9911796707
TMI Blog2015 (9) TMI 555X X X X Extracts X X X X X X X X Extracts X X X X ..... is claim of the assessee is not maintainable as there is no adverse finding in the impugned orders calling for or requiring us to adjudicate thereon. We, therefore, finding that the contentions raised by the learned Authorised Representative of the assessee in respect of these companies are not maintainable, reject the same. Consequently, the inclusion of these two companies i.e. Vishal Information Technological Services Ltd. and Asit C Mehta Financial Services Ltd. in the final list of comparables is upheld. Computation of Operating Cost of the assessee - assessee's claim for treating its claim for additional depreciation to be treated as an item of extra-ordinary expenditure and therefore should be reduced from operating cost - Held that:- If, as contended by the assessee, this expenditure pertains to earlier assessment year's also, then in the fitness of things this issue ought to be re-examined afresh by the TPO to ascertain whether and how the assessee's claim has been applied to the comparable companies also so that there will be parity when the said expenditure is proportionately applied to the operating cost of the assessee and comparable companies. In this view of the m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... units - Held that:- The Hon'ble High Court of Karnataka in the case of CIT v. Yokogawa India Ltd. [2011 (8) TMI 845 - Karnataka High Court] has held that deduction under Section 10A of the Act is to be given without setting off the unabsorbed brought forward losses. In the case on hand, the Assessing Officer has computed the eligible deduction under Section 10A of the Act after setting off brought forward unabsorbed business losses. Respectfully following the decision of the Hon'ble High Court of Karnataka in the case of Yokogawa India Ltd. (supra), we direct the Assessing Officer to allow the deduction under Section 10A of the Act without setting off the brought forward unabsorbed business loses.- Decided in favour of assessee. - IT (T.P.) APPEAL NO. 1275 (BANG.) OF 2010 - - - Dated:- 23-6-2015 - N.V. VASUDEVAN AND JASON P. BOAZ, JJ. For The Appellant : Padamchand Khincha, CA For The Respondent : C.H. Sundar Rao, CIT (DR) ORDER Jason P. Boaz, Accountant Member - This appeal by the assessee is against the order of the Dy. Commissioner of Income Tax, Circle 11(3), Bangalore passed under Section 143(3) rws 144C of the Income Tax Act, 1961 (in short 'the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duction under Section 10A of the Act is to be granted from the total income after setting off of brought forward business losses and unabsorbed depreciation. 2.3 Aggrieved by the draft order of assessment for Assessment Year 2006-07 dt.23.12.2009, the assessee filed its objections thereto before the DRP, Bangalore. The DRP issued its directions under Section 144C(5) rws 144C(8) of the Act vide order dt.20.9.2010 confirming the additions/disallowances made by the Assessing Officer in the draft assessment order and thereby rejected the objections raised by the assessee. The Assessing Officer in pursuance of the directions of the DRP then passed the final order of assessment under Section 143(3) rws 144C of the Act vide order dt.7.10.2010 wherein the income of the assessee was determined at NIL and which included the TP Adjustment of ₹ 2,50,30,925. 3.1 Aggrieved by the final order of assessment for Assessment Year 2006-07 dt.7.10.2010, the assessee has preferred this appeal raising the following grounds :- 1. The lower authorities have erred in passing the order: a. without considering all the submissions and/or without appreciating properly the facts and circumstan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... companies as comparables even though they are not comparable in respect of functions performed, risks assumed, assets utilized, size, turnover etc.; and in adopting companies having unusual circumstances resulting in high margins; and d. Inappropriately computing the operating margins of comparables. 9. The lower authorities have erred in: a. Inappropriately computing the operating margins of the appellant; and b. Not excluding additional depreciation resulting from re-estimate of useful life of assets and provision for contingent telecom expenses from operating cost of the appellant. GROUND RELATING TO ALTERNATE PLI 10. The learned TPO has erred in not appreciating that when benchmarked against other appropriate base (assets employed), the performance of the appellant compares favorably with comparables. GROUNDS ON ADJUSTMENT FOR DIFFERENCES 11. The lower income tax authorities have erred in not making proper adjustment for enterprise level and transactional level differences between the appellant and the comparable companies. 