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TMI Blog2018 (7) TMI 1468X X X X Extracts X X X X X X X X Extracts X X X X ..... o affect the comparability analysis has to be taken note of and suitable adjustment has to be made to bring the comparables on par with the assessee for comparing of their operating margin. In view of the same, we deem it fit and proper to remit this issue also to the file of the AO with a direction to make suitable adjustment to the employee cost of the assessee if there is any underutilization of employees available with the assessee and thereafter re-compute the operating margin of the comparables for arriving at their average margin Disallowance u/s 10A - assessee has not submitted the evidences/receipts in support of the claim of deduction u/s 10AA - Held that:- The assessee has drawn our attention to the assessee’s petition filed before the Tribunal seeking admission of the additional evidence being Form No.56F in support of the claim and sought admission of the same. Since these documents goes to the root of the matter, we deem it fit and proper to remand this issue to the file of the AO for verification of the documents and consider the allowability of deduction u/s 10AA of the Act on the basis of such documents. - ITA No.279/Hyd/2016 - - - Dated:- 18-7-2018 - Smt. P. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enue expenditure and finance cost should be kept out for the computation of margin. 3.b Erred in not excluding the deferred revenue expenditure of ₹ 1,17,49,359/ - from operating cost as per the following Directions of the Hon'ble DRP dated 29.12.2015. in our view the amortization of deferred revenue expenditure should be kept out of the margin computation exercise ..... 3.c Erred in not excluding the finance cost of ₹ 29,02,092.92/- from operating cost as per the following Directions of the Hon'ble DRP dated 29.12.2015: the TPO was not justified in not excluding the finance cost while working out the margin in the case of assessee company. The AO is directed to re-compute the margin of the assessee company. 3.d Erred in not excluding the excess capacity cost of employees which is 15 % of the total employee cost, from the operating cost of the assessee as it is non-operating in nature and ought to have followed the assessee's own case for the AY 2009-10 whereas the Hon'ble ITAT allowed the excess capacity cost. 3.e Ought to have appreciated that the excess capacity cost is non-operating cost in nature because ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ables selected by the TPO: 1. Persistent Systems Solutions Ltd 2. Persistent Systems Ltd 3. Sasken Communication Technologies Ltd 6.a Ought to have appreciated the fact that, in the assessee s own case for the A.Y 2009-10, the Hon'ble ITAT Hyderabad vide order in ITA No.464 608/Hyd/2014 dated 30.01.2015, has excluded the following comparables with accompanies reasons which holds good even for the year under consideration. Company Name Reason for rejection Persistent Systems Ltd Engaged in product Development product design services; Segment data is not available. Sasken Communication Technologies Ltd. Segment data is not available 6.b Ought to have appreciated the fact that the above 3 comparables cannot be considered as comparables due to the following reasons:- ~ Functionally Dissimilar ~ Engaged in rendering of software product services ~ Segmental details not available in the Annual Report ~ High Turnover exceeding 200 crores ~ High Brand value 6.c Erred in calculating ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeal at any time before or at the time of hearing of the appeal . 2. Thereafter, the assessee filed the precise grounds of appeal and also the additional grounds of appeal. However, at the time of hearing, the learned Counsel for the assessee submitted that he is not pressing the additional grounds of appeal as they are already part of the original grounds of appeal. He submitted that the assessee is only pressing Grounds 3.a, 3.h and 11 and the remaining grounds are not pressed. Therefore, those grounds are rejected as not pressed. 3. Brief facts relating to the issues before us are that the assessee company, provides a range of software development services to its AEs to enable them to upgrade/enhance specific software solutions, which includes preparation of functional specification documents, preparation of technical designs, coding, testing etc., and the AE is providing solutions relating to the insurance and financial industry. The assessee is a wholly owned subsidiary of Planet Soft Inc. USA. It had entered into international transaction of providing software development services to the AEs and after the economic analysis, has arrived at the profit margin of 15.96 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and proper adjustments should be made. 7. The learned DR was also heard. 8. On going through the material on record and having regard to the rival contentions, we find that the DRP has retained Persistent Systems Solutions Ltd, Persistent Systems Ltd and Sasken Communication Technologies Ltd as comparables and the average ratio of the employee cost to sales of these three companies is 58% as against the employee cost of the assessee at 76% and the difference is 18%. This difference is not negligible to be ignored. Every difference which is likely to affect the comparability analysis has to be taken note of and suitable adjustment has to be made to bring the comparables on par with the assessee for comparing of their operating margin. In view of the same, we deem it fit and proper to remit this issue also to the file of the AO with a direction to make suitable adjustment to the employee cost of the assessee if there is any underutilization of employees available with the assessee and thereafter re-compute the operating margin of the comparables for arriving at their average margin. Ground of appeal No.3h is accordingly treated as allowed for statistical purposes. 9. Rega ..... X X X X Extracts X X X X X X X X Extracts X X X X
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