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TMI Blog2018 (12) TMI 198X X X X Extracts X X X X X X X X Extracts X X X X ..... nce. But since the assessee has not been able to produce any evidence before us, we do not see any reason to remand the issue at this juncture without any evidence. In view of the same, this ground of appeal is rejected. Exemption u/s 10A on enhanced income - Held that:- Issue is covered in favour of the assessee by various decisions, particularly in the case of CIT vs. Gem Plus Jewellery India Ltd [2010 (6) TMI 65 - BOMBAY HIGH COURT] wherein it was held that the exemption u/s 10A should be granted even on the income which is enhanced due to the disallowance of certain expenditure. Respectfully following the same, we direct the AO to allow the deduction u/s 10A of the Act to the assessee on enhanced income as well. - ITA No.407/Hyd/2015 - - - Dated:- 28-11-2018 - Smt. P. Madhavi Devi, Judicial Member And Shri S.Rifaur Rahman, Accountant Member For The Revenue : Shri J. Siri Kumar, DR For The Assessee : Shri Ravi Bharadwaj ORDER Per Smt. P. Madhavi Devi, J.M. This is assessee s appeal for the A.Y 2010-11 against the final assessment order dated 25.02.2015 passed by the AO u/s 143(3) r.w.s. 92CA (4) r.w.s. 144C(13) of the Act. The assessee has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gies Ltd and L T Infotech Ltd without appreciating the fact that the said companies were not selected by the TPO. Rejection of comparables 9. Not undertaking an objective comparative analysis and inter-alia rejecting the following comparable ITES companies: a) CC-YAK Software and Exports Ltd (Seg); b) Caliber Point Business Solutions Limited (Seg); c) R Systems International Limited (Seg); and d) Microland Ltd. Margin computation of comparables 10. Excluding provision for bad and doubtful debts in computing the net margin under TNMM for certain comparables. Negative Working capital adjustment 11. a) Making a negative working capital adjustment by considering incorrect receivables and payables. b) Without prejudice, making a negative working capital adjustment without appreciating the fact that the Appellant does not bear any working capital risks. Adjustment for risk differences 12. Not adjusting the net margins of the comparable companies taking into account the functional and risk differences between the international transaction of the Appellant and the comparable transactions in accordance with the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fee 5,23,16,379 Payment for trade mark license fee 1,18,23,639 Provision of IT enabled services 58,08,59,426 Reimbursement to AEs 6,22,27,185 5. The assessee conducted its own TP study and reported margin of 9.92% of OP/OC. The TPO however, was not convinced with the assessee s TP study and rejected the same. Thereafter, he proceeded to aggregate all the transactions and adopted TNMM as the most appropriate method and proposed 11 companies as comparable to the assessee. The assessee submitted its objections to all the 11 companies. However, the TPO held that all the 11 companies are comparable to the assessee and therefore, worked out the average mean margin of these companies at 27.50% and proposed the adjustment accordingly after giving the working capital adjustment. In consequence thereof, the AO proposed the draft assessment order against which the assessee preferred its objections to the DRP. The DRP confirmed the assessment order except for directing the exclusion of two companies M/s Infosys Technologies Ltd and L T Infotech from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the assessee's own case for the A.Y. 2009- 10 by holding that this company operates in a different business strategy of acquiring companies for inorganic growth as its strategy and considering the profit margins of the company and insufficient segmental data, held that this company cannot be selected as a comparable. It was also held by the DRP that on the very same reason of acquisition of various companies, being an extraordinary event, it had an impact on the profit of the company and the said company was directed to be excluded. 18.1. For the relevant A.Y. 2010-11, the Ld. Counsel for the assessee has drawn our attention to the information available on Accentia Technologies Ltd., to demonstrate that the said company is into diversified knowledge process outsourcing activities. It is seen therefrom that the said company is involved in Healthcare documentation as well as receivables, management services including installation and maintenance of all software, hardware and band width infrastructure required for the same, deployment of man power and service delivery in all these areas. It is also seen that it is engaged in legal process outsourcing. From Schedule-IV ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6 Infosys BPO Ltd 11,30,05,01,306 31.63 7 TCS e-Serve International Ltd 1,49,29,56,000 51.51 8 TCS e-Serve Ltd., 14,05,10,05,000 67.58 9 Jeevan Softech Ltd (Seg.) 1,74,43,000 8.04 10 Microgenetics Systems Ltd 2,40,42,539 6.60 11 Crossdomain Solutions P Ltd 37,69,57,428 17.13 Total 312.28 Average 2 8.39 7.1 We find that similar objections were raised by the assessee therein and the ITAT had considered them to direct the AO to exclude those companies. For the sake of ready reference, the relevant paragraphs are reproduced hereunder: TCS e-Serve International Ltd., and TCS e-Serve Limited 11. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... turnover of ₹ 1405.10 crores which is 25 times of the turnover of the assessee and hence, is not comparable to the assessee. The Ld. Counsel for the assessee had also placed reliance upon the TPO's order in the case of M/s. IGS Imaging Services India Ltd., to hold that there are exceptional circumstances during the relevant financial year due to which this company is not comparable to the assessee. The Ld. Counsel for the assessee also submitted that the segmental details of this company are not available and hence, has to be excluded on this count also. 11.2.2. We find that the assessee's contentions about the presence of 'brand value' and owning of 'intangibles' is supported by the evidence on record. However, as regards the extraordinary event or exceptional circumstance there is no material placed before us by the Ld. Counsel for the assessee. Therefore, merely because the TPO in another case has held that there is an extraordinary event for which this company has to be excluded from the list of comparables, it cannot be excluded. Such claim has to be supported by evidence on record. As regards the functional dissimilarity and huge turno ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in that the KPO services are distinct from BPO services and are not comparable, has been rejected by the Tribunal. However, since a uniform and consistent stand has to be taken in the case of the same assessee on similar facts and circumstances, we, respectfully following the decision of the Coordinate Bench in assessee's own case, do not see any reason to interfere with the order of the DRP. Ground No.2 is accordingly rejected. 