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TMI Blog2015 (3) TMI 151X X X X Extracts X X X X X X X X Extracts X X X X ..... h benefit should be denied to the assessee. After all these are incentive provisions and are to be liberally construed. If the assesses otherwise fulfils all the legal requirements for claiming the deduction u/s.10A of the Act but inadvertently claimed the same u/s.10B of the Act which was granted to it in the past, we find no reason as to why the alternate claim of the assessee should not be accepted.However, since the lower authorities have not thoroughly examined the allowability of deduction u/s.10A of the Act and merely rejected the claim on the ground that the same was not claimed in the original return filed, therefore, we in the interest of justice deem it proper to restore the issue to the file of the AO with a direction to give an opportunity to the assessee to substantiate its eligibility for deduction u/s.10A of the I.T. Act. We hold and direct accordingly. Since we are restoring the issue to the file of the AO for deciding the alternate claim of the assessee for deduction/s.10A, therefore, we refrain ourselves from adjudicating the allowability of deduction u/s.10B of the I.T. Act. - Decided in favour of assessee for statistical purposes. Transfer pricing adjustment - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd. as a comparable - Held that:- As relying on Maersk Global Centres (India) (P.) Ltd. Versus ACIT [2014 (3) TMI 891 - ITAT MUMBAI] and other decisions also Thirdware Solutions Ltd. has been rejected as a comparable on the ground that it is functionally dissimilar. We therefore find force in the submission of the Ld. Counsel for the assessee that Thirdware Solutions Ltd. should not be included as a comparable.So far as exclusion of Vama Industries Ltd., as find merit in the submission of the Ld. Counsel for the assessee that when segmental data is available and the export turnover of the software development services is 69% of the total turnover of the software division, therefore, the same should not have been rejected. We therefore direct the Assessing Officer to consider the same as a comparable. - Decided in favour of assessee. Non granting of opportunity of verification - Held that:- No infirmity in order of Ld.CIT(A) on this issue. Admittedly, during TP assessment proceedings, the assessee was given show cause notice. The matter was thoroughly discussed with the authorised representative. Therefore, it cannot be said that no opportunity was granted to the assessee. Therefo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mmed code, IT integration and configuration management to its AE. It filed its return of income on 23-09-2009 declaring loss of ₹ 2,86,049/-. During the course of assessment proceedings the AO noted that the assessee has claimed deduction u/s.10B of the Act at ₹ 2,30,81,297/-. On being asked by the AO, the assessee furnished full details justifying its claim of deduction u/s.10B. However, from the various details furnished by the assessee , the AO noted that the unit of the assessee is registered with Directorate of Software Technology Park of India (STPI). According to the AO for becoming eligible u/s.10B of the Act, the assessee should be a 100% Export Oriented Unit (EOU) as specified under Explanation 2 (iv) below section 10B of the Act which defines a "100% Export Oriented undertaking" as a undertaking so approved by the Board appointed in this behalf by the Central Government u/s.14 of the Industries Development and Regulation Act, 1951. 3.2 The AO noted that subsequent to the delegation of this power by Ministry of Commerce and Industries to the Development Commissioners, such approvals to 100% EOU are now being granted by the Development Commissioners which are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng approval either from the Board of Approval of STPI or Development Commissioner of SEZ. 5. However, the AO was not satisfied with the explanation given by the assessee. He referred to the decision of Hon'ble Delhi High Court in the case of Regency Creations Ltd. reported in 27 taxmann.com 322 and noted that the Hon'ble Delhi High Court has discussed all the issues raised by the assessee. Therefore, the submission of the assessee that the judgement is not applicable to it is not correct. He held that since the assessee's unit does not have the approval of Development Commissioner as 100% EOU as required under Explanation 2(iv) of section 10B, therefore, the assessee has not fulfilled the conditions specified under section 10B of the Act. He observed that nowhere it is mentioned that as a part of the Board's functions u/s.14 of the Industrial Development and Regulation Act to grant approval u/s.10B is also delegated to STPI Director. According to him, it is not clear as to function of granting approval for the section 10B also stands delegated to the STPI Director