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TMI Blog2020 (12) TMI 1193X X X X Extracts X X X X X X X X Extracts X X X X ..... USA and also select unrelated parties in Europe. The work performed by the assessee include application outsourcing, e-business and total IT management. There is no dispute that the assessee falls under the category of "software development" company. 4. The first issue relates to transfer pricing adjustment made by the TPO. The assessee as well as TPO adopted TNM method for benchmarking the transaction. The profit level indicator (PLI) was operating profit/total cost (OP/TC). The assessee had selected 29 companies for benchmarking its transactions with Associated Enterprises (AE). The TPO rejected the transfer pricing study of the assessee. He selected two companies namely Bodhtree Consulting Ltd. and Tata Elxsi Ltd. The assessee had arrived at average margin (PLI) 12.78% and the TPO arrived at average margin of 24.60%. Accordingly, the TPO made transfer pricing adjustment of Rs. 15,89,13,316/-. 5. In the appellate proceedings before Ld. CIT(A), the assessee furnished detailed submission with regard to various companies. Hence, the Ld. CIT(A) called for the remand report from TPO, wherein the TPO suggested inclusion of 21 more companies. After analysing various companies suggest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not strictly comparable to a service company like Assessee. In the absence of segmental profit of service income, we have to exclude the same. Following the decision in the case of DCIT Vs. Toshiba embedded Software (I) Pvt. Ltd., in IT(TP)A No. 1/Bang/2012 dt. 10-05-2013 (supra), this company is accordingly excluded. 2. Bodhtree Consulting Ltd. 10.3. This company was retained by Ld.CIT(A) but Assessee objects on the basis of functionality. However, as seen from the orders of Co-ordinate Benches in the case of ITO Vs. M/s. Sunquest Information Systems (India) Private Limited, in IT(TP)A No. 1302/Bang/2011 dt. 11-06-2015 (supra) as well as DCIT Vs. Toshiba embedded Software (I) Pvt. Ltd., in IT(TP)A No. 1/Bang/2012 dt. 10-05-2013, Bodhtree Consulting Ltd., was accepted as a comparable. However, in the case of Cordys Software India P. Ltd., in ITA No. 1451/Hyd/2010 dt. 13-06-2014 (Where one of us, AM is the author) has considered in detail and excluded the same for the following reasons: "1. Bodhtree Consulting Ltd. The learned counsel submitted that this company should be rejected under the following TPO's filters: * Related party transactions filter: As per schedule 4 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity of TATA Elxsi Ltd. as follows: "15.7. TATA ELXSI LIMITED: The objection of the Assessee is that TATA Elxsi operating two segments-system communication services and software development services. The TPO accepted the software development services segment in his T.P. analysis and Assessee's objection is that the software development services segment itself comprises of three subservices namely (a) product design services (b)design engineering services and (c) visual computing labs. It was submitted that these services are not akin to Assessee software services and segmental information of only product design services could have been accepted by the TPO as a comparable but not the entire software development service. Since company's operations are functionally different as such, the same is not comparable. Further, Assessee is also objecting on the basis of intangible scale of operations. The coordinate bench in the case of Intoto (supra) considered the issue as under in para 22: "22 Tata Elxsi Limited: As regards this company, the learned Counsel appearing on behalf of the Assessee, filed before us the reply of Tata Elxsi Limited to the Addl. CIT (Transfer Pricing), H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 23 of 33 is not functionally comparable with that of a software development service provider such as the Assessee. 30. In view of the aforesaid decision rendered on identical facts and circumstances, we are of the view that TATA Elxsi Ltd., should be excluded from the list of comparable companies. We notice that the co-ordinate bench in the case of Sharp Software Development India P. Ltd. has followed the decision rendered by another co-ordinate bench in the case of ACIT vs. McAfee Software (India) P. Ltd. (IT(TP)A Nos. 04/Bang/2012 & 1338/Bang/2011). Accordingly, following the decision rendered by the co-ordinate bench in the case of Sharp Software Development India P. Ltd. (supra), we direct exclusion of four companies cited above. 9. The next issue urged by the assessee relates to computation of book profit u/s. 115JB of the Act. The AO noticed that the assessee has debited its Profit and Loss account with "Provision for Bonus" of Rs. 3.49 crores. The A.O. took the view that the Provision for bonus is a contingent liability and hence, the same is required to be added to the net profit for the purpose of computing book profit u/s. 115JB of the Act. Accordingly, the A.O. add ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same as exempt. However, the assessee did not make any disallowance u/s. 14A of the Act. The A.O. computed the disallowance by applying rule 8D(2)(iii) of I.T. Rules. Accordingly, the A.O. disallowed a sum of Rs. 7,87,830/- out of administrative expenses u/s. 14A of the Act. The Ld. CIT(A) confirmed the same. 13. The Ld. A.R. submitted that the provisions of rule 8D has been held to be prospective in operation by Hon'ble Supreme Court in the case of CIT Vs. Essar Tele Holdings Ltd. (2018) 401 ITR 445 and hence it is not applicable to any assessment year prior to assessment year 2008-09. The Ld. A.R. submitted that the assessment year under consideration is AY 2005-06 and hence the tax authorities are not justified in applying the provisions of rule 8D for the year under consideration. He further submitted that the assessee has not incurred any expenditure in earning the dividend income and hence no disallowance u/s. 14A of the Act is called for. In this regard, he placed his reliance on the decision rendered by Hon'ble Karnataka High Court in the case of CIT vs. Syndicate Bank (2020)(115 taxmann.com 287). 14. We heard Ld D.R. and perused the record. Since the provisions ..... X X X X Extracts X X X X X X X X Extracts X X X X
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