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TMI Blog2012 (5) TMI 3X X X X Extracts X X X X X X X X Extracts X X X X ..... vailable in the public domain to the assessee at the time of complying with the mandatory TP documentation by the prescribed due date - the basic objection of the assessee is that the TPO has rejected the filters adopted by the assessee and has adopted untenable filters for arriving at the comparables and in his detailed submission before the TPO as well as the Tribunal, the assessee has brought out the various factors that would justify the adoption of comparables by the assessee - The information acquired by the TPO u/s 133(6) was no doubt provided to the assessee. However, the assessee was not allowed to rebut the said information by way of any evidences - In the case of Genesis Integrating System India Pvt. Ltd., Bangalore and this Tribunal vide orders dated 5.8.2011 had answered the various issues raised by the assessee therein and has also issued guidelines for adoption of comparables and has also directed the TPO to allow the assessee to cross examine the comparables whose replies were sought to be used against the assessee if the assessee so desires - Decided in favor of the assessee by way of remand to AO - IT Appeal No. 1254 (Bang.) of 2010 - - - Dated:- 31-1-2012 - N. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transaction; 6. the learned AO/TPO have erred in ignoring the fact that since that appellant is availing tax holiday u/s 10A of the Act, there is no intention to shift the profit base out of India, which is one of the basic intention of the introduction of transfer pricing provisions; 7.the learned AO/TPO erred in determining the arm's length margin/price using only financial year 2005-06 data, which was not available to the assessee at the time of complying with the transfer pricing documentation requirements; 8.the learned AO/TPO erred in rejecting certain comparables considered by the assessee in the comparability analysis by applying different quantitative and qualitative filters; (a) the learned AO/TPO has erred by rejecting certain comparable companies identified by the assessee as having economic performance contrary to the industry behavior (e.g companies which showed a diminishing revenue trend); (b) the learned AO/TPO erred in rejecting certain comparables considered by the assessee in the comparability analysis on the ground that the comparables were having different accounting year (other than March 31 or companies whose financial statem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the case of ITO v. Sak Soft Ltd., [2009] 30 SOT 55 and by the decision of Hon'ble Bombay High Court in the case of CIT v. Gem Plus Jewellery India Ltd . [2010] 194 Taxman 192 and also the by decision of the jurisdictional High Court in the case of CIT v. Tata Elxsi Ltd. [2012] 204 Taxman 321/17 taxmann.com 100 (Kar.) wherein it has been held that if certain expenditure is reduced from the export turnover, the same has to be reduced from the total turnover also. 7. The learned DR however, relied upon the order of the AO. 8. Respectfully following the decision of the jurisdictional High Court in the case of Tata Elxsi Ltd. ( supra ) we direct the AO to reduce the total turnover also by communication expenses for the purpose of computing deduction u/s 10A of the Act. These grounds are accordingly allowed. 9. Coming to ground Nos. 4 to 13, relating to Transfer Pricing (TP) adjustments, the brief facts of the case are that the assessee is a company which is engaged in the business of backend computer research and development activity. It filed its return of income for the assessment year 2006-07 on 28.11.2006 declaring income of ₹ 14,39,049/- afte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of its international transactions with its AE, the assessee had undertaken the transfer pricing study carried out by an independent external consultant in accordance with a provisions of the Act and Rules. According to him a detailed analysis was undertaken to determine the functions performed, risks assumed and assets utilized by the assessee and its AE in respect of the international transactions and based on the TP study, the independent external consultant concluded the price received by the assessee in respect of its transaction with AEs, to be at ALP. 13. He submitted that the 'Transaction Net Margin Method' (TNMM) was determined as the most appropriate method to determine ALP and the search was conducted on Prowess and Capitaline databases updated till 15th Feb, 2006 to select comparable components. He submitted that searches on the databases yielded a set of 44 comparables for the software services with weighted average operating profit/operating cost of 7% after providing a working capital adjustment of 4%. He further submitted that TPO however did not accept the analysis conducted by the assessee and he conducted a fresh economic analysis and failed to apprec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to him, the TPO has rejected the loss making companies as comparables but has adopted super-profit making companies as comparables. He further submitted that some of the companies are not only into services but are also product companies and without taking the bifurcated profit margins of the respective units, the TPO has arrived at the net margin of 19.23% which is very excessive. He submitted if the super profit making companies are excluded from the comparables and if the 5% deduction is given to the assessee, the ALP adopted by the assessee would fall within the said margins and the adjustments made by the TPO would have to be deleted. The learned DR however, strongly supported the orders of the TPO and the DRP and submitted that both the TPO as well as the DRP have exhaustively dealt with the issues in their orders and have also dealt with the objections of the assessee in detail and, therefore, the ALP adjustment made by the TPO and as confirmed by the DRP is justifiable and needs no interference. 17. Having heard both the parties and having considered the rival contentions, we find that the assessee had adopted 44 comparables while the TPO has adopted 20 companies as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 15.99 0 15.99% 15. Accel Transmataic Ltd. (Seg) 8.02 44.07 0 44.07% 16. Synfosys Business Solutions Ltd. 4.49 10.61 0 10.61% 17. Flextronics Software Systems Ltd. 595.12 27.24 2.17 27.83% 18. Lanco Global Solutions Ltd. 35.63 5.27 0 5.27% 19. Megasoft Ltd. 56.15 52.74 0 52.74% 20. iGate Global Solutions Ltd. (Seg) 527.91 15.61 0 15.61% Average 20.68% 20.71% 18. Out of these companies, the a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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