u/s.14 of IDRA. 5.1 As regards the argument of the assessee that following the principle of consistency the deduction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee relied on the following case law : i CIT vs Vegetable Products 88ITR 195 (SC) ii. Suryalatha Spinning Mills Limited vs Union of India ITA No. 624/Hyd/2009 iii. ITO vs Chandanmal Champalal 11 Taxmann 32 Pune Tribunal 6.2 The assessee submitted that the conditions of allowability of deduction u/s 10B can only be examined in the year of formation of the unit. Therefore, if the deduction is granted in the initial or in the earlier years, then it cannot be disturbed thereafter in the subsequent assessment years without first withdrawing such deduction allowed in the initial year. In this connection, the assessee relied on the following decisions: i. CIT vs, Western Outdoor Interactive (P)Ltd 25 Taxmann.com 340 (Bom HC) ii. CIT vs. Paul Brothers-216 ITR 548 (Bom HC) in. Saurashtra Cement & Chemcial Industries Limited vs [123 ITR 669 (Guj) HC] 6.3 The assessee has also argued that rule of consistency should be followed and the deduction once allowed cannot be disturbed. For the above proposition, the assessee placed reliance on the following decisions : i. DCIT vs Valliant Communication Ltd ITA 2706/Del/2009 ii. Radhasoami Satsang vs CIT 193 ITR 321 iii.CIT vs Western ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of deduction both u/s.10B as well as u/s.10A by observing as under : "2.2.23 I have carefully considered the arguments of the Appellant and the legal position. The Appellant has submitted that the power of granting approval for the purpose of claiming deduction u/s 10B is now delegated to the STPI. Secondly, it is stated that, the judgement of the Delhi High Court in the case of Regency Creations is based on the old foreign trade policy to 1992- 1997. However, under the new foreign trade policy of 2004-2009, the power of granting approval is conferred to Chief Executive of STPI for which the Appellant has placed reliance on notification No SO 388(E) dated 30.04.1995. Further, the Appellant has placed reliance on the decision in the case of CIT vs K. Sudha Rani Andhra Pradesh High Court . 2.2.24 On perusal of the above documents and the case laws cited by the learned AO and the Appellant, I am inclined to confirm the decision of the learned AO to deny the deduction u/s 10B. The reasons of my decision are as under: 2.2.25 Firstly, I find that the approval to the Appellant's unit was granted by the software Technology Parks of India (STPI), Pune vide letter dated 20.05.2002. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 10-B. Though the considerations which apply for granting approval under sections 10-A and 10-B may to an extent, overlap, yet the deliberate segregation of these two benefits by the statute reflects Parliamentary intention that to qualify for benefit under either, the specific procedure enacted for that purpose has to be followed. There is nothing in any of the circulars or instructions relied on by the Tribunal in all the orders, implying that approval for purposes of an STP also entitled the unit to a benefit under section 10-B. The orders of the Tribunal are consequently, erroneous, and its reasoning, unsupportable." 2.2.28 Therefore, the argument relied on by the Appellant that since units were approved by the SPI Director is not upheld by the above decision of the High Court. The Appellant has also relied on the decision of Enable exports. I have perused the judgment. In this case, the High Court has held that the Approval granted by the Development Commissioner for conversion of assessee-company from a Domestic Tariff Area (DTA) to 100% EOU is a valid approval for claiming exemption u/s 10B. It may be mentioned that, the Appellant's facts are different. In t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccept the Appellant's argument because the provisions of Section10A and Section 10B though similar in many aspects, they are fundamentally different on some of the issues. Section 10A is available to the unit established in free trade zone, whereas Section 10B is available to the unit approved as discussed above. It is seen from the approval letter issued by the STPI, Pune that the Appellant's unit is located at Bhandarkar Road, Erandwane, Pune. Therefore, it will not meet the fundamental condition of having been located in free trade zone for claiming the deduction u/s 10A. Needless to say that availability of the deduction from one section to another cannot be switched to easily because otherwise the legislature would not have provided two different Sections in the first place. The Legislature has enacted different sections to achieve different objectives. Therefore, the Appellant's contention of alternatively granting deduction u/.s 10A cannot be accepted. 