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TMI Blog2012 (6) TMI 413X X X X Extracts X X X X X X X X Extracts X X X X ..... e considered in order to determine the ordinary profits - Held that:- Phrase ‘more than ordinary profits’ referred in section 80IA(10) is different from ‘arm’s length price’ as referred u/s 92C. Issue set aside to the file of the AO with a direction to verify the comparable in the light of the decisions of the in the case of Tweezerman (India) P. Ltd. and Digital Equipment India Ltd. Decided in favor of assessee for statistical purposes. - ITA Nos.914 & 915/Hyd/2006 and 1797/Hyd/2008 - - - Dated:- 26-4-2012 - Chandra Poojari, Asha Vijayaraghavan, JJ. For Appellant: Mr S Venkateswarlu For Respondent: Mr Phani Kishore ORDER Per: Asha Vijayaraghavan, JM: This appeal filed by the assessee is directed against the order of CIT(A), Guntur, passed on 28/05/2010 for the assessment year 2007-08. 2. The assessee is a domestic company engaged in the business of providing software development services. For the ASSESSMENT YEAR 2003-04, the assessee filed its return of income on 27/11/03 declaring a total income of ₹ 4,80,889/- after claiming deduction of ₹ 41,21,672/- u/s 10A of the Act. 3. For the assessment year 2004-05, the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y in agreement with the conclusion reached in these orders, which are not being dealt with individually. For the above reasons, we hold that for the purpose of applying the formula under sub-section (4) of section 10B, the freight, telecom charges, or insurance attributable to the delivery of articles or things or computer software outside India or the expenses, if any, incurred in foreign exchange in providing the technical services outside India are to be excluded both from the export turnover and the total turnover, which we are the numerator and denominator respectively in the formula. Respectfully following the decision of the Chennai Special Bench in the case of Sak Soft Ltd. (supra), we allow this ground of appeal of the assessee for both the years under consideration on this issue. 8. For the assessment year 2004-05 one more issue raised by the assessee is pertaining to reimbursement of onsite expenses as part of total turnover. The Assessing Officer added the reimbursement to the total turnover and excluded the same from export turnover in view of Explanation 2(iv) of the section 10A of the Act. On appeal, the CIT(A) upheld the order of the Assessing Off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ame up for consideration before this Tribunal in the case of DCIT vs. IBS Software Services Pvt. Ltd. (129 ITD 21) (Cochin) wherein it was held that reimbursement of miscellaneous expenses and travel expenses are to be reduced both from export turnover as well as from total turnover while computing deduction u/s. 10A of the Act. Same view has been taken in the case of Patni Telecom (P) Ltd., vs. Income-tax Officer (2009) 120 ITD 105 (Hyd). Accordingly, we allow the ground taken by the assessee in its Cross Objection. Respectfully, following the said decision of the coordinate bench, we direct the assessing officer to exclude the expenditure in question, from both the export turnover as well as total turnover for the purpose of computation of benefit under S.10A of the Act. Thus, this ground of appeal of the assessee is allowed. 10. The next issue, which is common in assessment years 2003-04 2005-06, is with respect to the adjustment of profits u/s 10A(7) r.w.s. 80IA(10) of the Act. 11. Briefly, the facts relating to this ground are that the assessee company is a subsidiary of Weston Solutions Inc., USA, which holds 99.99% of the equity of the assessee company and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xi) Assessee relied on Circular No. 14 of 2001 where such onus is discharged by the assessee and the date used for determining the arm s length price is reliable and correct, there can be no intervention by the Assessing Officer. xii) Assessee submits that it has entered into a basic ordering agreement as per exhibit B of the agreement. @ USD30 per hour software development @ USD20 per hour publications/administration/finance services; @8 per hour data development xiii) Also, as per para 3.24 and 3.25 of the TP report page 21 of the report hourly industry rates are USD18-USD25 per hour - presentation of kiran karnik. xiv) In response to question on risks, assessee contended that downward adjustment cannot be made since risk cannot be quantified in value/profit terms. xv) Assessing Officer should have considered only profit making companies eliminating 5 companies 38 companies only are to be compared out of 43 companies. Mean of the 38 companies is 19.53%. xvi) Even if we consider risk adjustment of 2.16% and 5% as given by the Assessing Officer mean is 22.36%. 12. After considering the submissions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of risk inasmuch as the risks in the nature of market risk, product risk, technology risk etc. cannot be quantified in values/profit terms; The CIT(A) failed to appreciate that the reduction of mark-up made by the Assessing Officer from 14% to 11.84% (i.e. reduction of 2.16%) cannot be quantified. iii) The CIT(A) failed to appreciate that only the profit making companies from the Transfer Pricing Report of the assessee are to be considered in order to determine the ordinary profits. He also failed to accept the working capital adjustment on the ground that the assessee has no credit risk. Though the assessee has no credit risk by way of bad debts, the working capital adjustment is desired as the assessee s carrying cost of receivables are higher than that of the comparables. Therefore, this adjustment is desired before comparing the financials of the assessee with others. iv) The CIT(A) was wrong in sustaining a downward adjustment to the arithmetical mean of comparable companies considered by the assessee in disallowing the excess net margin as representing the income representing extraordinary profits. 15. For the A.Y. 2005-06, the learned counsel contended ..... X X X X Extracts X X X X X X X X Extracts X X X X
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