TMI Blog2020 (11) TMI 411X X X X Extracts X X X X X X X X Extracts X X X X ..... (5) TMI 357 - SUPREME COURT] . Gain/loss arising on account of fluctuation in foreign exchange is operating income/expenses - HELD THAT:- DRP has directed the AO to consider the foreign exchange fluctuation gain/loss on revenue account in respect of assessee company and also in respect of comparable companies while determining the margin in the case of the assessee company, if in the earlier years, the foreign exchange fluctuation was treated as operating in nature for the purpose of consistency. Since the ld DRP has followed the decision rendered by the Tribunal in this regard, we do not find any infirmity in its decision rendered on this issue. - IT(TP)A No.476/Bang/2016, IT(TP)A No.597/Bang/2016 - - - Dated:- 5-11-2020 - Shri George George K., Judicial Member And Shri B.R. Baskaran, Accountant Member For the Appellant : Shri Padamchand Khincha, A.R. For the Respondent : Shri Muzaffar Hussain, D.R. ORDER PER B.R. BASKARAN, ACCOUNTANT MEMBER: These cross appeals are directed against the assessment order dated 18-01-2016 passed by the assessing officer for assessment year 2011-12 u/s 143(3) r.w.s 144C of the Act in pursuance of directions given b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he facts relating to the same are discussed in brief. The assessee has provided software development services to its Associated Enterprises (AEs). The turnover of the assessee in the segment of Provision of software development services was ₹ 333.56 crores. The assessee adopted Transactional Net Margin Method (TNMM) as most appropriate method. It adopted Operating Profit/Operating Cost (OP/OC) as the Profit level indicator (PLI). The assessee declared a margin of 15.01% in the software development segment. 6.1 The assessee had selected 20 comparable companies in its transfer pricing study. The TPO rejected the transfer pricing study of the assessee and he finally selected following 13 comparable companies, whose average margin worked out to 24.82%:- Sl. No. Name Sales Cost PLI 1 Acropetal Technologies Ltd. (seg) 814,016,893 616,754,876 31.98% 2 E zest solutions (from Capitaline) 112866098 93255341 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d (seg) (j) Larsen Toubro Infotech The Ld DRP upheld the selection of following two companies:- (a) Persistent Systems Solutions Limited (b) Persistent Systems Limited However, there was no discussion in the DRP order on M/s Sasken Communication Technologies Ltd and the assessee has submitted that the above said company is also included as a comparable company. 6.3 In the appeal of the assessee, grounds B-2 to B-14 relate to the transfer pricing adjustment. On perusal of those grounds, we notice that the assessee has raised only general contentions and hence they do not require adjudication. In modified grounds of appeal, the assessee seeks exclusion of following companies:- (a) Persistent Systems Solutions Limited (b) Persistent Systems Limited (c) Sasken Communication Technologies Ltd (d) Acropetal Technologies Limited (e) E-Zest Solutions Limited (f) E-infochips Limited (g) ICRA Techno Analytics Limited (h) Infosys Limited (i) Tata Elxsi Ltd (seg) (j) Larsen Toubro Infotech The assessee seeks inclusion of following companies:- (a) Akshay Software Technologies Limited (b) Goldstone Technologies Ltd (c) CG VAK S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mitted that the assessee cannot go back on its stand and now contend that the companies retained by Ld DRP should also be excluded. 6.8 The Ld D.R further submitted that the assessee has accepted inclusion of M/s Larsen Toubro Infotech Ltd, Mindtree Limited, R.S Software (India) Ltd in the list of comparable companies by the TPO. However, the assessee has objected inclusion of above said three companies before Ld DRP and the Ld DRP has also directed exclusion of above said three companies without giving opportunity to the TPO to examine these companies. Since the assessee had accepted this companies as good comparable companies, there was no occasion for the TPO to examine the objections of the assessee. Accordingly, he submitted that these three companies should be included as comparable companies. 6.9 With regard to M/s Sasken Communications Ltd, the Ld D.R submitted that the assessee has not challenged this company before Ld DRP. However, the assessee is seeking exclusion of the same, which should not be permitted. 6.10 The Ld A.R, in the rejoinder, submitted that the assessee is now accepting for inclusion of M/s R.S. Software (India) Ltd, M/s Evoke Technologies L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ib]. ; Symantech Software Services (I) Pvt. Ltd. v. DCIT, ITA No.614/Mds/2016; DCIT v. Ikanos Communication Pvt. Ltd. in ITA 137/Bang/2015; Ness Technologies (I) Pvt. Ltd. v. DCIT in ITA No.696/Mum/2016 which are also decisions rendered in relation to AY 2011- 12 in the case of a companies providing SWD services such as the assessee in the present appeal. It is also relevant to point out that the very same comparable companies chosen by the TPO in the present appeal IT(TP)A Nos.52 97/Bang/2016 had been chosen by the TPO as comparable companies in the case of Electronic for Imaging (I) Pvt. Ltd. (supra). The Tribunal in its order dated 14.7.2017 in the aforesaid case dealt with the comparability of these companies. 