TMI Blog2018 (10) TMI 1841X X X X Extracts X X X X X X X X Extracts X X X X ..... hat Infosys Technologies Ltd., cannot be treated as comparable with the assessee company. This company is, therefore, directed to be excluded from the list of comparables. WIPRO Technologies Services Ltd - Comparable as excluded by the Tribunal in the case of Microsoft India [R D] Pvt Ltd. [ 2018 (10) TMI 70 - ITAT DELHI] Reduction in deduction allowed u/s 10A - HELD THAT:- Once the forex fluctuation gain is treated as part of operating profit, then the same deserves to be allocated amongst various units of the assessee and basis of allocation should be same as that deduction for the allocation of expenses amongst various units. We, accordingly, direct the Assessing Officer to allocate forex fluctuation gain also to Pune unit based on turnover. The assessee succeeds on this issue. Calculation of surcharge and education cess - AO has calculated surcharge and education cess on the gross amount without giving effect to the MAT credit deduction by the assessee for the year under consideration - HELD THAT:- As relying on M/S. VACMENT INDIA AGRA [ 2014 (10) TMI 787 - ALLAHABAD HIGH COURT] we direct the Assessing Officer to calculate the surcharge and education cess on net t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Name of the Comparable Remarks 1 Akshay Software Technologies This is a suitable comparable. 2 Ltd.Ancent Software International Ltd. This company is having sales below ₹ 5 crores. Hence, not a suitable comparable. 3 Aztecsoft Ltd. (consolidated) Annual Report for the current year is not available on the public domain. Hence, not a suitable comparable. 4 Caliber Point Business Solutions Ltd. This company is an ITES company and having different' financial year ending. Hence, can't be taken as suitable comparable. 5 Cat Technologies Ltd. This company is an ITES company and having significant RPT too. Hence, can't be taken as suitable comparable. 6 CC - VakSoftware ExportsLtd. This company fails employee cost filter (6%). Hence, not a suitable comparable. 7 Evoke Technologies Pvt. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Akshay Software Technologies Ltd. 2 Evoke Technologies Pvt Ltd. 3 Larsen Turbo infotech Ltd. 4 Mindtree Ltd. (Segment) S Persistent Systems Ltd. 6 R S Software (India ) Ltd. 7 Sasken Communication Technologies Ltd. 8 Thirdware Solutions ltd. 9 Zylog Systems Ltd. 7. The TPO found that the following set of comparables which have been rejected by the assessee which are, in fact, good comparables: SI. No. Company Long Name TPO's Remarks 1 Ceistream Technologies Pvt Ltd. You have rejected this company on the ground mentioned in Accept/Reject matrix that 'Insufficient financial or. descriptive information to perform analysis'. However; the annual report of the company has been perused which is available on the public domain. This is very much an IT c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... si Ltd. (Segment] 13.00% 15 Thirdware Solutions 16.19% 16 Wipro Technologies Limited 54.42% 17- Zylag Systems Ltd 28.74% Average 20.28% 9. The assessee s PLI was recomputed by removing forex fluctuation gain as non operational item and PLI was computed at 8.48%. As the average of the final set of comparables was taken at 20.28% and that of the assessee at 8.48%, proposed adjustment u/s 92CA of the Act was computed at ₹ 18,83,88,512/-. 10. The assessee objected before the DRP and on the directions of the DRP, the TPO recalculated the gross profit margin of the assessee and arrived at an adjustment of ₹ 19,17,52,485/-. 11. Before us, two propositions have been forwarded by the ld. AR. Firstly, it is the say of the ld. AR that foreign exchange fluctuation gain is part of operational income. Therefore, claim should not have been excluded while calculating assessee s OP/OC. The ld. AR provided a chart demonstrating that i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xpenses/income without considering that it has no bearing on the transaction and that Safe Harbour Rules stipulate exclusion of foreign exchange gain/loss as operating expenses/ income? 10. As regards question (ii) it is pointed out by learned counsel for the Assessee that the Safe Harbour Notification dated 18th September 2013 relied upon by the Revenue is prospective and did not apply to the AY in question. Even otherwise the Court finds that the decisions relied upon by the ITAT in the impugned order covers this issue in favour of the Assessee ITA No. 17/2016 Page 6 of 6 as far as the AY in question is concerned. Consequently, the Court declines to frame any question on the issue . 15. A similar view was taken by the Hon'ble High Court of Delhi in the case of CIT Vs. Agilis Information Technologies International [I] Pvt Ltd ITA No. 907/2015 vide order dated 08.02.2016. The relevant observation of the Hon'ble High Court reads as under: 2. The notice was issued in this appeal by an order dated 2nd December, 2015 confined to the question of treating income/loss on account of foreign exchange fluctuation as part of the operating revenue/expense. 