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TMI Blog2015 (11) TMI 635X X X X Extracts X X X X X X X X Extracts X X X X ..... been construed only as incidental to the sales, payment to suppliers etc., We cannot therefore find any fault with the direction of the CIT (A) to consider such foreign exchange gain as operating in nature.- Decided against revenue. Reworking of the operating margin by allocating cost on the basis of man-hours as directed by CIT(A) - Held that:- There is no dispute that assessee was billing its AE on cost plus basis. Such cost was arrived at by the assessee by allocating the indirect cost on the basis of manhours and direct cost directly. When the revenue of the assessee itself was based on an allocation done on man-hour basis, in our opinion, it was not appropriate to adopt a different yardstick for working out its PLI. That for a software development company, the most appropriate method for allocating indirect cost is head-count method has been clearly brought out by Hon’ble Delhi High Court judgment in the case of EHPT India P. Ltd [2011 (12) TMI 49 - DELHI HIGH COURT ] - Direction of CIT (A) that apportionment of cost has to be done on man-hour basis and not on turnover basis could not be faulted with. We do not find any reason to interfere with the direction of CIT (A) in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Total operative cost incurred Rs.9,64,39,382/- Arm s length price @ 119.43% Rs.11,51,77,553/- Price received Rs.10,02,75,736/- Adjustment u/s.92CA Rs.1,30,68,729/- Assessment was completed accordingly. 06. Aggrieved, assessee moved in appeal before the CIT (A). CIT (A) directed exclusion of M/s. Synergy Log-in Systems Ltd and M/s. Transworld Infotech Ltd from the list of comparables considered by TPO. Reason stated by CIT (A) was that the financial year of the said company did not coincide with that of the assessee. As per CIT (A), the published accounts of these two companies were for year ending 30.06.2004 and hence could not be considered as proper comparables since assessee s financial year was ending on 31.03.2004. 07. Now before us, Ld. DR submitted that the two companies, namely, M/s. Synergy Log-in Systems Ltd and M/s. Transworld Infotech Ltd, had appeared in assessee s own list in its TP study. Hence according to him, CIT (A) fell in error in directing exclusion of these companies. 08. Per contra, Ld. AR suppor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure was as under : 82. It was submitted that while computing the operating margins of the appellant the TPO had not considered the foreign exchange gain of ₹ 29,96,409. Exchange gain or loss arose on account of factors like realisation of sales, payment to suppliers, and restatement of the values of assets and liabilities. These causes and factors were operating in nature, as per paragraph 134 on page 46 of OECD Draft Guidelines on Transactional Profit Methods. Reliance was placed on the decision of the Bengaluru bench of the hon ble ITAT in the case of Sap Labs 6 ITR (Trib) 81, where it was held that foreign exchange gain needed to be considered as operating in nature while determining the ALP. Considering the nature of activities of assessee and the nature of revenues earned by it from software development activities rendered abroad, we are of the opinion that the foreign exchange gain could have been construed only as incidental to the sales, payment to suppliers etc., We cannot therefore find any fault with the direction of the CIT (A) to consider such foreign exchange gain as operating in nature. Ground 4 of the Revenue stands dismissed. 15. Vide its ground ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oftware development company, the most appropriate method for allocating indirect cost is head-count method has been clearly brought out by Hon ble Delhi High Court judgment in the case of EHPT India P. Ltd (supra). Relevant para 8 of the judgment read as under : 8. We have examined the matter in the light of the submissions made before us. The fate of the appeals must depend upon the answer to the question whether the method adopted by the assessee, namely, that of apportioning the indirect expenses between the STP unit and the non-STP domestic unit on the basis of the head-count is an unreasonable method and if it has been followed consistently by the assessee in the past and has also been accepted by the department, should the revenue authorities be permitted to disturb the same in the years under appeal. It seems to us that the settled position in such matters is to examine whether the method which is canvassed for acceptance is the one (a) which has been consistently accepted by both the parties, namely, the assessee and the revenue in the past; (b) which is a reasonable method having regard to the nature of the business and other relevant factors and (c) which does not d ..... X X X X Extracts X X X X X X X X Extracts X X X X
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