TMI Blog2022 (4) TMI 1487X X X X Extracts X X X X X X X X Extracts X X X X ..... over for the purpose of computation of deduction u/s. 10A - HELD THAT:- It is not in dispute before us that in the case of CIT v. Tata Elxsi Ltd. [ 2011 (8) TMI 782 - KARNATAKA HIGH COURT] has held that charges/expenses relating to telecommunication, and expenses in connection with rendering technical services outside India, should be excluded both from export turnover and total turnover while computing deduction u/s.10A i.e., whatever is removed from the numerator should also be excluded from the denominator while working total turnover and export turnover for allowing deduction u/s.10A of the Act. The aforesaid decision of the jurisdictional High Court has been upheld by case of CIT v, HCL Technologies Ltd.[ 2018 (5) TMI 357 - SUPREME COURT] - we are of the view that the telecommunication charges and insurance charges should be excluded both from the export turnover as well as total turnover while computing deduction u/s.10A of the Act. - IT(TP)A No. 1259/Bang/2017 - - - Dated:- 4-4-2022 - SHRI. CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. BEENA PILLAI, JUDICIAL MEMBER For the Appellant : Shri C. Ramesh, CA For the Respondent : Dr. Manjunath Karkihalli, CIT Dr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as they are involved substantially in software development, possession of intangibles such as IPR have substantial expenditure on R D activities. vii) Not appreciating the fact that, the DRP has rejected the claim of the eligible assessee that, purchase of software is an extra ordinary item and therefore cannot be a part of operating cost. viii) Ignoring the fact that, the DRP has rejected the claim of the appellant that exchange fluctuation loss is an extraordinary item and cannot be considered as part of operating cost. ix) Ignoring the fact that, the DRP has issued directions that no working capital adjustment be allowed, which is improper and not tenable under law especially when the assesse has demonstrated impact of working capital . x) Ignoring the fact that, the DRP has issued directions which has the effect of enhancement in the TP adjustments quantified by the TPO without providing the appellant an opportunity of hearing in the matter. 2. GROUNDS RELATING TO NATURAL JUSTICE i) The learned TPO erred in passing an order without considering all the submissions made by the appellant and determining an adjustment towards arms length pric ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at, the comparables was functionally similar and the said comparable has been accepted in the appellant's own case for the A.Y.2012-13. ix) The learned TPO has erred in excluding M/s.Sasken Communication Technologies Ltd as a comparable for the alleged reason that. the said company is functionally different and segmental reports are not available. The TPO could have collected the said information from the comparable company before rejecting the comparable. x) The learned TPO has erred in excluding M/s.Akshay Software Technologies Ltd as a comparable for the alleged reason that. the said company is functionally different for the reason that. the said company is in support services or IT Embedded Services basically in telecom sector ignoring the submissions of the appellant that. the TPO has selected comparables like M/s.Larson Toubro Ltd which is also in similar services and hence this comparable could not have been rejected. The comparable has also been rejected on the ground that segmental data is not available. xi) The learned TPO has erred in excluding the company M/s. GSS Infotech Ltd as a comparable for the alleged reason that, the related party transct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ficer giving effect to Dispute Resolution Panel order passed on 17.04.2017 as the same are against the principles of natural justice. iv) annul the directions of the DRP, dated 13.03.2017 as beyond jurisdiction and against the provisions of the act. The appellant submits that each of the above grounds/sub-grounds are independent and without prejudice to one another. The appellant craves leave to add, alter, vary, omit, substitute or amend the above grounds of appeal, at any time before or at the time of hearing of the appeal so as to enable the Income Tax Appellate Tribunal to decide the appeal according to law. The appellant prays accordingly. 2. At the outset the Ld.AR submitted that, the assessee do not wish to press Ground 1 (vi)-(viii), (x), Ground 2 (i)-(xii), Ground 3 (i)-(ii). He also submitted that Ground 1 (i) (ii) and Ground 5 (i)- (iv) are general in nature. Accordingly these grounds are dismissed as not pressed. However liberty is granted to assessee to raise these issues in an appropriate circumstances. 