3. It is pointed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t material on record. It can be seen that the TPO has included this company in the list of comparables by rejecting the assessee's contention about the brand of this company helping in earning huge profits and also the brand-related products swelling the ultimate profit rate of this company. We find that the assessee is a captive unit rendering services to its AE alone without acquiring any intellectual property rights in the work done by it in the development of software. The Hon'ble Delhi High Court in CIT vs. Agnity India Technologies (P) Ltd. (2013) 219 Taxmann 26 (Del) considered the giantness of Infosys Ltd., in terms of risk profile, nature of services, number of employees, ownership of branded products and brand related profits, etc. in comparison with such factors prevailing in the case of Agnity India Technologies Pvt. Ltd., being, a captive unit providing software development services without having any IP rights in the work done by it. After making comparison of various factors as enumerated above, the Hon'ble Delhi High Court held Infosys Ltd. to be incomparable with Agnity India Technologies Pvt. Ltd. The facts of the instant case are ITA No.122/Del/2013 m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prises other than associated enterprises, whether resident or nonresident.' This shows that in order to be called as an uncontrolled transaction, it is essential that the same should be between the enterprises other than the associated enterprises. Section 92B(2) provides that: `A transaction entered into by an enterprise with a person other than an associated enterprise shall, for the purposes of sub-section (1), be deemed to be a transaction entered into between two associated enterprises, if there exists a prior agreement in relation to the relevant transaction between such other person and the associated enterprise, or the terms of the relevant transaction are determined in substance between such other person and the associated enterprise'. On going through the prescription of sub-section (2) of section 92B, it is clearly borne out that a transaction with a non-AE shall be deemed to be a transaction entered into between two AEs if there exists a prior agreement in relation to the relevant transaction between the third person and the AE or the terms of the relevant transaction are determined in substance between the third person and the AE. When we consider section 92B(2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, Pune and Nagpur. Out of these, Pune unit is eligible for deduction u/s 10A of the Act. The assessee has allocated expenses based on turnover. The assessee also made a plea that alongwith the expenses, gain on forex exchange fluctuation is also required to be allocated amongst various units of the assessee as the same relates to profits and gains derived by the assessee from export of computer software. This plea of the assessee was rejected by the lower authorities. 24. We are of the considered view that once the forex fluctuation gain is treated as part of operating profit, then the same deserves to be allocated amongst various units of the assessee and basis of allocation should be same as that deduction for the allocation of expenses amongst various units. We, accordingly, direct the Assessing Officer to allocate forex fluctuation gain also to Pune unit based on turnover. The assessee succeeds on this issue. 25. Next issue relates to calculation of surcharge and education cess. 26. Facts on record show that during the year under consideration, the assessee computed tax payable by deducting MAT credit from gross tax payable and, therefore, after computing surcharge an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsofar as is material, the relevant entries in the form (Part B-TTI) are as follows: Gross tax payable (enter higher of 2c and 1) Credit under section 115JAA of tax paid in earlier years (if 2c is more than 1) (7 of Schedule MATC) Tax payable after credit under section 115JAA [(3-4)] Surcharge on 5 Education cess, including secondary and higher education cess on (5+6) Gross tax liability (5+6+7) The aforesaid entries leave no manner of ambiguity in regard to the method of computation of tax liability. Entry 3 requires computation of the gross tax payable. Under entry 4, credit is required to be given under Section 115JAA of the Act of the tax paid in earlier years. Entry 5 requires a computation of the tax payable after credit under Section 115JAA of the Act. The matter is placed beyond doubt by the parenthesis, which indicates that tax payable under entry 5 is to be arrived at by deducting the credit under Section 115JAA of the Act (under entry 3) from the gross tax payable (under entry 4). The surcharge is computed on the amount reflected in entry 5. 28. Respectfully following the findings of the Hon'ble Allahabad High Court [supra] we direct the Assessing Officer to c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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