TMI Blog2017 (4) TMI 1574X X X X Extracts X X X X X X X X Extracts X X X X ..... sactions or controlled transactions in excess of 15% of total revenues. Segment of receipts for ITE services - This Tribunal in the case of Pole to Win India P. Ltd [ 2016 (6) TMI 1296 - ITAT BANGALORE ] has examined and excluded the comparables Bodhtree Consultancy Ltd, e-clerx Services Ltd, Infosys Ltd, Mold-tek Technology Ltd. (Seg.) , Vishal Information Technology Ltd and Wipro Limited . Found that the comparables , Apollo Health Street Ltd, Asit C Mehta Financial Services Ltd, M/s. HCL Comnet Systems Services Ltd and Informed Technologies India Ltd exceeded RPT at 15% and hence directed to excluded them. Set aside the issues in connection with comparables I-services India Pvt. Ltd, Accentia Technology Ltd. and Accurate Data Convertors Pvt. Ltd to the A.O/TPO with a direction to re-examine them in the light of their observations /directions, supra. Following the above decision, the assessee s plea is allowed in respect of the above 6+4 comparables on functional dissimilarity + RPT exceeding 15%. The issues in connection with the last 3 comparables are set aside for re-examination on the similar lines in which this Tribunal directed in the above case. Disallowance o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that this issue requires minutest examination and verification of facts, vis a vis units and hence remit the issue to the AO/TPO. The AO/TPO shall give due opportunity to the assessee and decide the issues in accordance with law. Disallowance of claim for set -off of unabsorbed Depreciation - HELD THAT:- From the orders, it is seen that the AO denied the set-off of the above unabsorbed depreciation on the ground that the Pinnacle Unit was a profit making unit in all years prior to a y 2007-08 and that, therefore, the above unabsorbed depreciation is deemed to have been setoff in such years of profit before computing the deduction under Section 10A for those years. Further, the A O has also denied the claim for set-off contending that the same was allowed in the assessment order for AY 2006-07. In the absence of the corresponding facts and figures, it is apparent that AO has decided this issue on surmise. Hence, this issue is remitted to the AO for re-examination and due decision in accordance with the Hon ble Supreme Court decision in CIT v. Yokogawa India Ltd [ 2016 (12) TMI 881 - SUPREME COURT ] Assessee s appeal is allowed/ treated as allowed for statistical purpose. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xamined and found that the management fees has been debited against Pinnacle Unit alone and the assessee could not explain why this expenditure is not apportioned at all as per it s own method. On examination, the AO held that the head count is not a fair basis for apportionment. Since the turnover indicated activity level, he apportioned them on the basis of turnover which resulted in increased income of the Pinnacle Unit and reduction of income of UB plaza Unit. 05. The assessee claimed brought forward unabsorbed depreciation relating to ays 1996-97 1999-2000, totaled at ₹ 16,14,643/- as a set-off in this a y . The A O denied it on the ground that the Pinnacle Unit was a profit making unit in all the years prior to a y 2007-08 and therefore, the above unabsorbed depreciation is deemed to have been set-off in those years when the deduction under Section 10A was computed. Further, the A O has also denied the claim for set-off contending that the same was allowed in the assessment order for a y 2006-07. 06. Aggrieved, the assessee filed its objections before the Dispute Resolution Panel ( the DRP ), which, vide its directions dated 26.09.2011, upheld the draft assessme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... SIP Technologies Exports Ltd 24 Tata Elxsi Ltd (seg) 25 Thirdware Solutions Ltd 26 Wipro Ltd (seg) 08. Out of which, the assessee is seeking rejection of 17 comparables and inclusion of Megasoft Ltd . Out of those 17 comparables, 15 are sought to be rejected on the basis functional dissimilarity, one on the basis of the RPT filter and the last one, both on the basis of the employee filter the RPT filter . Fourteen comparables at SI. Nos. 1, 2, 3, 5, 6, 8, 10, 12, 14, 18, 22, 24, 25, and 26 in the table, supra , are sought to be excluded on the basis of this Tribunal decision in Meritor LVS India (P.) Ltd. v. ACIT [(2015) 64 taxmann.com 136 (Bang-Trib.) and Ishir Infotech Ltd is being sought to be rejected as it is failing the TPO s own filter of 25% employee cost relying on this Tribunal s decision in Meritor LVS India (P.) Ltd. v. ACIT [(2015) 64 taxmann.com 136 (Bang-Trib.)] and also in view of its RPT exceeding 15% of sales as per this Tribunal decision in 24/7 Customer Com P Ltd v DCIT 2012, 28 taxmann.com 258 Bang.Trib. Quintegra So ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Profit and Loss Account as Deferred Revenue Expenditure (page 30 of PB-II). This amounts to nearly 8.28 percent of the sales of this company. It was therefore submitted that the