TMI Blog2017 (5) TMI 1805X X X X Extracts X X X X X X X X Extracts X X X X ..... Exchange Gain in the hands of the assessee for the year under consideration would form part of the profits eligible for computation of deduction u/s 10A. We are persuaded to be in agreement with the observations of the DRP, whom we find going by the principle laid down by the Hon ble jurisdictional High Court Gem Plus Jewellery [ 2010 (6) TMI 65 - BOMBAY HIGH COURT ] had directed the A.O to include the Foreign Exchange Gain as part of the profit eligible for computation of deduction u/s 10A - We thus finding no infirmity in the aforesaid observations of the DRP in respect of the issue under consideration, therefore uphold the same. The Grounds of appeal raised by the revenue before us are thus dismissed. - I.T.(TP)A. No. 912/Mum/2016 And I.T.(TP)A. No.1600/Mum/2016 - - - Dated:- 17-5-2017 - Shri G.S. Pannu, AM And Shri Ravish Sood, JM For the Assessee : Ms. Krishna Phatarphekar Ms. Keerthiga Sharma. For the Revenue : Ms. Priyanka Wada Shri Debashis Chanda. ORDER PER RAVISH SOOD, JUDICIAL MEMBER: That both the assessee and the revenue had filed an appeal against the order passed by the A.O u/s 143(3) r.w.s 144C(13) of the Income Tax Act, 1961 (fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed TPO and the learned AO under the directions of the Hon ble DRP erred in disregarding the transfer pricing study report maintained by the Appellant as per Section 92D of the Act read with Rule 10D of the Income Tax Rules, 1962 and the various submissions made by the Appellant; 8. On the facts and in the circumstances of the case and in law, the learned TPO and the learned AO under the directions of the Hon ble DRP erred in not appreciating the fact that the Appellant was claiming tax exemption under section 10A of the Act and accordingly had no intention to shift profits outside India by manipulating the prices charged in its international transactions which is a pre-requisite condition to make any adjustment under the provision of Chapter X of the Act; 9. On the facts and in the circumstances of the case and in law, the learned AO erred in referring the matter to the TPO and the learned AO/TPO and the Hon ble DRP further erred in disregarding the benchmarking analysis undertaken by the Appellant without recording any reason to show that the conditions mentioned in section 92C(3) of the Act have been satisfied; 10. On the facts and in the circumstances of the ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for analyzing the International transactions pertaining to provision of software development and localization services to its Associate Enterprises (AE). It was further observed by the TPO that as per the Transfer pricing Study report (TPSR) the assessee had identified 18 companies as comparable, and by putting across its OP/TC of 16.66% for F.Y. 2010-11 as against the 3 year weighted arithmetic mean OP/TC of 17.52% of the aforesaid comparables, therein claimed that its ALP was within the range of 5% of the transaction price. The TPO however being of the view that as per Rule 10B(4) it was mandatory on the part of the assessee to exclusively use the current year data of the comparables, therefore required the assessee to furnish the updated OP/TC of comparable companies using data for F.Y. 2010-11 only, in compliance to which the assessee furnished the arithmetic mean of the PLI of such comparables companies for F.Y. 2010-11, which worked out at 11.54%. 4. The TPO after examining the transfer pricing documentation maintained by the assessee and the search criteria adopted by the assessee in respect of the comparables identified by it, therein applied certain additional filters o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ein held that the OP/TC of the IT/ITeS services rendered by the assessee was outside the 5% range available under the regulations, and thus the international transactions of the assessee with its AE s were not at arms length price. The TPO in the backdrop of the aforesaid facts carried out an adjustment of Rs. 10,82,06,652/- , as under:- Particulars Lionbridge Technologies Pvt. Ltd. Arms length P L (as per final set of comparables) Income from Software development localization services. Rs. 102,22,67,933/- Rs. 113,04,74,585/- Total Cost (TC) Rs. 89,99,16,084/- Rs. 89,99,16,084/- Operating Profit (OP) Rs. 12,23,51,849/- Rs. 23,05,58,501/- OP/TC(%) 13.60% 25.62% Adjustment Rs. 10,82,06,652/- The TPO thus on the basis of his aforesaid working therein proposed an upward adjustment of Rs. 10,82,06,652/-. DRAFT ASSESSMENT BY A.O: 5. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te Resolution Panel (DRP) on 10.04.2015. The assessee assailed the upward adjustment of Rs. 10,82,06,652/- proposed by the TPO u/s 92CA(3), as well as the recasting of the claim of the assessee towards deduction u/s 10A of the Act . The assessee challenged the upward adjustment of Rs. 10,82,06,652/- proposed by the TPO, on multiple grounds, viz. rejection of the TP documentation of the assessee on the ground that contemporaneous data was not used for F.Y. 2010-11; AO/TPO had erred in disregarding the multiple year analysis undertaken by the assessee in accordance with Rule 10B(4) for computing the margins of the comparable companies; the AO/TPO had erred in recomputing the ALP of the assessee at 25.62% as against the ALP of 17.52% as provided in the TP documentation; the AO/TPO had erred in rejecting the comparable companies selected by the assessee without considering the FAR analysis of the assessee vis-a-vis comparables selected and further cherry picking comparables