TMI Blog2019 (7) TMI 1883X X X X Extracts X X X X X X X X Extracts X X X X ..... n the case of Auto Desk India Pvt. Ltd. [ 2018 (12) TMI 1742 - ITAT BANGALORE] has taken the aforesaid view after considering several decisions on the issue. In view of the above, we find no grounds to interfere with the exclusion of the aforesaid 5 companies by the CIT(A). Exclusion of M/s. Exensys Software Solutions Ltd., and Thirdware Solutions Ltd., as not comparable companies by the CIT(A) on the ground that these companies showed abnormal profits - On the issue of exclusion of companies on account of abnormal profits, the law is well settled that abnormal profits by itself is not a ground to exclude a company which is otherwise comparable, but if the abnormal profits are owing to some unusual circumstances, then those companies can be excluded. As far as exclusion of M/s. Exensys Software Solutions Ltd., is concerned, the same is due to amalgamation that happened between this company and some other company during the relevant previous year and therefore the CIT(A) was justified in excluding this company. Thirdware Solutions Ltd company was a product company and not a SWD service provider such as the Assessee and this company was excluded. We are of the view that in vi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Karnataka in the case of CIT v. Tata Elxsi Ltd [ 2011 (8) TMI 782 - KARNATAKA HIGH COURT] , we are of the view that communication charges should be excluded both from export turnover and total turnover. We are of the view that as of today, law declared by the Hon'ble High Court of Karnataka which is the jurisdictional High Court is binding on us. - IT(TP)A No.847/Bang/2013, CO No.169/Bang/2015 [in IT(TP)A No.847/Bang/2013] - - - Dated:- 17-7-2019 - SHRI N.V. VASUDEVAN, VICE PRESIDENT AND SHRI JASON P. BOAZ, ACCOUNTANT MEMBER For the Revenue : Shri Vikas Suryavamshi, Addl.CIT(DR)(ITAT), Bengaluru. For the Assessee : Shri Chavali Narayan, CA ORDER Per N V Vasudevan, Vice President IT(TP)A No.847/Bang/2013 is an appeal by the Revenue against the order dated 04.03.2013 of the CIT(Appeals)-IV, Bengaluru in relation to the asst. year 2005-06. The Assessee has also filed Cross-Objection against the very same order of the CIT(A). 2. The dispute raised by the revenue in its appeal and the dispute raised in the CO are with regard to determination of Arm's length price (ALP) in respect of a transaction of rendering software development service by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ercentage according to the Assessee and as drawn by the TPO were as follows: Operating Income ₹ 8,32,56,664 6,36,70,924 Operating Cost ₹ 6,91,02,400 5,78,81,989 Operating Profit ₹ 1,41,54,264 57,88,935 Operating Profit/ Operating Cost OP/OC (as percentage) 20.48% 10% 6. The Transfer Pricing Officer (TPO) to whom the AO made a reference for determination of ALP u/s 92CA of the Act had chosen 17 comparable companies. The Arithmetic Profit Margin (APM) of these companies were 26.59 before working capital adjustment and 24.99 after working capital adjustment as per the following chart:- SI No. Particulars Unadjusted Margin (%) Adjusted Margin (%) 1. Bodhtree Consulting Limited 24.85% 23.57% 2. iGate Global Solutions Limited 4.32% 2.65% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore the Tribunal. The assessee has filed cross objection seeking to exclude 2 comparable companies that were not excluded by the CIT(A) viz., Sankhya Infotech Ltd., and Thirdware Solutions Ltd. Thirdware Solutions was excluded by CIT(A) on the ground that its profits were abnormal. The Assessee had pleaded for its exclusion on the basis that this company is functionally not comparable with the Assessee which is a SWD service provider. Except these two grounds no other grounds raised in the cross objection were pressed for adjudication. 8. We have heard the rival submissions on the SWD Services segment. The grounds of appeal raised by the Revenue reads as follows:- 1 . The order of the Learned 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 CIT (A) erred in holding that the size and turnover of the company are deciding factors for treating a company as a comparable and consequently erred in excluding M/s. Flextronics Software Services Ltd., iGate Global Solutions Ltd , M/s Infosys Technologies Ltd, L T Infotech Ltd., Satyam Computers Services Ltd as comparables in the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd Nos.1, 11 and 12 raised by the revenue are general in nature and calls for no specific adjudication. 10. Ground No.2 raised by the revenue is with regard to the action of the CIT(A) in excluding M/s. Flextronics Software Services Ltd., iGate Global Solution, M/s. Infosys Technologies Ltd., Satyam Computers Services Ltd., and L T Infotech Ltd., on the ground that the turnover of these companies was above ₹ 200 crores and therefore the Assessee whose turnover is only ₹ 6.36 Crores cannot be compared with those companies. The admitted factual position is that these companies have turnover of over ₹ 200 crores in the relevant asst. year whereas the assessee's turnover is only 6.36 crores. It has been held by the Bangalore Bench of ITAT that turnover filter is a valid filter in the matter of exclusion of comparables that companies with turnover below 200 crores cannot be compared with the companies above 200 crores. In this regard, Bangalore Bench of the Tribunal in the case of Auto Desk India Pvt. Ltd. Vs. ACIT in IT(TP)A No. 220/Bang/2016 has taken the aforesaid view after considering several decisions on the issue. In view of the above, we find no grounds ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on from the list of comparable companies . Therefore ground No.5 raised by the revenue is allowed. 14. As far as ground No.6 raised by the revenue is concerned, the same relates to exclusion of the following companies Bodhtree Consulting Ltd., Geometric Software Solutions Co. Ltd., and Tata Elxsi Ltd., from the list of comparable companies. These companies were excluded by the CIT(A) on the ground that these companies were functionally different and not comparable with the assessee. The assessee is pure software SWD service provider, whereas these companies were software product companies. The exclusion of these companies in the case of pure software development service provider such as the assessee was considered by this Tribunal in the case of Kodiak Network India Pvt. Ltd. [TS 378 ITAT 2015 (Bang-Trib) and M/s. Sharp Software Development (I) Pvt.Ltd. (supra). Both these cases relate to asst. year 2005-06 and in these cases it was held in that case that the aforesaid companies were software product companies and not software development service provider such as the Assessee and the segmental details of SWD services and SW Products were not available and therefore the profit ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... attributable to the delivery of the articles or things or computer software outside India or expenses, if any, incurred in foreign exchange in providing the technical services outside India. 18. While computing the deduction u/s.10A of the Act, the AO noticed that during the relevant assessment year, the Assessee had incurred telecommunication charges (internet access charges) amounting to ₹ 23,91,701 in respect of STPI unit which was not reduced from the export turnover while computing deduction under section 10A of the Income Tax Act, 1961. The AO therefore excluded the aforesaid sum from the export turnover without excluding them from the total turnover. As a result, the deduction claimed u/s.10A of the Act by the Assessee was allowed at a lesser sum than what was claimed by the Assessee. It was the plea of the Assessee in the appeal against the assessment order before the CIT(A) that at all times during the relevant previous year, it was engaged in development of computer software and not in rendering any technical services. Communication expenses were incurred not for export of computer software outside India and therefore the exclusion from export turnover as done ..... 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