acceptance of this company as a comparable for the reason that it is into pure software development activities and is not engaged in R D activities is bad in law. 43. Further reference was also made to the decision of the Mumbai Bench of the Tribunal in the case of Teva Pharma Private Ltd. v. Addl. CIT ITA No.6623/Mum/2011 (for AY 2007-08) in which the comparability of this company for clinical trial research segment. The relevant extract of discussion regarding this company is as follows: The learned D.R. however drew our attention to page-389 of the paper book which is an extract from the Directors report which reads as follows: The Company has developed a de novo drug design tool CELSUITE to drug discovery in, finding the lead molecules for drug discovery and protected the IPR by filing under the copy if sic (of) right/patent act. (Apprised and funded by Department of Science and Technology New Delhi) based on our insilico expertise (applying bio-informatics tools). Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al trial segment, for the reason that this company has diverse business. It was submitted that, however, from the above extracts it is clear that this company is not into software development activities, accordingly, this company should be rejected as a comparable being functionally different. 45.From the material available on record, it transpires that the TPO has accepted that up to AY 06-07 this company was classified as a Research and Development company. According to the TPO in AY 07-08 this company has been classified as software development service provider in the Capitaline/Prowess database as well as in the annual report of this company. The TPO has relied on the response from this company to a notice u/s.133(6) of the Act in which it has said that it is in the business of providing software development services. The Assessee in reply to the proposal of the AO to treat this as a comparable has pointed out that this company provides software products/services as well as bioinformatics services and that the segmental data for each activity is not available and therefore this company should not be treated as comparable. Besides the above, the Assessee has point out to s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is company is engaged in software development services and satisfies all the filters. 14.2 Before us, the learned Authorised Representative contended that this company ought to be excluded from the list of comparables on the ground that it is functionally different to the assessee. It is submitted by the learned Authorised Representative that this company is engaged in e-Business Consulting Services , consisting of Web Strategy Services, I T design services and in Technology Consulting Services including product development consulting services. These services, the learned Authorised Representative contends, are high end ITES normally categorised as knowledge process Outsourcing ( KPO ) services. It is further submitted that this company has not provided segmental data in its Annual Report. The learned Authorised Representative submits that since the Annual Report of the company does not contain detailed descriptive information on the business of the company, the assessee places reliance on the details available on the company s website which should be considered while evaluating the company s functional profile. It is also submitted by the learned Authorised Representative t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us, the assessee contended that this company is not functionally comparable to the assessee and in this context has cited various portions of the Annual Report of this company to this effect which is as under :- (i) The company has an Intellectual Property (IP) Cell to guide its employees to leverage the power of IP for their growth. In 2008, this company generated over 102 invention disclosures and filed an aggregate 10 patents in India and the USA. Till date this company has filed an aggregate of 119 patent applications (pending) in India and USA out of which 2 have been granted in the US. (ii) This company has substantial revenues from software products and the break-up of the software product revenues is not available. (iii) This company has incurred huge research and development expenditure to the tune of approximately ₹ 200 Crores. (iv) This company has a revenue sharing agreement towards acquisition of IPR in AUTOLAY, a commercial software product used in designing high performance structural systems. (v) The assessee also placed reliance on the following judicial decisions :- (a) ITAT, Delhi Bench decision in the case of Agnity Indi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g inclusion of Kals Information System Ltd. The assessee has objected to its inclusion on the basis that functionally the company is not comparable. With reference to pages 185-186 of the Paper Book, it is explained that the said company is engaged in development of software products and services and is not comparable to software development services provided by the assessee. The appellant has submitted an extract on pages 185-186 of the Paper Book from the website of the company to establish that it is engaged in providing of I T enabled services and that the said company is into development of software products, etc. All these aspects have not been factually rebutted and, in our view, the said concern is liable to be excluded from the final set of comparables, and thus on this aspect, assessee succeeds. Based on all the above, it was submitted on behalf of the assessee that KALS Information Systems Limited should be rejected as a comparable. 