without sharing methodical search process for benchmarking the international transactions; the AO/TPO had erred in rejecting the filters applied by the assessee and had wrongly introduced additional comparables wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Export turnover , without carrying out a similar exclusion from the Total turnover , it was observed by the DRP that the said issue was discussed by his predecessor in the case of the assessee for A.Y. 2008-09, 2009-10 and 2010-11 and the A.O was directed to decide the same as per the directions given by the ITAT in the case of the assessee for A.Y. 200405. The DRP referring to the directions given to the AO in the case of the assessee for A.Y. 2008-09 therein relied on the order of the Hon ble High Court of Bombay in the case of : M/s Gem Plus Jewellery Ltd. (ITA No. 2426 of 2009), wherein the Hon ble High Court had observed that in case of exclusion of some items from the export turnover , the same should also be excluded from the total turnover while computing the deduction under Sec. 10A. The DRP thus following the direction of the DRP and ITAT in the case of the assessee for the preceding year, and going by the principle laid down by the Hon ble High Court in the case of : Gem Plus Jewellery (supra), therein directed the A.O to exclude the amount of foreign currency expenses from the total turnover . (ii). That as regards the disallowance of Foreign Exchange Gain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the normal provisions, while for computed the Book Profit u/s 115JB at Rs. 11,04,22,963/- and computed the tax liability on the same at Rs. 1,98,76,133/-. That as the tax liability of the assessee under the normal provisions was more than that as per Sec. 115JB, therefore the A.O computed the tax liability of the assessee in accordance with the normal provisions of the Act . 11. The assessee being aggrieved with the addition of Rs. 10,49,16,556/- (supra) made by the A.O in pursuance to the directions of the DRP as regards the ALP of the international transactions carried out with its AE s, had thus carried the matter in appeal before us. That the assessee though had assailed the upward adjustment of Rs. 10,49,16,556/- (supra) before us by raising multiple grounds, however during the course of hearing of the appeal the Ld. Authorized had therein pressed for the exclusion of only two companies which had been selected by the TPO as comparable, viz. TCS E-Serve Limited ( TCS ) and Wipro Technologies Limited. It was submitted by the Ld. A.R that the exclusion of the aforesaid two companies from the final list of comparables would bring the ALP of the assessee from 25.28% to 18.6 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eraction with customers, and as such was clearly functionally different as against the aforesaid comparable. The Ld. A.R in support of her aforesaid contention relied on the order passed by the ITAT Delhi Bench I in the case of : Orange Business Services India Solutions (P) Ltd. Vs. DCIT, Circle-3, Gujarat.(2016) 71 taxmann.com 206 (Delh-Trib). The Ld. A.R further relying on the order of the ITAT Delhi Bench I in the case of : Ameriprise India (P) Ltd. Vs. DCIT, Circle 1(1), New Delhi (2016) 66 taxmann. Com 246 (Delhi-Trib) therein submitted that as observed by the Tribunal in the said case, in the absence of availability of any segregation of the total revenue of the aforesaid company, viz. TCS E-serve Limited (supra), it was not possible to separately consider its profitability from rendering of Transaction processing services , as a result whereof the entity level figures rendered the said company as unfit for comparison. The Ld. A.R further drew our attention to Page 238 of the APB which is a Schedule O Notes forming part of the Financial Statements and reveals Tata Brand Equity Contribution . That in the backdrop of the aforesaid factual matrix, it was averred by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder:- 4.7 Ld. A.R submitted that the Tribunal in assesses own case for the Assessment Year 2010-11 (supra) rejected the inclusion of this company as comparable on the ground that this comparable provides high end technology services such as software testing, verification and validation of the software. The coordinate bench of this Tribunal has rejected this comparable by holding as under:- We have also considered the rival contention for exclusion of TCS e-service Ltd. It is mainly involved in transaction processing and technology services. It carries on business of providing technology service such as software testing, verification and validation. It is also developed a software such as transport management software therefore functionally this company is dissimilar to the assessee company. It also owns huge intangible and use of Tata Brand , which has definitely benefited this comparable, it is directed to be excluded . 4.8 On the contrary, the Ld. D.R supported the order of the DRP and Ld. TPO, He thus prayed for inclusion of this company as a comparable. 