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TMI Blog2017 (1) TMI 1556X X X X Extracts X X X X X X X X Extracts X X X X ..... elopment Regulation Act. 3. Rejection of alternate claim of deduction under section 10A of the Act WITHOUT PREJEDICE to the claim of deduction under section 10B of the Act, the ld. CIT(A) has erred in denying the alternate claim of deduction under section 10A of the Act on the ground that the Appellant does not meet the fundamental condition of having been located in 'free trade zone' and claim of deduction cannot be switched from one section to another. 4. Making an incorrect addition by re-computation of arm's length price On the facts and in the circumstances of the case and in law, the ld. CIT(A) has erred in confirming the action of the ld. AO in making an adjustment of Rs. 2,12,11,149 to the income returned by the appellant by re-computing the arm's length price of the international transactions. 5. Unjust rejection of TP study filters and unjust introduction of additional filters for selecting final set of comparables 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 ld. AO in in applying additional filters for selecting companies as comparables, without providing cogent reasons and by ignoring the Appel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 9. Unjust inclusion of High/super profit making companies in final set of comparables On the facts and in the circumstances of the case and in law, the ld. CIT(A) has erred in confirming the action of the ld. AO in cherry picking high/super profit making companies in final set of comparables in the order. 10. Unjust exclusion of loss making companies On the facts and in the circumstances of the case and in law, the ld. Commissioner of Income Tax(A) has erred in confirming the action of the ld. AO in rejecting loss making companies without providing adequate/cogent reasons. 11. Not allowing the risk adjustment required to Operating Profit/Operating Cost of the selected comparables On the facts and in the circumstances of the case and in law, the ld. CIT(A) in confirming the action of the ld. AO erred in not granting any adjustments for differences in functions undertaken and/or assets employed and/or in risk assumed by the comparable companies' vis-à-vis the Appellant. 12. Lack of Consistency 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 ld. AO of not accepting comparable companies selected by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rays for appropriate relief based on the above grounds of appeal and the facts and circumstances of the case. 3. The learned Authorized Representative for the assessee at the outset pointed out that the issue which arises in the present appeal is in respect of deduction claimed under section 10B of the Act which is raised by way of ground of appeal No.2 and the alternate plea of prorata deduction under section 10A of the Act by way of groun d of appeal No.3. He pointed out that all the other grounds of appeal are either argumentative or not pressed, except the grounds of appeal No.7 and 9 which are against inclusion of certain comparables in the final set of comparables. He also pointed out that grounds of appeal No.17 and 18 i.e. against levy of interest under section 234B and 234C of the Act are consequential and the ground of appeal No.19 against initiation of penalty proceedings were premature. Accordingly, we dismiss the grounds of appeal No.1, 4 and 5 being general in nature and grounds of appeal No.6, 8, 10 to 13 and 15 as being not pressed and grounds of appeal No.14 and 16 being argumentative in nature and ground of appeal No.19 being premature. The grounds of appeal No.1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... However, the Assessing Officer adopted single year's data for analyzing the international transactions of the assessee with its associate enterprises. Since the assessee was 100% Export Oriented Unit (EOU), comparison was made with the companies having atleast 75% of the earning from exports. Another objection of the assessee that the concern R.Systems International Ltd. had different accounting year, was not accepted because of directions of Dispute Resolution Panel (in short 'the DRP') in assessment year 2008-09 in assessee's own case. The turnover filter was not applied by the Assessing Officer while selecting the comparables and also the loss making companies were rejected since the assessee was captive service provider and its business module was cost plus mark-up vis-à-vis companies earning super normal profits being not adopted as comparables, the TPO rejected the contention of assessee, because of similar propositions being applied by the DRP in assessment year 2008-09. Accordingly, the Assessing Officer selected five concerns as comparables whose arithmetic mean worked out to 22.88% and after allowing working capital adjustments, the average PLI of the comparables w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of deduction under section 10A of the Act, since no such claim was made in the return of income and the prescribed report of auditor was not filed at the time of furnishing the return of income. The Tribunal acknowledged that the assessee had filed report of accountant in Form 56F during the course of assessment proceedings and had made the alternate claim under section 10A of the Act. Relying on the ratio laid down by the Hon'ble Madras High Court in CIT Vs. Heartland KG Information Ltd. (2013) 39 taxmann.com 132 and other decisions, the Tribunal held that the assessee would be entitled to the benefit of deduction under section 10A of the Act and in order to verify the fulfillment of conditions provided in section 10A of the Act, the matter was set aside to the file of Assessing Officer. The relevant paras 11 and 11.4 of the order of Tribunal, which read as under:- "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 ..... u/s.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, 20 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 b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee are accordingly allowed for statistical purposes." 9. The issue which arises before us is identical to the issue before the Tribunal in assessment year 2009-10. The year under appeal before us is assessment year 2010-11 and following the same parity of reasoning, we hold that the assessee is not entitled to the claim of deduction under section 10B of the Act. However, eligibility of deduction under section 10A of the Act in the hands of assessee merits to be verified. Accordingly, we remit this issue back to the file of Assessing Officer to verify the claim of assessee and pass order in accordance with law and also following the directions of Tribunal in earlier years. Accordingly, the grounds of appeal No.2 and 3 raised by the assessee are allowed for statistical purposes. 10. Now, coming to the second issue raised in the present appeal i.e. adjustment made on account of transfer pricing provisions. The assessee was captive service provider to its associate enterprises Approva, US. The assessee had provided software development services to its associate enterprises and in order to benchmark its international transactions, the assessee had applied TNMM method which was al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olution Ltd., held that the said concern was not comparable and observed as under:- "29. We have considered the rival arguments made 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 ea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r : "26. As far as Thirdware Software Solution Limited is concerned, we find from the information furnished by the said company that though the said company is also into product development, there are no softrware products that the company invoiced during the relevant financial 52 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 setaside the order of the CIT(A) and direct the Assessing Officer to exclude the same from the list of comparables." 12. Both the learned Authorized Representatives have admitted that Thirdware Solutions Ltd. was involved in similar functions as in earlier year and in view thereof, we hold that the said concern is functionally different and is to be excluded ..... X X X X Extracts X X X X X X X X Extracts X X X X
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