47. We have given a careful consideration to the submission made on behalf of the Assessee. We find that the TPO has drawn conclusions on the basis of information obtained by issue of notice u/s.133(6) of the Act. This informatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erved therein Lucid Software Ltd. company is also involved in the development of software as compared to the assessee, which is only into software services. Similarly, as regards Ishir Infotech Ltd., the Tribunal has considered the decision of the Tribunal in the case of 24/7 Co. Pvt. Ltd to hold that Ishir Infotech is also outsourcing its work and, therefore, has not satisfied the 25% employee cost filter and thus has to be excluded from the list of comparables. As the facts of the case before us are similar, respectfully following the decision of the coordinate bench, we hold that these two companies are also to be excluded. 21. Respectfully following the decision of the Tribunal referred to above, we direct the AO/TPO to exclude the aforesaid companies from the final list of comparable companies for the purpose of determining ALP. 7) Wipro Limited 13.1 This company was selected as a comparable by the TPO. Before the TPO, the assessee had objected to the inclusion of this company in the list of comparables or several grounds like functional dis-similarity, brand value, size, etc. The TPO, however, brushed aside the objections of the assessee and included thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Assessing Officer/TPO to omit this company from the set of comparable companies in the case on hand for the year under consideration. 8) Accel Transmatic Ltd. 48. With regard to this company, the complaint of the assessee is that this company is not a pure software development service company. It is further submitted that in a Mumbai Tribunal Decision of Capgemini India (F) Ltd v Ad. CIT 12 Taxman.com 51, the DRP accepted the contention of the assessee that Accel Transmatic should be rejected as comparable. The relevant observations of DRP as extracted by the ITAT in its order are as follows: In regard to Accel Transmatics Ltd. the assessee submitted the company profile and its annual report for financial year 2005-06 from which the DRP noted that the business activities of the company were as under. (i) Transmatic system - design, development and manufacture of multi function kiosks Queue management system, ticket vending system (ii) Ushus Technologies - offshore development centre for embedded software, net work system, imaging technologies, outsourced product development (iii) Accel IT Academy (the net stop for engineers)- training servi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ionally different from the assessee. It was further submitted that the Mumbai Bench of the Tribunal to the decision in the case of Telcordia Technologies Pvt. Ltd. v. ACIT ITA No.7821/Mum/2011 wherein the Tribunal accepted the assessee s contention that this company has revenue from software product and observed that in the absence of segmental details, Avani Cincom cannot be considered as comparable to the assessee who was rendering software development services only and it was held as follows:- 7.8 Avani Cincom Technologies Ltd. ( Avani Cincom ): Here in this case also the segmental details of operating income of IT services and sale of software products have not been provided so as to see whether the profit ratio of this company can be taken into consideration for comparing the case that of assessee. In absence of any kind of details provided by the TPO, we are unable to persuade ourselves to include it as comparable party. Learned CIT DR has provided a copy of profit loss account which shows that mainly its earning is from software exports, however, the details of percentage of export of products or services have not been given. We, therefore, reject this company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this basic requirement is fulfilled, the company cannot be taken as a comparable. It is true that ld. TPO is entitled to obtain information us/ 133(6), the object of which is primarily only to supplement the information already available on record, but not, as rightly submitted by ld. Counsel for the assessee, to replace the information. If there is a complete contradiction between the information obtained u/s 133(6) and annual report then the said information cannot be substituted for the information contained in annual report. We, therefore, are in ITA No. 5637/D/2011 149 agreement with ld. counsel for the assessee that this company cannot be included as a comparable in the set of comparables selected by ld. TPO on account of clear contradiction between contents of annual report and information obtained u/s 133(6). 