2.2.33 With the result, I dismiss the Ground of Appeal for availing the deduction u/s 10B. I also confirm the learned AO's decision to not to grant deduction/s 10A." 7.1 Aggrieved with such order of the CIT(A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the High Court and the subordinate forum is entitled to take a contrary view than the one adopted in the earlier proceedings which have been affirmed by the High Court by a process of dismissal of the appeal simpliciter". 8.2 In his alternate contention, the Ld. Counsel for the assessee submitted that since he is fulfilling all the conditions for getting deduction u/s.10A, therefore, the same should be allowed to him. Referring to paper book pages 1110 to 1112 the Ld. Counsel for the assessee drew the attention of the Bench to the appeal in the case of CIT Vs. Valliant Communications Ltd. vide ITA No.2002/2010 order dated 04-01-2013 and drew the attention of the Bench to the observation of the Hon'ble High Court : "Issue notice. Sh. Kiran Babu, Sr. Standing Counsel accepts notice on behalf of the Revenue. The applicant assessee had succeeded before the Tribunal in the contention that it was entitled to the benefit of Section 10B of the Income Tax Act. It had urged that the supporting materials disclose that there was STP clearance/approval under Section 10A and that such approval was sufficient to entitle it to the benefit of Section 10B. By judgment, this Court negatived the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er dated 13-09-2013 the Ld. Counsel for the assessee drew the attention of the Bench to para 9 to 11 of the order which reads as under : "9. The grievance of the revenue authorities is that as the assessee has not furnished necessary approval of the Board as required under the Act, the deduction u/s. 10B cannot be granted. 10. We have heard the arguments of both the parties, perused the record and have gone through the orders of the authorities below. We also find support from the decision of the Delhi High Courtin the case of CIT vs. Valiant Communications in ITA.No. 2002/2010 in Civil Miscellaneous Petition No. 12 of 2013 in which the facts are similar to that of this case. In that case, the assessee had claimed deduction under section 10B, whereas, they have not been approved by the Board appointed on this behalf by the Government as required under section 10B but was registered with STPI. In their original order, the Delhi High Court rejected the claim of the assessee for deduction under section 10B. However, on a review petition filed by the assessee the Delhi High Court, set aside the issue to the file of the CIT(A) to consider the alternate claim for deduction under secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Therefore, that cannot be considered as a precedent and the decision of the Hon'ble Delhi High Court will be a binding precedent. 9.1 As regards the alternate claim of the assessee that deduction u/s.10A should be allowed to it, the Ld. Departmental Representative submitted that the same should have been claimed in the return filed u/s.139(1) of the I.T. Act. Nobody has examined the eligibility for deduction u/s.10A. He accordingly submitted that the alternate claim of the assessee also should be rejected. 10. The Ld. Counsel for the assessee in his rejoinder submitted that the CIT(A) has not given any finding regarding the eligibility of the assessee for getting the benefit u/s.10A as per the alternate claim. He has also not examined the allowability of the provisions although he has mentioned that the provisions of section 10A and 10B are similar in many aspects. 11. We have considered the rival arguments made by both the sides, perused the orders of the Assessing Officer and the CIT(A) and the Paper Book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find the Bopodi unit of the assessee is registered with the STPI as a 100% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10A of the I.T. Act. In July, 2001 the company K transferred its entire undertaking engaged in the export business of medical transcription along with all transcriptions, contracts, books , records, all rights, all permits, warranties including computer software and export obligation to the assessee company. The transfer was recognised and allowed by the STPI. The assessee claimed deduction u/s.10B in respect of income from export. However, the AO rejected the claim on the ground that approval obtained from STPI for purpose of section 10B would not be sufficient to grant relief. According to him, the transfer was only related to machinery and thus the claim could not be sustained. He however granted deduction u/s.80HHE on alternative claim of the assessee. In appeal the Ld.CIT(A) referring to CDBT Circular File No.15/5/63(IT)(A-1) held that the benefit with the vendor company in respect of individual undertaking engaged in the manufacture of articles could be claimed by successor company for the remaining tax holiday period since the entire undertaking of the business of medical transcription was transferred to the assessee. Thus, the assessee would be entitled to have the benefit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccordingly allowed for statistical purposes. 