9911796707
TMI Blog2014 (5) TMI 923X X X X Extracts X X X X X X X X Extracts X X X X ..... O is directed to compute arms' length price after excluding the two companies from the list of comparables – Decided in favour of Assessee. Reduction of communication charges from export turnover – Computation of deduction u/s 10A of the Act – Held that:- Following CIT v. Gem Plus Jewellery India Ltd. [2010 (6) TMI 65 - BOMBAY HIGH COURT] - communication charges if reduced from the export turnover is also required to be reduced from the total turnover while computing the deduction u/s 10A of the Act – thus, the AO is directed to reduce communication charges both from the export turnover as well as total turnover for computing deduction u/s 10A of the Act – Decided in favour of Assessee. Reduction of business profits – Reversal of interest accrued – Held that:- The DRP in principle has held the reversal of interest accrued as profit and gains of business and in fact has accepted that held that for the purpose of computing deduction u/s 10A, the profits of business would also include the element with regard to the reversal of interest expenses and has directed the AO to verify this and allow the benefit to the assessee – thus, the AO was not correct in excluding the amount from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lected itself as the tested party. Transactions Net Margin Method (TNMM) was chosen as the most appropriate method for determining ALP. Operating profit/operating cost was selected as the profit hence Indicator (PLI). The assessee conducted search from the database to select comparable companies and finally selected 28 companies as comparables with weighted average arithmetic mean of 14.53%. As the assessee's net margin from the provision of services to AE at 14.03% was within the arm's length, no adjustment was made in the TP study. 5. The TPO, though accepted TNMM as the most appropriate method and the PLIOP/OC, he nevertheless rejected the TP study of the assessee by observing that multiple year data was considered while selecting comparables and companies engaged in software development have been treated as comparables irrespective of the verticals/horizontals of software services which has made the comparability analysis defective and unreliable. After rejecting the TP study, the TPO conducted a fresh search in the database for selecting fresh comparables. While doing so the TPO also applied certain additional filters, one of them being companies having turnover of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1801/Hyd/09 dated 31-1-2013 and judgment dated 10-7-2013 of Hon'ble Delhi High Court in case of CIT v. Agnity India Technologies (P.) Ltd.(ITA No. 1204/Hyd/2011). 7. The leaned DR, on the other hand relied on the orders of the DRP as well as TPO. 8. We have heard the parties and perused the orders of the revenue authorities as well as other materials on record. On a perusal of the transfer pricing order, it is very much evident that the assessee specifically contended before the TPO that if companies having turnover of less than Rs.1 crore is to be excluded, then applying the same principle, companies having extraordinary high turnover should also be excluded for comparability analysis. As it appears, the TPO has totally brushed aside such contention of the assessee. While the TPO has excluded companies having less than Rs.1 crore turnover from ITES services but he has considered companies having extraordinary high turnover like Infosys Technologies Limited and Wipro Limited. As can be seen from the TP order, the turnover of Infosys Technologies Limited for the financial year 2007-08 is Rs.15,648 crore and segmental turnover of Wipro Limited for the same financial year is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (in Rs.Crores) (1) HCL Comnet Systems Services Limited 260.19 (2) Infosys BPO Limited 649.57 (3) Wipro Limited 939.78 It is the contention of the assessee that these three companies are industrial giants in the area of software development and since these companies assume all risks, they earn higher amount of revenue resulting in higher profit, whereas the assessee being a captive unit of its parent company in the USA, it operates in a risk mitigated environment. Therefore, the margin of profit is also less. In this context, the learned Authorised Representative for the assessee relied upon the decision of the ITAT Delhi Bench in the case of Agnity India Technologies P. Ltd. v. ITO in ITA No.3856/Del/2010 dated 4th November, 2010 and in the case of Triniti Advanced Software Labs (P) Ltd. (2011-TII-92- ITAT-HYD-TP). The Authorised Representative for the assessee further contended that when the TPO has rejected companies with turnover of less than Rs.one crore, by sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Tribunal in the case of Trinity Advanced Labs (P.) Ltd. (supra). In the case of Genesys Integrating India P. Ltd. (supra), the Bangalore Bench of the Tribunal has observed in the following manner 9. Having heard both the parties and having considered the rival contentions and also the juridical precedents on the issue, we find that the TPO himself has rejected the companies which are making losses as comparables. This shows that there is a limit for the lower end for identifying the comparables. In such a situation, we are unable to understand as to why there should not be an upper limit also. What should be upper limit is another factor to be considered. We agree with the contention of the learned counsel for the assessee that the size matters in business. A big company would be in a position to bargain for the price and also attract more customers. It would also have a broad base of skilled employees who are able to give better output. A small company may not have these benefits and therefore, the turnover also would come down reducing profit margin. Thus, as held by the various benches of the Tribunal when companies which are loss making are excluded from co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the decision of the co-ordinate bench in assessee's own case for the assessment year 2007-08, we hold that Infosys Technologies Limited and Wipro Limited cannot be considered as comparable to the assessee. We therefore direct the Assessing Officer /TPO to compute arms' length price after excluding the aforesaid two companies from the list of comparables. 10. In ground No.12, the assessee has challenged the reduction of communication charges from export turnover without reducing it from total turnover while computing deduction u/s 10A of the Act. 11. Having heard the parties, we are of the view that the issue in dispute is no more res integra in view of the decision of Hon'ble Bombay High Court in CIT v. Gem Plus Jewellery India Ltd. [2011] 330 ITR 175/[2010] 194 Taxman 192 and the decision of Income-tax Appellate Tribunal, Chennai Bench in case of ITO v. Sak Soft Ltd. [2009] 30 SOT 55 (SB). Even in assessee's own case for the assessment year 2007-08 in ITA No.1801/Hyd/11 the co-ordinate bench of this Tribunal has held that communication charges if reduced from the export turnover is also required to be reduced from the total turnover while computing the de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccordingly, for the purpose of computing the deduction, the profits of the business (which would also include the element with regard to reversal of interest expense) can be considered. The Assessing Officer is directed to verify this and if the claim of the assessee is correct, should give the benefit of section 10A(4) of the Act to the assessee. 14. We have heard the parties and perused the materials on record as well as the draft assessment order and the order of the DRP. On perusal of the aforesaid observation of the DRP extracted hereinabove it is very much clear that the DRP in principle has held the reversal of interest accrued as profit and gains of business and in fact has accepted that held that for the purpose of computing deduction u/s 10A, the profits of business would also include the element with regard to the reversal of interest expenses and has directed the Assessing Officer to verify this and allow the benefit to the assessee. In the aforesaid factual back drop, in our view, the Assessing Officer was not correct in excluding the amount of Rs.27,20,088/- from the business profit for the purpose of computing deduction u/s 10A of the Act. As per section 144C(5) ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