27. Rule 10D(3) specifies the information and documents that are to be maintained by a person who is entering into international transactions. These are official publications, published accounts or those which are in public domain except for agreements and contracts to which assessee is privy. Once the annual report of a company is for a year different from the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oncern is engaged in software services. The stand of the assessee is that a perusal of the Annual Report of the said concern for F.Y. 2006-07 reveals that the application software segment is engaged in the business of sale of software products and software services. The assessee pointed out this to the TPO in its written submissions, copy of which is placed in the Paper book at page 420.3 to 420.4. The assessee further pointed out that there was no bifurcation available between the business of sale of software products and the business of software services, and therefore, it was not appropriate to adopt the application software segment of the said concern for the purposes of comparability with the assessee s IT-Services Segment. The TPO however, noticed that though the application software segment of the said concern may be engaged in selling of some of the software products which are developed by it, however, the said concern was not into trading of software products as there were no cost of purchases debited in the Profit Loss Account. Though the TPO agreed that the quantum of revenue from sale of products was not available as per the financial statements of the said concern, b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the order of the TPO i.e., 6.3.21, in terms of which the said concern has been included as a comparable concern. The assessee pointed out that as in the case of KALS Information Solutions Ltd. (Seg), in the instant case also for A.Y. 2006-07 the said concern was found functionally incomparable by the assessee in its Transfer pricing study and the said position was not disturbed by the TPO. The relevant portion of the Transfer pricing study, placed at page 432 of the Paper book has been pointed out in support. Considered in the aforesaid light, on the basis of the discussion in relation to KALS Information Solutions Ltd. (Seg), in the instant case also we find that the said concern is liable to be excluded from the list of comparables. 12) Persistent Systems Ltd. 17.1.1 This company was selected by the TPO as a comparable. The assessee objected to the inclusion of this company as a comparable for the reasons that this company being engaged in software product designing and analytic services, it is functionally different and further that segmental results are not available. The TPO rejected the assessee s objections on the ground that as per the Annual Report for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s submitted by the assessee, the segmental details are not given separately. Therefore, following the principle enunciated in the decision of the Mumbai Tribunal in the case of Telecordia Technologies India Pvt. Ltd. (supra) that in the absence of segmental details / information a company cannot be taken into account for comparability analysis, we hold that this company i.e. Persistent Systems Ltd. ought to be omitted from the set of comparables for the year under consideration. It is ordered accordingly. 13) Sasken Communication Technologies Ltd.: 109. Ld TPO noticed that the company was rejected in the TP document on the ground that the company fails its filter of business review and R D to sales was more than 3%. However, no reasons were given for the business review. 109.1 Ld. TPO pointed out that R D to sales being more than 3% is not acceptable for which detailed discussion has already been made earlier. He further noticed that the company has software services segment and segmental results are available for software services. He further pointed out that on the basis of information obtained u/s 133(6), the company qualifies onsite revenue filter (onsite r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a Elxsi Ltd. 14.1 This company was a comparable selected by the TPO. Before the TPO, the assessee had objected to the inclusion of this company in the set of comparables on several counts like, functional dis-similarity, significant R D activity, brand value, size, etc. The TPO, however, rejected the contention put forth by the assessee and included this company in the set of comparables. 