18. As regards M/s. Accentia Technologies Ltd., is concerned, we find that the DRP has directed to exclude this company by placing reliance upon the order of the ITAT in the assessee's own case for the A.Y. 2009- 10 by holding that this company operates in a different business strategy of acquiring companies for inorganic growth as its strategy and considering the profit margins of the company and insufficient segmental data, held that this company cannot be selected as a comparable. It was also held by the DRP that on the very same reason of acquisition of various companies, being an extraordinary event, it had an impact on the profit of the company and the said company was directed to be excluded. 18.1. For the relevant A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rvices are high end services, as considered in other cases. It is further submitted that allocation of expenses between segments is not possible and depreciation was not allocated between the segments. There are extra-ordinary events which impact profit also, as can be seen from the Annual Reports. It is further submitted that this company is not selected in the list of comparables selected in the case of Mercer Consulting (India) Pvt. Ltd. and therefore, selection of the company by the TPO in this case, which is also in similar ITES services, is not proper. 20.1 After considering the rival contentions, we agree with the objections raised by assessee. As seen from the Annual Report, this company is involved in engineering design services and has products also, which makes it functionally not comparable. Even at the segmental level, it provides engineering design services, which was considered as high end by the coordinate bench of the Tribunal in the case of Hyundai Motors India Engineering (supra) in earlier year. Therefore, we are of the opinion that this company cannot be selected as a comparable. We accordingly direct the Assessing Officer/TPO to exclude this company . ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... paigns in the US for expanding its plant base in relation to the brand developed by it. The assessee however, is only providing IT Enabled Services to its AE and does not have the diversified activities like the aforesaid company. The Bangalore Bench of the Tribunal in the case of Symphony Marketing Solutions India (P.) Ltd. (supra), while considering the issue of aforesaid company as a comparable accepted the assessee's contention that Crossdomain cannot be compared to a routine ITES provider and directed for exclusion of the same from the list of comparables. Respectfully following the aforesaid decision of Income-tax Appellate Tribunal Bangalore in the case of Symphony Marketing Solutions India (P.) Ltd. (supra), we also direct the Assessing Officer to exclude the aforesaid company from the list of comparables for the purpose of determining ALP . 7.4 Respectfully following the same, we direct the TPO to exclude all these companies from the final list of comparables and recompute the ALP of the assessee. 8. As regards the other grounds of appeal i.e. Ground No.14 regarding the rate of depreciation to be allowed on software license fee, the learned Counsel for the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r of assessee by the decision of the coordinate bench in assessee's own case for the AY 2009-10. The coordinate bench in ITA No. 604/Hyd/14 while deciding the issue held as under: 37. We have considered the submissions of the parties and perused the materials on record as well as the decisions relied upon by ld. AR. As far as assessee's claim that the expenditure claimed has to be treated as revenue expenditure, we are of the view that as per the ITAT Special Bench decisions in case of Amway India Ltd. v. DCIT (supra), whether a particular expenditure in relation to acquisition of software will be revenue or capital, cannot be decided by either the ownership test or enduring benefit test. The functional test has also to be applied. ITAT Special Bench went on to lay down certain tests for deciding whether the expenditure incurred has to be treated as revenue or capital. In the present case, assessee has not brought any material on record to establish that by applying the functional test, the expenditure can be said to be of a revenue nature. Moreover, after 01/04/2003 computer software has been specifically brought into the schedule at par with computer as far as eligibil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he issue at this juncture without any evidence. In view of the same, this ground of appeal is rejected. 10. As regards Ground No.16 with regard to credit for ₹ 6,54,93,323 instead of ₹ 6,87,39,406 as claimed in the return of income, we remand this issue to the file of the AO for verification and allowing the same in accordance with law. 11. As regards Ground No.17, we find that it is consequential in nature and therefore, the AO is directed to give the consequential relief, if any, to the assessee. 12. As regards Ground No.18 regarding Initiating penalty proceedings u/s 271(1)(C) of the Act, it is premature in nature. Therefore, this ground is also rejected. 13. As regards the additional grounds of appeal, we find that this is covered in favour of the assessee by various decisions, particularly, the Hon'ble Bombay High Court in the case of CIT vs. Gem Plus Jewellery India Ltd reported in (2010) 194 Taxmann.com 192 (Bombay) wherein it was held that the exemption u/s 10A should be granted even on the income which is enhanced due to the disallowance of certain expenditure. Respectfully following the same, we direct the AO to allow the deduction u/s 10A of t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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