12. The lower income tax authorities have erred in (i) Ignoring the business, commercial and industry realities and economic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... firmed by the Dispute Resolution Panel varying the reported value of the international transaction be deleted; (c) deduction under section 10A be computed before set off of brought forward losses and unabsorbed depreciation. The appellant submits that each of the above grounds/ sub-grounds are independent and without prejudice to one another. The appellant craves leave to add, alter, vary, omit, substitute or amend the above grounds of appeal, at any time before or at, the time of hearing, of the appeal, so as to enable the Income-tax Appellate Tribunal to decide the appeal according to law. The appellant prays accordingly. 3.2 The assessee filed additional grounds of appeal during the hearing on 23.4.2015 on the issue of selection of Maple eSolutions Ltd., as a comparable. 4. The Grounds raised at S.Nos.1 to 4 are general in nature and as the learned Authorised Representative has stated that these grounds are not being pressed, they are dismissed as infructuous. TRANSFER PRICING ISSUES (GROUNDS NO.5 TO 13) 5.1 In the course of proceedings before us, the learned Authorised Representative submitted a chart explaining the assessee's position regarding the ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is rendered infructous and is accordingly dismissed. 5.3.5 Ground Nos. 11 12 are raised in respect of grant of adjustment towards difference in risk profile between the assessee and the comparable companies. Since these grounds were not urged before us by the learned Authorised Representative, they are rendered infructuous and are accordingly dismissed. 5.3.6 Ground No.13 raised in respect of the benefit of +/- 5% was not pressed before us and is accordingly dismissed as infructuous. 6.1 As per the TP Study carried out by the assessee, for ITES, the assessee adopted Transactional Net Margin Method ('TNMM') as the Most Appropriate Method ('MAM'). Taking itself as the tested party, the assessee selected a set of 59 companies as comparables and concluded that its international transactions were at Arm's Length. 6.2 The TPO, while accepting TNMM as the MAM as adopted by the assessee, rejected the assessee's TP Study for various reasons and embarked on a fresh search, using the data bases 'Prowess' and 'Capitaline'. After issuing a show cause notice to the assessee proposing to adopt a fresh set of comparables and considering the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t ₹ 13,46,61,429 Arm's Length Price (ALP) @ 122.33% of Operating Cost ₹ 16,47,31,326 6.4 The price charged by the assessee to its AEs is compared to the ALP as under :- Arm's Length Price @ 122.33% of Operating Cost ₹ 16,47,31,326 Price shown in assessee's international transactions ₹ 13,97,00,401 Shortfall being adjusted u/s.92CA ₹ 2,50,30,925. 6.5 As mentioned in the pre-paras of this order, in the course of proceedings before us, the learned Authorised Representative submitted that he would make and put forth arguments/contentions only on the issue of comparability or otherwise of individual companies, which in the assessee's opinion are incorrectly included or excluded by the TPO in the final set of comparable companies. In this context, the learned Authorised Representative also submitted a chart explaining the assessee's position regarding the acceptability or otherwise of each of the companies selected or rejected by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ces India (P.) Ltd (IT APPEAL NOS. 4068 (DELHI) OF 2009 AND 4796 (DELHI) OF 2010, Dated:- 30-06-2011) and that this decision was followed by a co-ordinate bench of this Tribunal in the case of Ariba Technologies India (P.) Ltd. (supra) for Assessment Year 2006-07. In view of this, the learned Authorised Representative prayed that this company be excluded from the final list of comparables. 7.5.2 Per contra, the learned Departmental Representative supported the orders of the authorities below in including this company in the list of comparables. 7.5.3 We have heard the rival submissions and perused and carefully considered the material on record; including the judicial pronouncements cited and placed reliance on. The additional grounds raised by the assessee for exclusion of Maple e-Solutions Ltd. are considered and the same are admitted for adjudication. We find that a co-ordinate bench of this Tribunal in the case of Ariba Technologies India Pvt. Ltd. (supra) for the same assessment year has considered the comparability of this company and excluded this company from the final set of comparables following the decision of the ITAT, Hyderabad Bench in HSBC Electronic Data Proce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecting the objections of the assessee to their inclusion in the list of comparables. Before us it was submitted that the comparability of these three companies were considered and rejected as comparables by a co-ordinate bench of the Tribunal in the case of Ariba Technologies India Pvt. Ltd. (supra) which followed the decision of the ITAT, Hyderabad Bench in the case of HSBC Electronic Data Processing India Ltd. (supra). In view of this, it was prayed by the ld. A.R. that these three companies be excluded from the list of comparables. 