14.2 Before us, it was reiterated that this company is not functionally comparable to the assessee as it performs a variety of functions under the software development and services segment namely (a) Product design services (b) Innovation design engineering and (c) visual computing labs. In the submissions made the assessee had quoted relevant portions from the Annual Report of the company to this effect. In view of this, the learned Authorised Representative pleaded that this company be excluded from the list of comparables. 14.3 Per contra, the learned Departmental Representative supported the stand o the TPO in including this company in the list of comparables. 14.4.1 We have heard both parties and carefully perused and considered the material on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed Authorised Representative submitted that :- (i) This company is engaged in product development and earns revenue from sale of licences and subscription. It has been pointed out from the Annual Report that the company has not provided any separate segmental profit and loss account for software development services and product development services. (ii) In the case of E-Gain communications Pvt. Ltd. (2008-TII-04-ITAT-PUNETP), the Tribunal has directed that this company be omitted as a comparable for software service providers, as its income includes income from sale of licences which has increased the margins of the company. The learned A.R. prayed that in the light of the above facts and in view of the afore cited decision of the Tribunal (supra), this company ought to be omitted from the list of comparables. 15.2 Per contra, the learned Departmental Representative supported the action of the TPO in including this company in the list of comparables. 15.3 We have heard the rival submissions and perused and carefully considered the material on record. It is seen from the material on record that the company is engaged in product development and earns revenue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duct software) internally and that the portion of the revenue from development of software sold and used for customization was less than 25% of the overall revenues. The TPO therefore held that less than 25% of the revenues of the comparable are from software products and therefore the comparable satisfied TPO s filter of more than 75% of revenues from software development services. The basis on which the TPO arrived at the PLI of 60.23% is given at page-115 and 116 of the order of the TPO. It is clear from the perusal of the same that the TPO has proceeded to determine the PLI at the entity level and not on the basis of segmental data. 25. In the order of the TPO, operating margin was computed for this company at 60.23%. It is the complaint of the assessee that the operating margins have been computed at entity level combining software services and software product segments. It was submitted that the product segment of Megasoft is substantially different from its software service segment. The product segment has employee cost of 27.65% whereas the software service segment has employee cost of 50%. Similarly, the profit margin on cost in product segment is 117.95% and in case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Technologies Ltd, Flextronics Software Systems Ltd (seg), Helios Matheson Information Technology Ltd, Ishir Infotech Ltd, Persistent Systems Ltd, Sasken Communication Technologies Ltd (Seg), Tata Elxsi Ltd (seg) and Thirdware Solutions Ltd. In so far as Megasoft Solutions Ltd is concerned, we direct the AO / TPO to rework its segmental results and consider its comparability only with regard to the software development services segment. Ordered accordingly. 10. The relevant portion from this Tribunal s decision in NXP Semiconductors India P. Ltd v ACIT [dated 14.11.2014 in IT(TP) A No. 1174/Bang/2011], for AY.2007-08 is extracted as under : 18. Quintegra Solutions Ltd. 18.1 This case was selected by the TPO as a comparable. Before the TPO, the assessee objected to the inclusion of this company in the set of comparables on the ground that this company is functionally different and also that there were peculiar economic circumstances in the form of acquisitions made during the year. The TPO rejected the assessee s objections holding that this company qualifies all the filters applied by the TPO. On the issue of acquisitions, the TPO rejected the assessee s objectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e in the case on hand and therefore ought to be excluded from the list of comparables for the period under consideration. 18.2 Per contra, the learned Departmental Representative supported the action of the TPO in including this company in the set of comparables to the assessee for the period under consideration. 