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TMI Blog2015 (3) TMI 262X X X X Extracts X X X X X X X X Extracts X X X X ..... s 100% export oriented unit under the Software Technology Parks of India (STPI) scheme. Assessee has also established a branch in the UK to facilitate the identification and effective migration of work to India from AEs. Assessee renders services as a captive contract service provider and is remunerated on a full time equivalent/cost budgeted plus mark-up basis for providing services to its AEs. For the AY under consideration, assessee filed its return of income on 29/09/2009 declaring total income of Rs. 38,81,449 after claiming deduction u/s 10A of the Act in respect of the profits from export of services from the STPI units. Assessee also declared book profit of Rs. 226,59,06,197 under MAT provisions. During the assessment proceeding, AO while verifying the details, noticed that assessee has entered into the following international transactions with its AEs.: * Provision of BPO services Rs. 16,64,69,21,643 * Interest received on fixed deposits Rs. 2,74,14,814 * Recovery of expenses Rs. 23,18,25,837 * Share application money received Rs. 48,60,00,000 * Payment of bank charges Rs. 60,55,129 * Interest paid Rs. 9,39,912 * Payment of Guarantee commission and Rs.1,56,41 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... PO u/s 92CA(3) to the price charged for international transaction, AO passed a draft assessment order proposing additions on account of TP adjustment. Further, AO also recomputed the deduction claimed u/s 10A of the Act, as a result of which, exemption was reduced to a lesser figure. Being aggrieved of the draft assessment order, assessee filed objections before the DRP by raising various issues on transfer pricing adjustment as well as corporate matters. 4. The DRP after considering the submissions of assessee, however, did not find merit in any of the objections raised with regard to transfer pricing issues. However, as far as corporate tax issues are concerned, DRP granted relief to assessee by directing AO to reduce lease-line charges from export turnover as well as total turnover while computing exemption u/s 10A. It also directed AO to allow set off of losses. AO, though, complied to the directions of DRP in so far as exclusion of lease-line charges from total turnover, however, as far as the issue of set off of losses is concerned, AO did not comply to the direction of DRP on the pretext of CBDT Circular dated 16/07/2013. Being aggrieved with the directions of DRP as well a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he field of data analytics operations management and audit reconciliation services. In support of his contention, ld. AR referred to the annual report of the company for the FY 2008-09. 7.5 Genesys International Ltd. Ld. AR referring to the annual report of this company submitted, it cannot be selected as comparable as it is engaged in the business of geographical information services comprising photogrammetry, remote sensing, cartography, data conversion, related computer based services and other related services. 8. Ld. AR submitted, in various rulings of the ITAT for the same AY, functionality of these companies were examined and it was held that these companies cannot be treated as comparable to ITE service providers. In support, ld. AR relied on the following decisions: 1. Capital IQ Information Systems (India) Pvt. Ltd., ITA No. 124/Hyd/2014. 2. Excellence Data Research, ITA No. 159/Hyd/2014 3. Hyundai Motor India Engineering P. Ltd., ITA No. 255/Hyd/2014. 9. Ld. DR, though, agreed that issue relating to comparability of companies objected by assessee are more or less covered by the decisions of the Tribunal, but, he nevertheless relied upon the reasonings of the TPO. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th are totally incomparable. 14.3. The TPO on page 48 of his order has examined CBDT Circular SO 890 (E) dated 26.9.2000 which provides a detailed list of products or services that can be covered under the ITES for the purposes of Section 10A and 10B of the Act. In this Circular, Information Technology Enabled Products/Services have been divided into fifteen categories, starting with Bank Office operations, Call centres etc. and ending with Website services. From the very description of such services, it is palpable that even though these fall under the overall ITES category, but some of them are quite different from each other. To cite, service at Sl.No. (vi) of this Circular is 'Geographic Information System services and at Sl. No. (vii) is 'Human Resources Services.' No doubt, all these fifteen categories of products/services have been included under the major head of 'Information Technology Enabled Services' (ITES), but most of them are quite distinguishable from others. In our considered opinion, the fifteen broad categories set out in this Circular cannot per se be claimed as similar to each other. A cursory look at these products/services transpires that some of them are fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 12 for assessment year 2008-09 dated 7.3.2014) and the principles laid down by the coordinate bench of the Tribunal(Delhi) in the case of M/s. Mercer Consulting (India) Pvt. Ltd., (supra), assessee submits that this company cannot be selected as a comparable. 18.1 The Learned Departmental Representative, however, submitted that having accepted Aditya Birla Minacs Worldwide Ltd., as a comparable company, this company should also be included, as otherwise, both the companies should be excluded. 