7.6.2 Per contra, the learned Departmental Representative supported the orders of the authorities below. 7.6.3 We have heard the rival submissions and perused and carefully considered the material on record; including the judicial pronouncements cited and placed reliance upon. We find that a co-ordinate bench of this Tribunal in the case of Ariba Technologies India Pvt. Ltd. (supra) for Assessment Year 2006-07 has excluded these three companies from the list of comparables following the decision of the ITAT, Hyderabad Bench in the case of HSBC Electronic Data Processing India Ltd. (supra) where the comparability of these three companies in the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t most of the cost incurred by the company taken as comparable is outsourcing cost, as can be seen from the Annual report placed in the paper-book and ITAT, Mumbai in the case of Maersk Global Service Centre (supra) has analysed and rejected this company as comparable, due to the reason that it has outsourced a considerable portion of its business and it is functionally different. This factor was also approved by the DRP in assessee's own case in the later year, as can be seen from the copy of the order placed on record, for assessment year 2008-09. In view of this, we direct the Assessing Officer to exclude this company from the list of comparables. Goldstone Infratech Ltd 10. The assessee's objection for inclusion of this comparable is on the basis of the filter on foreign exchange earnings, diminishing revenue filter and functionality, being run on lease basis. It was submitted that this company was rejected in the case of Stream International Services Pvt. Ltd. v. ADIT(International Taxation) by the Mumbai Bench of the Tribunal, vide its order dated 11.1.2013 in ITA No. 8997/Mum/2010 for assessment year 2006-07. 10.1 After considering the rival contentions, we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ew of amalgamation, the financials have changed and the business model also changed. Referring to the annual report placed on record, it was submitted that as against ₹ 24.02 lakhs of employee costs for the year ending 31st March, 2005, the employee cost has increased to ₹ 132.59 lakhs. Further, the data processing charges is also to the extent of ₹ 1.04 crores, which indicates that the assessee is outsourcing the work. Accordingly, it cannot be selected as a comparable. Due to amalgamation during the year, the assessee's business model has changed and because of employee cost filter also, this comparable has to be excluded. 13.1 After considering the rival submissions, we are of the opinion that this company cannot be selected as a comparable not only on the reason of failing employee cost filter, but also due to amalgamation during the year, which has changed the business model of the company.' Following the decisions of the co-ordinate bench of this Tribunal in the case of Ariba Technologies India Pvt. Ltd. (supra) and the decision of the ITAT, Hyderabad Bench in the case of HSBC Electronic Data Processing India Ltd. (supra), we direct the Assessi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e impugned orders calling for or requiring us to adjudicate thereon. We, therefore, finding that the contentions raised by the learned Authorised Representative of the assessee in respect of these companies are not maintainable, reject the same. Consequently, the inclusion of these two companies i.e. Vishal Information Technological Services Ltd. and Asit C Mehta Financial Services Ltd. in the final list of comparables is upheld. 8. Ground No.9(b) - Issue relating to computation of Operating Cost of the assessee. 