18.3.1 We have heard the rival submissions and perused and carefully considered the material on record. It is seen from the details brought on record that this company i.e.Quintegra Solutions Ltd. is engaged in product engineering services and is not purely a software development service provider as is the assessee in the case on hand. It is also seen that this company is also engaged in proprietary software products and has substantial R D activity which has resulted in creation of its IPRs. Having applied for trade mark registration of its products, it evidences the fact that this company owns intangible assets. The coordinate bench of this Tribunal in thecase of 24/7 Customer.Com Pvt. Ltd. (ITA No.227/Bang/2010 dt.9.11.2012) has held that if a company possesses or owns intangibles or IPRs, then it cannot be considered as a comparable company to one that does ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is sales and not profit since profit of an enterprise is influenced by large number of other factors..... Respectfully following the decision of the Tribunal in the case of Sony India (P) Ltd. (supra), the Assessing Officer/TPO are directed to exclude after due verification those comparables from the list with related party transactions or controlled transactions in excess of 15% of total revenues for the financial year 2003-04. 12. From the above , it clear that this Tribunal has examined the above comparables elaborately, supra, in those decisions, following them we direct exclusion of Celestial Labs Ltd, E-Zest Solutions Ltd, Infosys Technologies Ltd, Kals Information Systems Ltde (seg), Lucid Software Ltd, Wipro Ltd (seg), Accel Transmatic Ltd (seg), Avani Cimcon Technologies Ltd, Flextronics Software Systems Ltd (seg), Helios Matheson Information Technology Ltd, Ishir Infotech Ltd, Persistent Systems Ltd, Sasken Communication Technologies Ltd (Seg), Tata Elxsi Ltd (seg) , Thirdware Solutions Ltd and Quintegra Solutions Ltd as they are functionally different from the assessee. In so far as Megasoft Solutions Ltd is concerned, we direct the AO / TPO to rework its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at this company is following the method of revenue recognition from software development based on software developed and billed to client whereas the expenditure is recognized when it is incurred towards software development. Therefore, there is no match between the expenditure and the revenue from software development segment. Thus once this company is in the software development, the same cannot be compared with the assessee being ITES provided to its AEs. 8.2 On the other hand, the learned Departmental Representative has relied upon the orders of the authorities below and further submitted that the co-ordinate bench of this Tribunal in the case of Ariba Technologies India (P.) Ltd. (supra) found this company to be comparable. 8.3 We have considered the rival submissions and the relevant material on record. In case of Ariba Technologies India (P.) Ltd. (supra), the objections against this company was on the ground of extra-ordinary profit and therefore the Tribunal has no occasion to examine the functional comparability of this company except the ground raised by the assessee regarding extra-ordinary profit margin. The learned Authorised Representative of the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be considered as comparable with the low end service provider. Accordingly, we direct the A.O./TPO to exclude this company from the list of comparables. ................................................................................................................................................................... 10. Infosys Ltd. : As it is clear from the finding of this Tribunal in the case of Ariba Technologies India (P.) Ltd. (supra), this company is deriving revenue from the software product and has a huge intangible assets apart from the brand value and a leader in the market. Accordingly, by following the earlier orders of this Tribunal, we direct the A.O./TPO to exclude this company from the list of comparables. ................................................................................................................................................................... ................................................................................................................................................................... 12.1 Mold-tek Technology Ltd. (Seg.) : Having considered the rival submissions as well as the relevant material o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to exclude this company form the list of comparables. 14.1 On comparables exceeding RPT at 15% : 7.5 We have heard the ld. A.R. ld. D.R. and considered carefully the relevant material on record. We find that in the case of Ariba Technologies India (P.) Ltd. (supra), the TPO has selected the same set of 27 comparable companies as in the case of the assessee before us. We further note that in the case of the assessee, the TPO has accepted that the assessee is in the ITES segment which was also accepted in the case of Ariba Technologies India (P.) Ltd. (supra). We further find that most of the comparable companies are required to be excluded by applying the filter of RPT at 15%. Therefore, to the extent of the exclusion of the companies on the ground of RPT filter. We need not go into the functional comparability of those companies. The Tribunal while considering the same set of 27 comparables in the case of Ariba Technologies India (P.) Ltd. (supra) has given the finding in para 15 as under : 15. We shall deal with each and every comparable which has been challenged by the assessee and exclusion of some of the comparables has been challenged by the revenu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that an identical issue has been considered by the co-ordinate bench of this Tribunal in the case of sister concern of the assessee i.e. e4e Business Solutions India (P.) Ltd. v. Dy. CIT [2016] 69 taxmann.com 73 wherein the Tribunal has remanded the issue to the record of the A.O./TPO. Thus the learned Authorised Representative has submitted that the assessee be given the complete financial information of this company for filing its objections and comments against the comparability of this company. 