12. In the result, ground of appeal No. 3 is allowed for statistical purposes. 13. Ground of appeal No.4 to 10, 12, 14, & 15 by the assessee and all the grounds of appeal by the revenue relate to the partial relief granted by the CIT(A) out of the TP adjustment made by the AO. These grounds of appeal are as under : Grounds by Revenue : "1. The order of the learned Commissioner of Income-tax (Appeals) is contrary to law and to the facts and circumstances of the case. 2. The learned Commissioner of Income-tax (Appeals) grossly erred in directing the Assessing Officer to exclude KALS Information Systems Pvt. Ltd. from the list of comparable companies by routinely following the decision of the Hon'ble Income-tax Appellate Tribunal, Pune in the case of Bindview India Pvt. Ltd. (ITA No.l386/PN/2010 for the A.Y. 2006-07) instead of examining the facts pertaining to the respective cases as had been clearly brought out by the Transfer Pricing Officer / Assessing Officer in their orders. 3. The learned Commissioner of Income-tax (Appeals) grossly erred in failing to appreciate the differences between a product company and a service compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in confirming the action of the Ld AO/TPO in rejecting Appellant's filters for selecting companies as comparables, without providing cogent reasons. On the facts and in the circumstances of the case and in law, the Ld CIT(A)/has erred in upholding the action of the Id AO/TPO in rejecting the Appellant's criteria, of applying a filter, to select companies/segments with RPT /sales less than or equal to 5% and adopting the criteria RPT/Total transactions less than or equal to 25%. On the facts and in the circumstances of the case and in law, the Id CIT(A) has erred in confirming the action of the Id AO/TPO in rejecting the Appellant's criteria, of applying an upper turnover filter, to select companies /segments with turnover less than or equal to ₹ 50 crore and unjustly replacing the criteria without sound/logical reasons to accept companies with turnover less than or equal to ₹ 200 crores. 7. Unjust selection of new comparables On the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in upholding the action of the Id AO/TPO in e introducing additional companies as comparables although, companies introduced differ in functi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the international transaction of software development and related support services to its AE. The AO referred the matter to the TPO for determining the ALP u/s.92CA(1) of the I.T. Act. From the various details furnished by the assessee during such TP proceedings the TPO noted from the TP study report submitted by the assessee that it has selected TNMM as the most appropriate method to benchmark its international transaction relating to rendering of software development and related support services. In TNMM analysis the operating profits earned by comparables have been computed at operating cost. For benchmarking the international transaction, the assessee has identified comparable companies on the basis of FAR analysis, i.e. Functions performed, Risk assumed and assets. The TPO noted that the assessee has referred prowess and capital line plus data base to get the information of the comparable companies. He noted that the assessee has selected 8 companies as the comparables for benchmarking the international transaction and arrived at average PLI of the comparables at 12.80% based on earlier 2 year data, the details of which are as under : SR. NO. COMPANY NAME OP/TC FY2006- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has not used the current year data in all the comparable companies which vitiates the entire TP documentation. According to the TPO as per the proviso to Rule 10B(4) the earlier 2 year data can be used only when it is shown that earlier year data has an influence in determining the price. Further, such data can be used provided the above condition is satisfied and also is in addition to the current year data. Since the assessee did not give any reason as to how the earlier data has an influence over the pricing either in the case of assessee or in the case of uncontrolled enterprises, therefore, the TPO used the current year data only, i.e. for F.Y. 2008-09. Further, in absence of any cogent relevant and reliable evidence to prove that the data for preceding 2 years revealed facts which could have an influence on the determination of the ALP, the TPO held that the assessee is not justified in using the data pertaining to the 2 earlier years, i.e. F.Y. 2006-07 and 2007-08. The TPO therefore used only the current year data to the exclusion of the earlier year data. The TPO selected the companies whose revenues from software development services are more than 75% of their operating re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of comparable company selected by the assessee Remarks of the TPO 1 ABM Knowledgeware Ltd. In this case, the foreign earnings is NIL. Since export turnover is less than 75% (of the operating revenue, the company is not considered as comparable. 