8.1 The assessee contends that the TPO has adopted incorrect operating cost while computing the ALP. In this regard, the assessee submitted the following segmental information pertaining to the AE and Non-AE segments :- Particulars AE (Rs.) Non-AE (Rs.) Total (Rs.) Operating Revenue 13,97,00,411 4,00,33,645 17,97,34,056 Less : Operating Expenses Direct Cost 10,95,56,657 3,03,87,371 13,99,4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is that the TPO erred in including the proportionate cost of additional depreciation and telecom expenditure, which were extraordinary expenses, as part of operating cost. The assessee contends that while arriving at the operating cost with AEs, it has considered depreciation amounting to ₹ 33,87,281 as part of the operating cost. It is submitted that in the period under consideration, the assessee had debited an amount of ₹ 1,15,02,720 to its profit and loss account on account of additional depreciation on assets due to a change in its depreciation policy, whereby there was a change in the estimated useful life of the assets. In this manner, the assessee re-computed the additional depreciation from inception or date of acquisition of the assets and charged the same, which also related to the earlier assessment years, to the profit and loss account. The assessee contends that the same should be considered as an extra-ordinary item and therefore should not form part of the computation of AEs operating cost for the year under consideration. 8.3.2 In support of the above proposition, the learned Authorised Representative placed reliance on the decision of the ITAT, Mu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same while computing the operating cost of the assessee. It is submitted that by the same parity of reasoning, the same ought to be excluded while computing the operating cost of the assessee. 8.6.1 The learned Departmental Representative submitted that the assessee's claim that additional depreciation on assets ought not to consider as part of operating cost on the ground that it was an item of extra-ordinary expenditure, is not tenable. It was contended that the said expenditure is clearly not extra-ordinary in nature and the TPO had correctly allocated the said expenditure proportionately between AE and non-AE segments. It is submitted that if the same pertained to both earlier and subsequent years also, as submitted by the assessee, then it is to be seen whether the same has been applied in the case of the comparables also. The learned Departmental Representative further contended that the assessee's reliance for its claim on the decisions of the Mumbai Tribunal in the case of Capgemini India (P.) Ltd. (supra) and of the co-ordinate bench of this Tribunal in the case of Toyota Kirloskar Motors (P.) Ltd. (supra) would not come to the assessee's rescue as the fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... account, is an expenditure extra-ordinary in nature requiring it to be excluded from the computing of AEs operating cost. If, as contended by the assessee, this expenditure pertains to earlier assessment year's also, then in the fitness of things this issue ought to be re-examined afresh by the TPO to ascertain whether and how the assessee's claim has been applied to the comparable companies also so that there will be parity when the said expenditure is proportionately applied to the operating cost of the assessee and comparable companies. In this view of the matter, we set aside the issue of the assessee's claim of additional depreciation being an item of extra-ordinary expenditure to the file of the TPO for fresh examination and adjudication thereon in the light of our observations above, after affording the assessee adequate opportunity of being heard and to file details/submissions required. 8.9 With respect to the contingent expenses in the nature of provision for telecom expenses, it is seen that the assessee has itself disallowed these expenses in the computation of taxable income on the ground that it is contingent liability. We find that the assessee's r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of the deduction under Section 10A of the Act. In the year under consideration, the assessee claimed deduction under Section 10A of the Act to the extent of ₹ 2,80,16,793. In doing so, the assessee did not consider the brought forward business losses and unabsorbed depreciation. The Assessing Officer, however, was of the view that the deduction under Section 10A of the Act is available from total income and held that total income is computed after aggregation of the profits/losses of various units after setting off the brought forward business losses and unabsorbed depreciation, which was then accordingly computed at NIL. 9.2 The assessee contended that the Assessing Officer erred in not appreciating that income which is eligible for exemption under Section 10A of the Act does not form part of total income at all and therefore does not enter the normal computation mechanism so as to enable a reduction of business losses and unabsorbed depreciation of other STP units. The assessee submits that the eligible business should be of a particular year and not influenced by business losses and unabsorbed depreciation of current as well as earlier years. It is the contention of t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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