11.2 On the other hand, the learned Departmental Representative has relied upon the orders of the authorities below and submitted that the TPO has called the relevant information under Section 133(6) of the Act. Thus the TPO has considered this company after examination of the entire relevant record. 11.3 We have considered the rival submissions as well as the relevant material on record. At the outset we note that the TPO in para 33.18 of the impugned order has stated that the Annual Report was not available for the year under consideration. Thus the notice under Section 133(6) was issued to the company. The company made available its Annual Report to the TPO and on the bas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ....................................................................... .................................................................................................................................. .................................................................................................................................. Accentia Technology Ltd. : 13.1 The learned Authorised Representative of the assessee has submitted that there is an extra-ordinary event of amalgamation during the year under consideration as this company has amalgamated its subsidiary namely Geo Soft Technologies Ltd. and Iridium Technologies India Pvt. Ltd. w.e.f. 1.4.2006 as per the respective orders of the Hon ble High Court. He has further submitted that this fact has also been mentioned in the notes to accounts. Thus the learned Authorised Representative has submitted that due to the extra-ordinary event during the year under consideration, this company cannot be considered as good comparable. The learned Authorised Representative has relied upon the decision dt.29.4.2016 of Delhi Bench of ITAT in the case of Sony Mobile Communications International AB Ltd. v. Dy. DIT [2016] ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ia Pvt. Ltd. v. DCIT (ITA No.3324/Del/2013) vide its order dated 23.4.2015. The ld. DR contended that the mere fact of acquisition and merger should not be considered as a decisive test for exclusion of a company unless it has affected the profitability due to such merger etc. We are not inclined to accept this contention for the obvious reason that once acquisition and merger etc. has taken place, it is always likely to affect the profitability of such a company in the year of acquisition etc. There cannot be any standard yardstick to measure the impact of such a factor on the overall profitability of such a company. It is relevant to highlight that we are considering the exclusion of a company on this score. In our considered opinion, when other comparables are available, the exclusion of a probable comparable company cannot have much significance in contrast to a situation of inclusion of a probable incomparable. Respectfully following the above referred decisions, we hold that TCS Ltd. cannot be considered as comparable with the assessee. The same is directed to be excluded. Therefore, for limited purpose of considering the said record, we set aside this issue to the rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd, Infosys Ltd, Mold-tek Technology Ltd. (Seg.) , Vishal Information Technology Ltd and Wipro Limited . Found that the comparables , Apollo Health Street Ltd, Asit C Mehta Financial Services Ltd, M/s. HCL Comnet Systems Services Ltd and Informed Technologies India Ltd exceeded RPT at 15% and hence directed to excluded them. Set aside the issues in connection with comparables I-services India Pvt. Ltd, Accentia Technology Ltd. and Accurate Data Convertors Pvt. Ltd to the A.O/TPO with a direction to re-examine them in the light of their observations /directions, supra. Following the above decision, the assessee s plea is allowed in respect of the above 6+4 comparables on functional dissimilarity + RPT exceeding 15%. The issues in connection with the last 3 comparables are set aside for re-examination on the similar lines in which this Tribunal directed in the above case. 16. For this segment also, the AR pleaded that if the above 17 comparables are excluded , the arithmetic mean of the working capital adjusted margins of the remaining 14 comparables (16.56%) is within + or - 5% of the NCP margin of the assessee (12.07%), and hence its international transaction can be conclude ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n under the said section cannot be denied. Further, since section 10A is an incentive provision, its provisions have to be interpreted in a beneficial or purposive manner so as to give effect to the benefit sought to be conferred thereby on assessees. It is now settled-law that the provisions of an incentive provision have to be construed liberally and that, furthermore in cases where there is an ambiguity in the wording of a section, such a provision would have to be interpreted in such a manner so as to favour of the assessee. 