3. Based on the above submissions, following are the issues that needs to be considered in the present appeal: 3.1 In Grou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R.S. Software (India) Ltd. 16.88 5. Sasken Communication Technologies Ltd. 4.91 6. Akshay Software Technologies Ltd. -0.07 7. GSS Infotech Limited 6.19 8. ICRA Techno Analytics Ltd 5.46 9. CG-VAK Software Exports Ltd -3.12 Arithmetic mean 8.32% 5.3 The Ld.TPO rejected the TP study done by the assessee, and carried out analysis by adopting various filters. The Ld.TPO selected following 7 comparables having average margin of 20.9%. Sl.No Company Name (OP/OC) 1 CG-VAK Software Exports Ltd. 20.54% 2 I C R A Techno Analytics Ltd. 17.10% 3 Larsen Toubro Infotech Ltd. 26.06% 4 Mindtree Ltd. (Seg) 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rables. In Ground No.1(iv) (v)-(vi), the assessee seeks exclusion of capital following comparables: ICRA Techno Analytics Larsen and Toubro Ltd, Persistent Systems Ltd Mindtree Ltd In respect of ICRA Techno Analytics, the Ld.AR submitted that, the DRP had directed its exclusion however, the Ld.AO/TPO did not follow the directions. The Ld.AR, thus prayed for, exclusion of this comparable based on the observations of DRP directions. The Ld.CIT.DR do not object for the exclusion of this comparable from the finalist. Considering the submissions hereinabove, we direct the Ld.AO/TPO to exclude ICRA Techno Analytics as directed by the DRP from the finalist. 10. The Ld A.R submitted that, the assessee seeks exclusion of following four comparable companies selected by the Ld.TPO as they have high turnover and are not comparable functionally to a captive service provider like assessee. Larsen Toubro Infotech Ltd 3630.15 crores Mindtree Limited (seg.) 1640.81 crores Persistent systems Ltd. 996.75 crores 11. He submitted that, the turnover of the assessee during the year was Rs.29.28crores, and hence, it falls under the category of com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hi High Court in the case of Chryscapital Investment Advisors (India) Pvt. Ltd., (supra) was as to whether comparable can be rejected on the ground that they have exceptionally high profit margins or fluctuation profit margins, as compared to the Assessee in transfer pricing analysis. Therefore as rightly submitted by the learned counsel for the Assessee the observations of the Hon'ble High Court, in so far as it refers to turnover, were in the nature of obiter dictum. Judicial discipline requires that the Tribunal should follow the decision of a nonjurisdiction High Court, even though the said decision is of a non-jurisdictional High Court. We however find that the Hon'ble Bombay High Court in the case of CIT v. Pentair Water India Pvt. Ltd. Tax Appeal No. 18 of 2015 judgment dated 16-9-2015 has taken the view that turnover is a relevant criterion for choosing companies as comparable companies in determination of ALP in transfer pricing cases. There is no decision of the jurisdictional High Court on this issue. In the circumstances, following the principle that where two views are available on an issue, the view favourable to the Assessee has to be adopted, we respectfully ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der the Transfer Pricing regulations under the Act. For the reasons given above, we uphold the order of the CIT(A) on the issue of application of turnover filter and his action in excluding companies by following the ratio laid down in the case of Genisys Integrating (supra). 14. From the above, the objection of the Ld.CIT.DR is also met with, and therefore we are of the view that the comparables sought for exclusion deserves to be upheld on failure to fulfil turnover filter. We accordingly direct the Ld.AO/TPO to exclude Larsen Toubro Infotech Ltd., Mindtree Ltd. and Persistent Systems Ltd. from the finalist. Accordingly Ground No.1(iv) (v)-(vi), raised by assessee stands allowed. 15. Ground No.1(ix): The assessee is seeking directions for granting of working capital adjustment. Admittedly, the assessee do not bear any working capital risk as compared to the comparables. If at all any working capital adjustment is to be made in such a situation, it would be a positive working capital adjustment to bring the comparables on par with assessee. We therefore, direct Ld.AO/TPO to recompute working capital adjustment in actuals to the selected comparables to make ..... X X X X Extracts X X X X X X X X Extracts X X X X
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