2 Accel Transmatic Ltd., (Software Services Segment) The assessee is engaged in sale of product, software services and animation. The turnover of software service is 31% of total turnover. The related party transactions are more than 25% and the foreign exchange earnings are less than 75%. Therefore the company is not considered as comparable. 3 Sompulink Systems Ltd., (Software Services Segment) In this case, the foreign exchange earnings are 47% only, i.e. in total operating revenue of ₹ 13.77 crores, forex is 6.47 crores only. Thus the forex exchange earnings are less than 75% of the operating revenue. Therefore the company is not considered as comparable. 4 Sagarsoft (India) Ltd. This company has incurred heavy loss in this year. The related party transactions are more than 25%. Therefore, the company is not comparable to the assessee 5 Synetairos Technologies Ltd. In this case, the foreign exchange earnings is NI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the comparables. For example, the following incomes, which are non-operating in nature and nothing to do with the operations of the company, were excluded from operating revenues. i. Interest ii. Dividends iii. Gain on sale of assets/investments iv. Income from investments v. Gain on revaluation of assets vi. Other incomes not pertaining to the operations 13.7 The following expenses which are non-operating and provisions were excluded by him from operating expenses : i. Provisions other than provisions for bad debts ii. Loss on sale of assets/investments iii. Loss on revaluation of assets iv. Other expenses not pertaining to the operations 13.8 Similarly extra ordinary expenses or income which do not occur every year like donations, preliminary expenses written off were not considered as operating expenses as the comparison of the profits according to him should be at same level for the comparable with that of the tax payer. 14. After considering the objections raised by the assessee to the proposed comparables the TPO finally selected the following companies as comparables : Sr. No. Name of the comparable company PLI OP/OC PLI after working capital adjustment 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y geographical region will have different cost benefit advantages. Further, this filter cannot be uniformally applied to all comparables and therefore it should not be applied for selection of comparables. 15.2 As regards the selection of new comparables by the TPO, it was argued that the same is unjust and without any valid basis. As regards Thinksoft Global Service Ltd. is concerned, it was submitted that the company during the year has earned most of its revenue from Europe and IMEA whereas the assessee has rendered the services only in USA. Besides the company is not appearing in the accept reject matrix of the search carried out by the assessee. Therefore, this company cannot be considered as comparable. 15.3 As regards Acropetal Technologies Ltd. is concerned it was submitted that the TPO has erred in considering this company as functionally comparable. It was stated that first of all the company is not appearing in the accept reject matrix of the assessee and secondly it is not functionally comparable because it is involved in Engineering Design and Product Development. The company has diversified activities in the area of e-learning and healthcare management etc. Therefor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... argued that the TPO has erred in cherry picking high profit making or super profit making companies in the final set of comparable companies. It was argued that the companies cannot be compared with the captive unit like the assessee which operates on a risk mitigated cost plus business model. 15.9 As regards unjust rejection of loss making companies is concerned the assessee submitted that loss making companies are as much part and parcel of the Industry as are profit making companies. The elimination of companies merely because they are loss making would tantamount to eliminate one half of the spectrum of comparable companies, leaving a set of comparables that would result in a significantly higher mark up. The elimination of such loss making companies and inclusion of only profit making companies in the set of comparables would skew the result as Arithmetic Mean would be determined at a much higher value than what should ordinarily be the case. For the above proposition the assessee relied on various decisions and para 36.4 of the OECD guidelines 2010. 