19. Further, as far as section 10A (7A) is concerned that there is nothing in law to suggest that an undertaking which is sold on slump sale basis can be denied the benefit of deduction u/s 10A. In fact, the CBDT, having regard to the true purport and intention behind the said section, has vide its Circular No. 1/2013 dated 17.01.2013, categorically clarified that the claim of deduction under the section cannot be denied purely because of change in ownership due to a slump sale. The assessee placed reliance on the said CBDT Circular. Reliance is also placed on the decision of the Hon ble High Court of Bombay in CIT v. Sonata Software Ltd., reported in [2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther the travel expenses in foreign currency nor the telecommunication charges ought to be reduced from its export turnover. In the alternative, it pleaded that while computing the deduction allowable u/s 10A. If any item is excluded from the export turnover, then it should also be excluded from the total turnover as well. We heard the rival submissions. The assessee s plea is supported by the binding decision of the Hon ble High Court of Karnataka in CIT v. Tata Elxsi Ltd. [2012] 349 ITR 98 (Karn). Hence, Consistent with the above decision, the AO is directed to exclude the above expenditure both from ETO and TTO. The assessee s appeal in this regard is allowed. C. Re-computation of deduction allowable u/s 10A by the reapportionment of certain expenses between its UB P la za Unit its Pinnacle Unit [Ground No.8 in its appeal] :- 22. The AO held that the deduction u/s 10 should also be further recomputed by the re-apportionment of certain expenses between the aforesaid UB Plaza Unit and its Pinnacle Unit, being the unit ineligible for deduction u/s 10A with effect from AY 2007-08, on the ground that the appellant s basis of apportionment was erroneous. The said expenses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is recognized in its books of account on that basis, the legal and professional charges, staff recruitment charges and management fees have, accordingly, been allocated between the two Units on the same basis while arriving at the total cost for the purposes of applying such mark-up. The total costs would have to first be identified and the mark-up would then have to be applied on the same to arrive at its revenue. Consequently, as its revenue is determined on the basis of the total costs identified, the allocation of underlying costs on the basis of its revenue / turnovers would be impractical and baseless. In any event, the fact that the TPO has accepted the total cost computed by the Appellant for the purposes of applying the mark-up would itself go to show that an adjustment for the same cannot be made while computing the deduction under Section 10A of the Act. It is trite that different bases of allocation of expenses cannot be used for TP purposes and for computation of the deduction under Section 10A of the Act. Further, without prejudice to the above, the Appellant submits that even if it is assumed but not admitted that the above expenses have been alloca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as a profit making unit in all years prior to a y 2007-08 and that, therefore, the above unabsorbed depreciation is deemed to have been set-off in such years of profit before computing the deduction under Section 10A for those years. Further, the A O has also denied the claim for set-off contending that the same was allowed in the assessment order for AY 2006-07. The DRP, too, upheld the same. In this regard, the assessee submitted that the unabsorbed depreciation could not be claimed in any of the preceding assessment years as there were no profits available for such set-off after computing deduction u/s 10A in those assessment years. Further, it submitted that the AO, while computing the tax payable for a y 2006-07, had given effect to the brought forward business losses and unabsorbed depreciation of the assessee relating to earlier assessment years before giving effect to the deduction u/s 10A . The assessee submitted that the above action of the AO in the assessment order for a y 2006-07 is liable to be set aside in view of the binding decision pronounced on 16.12.2016 by the Hon ble Supreme Court in CIT v. Yokogawa India Ltd. in C.A. Nos. 8498/2013 and others. Since the se ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
