendered by this company. It was on the basis of such functional variants that Ld. CIT (A) excluded this comparable. 10.1. On the contrary, Ld.Sr.DR placed reliance on orders of authorities below. 10.2. We have perused submissions advanced by both sides in light of records placed before us. 10.3. At page 543-544 of Paper Book I (Part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ka High Court in case of CIT vs Tata Elxsi Ltd reported in 349 ITR 98 and submitted that this issue stands covered in favour of assessee. 12.2. On the contrary, Ld.CIT DR placed reliance upon order passed by Ld.AO. 12.3 We have perused submissions advanced by both sides in the light of the records placed before us. It is observed that, Hon ble Karnataka High Court in case of CIT vs Tata Elxsi Ltd(supra) on identical issue held that telecommunication expenses is to be included while computing deduction under section 10A of the Act, as it is directly linked with earning of income. Ld CIT DR has not brought before us any contradictory/distinguishable facts in respect of present case before us. Respectfully following Hon ble Karnataka High Court in case of CIT vs Tata Elxsi Ltd(supra), we direct Ld.AO to include telecommunication expenses while computing exempt income u/s10A of the Act. Accordingly the grounds raised by revenue stands dismissed. In the result appeal filed by revenue stands partly allowed for statistical purposes. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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