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TMI Blog2015 (11) TMI 1545X X X X Extracts X X X X X X X X Extracts X X X X ..... annot be equated to providing technical services outside India solely for the purpose of excluding travel expenses incurred in foreign currency from the ET as envisaged in the definition of ‘export turnover’ as provided in section 10A of the IT Act. Accordingly, the adjustment made by the AO is to be quashed in entirety. We direct the AO to re-work the same. X X X X Extracts X X X X X X X X Extracts X X X X ..... er the provisions of Sec.144C of the Act, and accordingly, forwarded a draft assessment order (DAO) in the draft assessment order, the AO had proposed the following adjustments. Sl.No Additions/Disallowance Amount(RS.) 1 TP adjustment 61,981,771 2 Excess claim under section 10A of the Act 1,846,246 Total additions/disallowances 63,828,017 On considering the above, the AO computed the total income of the assessee at ₹ 87,773,397/- and determined the total tax payable at ₹ 33,530,390/- (including interest under section 234B,234C and 234D of the Act). 5. The assessee filed its objections with the Dispute Resolution Panel (DRP) against the said draft assessment order on March 24, 2014. The DRP vide its directions dated November 26, 2014 has upheld the rejection of TP documentation and the filters applied by the TPO. Further, the DRP has suo-moto modified the export filter to 75 percent sales as against 25 percent to sales adopted by the TPO. 5.1 Further, as requested by the assessee, the DRP directed to reject the following companies in the DRP directions. Acropetal Technologies Ltd. Eclerx Services Ltd. ICRA Online Ltd Informed Technologies India Ltd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sing unreasonable comparability criteria and contrary to facts as evidenced by the audited financial statements of the said companies, despite the arguments submitted by the assessee. f. The DRP and the AO have erred in upholding the action of the TPO in finalizing the transfer pricing order with companies as comparable to the assessee despite such companies failing the test of comparability on some or all the factors such as functional dissimilarity, product led revenues, differing turnover/scales of operation, asset base, risk profile etc. and failure of TPO's own filters. g. The DRP and the AO have erred in upholding the action for the TPO in adopting/modifying the filters adopted for conducting TP analysis, without appreciating the TP documentation prepared by the assessee. h. The DRP and the AO have erred in upholding the computation of operating margins of the comparable companies and the assessee by the TPO thereby ignoring the factual errors and ignoring of certain items which ought to have been considered as operating or non-operating items, as the case may be. i. The DRP and the AO have erred in upholding the action of the TPO in not granting the working capital/r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith an AE is computed in relation to cost incurred or sales effected or assets employed etc. Clause (ii) is material for the present purpose. It provides that the net profit margin realized by the enterprise or by an unrelated enterprise from a comparable uncontrolled transaction or a number of such transactions is computed having regard to the same base. The 'base' of this provision takes one back to clause (i) which refers to cost incurred or sales effected or assets employed or to be employed. On splitting clause (ii) into two parts, it divulges that the reference is made to internal and external comparables. One part of clause (ii) refers to the net profit margin realised by the enterprise ………………… from a comparable uncontrolled transaction' and the other part talks of the net profit margin realised ……………… by an uncontrolled enterprise from a comparable uncontrolled transaction'. It transpires that whereas the first part refers to the profit margin from internal comparable uncontrolled transactions, the second part refers to profit margin from an external comparable uncontrolled transact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transaction had been with some third party instead of related party. When the data is available showing profit margin of that enterprise itself from a third party, it is always safe and advisable to have recourse to such internal comparable case. …………." 14. Hence we are of the opinion that the TPO had erred in choosing an external comparable, when there was an internal comparable uncontrolled transaction which the assessee had taken in its TP study. The assessee's appeal is allowed". Respectfully following the decision of the Co-ordinate Bench authored by JM in this appeal, we direct the TPO to choose internal comparable in controlled transaction as against an external comparable. Hence, we conclude our decision as follows; 8. Ground no.1 & 2 are general in nature and needs no adjudication. Ground no.3,4 & 5 are not pressed. Ground no.7,8 & 9 are infructuous and ground no.6 & 10 are allowed. 8.1 With respect to ground no.11, we hereby summarize the proceeding as follows; 8.2 During the course of assessment proceedings for AY: 2010-11 the international transactions entered into by the company were referred by the AO to the TPO for determination of ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment order both assessee and the department are in appeal. The assessee has raised ground no.11. The ground raised in the department appeal in IT(TP)A No.220(B)/2015 is as follows; "1. The directions of the DRP are opposed to law and facts of the case. 2. On the facts and in the circumstances of the case the DRP erred in law in directing the AO to exclude reimbursement of specific expenditure both from the export turnover as well as from total turnover for the purpose of computation of deduction u/s 10A, without appreciating the fact that the statute allows exclusion of such expenditure only from export turnover by way of specific definition of export turnover as envisaged by Sub-clause(4) of Explanation 2 below Sub-section (8) of Section 10A and the total turnover has not been defined in this section. 3. On the facts and circumstances of the case the DRP erred in directing the AO to compute deduction u/s 10A in the above manner by placing reliance on the decision of Hon'ble High Court of Karnataka in the case of M/s Tata Elxsi Ltd. which has not become final since the same has not been accepted by the Department and SLPs are pending before the Hon'ble Supreme Court. 4. For ..... X X X X Extracts X X X X X X X X Extracts X X X X
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