4.9 We have perused the orders of the authorities below and the submissions made by both the parties ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Services % Export Export % RPT% Wipro Technology Services Ltd 3,468,696,06 2 3,468,696,062 100% 3,249,223,497 94% 2% The A.O thus in the backdrop of his aforesaid observations selected the company, viz. M/s Wipro Technology Services Ltd. as a comparable. The assessee objected to the inclusion of the aforesaid company, viz. M/s Wipro Technology Services Ltd. as a comparable, for the reason that the same was functionally different as in comparison to the assessee, however the contentions of the assessee did not find favor with the TPO. 17. That during the course of hearing of the appeal it was averred by the Ld. A.R that the aforesaid company, viz M/s Wipro Technology Services Ltd. was functionally incomparable and had wrongly been included in the final list of the comparables. The Ld. A.R in support of her aforesaid contention relied on the orders of the coordinate benches of the Tribunal in the following cases:- (i). Saxo India (P) Ltd. Vs. ACIT (2016) 176 TTJ 540 (Del-Trib) (ii). O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company, viz M/s Wipro Technology Services Ltd. We find that the aforesaid company, viz M/s Wipro Technology Services Ltd., as stands gathered from its Annual report was engaged during the year under consideration in providing software related support services, primarily information technology software solutions/maintenance and technology support services to Citigroup entities, which is considered as one segment, and therefore no reportable segments are available. (iii). Significant related party transactions: We find that a coordinate bench of the Tribunal in the case of Saxo India (P) Ltd. Vs. ACIT (2016) 176 TTJ 540 (Del-Trib) while disposing of the appeal of the assessee before it for A.Y. 2011-12, had therein excluded the aforesaid company, viz. Wipro Technology Services Ltd. as a comparable on the ground that the latter had significant related party transactions pursuant to its master services agreement with the Citigroup Inc. The Tribunal observed that the holding company, i.e Wipro Ltd. had acquired all the interests held by Citigroup Inc. in Citi Technology Services Ltd. (subsequently renamed as Wipro Technology Services Ltd) with effect from 21.01.2009. That therea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l list of comparables. 20. We thus in the backdrop of our aforesaid observations therein direct the AO/TPO to exclude the aforesaid companies, viz TCS Eserve Limited(supra) and M/s Wipro Technology Services Ltd.(supra) from the final list of comparables. We find that the exclusion of the aforesaid two companies from the final list of comparables, as submitted by the Ld. A.R on the basis of a chart filed before us, marked as Permutation of Margin of Comparable Companies , therein brings the ALP of the assessee from 25.28% to 18.68%, and as such within the range of +/-5% adjustment, as a result whereof no TP adjustment would be called for in the hands of the assessee. The Grounds of appeal No. 1 to 4 are thus allowed in terms of our aforesaid observations. That as in the backdrop of the contentions raised by the Ld. A.R before us, we had directed the exclusion of the aforesaid two companies, viz TCS E-serve Limited(supra) and M/s Wipro Technology Services Ltd.(supra) from the final list of the comparables, therefore we refrain from adjudicating the Grounds of appeal No. 5 6 , which are left open. The Grounds of appeal No. 7 to 12 being consequential in nature, are thus being di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee for A.Y. 2004-05. We find that DRP referring to the directions given to the AO in the case of the assessee for A.Y. 2008-09, had therein relied on the order of the Hon ble High Court of Bombay in the case of :CIT Vs. Gem Plus Jewellery India Ltd. (2011) 330 ITR 0175 (Bom), being of the view that in case some items are excluded from the export turnover , then the same should also be excluded from the total turnover while deciding the assesses claim of deduction under Sec. 10A, had therein held as under:- The submission which has been urged on behalf of the Revenue is that while freight and insurance charges are liable to be excluded in computing export turnover, a similar exclusion has not been provided in regard to total turnover. The submission of the Revenue, however, misses the point that the expression total turnover has not been defined at all by Parliament for the purposes of s. 10A. However, the expression export turnover has been defined. The definition of export turnover excludes freight and insurance. Since export turnover has been defined by Parliament and there is a specific exclusion of freight and insurance, the expression export turnover canno ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e under consideration and find that the DRP while dislodging the observations of the A.O, had therein observed that the issue had been decided by the ITAT in the case of the assessee for A.Y. 2008-09, wherein the A.O was directed to allow the claim of the assessee towards deduction u/s 10A as regards the profit of the assessee as modified by the disallowance made on account of foreign exchange loss in view of the judgment of the Hon ble High Court of Bombay in the case of : Gem Plus Jewellery (supra), wherein the Hon ble High Court had observed as under:- For the purposes of the appeal it has not been disputed on behalf of the Revenue that the foreign exchange was realized by the assessee within the period stipulated in law. The assessee realized a larger amount because of a foreign exchange fluctuation. The fact that this forms part of the sale proceeds would have to be accepted in view of the judgment of the Division Bench of this Court in CIT vs. Amber Export (India) (IT Appeal 1249 of 2007 decided on 18th Feb., 2009). The judgment of this Court in turn followed the decision of the Gujarat High Court in CIT vs. Amba Impex (2006) 201 CTR (Guj) 409 : (2006) 282 ITR 144 (Guj) ..... X X X X Extracts X X X X X X X X Extracts X X X X
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