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TMI Blog2014 (9) TMI 309X X X X Extracts X X X X X X X X Extracts X X X X ..... ch made the company record high operating margin on cost - These factors indeed support assessee's contention that this exceptional profit with the fact of amalgamation effected operating profit of the company and this cannot be taken as comparable – relying upon Intoto Software India (P.) Ltd. Versus Assistant Commissioner of Income-tax, Circle -2(1), Hyderabad [2013 (10) TMI 599 - ITAT HYDERABAD] - there is an extra-ordinary event which resulted in high operating margin of that company - the case of Exensys Software Solutions Ltd. cannot be taken as comparable - the other cases, Third ware Solutions Ltd., Infosys, Sankhya Infotech Ltd., etc, are also to be excluded - The AO is directed to exclude the comparable and re-work out the arm's length margin – Decided in favour of assessee. Matter pending before AO u/s 154 - Exclusion of export turnover – Computation of deduction u/s 10A – Held that:- There is no need for adjudication of this ground when the matter is pending before the AO u/s 154 - AO is directed to examine the issue and consider necessary relief to Assessee regarding the amounts received within 12 months as per the directions of RBI vide its General Circular dated 0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 77; 104,78,38,893/-. Considering this amount as the export turnover, the AO computed the allowable deduction u/s 10A of the Act at ₹ 16,49,46,331/-. 4. With the above addition and after allowing deduction for the said amount u/s 10A of the Act, the AO completed the assessment on a total income of ₹ 8,76,72,530/- vide order dated 29-12-2008. 5. Before the learned CIT(A), Assessee had raised many grounds with reference to various issues but the learned CIT(A) more or less confirmed the order of the AO. 6. Before us, Assessee raised detailed grounds in Ground No. 1 running from 1.0 to 1.7 having 17 sub-grounds on the issue of adjustments made to profits under the TP provisions. Vide letter dated 12-09-2013, Assessee filed modification of grounds of appeal as "Ground No. 1.4.5", which is as under: "The ld. TPO/CIT(A) erred in not undertaking an objective comparative analysis and inter-alia selecting the following companies as comparable to the appellant for determination of ALP under TNMM: i. Exensys Software Solutions Ltd.; ii. Thirdware Solutions Ltd.; iii. Infosys Technologies Ltd.; iv. Sankhya Infotech Ltd.; v. Foursoft Lt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . (ITA No. 1196/Hyd/2010) - ITO Vs. Colt Technology Services India Pvt. Ltd. (ITA No.609/Del/2011) - Integrated Decisions Systems India (P) Ltd. Vs. DCIT (ITA No. 27/JP/2011) - ACIT Vs. Sonata Software (ITA No. 3514/Mum/2010) 2. Thirdware Solutions Ltd.: learned counsel submitted that this company is functionally different from the following: As per reply to notice issued u/s 133(6), the company informed that it is engaged in implementation and customer services which include training, customized development and help desk services for ERP software and distribution of products of Quad Inc. and Hyperion Solutions Corporation. Various news articles available on the internet http://www.hinduonnet.com/2001/07/11/stories/0611000h.htm stated that the company is a distributor of products; As per the company's website www.thirdware.net/ourcapabilities.htm. has stated the company has partnered with QAD Inc to deliver the entire business cycle of MGF/PRO, a product of QAD Inc. from Pre-sales, sales, training, consulting, implementation and support to application management services. The following rulings h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as it has software products: - Colt Technology Services India (P.) Ltd. (supra) - Integrated Decisions Systems India (P.) Ltd. (supra) - Sonata Software Ltd. (supra) - Hellosoft India (P.) Ltd. (supra) 5. Foursoft Ltd. The learned counsel submitted that this company is functionally different as evident from various disclosures in the annual report (Directors report, Management discussion and website information) indicates clearly that the company is into software products. The following rulings have analysed and rejected this company as it has derived income from software license and AMC's: - Intoto Software India (P.) Ltd. (supra) - Hellosoft India (P.) Ltd. (supra) 6. Tata Elxsi Ltd. The learned counsel submitted that this company shall be rejected as comparable since it is a specialized embedded software development company and this company has in fact clearly stated in its response to 133(6) notice that due to the complex segments in which they are operating, it is not comparable to any other software services company. The following rulings have analysed this comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TPO. 12. As regards the Exensys Software Solutions Ltd., as seen from the paper book placed on record, there is a merger of Holool India Ltd. and in the director's report (PB-951), there is a clear mention that the company's income of ₹ 737.79 lakhs is possible with the amalgamqation of Holool India Ltd. It was further mentioned that Assessee company has got benefit by advanced latest technical expertise on various technology domains of the transferor company. Further, that company has charged deferred expenditure and the amount claimed in this year is ₹ 1.22 crores as against ₹ 30.21 lakhs in earlier year. This was clearly stated in Notes that claim was with reference to the AS-14 and also due to amalgamation of two companies. Vide page 957 of paper book, it was seen that out of gross assets of ₹ 7.95 crores, Brands alone consist of ₹ 5 crores, therefore, intangible assets comprising of substantial part of this company's assets. Not only in the correspondence with the TPO that Assessee expressed its inability to furnish separate accounts for two amalgamated companies but also further it has clearly mentioned vide letter dated 26-04-2007 to the TPO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opinion that there is an extra-ordinary event which resulted in high operating margin of that company and we, therefore, direct the AO to exclude this company from the list of comparables. In the above referred case of Intoto Software India Pvt. Ltd., complete details were not placed on record, therefore, the matter was sent to AO for verification whereas in this case Assessee has objected even before the AO/ CIT(A), therefore, there is no need to set aside the issue to the file of the AO for examination as was done in the case of Intoto Software India (P.) Ltd. (supra). We are, therefore, of the opinion that on the basis of facts placed on record, the case of Exensys Software Solutions Ltd. cannot be taken as comparable. Similarly, the other cases, Thirdware Solutions Ltd., Infosys, Sankhya Infotech Ltd., etc, as mentioned above, are also to be excluded. However, as pointed out by the learned counsel the exclusion of other companies becomes academic. In view of this, we are not discussing other comparables in detail, but, suffice to say that assessee's submissions are valid. The AO is directed to exclude the above comparable and re-work out the arm's length margin accordingly. The ..... X X X X Extracts X X X X X X X X Extracts X X X X
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