18.2 We have considered the issue and examined the Annual Report and the objections of assessee. As seen from the Annual Report, the above company is involved in diverse nature of services and there was no segmental data for diversified service port folio. Moreover this company can be considered as KPO and we are of the opinion that this company is not comparable to assessee's services. We therefore, direct the Assessing Officer/TPO to exclude this company. (4) Cosmic Global Ltd. 19. The main objection of assessee with reference to the inclusion of this company is with reference to outsourcing of its main activity. Even though this company is in assessee's TP study, it has raised objection ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AR to the effect that total revenue of the Accounts BPO segment of Cosmic Global Limited is very low at Rs. 27.76 lacs. We have discussed this aspect above in the context of CG-VAK's case and held that a captive unit cannot be compared with a giant case and thus excluded CG-VAK with turnover from Accounts BPO segment at Rs. 86.10 lacs. As the segmental revenue of BPO segment of Cosmic Global Limited at Rs. 27.76 lac is still on much lower side, the reasons given above would fully apply to hold Cosmic Global Limited as incomparable. This case is, therefore, directed to be excluded from the list of comparables." In view of the detailed analysis of the coordinate Bench of the Tribunal in the above referred case, in this case also we accept the contentions of assessee and direct the Assessing Officer/TPO to exclude this comparable for the same reasons. (5) Acropetal Technologies Ltd. (Seg.) 20. The objection of assessee with reference to this company is that the company is involved in engineering design services and high end services and has products in its inventory. It is also involved in R&D activity and developing sophisticated delivery system. It was further submitted that this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d counsel, this year also, the acquisition of some companies by that company may have impact on the profit. Considering the profit margins of the company and insufficient segmental data, we are of the opinion that this company cannot be selected as a comparable. Moreover, this is also not a comparable in the case of M/s. Mercer Consulting (India) P. Ltd. (supra), which indicates that the TPO therein has excluded it at the outset. In view of this, we direct the Assessing Officer/TPO to exclude this comparable, from the list of comparables selected. Same view has also been expressed in the other decisions also. Ld. DR has not brought any new facts or materials to show that the view expressed in aforesaid decisions will not apply to the facts of assessee's case. 11. Moreover, in assessee's own case for AY 2008-09, the coordinate bench of this Tribunal while considering the issue of comparability of the aforesaid companies to assessee in ITA No. 1647/Hyd/2012 dated 24/10/2014 has also held that these companies are not comparable to assessee for the reasons stated therein. The ld. DR was not able to bring to our notice any material difference between facts as involved in AY 2008-09 an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reimbursement costs should be excluded as they do not involve any functions to be performed so as to consider it for profitability purposes. In the case of Four Soft Ltd., supra, Hyderabad bench of the Tribunal considered this issue and held as under: "15. We have considered the rival submissions and perused the material on record. First, we will take up the issue relating to the adjustments made by the assessing officer in respect of the international transactions with Four Soft Limited, Hyderabad vs Assessee on 9 September, 2011its associated enterprises in the software development services. It is the contention of the assessee that bad debts incurred by the assessee company are in respect of transactions, which are not related to associated enterprises. This contention of the assessee has not been controverted by the Revenue by bringing any material on record before us. It is the contention of the learned counsel for the assessee that such bad debts cannot be taken into account for computing the margin of the assessee from the transactions with the associated enterprises in respect of software development services. The learned counsel for the assessee has also filed before us ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned, Ground No. 12 is on the issue of interest charged u/s 234B of the Act. Since chargeability of interest u/s 234B of the Act, will ultimately depend upon the outcome of the adjustment to be made to the ALP, it is premature to decide this issue at this stage. Accordingly, this ground being infructuous is dismissed. 16. Ground No. 13 is not pressed, hence, dismissed as not pressed. 17. In ground no. 14, assessee has raised the issue of set off of losses from the income assessed. 18. Briefly, facts relating to the issue are, in the relevant AY, assessee has incurred loss in relation to its Gurgaon Unit. Assessee while computing deduction u/s 10A, claimed 10A exemption in respect of other STPI units. In so far as loss pertaining to Gurgaon unit and UK Branch is concerned, the same was set off against other income while computing total income. AO while computing deduction u/s 10A of the Act set off losses relating to Gurgaon Unit against profits of other 10A units and thereafter computed deduction u/s 10A. Assessee objected to the aforesaid action of AO before the DRP. The DRP after considering the submissions of assessee and examining the decisions relied upon by assessee, direct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid view of the matter, we uphold the direction of DRP and allow assessee's claim. This ground is considered to be allowed. ITA No. 295/Hyd/14 by revenue 22. The effective grounds raised by Department are 2, 3 & 4. Ground No. 2 is on the direction of DRP to exclude communication charges both from the export and total turnover. This issue is no more res-integra in view of a number of decisions not only of different High Courts but also different benches of the Tribunal including ITAT, Chennai Special Bench in case of ITO Vs. Saksoft, 30 SOT 55. Therefore, respectfully following the decision of ITAT Chennai Special Bench and the decision of Hon'ble Mumbai High Court in case of CIT Vs. Gemplus Jewellery India Ltd., 330 ITR 175, we uphold the direction of DRP by dismissing the ground. 23. Ground Nos. 3 & 4 are in relation to the direction of DRP with regard to assessee's claim of set off of loss. In view of our finding while deciding ground No. 14 in assesee's appeal, these grounds have become infructuous, hence, dismissed. 24. In the result, assessee's appeal in ITA No. 247/Hyd/14 is partly allowed and the department's appeal in ITA No. 295/Hyd/14 is dismissed. Pronounced in the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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