15.10 So far as related party transaction filter is concerned it was argued that the TPO has wrongly applied threshold of 25% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... results arising from the use of single year data given the nature of the Industry and the condition of the economy. Use of single year data of the comparable companies may not adequately capture the market and business cycle of the Industry. For the above proposition the assessee relied on the OECD TP guidelines which advises consideration of multiple year data. It was also submitted that the TP rules of USA and Australia allow use of multiple year data. 15.15 The assessee also challenged non-granting of benefit of +/-5% on the international transaction. It was submitted that the amendment to provision to section 92C(2) is w.e.f. 01-10-2009. Same cannot be applied with retrospective effect. Finally, the assessee submitted that it can never have an intension to avoid any taxes in India as the profit of the unit was exempt from tax. It was submitted that the international transaction entered into with its AEs were carried out at the ALP and any inference that profits have been shifted outside India is factually incorrect. It was accordingly argued that the TP pricing provisions are not applicable to it. 16. Based on the arguments advanced by the assessee, the Ld.CIT(A) directed the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g to the grounds raised by the assessee are concerned, we find grounds of appeal No.5 relates to incorrect calculation of OP/TC by treating foreign gain/loss as operating in nature. 20. The Ld. Counsel for the assessee submitted that the assessee is following TNMM method and was consistently treating foreign fluctuation loss/gain as a part of the operating profit/loss. However, during this year the TPO excluded this from the operating profit which has been upheld by the Ld.CIT(A). Referring to the decision of the Delhi Bench of the Tribunal in the case of Westfalia Separator India Pvt. Ltd.,Vs. ACIT vide ITA No.4447/Del/2007 he submitted that the Tribunal in the said decision has held that foreign gain/loss is a part and parcel of operating revenue/operating cost. For the above proposition he referred to para 4.10 of the order placed at paper book 1176 which reads as under. "4.10 In contract to the above, we find that there is a plethora of decisions rendered by various benches of the tribunal across the country holding that forex gain/loss is part of operating revenue/cost. To cite a few, the Delhi Bench of the Tribunal in Techbooks International Pvt. Vs. ACIT (to which one of u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore Tribunal 6. M/s. Trilogy E-Business Software India Private Ltd., Vs. DCIT, ITA No.1054/Bang/2011 - Bangalore Tribunal 7. Sumit Diamond (India) Pvt. Ltd. Vs. ACIT - ITA No.7148/Mum/2012 - Mumbai Tribunal 8. M/s. Foursoft Ltd. Vs. The Dy.CIT - ITA No.1495/Hyd/2010 9. Techbooks International Pvt. Ltd. Vs. ACIT - ITA No.722 - Delhi Tribunal 10. M/s. CISCO Systems (India) Private Ltd. Vs. The Dy.CITIT/ TP A.No.271/Bang/2014 - Bangalore Tribunal 11. M/s. Midteck (India) Ltd. Vs. The Dy.CIT-IT(TP) A.No.70/Bang/2014 - Bangalore Tribunal 12. M/s. Petro Araldite Pvt. Ltd. The Dy.CIT - ITA No.1538/Mum/2014 - Mumbai Tribunal 13. ACIT Vs. NGC Network India Pvt. Ltd. - ITA No.5307/M/2008 22.1 Respectfully following the decisions of the different Benches of the Tribunal, we set aside the order of the CIT(A) on this issue and direct the Assessing Officer to consider foreign exchange fluctuation gain as part of the operating income of the assessee. 23. So far as ground of appeal No. 6 is concerned the same relates to unjust rejection of TP study filter and introduction of additional filters for selecting final set of comparables. 23.1 It is the submission of the Ld. Counsel for the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... saction. Therefore, considering the submissions of both the sides, we are of the opinion that if by applying the threshold limit of 15% of related party transaction, sufficient comparables are available then there is no reason to further extend the limit to 25%. Therefore, we direct the TPO to take into consideration only those comparables where related party transactions are to the extent of 15% because it is not the case of revenue that by applying the threshold limit of 15%, it will not get sufficient number of comparables." 24. The Ld. Departmental Representative on the other hand while supporting the order of the CIT(A) submitted that since 100% matching is not possible. Therefore, reasonable limit of filters has to be adopted. He submitted that in software industry there are lots of difference between onshore and off shore and 100% EOU should be compared with 100% EOU. Since the Ld.CIT(A) while rejecting the claim of the assessee has followed the OECD guidelines, therefore, he submitted that the same being in order should be upheld. 