2016 (11) TMI 1748 - AT - Income Tax

TP Adjustment - comparables selection - functinall similarity - HELD THAT - Bodhtree Consulting Ltd. - Since the Tribunal has examined the profile and datas of Bodhtree Consulting Ltd. and has come to the conclusion that this company cannot be taken as good comparable for computing the ALP, we find no justification in re-examining the issue again. Accordingly, exclusion of Bodhtree Consulting Ltd. from the list of comparables upheld. Exclusion of this company i.e., Exensys Software Solution Ltd. from the list of comparables considering the fact that unusual profits arose out of an extra ordinary event of amalgamation. Syassaris Software P. Ltd. engages itself in products and services as well as software training, it cannot be considered as a comparable of the Appellant. Thirdware Solutions Ltd. be excluded as information furnished by the said company that though the said company is also into product development, there are no software products that the company invoiced during the relevant financial year and the financial results are in respect of services only. Thus, it is clear that there is no sale of software products during the year but the said company might have incurred expenditure towards the development of the software products. Geometric Software Solutions Company Ltd. issue should also go back to the TPO to adjudicate the justification of its exclusion on the point of RPT filter. Tata Elxsi Ltd. cannot be included in the list of comparables as it is functionally different and has incomparable size to that of the assessee. iGate Global Solutions Ltd., Flextronics Software Systems Ltd., L T Infotech Ltd., Satyam Computer Services Ltd. and Infosys Technologies Ltd., be excluded as their turnover exceeds 10 times of the turnover of the assessee. Four Soft Ltd. - Tribunal in the aforesaid order has applied RPT filter and excluded this company from the list of comparables, but RPT of this company was not mentioned in the order. Therefore, in the absence of complete details, it is not proper to follow the order of Tribunal blindly. We therefore set aside this issue to the file of TPO/AO to examine the justification of its inclusion/exclusion by applying the RPT filter in the light of available datas of this company. VJIL Consulting Ltd. - In the absence of clear details, the TPO rejected this comparable. Now the details of this comparable are available and the CIT(A) has included the same in the list of comparables without confronting the audit report and datas to the TPO. We therefore find it proper to remit the matter to the TPO to reconsider the inclusion of this comparable in the list of comparables in the light of the order of the Tribunal in the case of Qualcomm India Pvt. Ltd. (supra). Accordingly adjudication of this comparable is restored to the TPO. Melstar Information Technology Ltd - We restore the matter to the file of AO/TPO to examine the claim of inclusion of this comparable in the light of annual report and other details. Deduction u/s. 10A in respect of Unit II custom bonding licenses were obtained only on 29.1.2002. - CIT(A) allowed deduction - HELD THAT - We have carefully examined the order of CIT(Appeals) on this issue and we find that the CIT(Appeals) has examined this issue in the light of various judicial pronouncements of different Benches of the Tribunal and finally having relied upon the order of Tribunal in assessee s own case for the AYs 2002-03 to 2004-05, the CIT(Appeals) has held that the company is eligible to claim deduction u/s. 10A in respect of Lara Unit income and allowed the relief. Since the CIT(Appeals) has decided the issue following the order of Tribunal which was later on confirmed by the jurisdictional High Court 2014 (11) TMI 1277 - KARNATAKA HIGH COURT we find no infirmity in the order of CIT(Appeals), accordingly we confirm the same.

Summary

Issues Involved:
1. Exclusion of certain companies from the list of comparables.
2. Inclusion of certain companies in the list of comparables.
3. Rejection of diminishing revenue filter by CIT(A).
4. Rejection of employee cost filter by CIT(A).
5. Deduction under section 10A for Unit-II.

Detailed Analysis:

1. Exclusion of Certain Companies from the List of Comparables:
The revenue challenged the exclusion of several companies from the list of comparables by the CIT(A). The Tribunal examined each company individually:

- Bodhtree Consulting Ltd.: The Tribunal upheld the exclusion due to functional differences and erratic margins, as previously decided in similar cases.

- Exensys Software Solutions Ltd.: The Tribunal confirmed the exclusion due to an extraordinary event of amalgamation and lack of segmental results, following previous decisions.

- Sankhya Infotech Ltd.: The Tribunal upheld the exclusion due to involvement in both product development and training services, with no segmental information available, aligning with earlier rulings.

- Thirdware Solutions Ltd.: The Tribunal excluded this company, noting its involvement in product development and sales of software licenses, which made it functionally different from the assessee.

- Geometric Software Solutions Co. Ltd.: The Tribunal remanded the issue to the TPO for verification of related party transactions (RPT) filter applicability.

- Tata Elxsi Ltd.: The Tribunal upheld the exclusion due to functional differences, following the decision in Kodiak Network India Ltd.

2. Inclusion of Certain Companies in the List of Comparables:
The revenue and the assessee contested the inclusion of certain companies:

- iGate Global Solutions Ltd., Flextronics Software Systems Ltd., L&T Infotech Ltd., Satyam Computer Services Ltd., Infosys Technologies Ltd.: The Tribunal upheld their exclusion due to their turnover being more than ten times that of the assessee, aligning with previous decisions.

- Four Soft Ltd.: The Tribunal remanded the issue to the TPO for verification of RPT filter applicability.

- VJIL Consulting Ltd.: The Tribunal remanded the issue to the TPO to reconsider its inclusion in light of new data and previous Tribunal decisions.

- Melstar Information Technology Ltd.: The Tribunal remanded the issue to the TPO for re-examination of its inclusion based on the annual report and other details, following the decision in Novell Software Development (India) Pvt. Ltd.

3. Rejection of Diminishing Revenue Filter by CIT(A):
The Tribunal did not specifically address this issue in detail, indicating that the CIT(A)'s rejection of the diminishing revenue filter was not overturned.

4. Rejection of Employee Cost Filter by CIT(A):
Similarly, the Tribunal did not provide a detailed discussion on this issue, implying that the CIT(A)'s decision to reject the employee cost filter stood.

5. Deduction Under Section 10A for Unit-II:
The revenue challenged the CIT(A)'s decision to allow deduction under section 10A for Unit-II. The Tribunal noted that this issue had been previously decided in favor of the assessee by the Tribunal and upheld by the Karnataka High Court. Consequently, the Tribunal confirmed the CIT(A)'s order allowing the deduction.

Conclusion:
The Tribunal partly allowed the appeal of the revenue and the cross-objection by the assessee for statistical purposes, remanding certain issues back to the TPO for re-examination and verification. The Tribunal upheld several exclusions and inclusions of comparables based on prior decisions and functional differences, and confirmed the CIT(A)'s decision on the section 10A deduction for Unit-II.