11. As far as Acropetal Technologies Ltd . is concerned, vide para 8 of the order of Tribunal in Electronics for Imaging (I) Pvt. Ltd. (supra), exclusion of Acropetal was upheld on the ground that this company was into development of computer products. The Tribunal also held that L T Infotech Ltd. had RPT at 18.66% and since the RPT was beyond the threshold limit of 15%, this company was directed to be excluded from the list of comparable companies. The Tribun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Technologies Ltd, R.S software India Ltd, Mindtree Limited, the ground of revenue in respect of above said three companies are allowed. 6.15 In the appeal of the assessee, the assessee seeks exclusion of all the three companies retained by Ld DRP, viz., M/s Persistent Ltd, M/s Persistent Systems Solutions Ltd and M/s Sasken Communications Ltd. It is the submission of Ld DR that the assessee did not plead to the exclusion of M/s Sasken Communications Ltd before Ld DRP. Further, the assessee has accepted remaining two comparable companies before TPO. Accordingly, the Ld DR strongly opposed this plea of the assessee. The Ld A.R, on the contrary, submitted that the assessee is not barred from raising contention for exclusion of any comparable company, which had earlier been accepted before the tax authorities. In this regard, he has placed his reliance on the decision rendered by Chandigarh Special bench of Tribunal in the case of Quark Systems Pvt. Ltd. (supra). We notice that, in the above said case, the Special bench has addressed an identical issue and held that the assessee cannot be barred to raise contentions for exclusion of companies, which had earlier been accepted by i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year in question but there is no estoppel in the Income-tax Act and the assessee having itself challenged the validity of taxing the dividend during the year of assessment in question it must be taken that it had resiled from the position which it had wrongly taken while filing the return. Quit apart from it, it is incumbent on the Income-tax Department to find out whether a particular income was assessable in the particular year or not. Merely because the assessee wrongly included the income in its return for a particular year, it cannot confer jurisdiction on the department to tax that income in that year even though legally such income did not pertain to that year. 32. In the case of R.B. Jessaram Fatehchand v. CIT [1971] 81 ITR 409 (All.), it has been found and observed as under: Mr. Brijlal Gupta appearing for the department pointed out that the assessee itself filed separate returns for the two parts of a single accounting period. The assessee applied for registration for the first period only. The assessment for the second period proceeded as against an unregistered firm. It was, therefore, urged by Mr. Gupta that it is not open to the assessee to urge now t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isuse the burden of proof in the manner described above. Because of the difficulties with transfer pricing analysis, it would be appropriate for both taxpayers and tax administrations to take special care and to use restraint in relying on the burden of proof in the course of the examination of a transfer pricing case. More particularly, as a matter of good practice the burden of proof should not be misused by tax administrations or taxpayers as a justification for making groundless or unverifiable assertions about transfer pricing. A tax administration should be prepared to make good faith showing that its determination of transfer pricing is consistent with the arm s length principle even where the burden of proof is on the taxpayer, and the taxpayers similarly should be prepared to make good faith showing that their transfer pricing is consistent with the arm s length principle regardless of where the burden of proof lies. 36. The aforesaid decisions and guidelines may not be exactly on identical facts before us but they emphatically show that taxpayer is not estopped from pointing out a mistake in the assessment though such mistake is the result of evidence adduced by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned, this Tribunal in the case of Symantech Software Services (I) Pvt. Ltd. (supra) has excluded this company on the ground of functional IT(TP)A Nos.52 97/Bang/2016 dissimilarity viz., dealing with multimedia products and R D activities with no break-up of segmental information. 17. Following the aforesaid decisions, we direct exclusion of the aforesaid 3 comparable companies. The TPO is directed to compute the ALP of the international transaction in accordance with the directions given above in this order, after affording Assessee opportunity of being heard. 6.17 Consistent with the view taken by the co-ordinate benches in the above said cases, we direct exclusion of aforesaid three comparable companies. 6.18 Accordingly, we direct the AO/TPO to compute the ALP of the international transaction in accordance with the directions given above, after affording adequate opportunity of being heard to the assessee. 7. The assessee has raised a ground as to whether the expenses incurred in foreign currency are required to be reduced from export turnover while computing deduction u/s 10A of the Act. The revenue has raised a ground as to whether the Ld DRP was justified ..... X X X X Extracts X X X X X X X X Extracts X X X X
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