25. We have considered the rival arguments made by both the sides. We find merit in the argument of the Ld. Counsel for the assessee that TPO h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Tribunal he submitted that the different benches of the Tribunal have ruled in favour of the exclusion of this company owing to the reasons cited above. 27.1 As regards the contention of the CIT(A) that the revenue from the sale of software licenses and support services is less than 5% of the company's total revenue and therefore, the same can be accepted as a comparable with the assessee is concerned, he submitted that the same is misplaced. He submitted that in absence of the segmental data, the impact of the functionally different activity (sale of software licence and support) on the company's overall profitability cannot be ascertained. Therefore, the results of the overall operation of the companies cannot be compared to that of the assessee. For this proposition, he relied on the following decisions : "1. Intoto Software India Private Ltd. vs The ACIT (ITA.No.ll96/Hyd/2010(Hyderabad Tribunal - PB No. 1307 Para 26. 2. Toluna India Pvt. Ltd Vs ACIT (ITA No. 5645/Del/2011) - PB Pg 1442 3. M/s 3DPLM Software Solutions Ltd. v DCIT IT (T.P) A. No.l303/Bang/2012 4. M/s. Bearingpoint Property Services Private Limited vs DCIT IT(TP)A No.1380/Bang/2012(Bangalore Tribunal) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ade by both the sides. We find the Special Bench of the Tribunal in the case of Maersk Global Centres (India) Pvt. Ltd. Vs. ACIT vide ITA No.7466/Mum/2012 has observed as under : "99. The question No. 2 referred to this Special Bench is as to whether, in the facts and circumstances of the case, companies earning abnormally high profit margin should be included in the list of comparable cases for the purpose of determining arm's length price of an international transaction. As already observed, the issue involved in this question has become infructuous in so far as the case of the assessee before the Special Bench is concerned and the same therefore no more survives for consideration in the present case. In generality, we are of the view that the answer to this question will depend on the facts and circumstances of each case inasmuch as potential comparable earning abnormally high profit margin should trigger further investigation in order to establish whether it can be taken as comparable or not. Such investigation should be to ascertain as to whether earning of high profit reflects a normal business condition or whether it is the result of some abnormal conditions prevailing in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e said company is also into product development, there are no softrware 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." 29.2 In various other decisions also Thirdware Solutions Ltd. has been rejected as a comparable on the ground that it is functionally dissimilar. We therefore find force in the submission of the Ld. Counsel for the assessee that Thirdware Solutions Ltd. should not be included as a comparable. We accordingly set-aside the order of the CIT(A) and direct the Assessing Officer to exclude the same from the list of comparables. 29.3 So far as exclusion of Vama Industries Ltd., by the TPO is concerned we find from paper book page 969 that the said company has given the segment reporting according to which for the year ending 31-03-2009 the export turnover of software development and services is ₹ 297.83 crores and the total software development services (both export & domestic) is ₹ 430.88 crores. Al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... smissed. 33. So far as ground of appeal No.14 is concerned the same relates to rejection of multiple year data. The Ld. Counsel for the assessee fairly admitted that the issue stands decided against the assessee by the decision of the Special Bench of the Tribunal in the case of Aztech Software and Technology Services Ltd., Vs. ACIT reported in 107 ITD 141 (Bang.) (SB). Accordingly, this ground by the assessee is dismissed. 33.1 In the light of our above discussion in the preceding paragraphs, we direct the AO to recompute the Arm's Length Price. 34. Ground of appeal No.15 in our opinion is general ground which does not require any adjudication in view of our findings given by the preceding paragraphs. 35. Grounds of appeal No.16 to 18 relate to charging of interest and excess recovery of interest etc. 35.1 After hearing both sides we are of the opinion that these grounds are mandatory and consequential in nature. Accordingly, these grounds are dismissed. 36. Ground of appeal No.19 relating to levy of penalty u/s.271(1)(c) of the I.T. Act which in our opinion is premature at this juncture. Therefore, this ground is dismissed. 37. In the result, the appeal filed by the Revenue ..... X X X X Extracts X X X X X X X X Extracts X X X X
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