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TMI Blog2018 (4) TMI 638X X X X Extracts X X X X X X X X Extracts X X X X ..... chnicians for providing IT Software Development Services particularly to foreign AE is also necessary for earning profit by a company. Moreover, when undisputedly there is no memorandum of understanding between the assessee company and its employees that the employee will work for specific period, as the attribution rate in software industry is highest, recruitment of employees and imparting of training to them cannot be considered as of enduring benefit. So, by following the law laid down by the Hon’ble Calcutta High Court Hindustan Aluminium Corporation Ltd. vs. CIT (1988 (3) TMI 5 - CALCUTTA High Court) and Hon’ble jurisdictional High Court in CIT vs. Munjal Showa Ltd [2012 (4) TMI 239 - DELHI HIGH COURT] - Decided in favour of the assessee. Payment of retention bonus - allowable busniss expenditure - Held that:- As decided in assessee's own case payment of retention bonus made by the assessee company partakes character of salary payable to its employee for the business purposes and has to be treated as revenue expenditure. Had the employees of erstwhile company not been retained by the assessee company its business would have adversely affected and this fact goes to prove that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urpose of selecting the comparables. 3.6. The Ld. DRP erred in including Thirdware Solutions Ltd..as a comparable entity solely for the reason that the assessee had itself originally included and refused to consider new information brought on record by the appellant. 3.7. The Ld. A.O./ DRP erred in including several entities even though they are materially not comparable to the Appellant in terms of Functions, Assets and Risk profile. 3.8. The DRP have erred in not considering the specific objection raised by the assessee that the Ld. AO/TPO have erred in making adjustment in respect of all the transactions entered into by the Appellant despite the fact that a significant portion of the transactions entered into by the Appellant were with unrelated independent entities, which are not subject to transfer pricing regulations. 3.9. The Ld. AO/TPO erred in not adjustment the profit margin of the comparables for the differences in the working capital profile, and risk profile of the Appellant vis comparable companies. 3.10. The Ld.DRP has accepted a number of entities as comparable peremptorily and laconically without considering detailed objections of the assessee. II ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es of the case the authorities below should have excluded following comparables: 1. Mindtree Ltd. 2. Thirdware Solution Ltd. Additional Ground No. 2 "The Ld. AO/TPO/DRP erred in not treating foreign exchange fluctuation gain/loss incurred in the revenue account as operative item for the purpose of computing the operating margin of the assessee as well as of the comparable." 3. The assessee company is a subsidiary of Science Applications International Corporation [SAIC US]. The Company, formerly known as Scicom Technologies Private Limited, was acquired by SAIC US in September 2007. Consequently, the branch office of SAIC based in Bangalore was merged with Scicom Technologies Pvt. Ltd. with effect from December 2007. The erstwhile Scicom Technologies Private Limited had set up subsidiaries, Scicom Technologies Inc. in USA and Scicom Technologies Limited in UK in 2000 and 2007 with the objective of carrying out marketing and promotion activities in their respective countries for the software development services rendered by the Company. SAIC India is engaged in the provision of software development services more specifically in the design, development and maintenance of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Additional Ground No. 1, the Ld. AR submitted that the comparable Mindtree Ltd. is not contested by the Ld. AR during the time of hearing. The Ld. AR submitted that the assessee is only contesting the exclusion of Thirdware Solutions Ltd. which is set out in Additional Ground No. 1. The Ld. AR further submitted that the same should have been taken into account by the TPO as well as DRP. The said company is not a proper comparable as it is the functionally different company. To support his contention, the Ld. AR submitted that the company i.e. Thirdware Solutions Ltd. is engaged in diverse activities and assets. From the annual report of the said company it can be seen that the sales and operating income show sale of license, software services, export of SEZ unit, export from STPI unit and revenue from subscription. However, segmental results are not provided in the Annual Report. Thus, the Ld. AR submitted that this company's system of recognizing revenue is vague and apparently not based on cost matching principle. The Ld. AR submitted that this company has to be excluded and also relied upon the Tribunal decision in case of Fiserv India P. Ltd. Vs. ITO (2015) 60 Taxmann.com 48. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed all the records. It is pertinent to note that this issue come up in A.Y. 2008-09 before the Tribunal and Tribunal (order dated 27.06.2016) held as under: "59. When, undisputedly, the ld. DRP has directed to treat the forex fluctuation gains/loss on support sale as an export item while comparing the assessee company with comparable companies and no appeal has been filed against the said directions, TPO is under legal obligation u/s 144C (10) & (13) to implement the DRP's direction. So ground No. 12 is determined in favour of the assessee." Besides, this the Hon'ble Delhi High Court in case of Pr. CIT vs. Rampgreen Solutions Pvt. Ltd. (order dated 27.05.2016 ITA No. 340/2016) held as under: "4. As regards the other issue concerning foreign exchange fluctuation loss being considered as part of the operative expenses, the issue stands covered against the Revenue and in favour of the Assessee by the decision of the Supreme Court in Commissioner of Income Tax v. Woodword Governor India (P) Ltd. (2009) 312 ITR 254 (SC). …." Thus, this issue is squarely covered by the assessee's own case as well as by the Hon'ble Delhi High Court in favour of the assessee. The AO/TPO is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the orders of the Assessing Officer, TPO and DRP directions. 14. We have heard both the parties and perused all the relevant records. The Tribunal in para 20 held as under: "20. Now, adverting to the case at hand, when the assessee has come up with specific pleas that he has made payment of ₹ 37,89,007/- to the third party recruitment agency, access fee to various job sites like naukari.com etc. and ₹ 16,01,153/- for imparting raining to the new employees who have recently joined and on job training to existing employees, which have otherwise been not disputed by the AO/DRP, recruitment of employees for efficient profit earning through a recruitment agency is recurring process and such expenditure cannot be avoided /deferred. At the same time, in the globalised set up, sudden upgradation of knowledge and skill of the IT engineers / technicians for providing IT Software Development Services particularly to foreign AE is also necessary for earning profit by a company. Moreover, when undisputedly there is no memorandum of understanding between the assessee company and its employees that the employee will work for specific period, as the attribution rate in software i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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