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TMI Blog2016 (12) TMI 1758X X X X Extracts X X X X X X X X Extracts X X X X ..... hey are not new Units, but expansion of earlier Units - Held that:- Tribunal for assessment year 2005-06 [2015 (4) TMI 589 - ITAT MUMBAI], have allowed assessee's claim of deduction under section 10A in respect of Unit-II and Unit-III. The same view was again reiterated by the Tribunal in assessee's own case for assessment year 2010-11. Therefore, respectfully following the consistent view of the Tribunal on the issue in assessee's case as aforesaid, we allow assessee's claim of deduction under section 10A of the Act for the impugned assessment year. - Decided in favour of assessee - IT Appeal Nos. 4933 & 4950 (Mum.) of 2012 - - - Dated:- 16-12-2016 - Rajendra And Saktijit Dey, JJ. Batik Poddar, Ms. Karishma Phatarphekar and Harsh Shah for the Appellant. N.K. Chand for the Respondent. ORDER Saktijit Dey, Aforesaid cross appeals are directed against order dated 14th May 2012, passed by the learned Commissioner (Appeals)-15, Mumbai, for the assessment year 2007-08. 2. Brief facts are, the assessee an Indian company is a demerged division of Hinduja TMT Ltd. The assessee is basically engaged in ITES-BPO services involving insurance claim processing, cal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed, though, the assessee had submitted a valuation report for bench marking the international transaction, however, the Transfer Pricing Officer did not accept the valuation shown by the assessee by stating that as per the valuation report, the value of software is 2.05 crore. Accordingly, he made an adjustment of ₹ 27 lakh. The learned Commissioner (Appeals) also confirmed the same. Being aggrieved of the aforesaid adjustments, assessee is in appeal before us. Of-course, apart from transfer pricing adjustments the Assessing Officer while framing the assessment has made part disallowance of deduction claimed under section 10A which was sustained by the learned Commissioner (Appeals). Being aggrieved of the aforesaid decision of the learned Commissioner (Appeals), assessee is in appeal before us raising five grounds. 5. Ground no. 1, being general in nature, no specific adjudication is required. 6. Ground no. 2, which relates to transfer pricing adjustment on provisions of ITES is being dealt with herein after. 7. The major issue which arises for consideration in these grounds relate to selection/rejection of comparables which we propose to deal with at the outset. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... als) have excluded the company on the reasoning that RPT has exceeded the threshold limit of 25%. Learned Authorised Representative pointed out flaws in computation of RPT and has submitted that as per actual computation, RPT of the comparable is 11.72% which is well within the threshold limit applied by Transfer Pricing Officer. Having considered the submissions of the parties, we find that the Tribunal, Pune Bench, in PTC Software India (P.) Ltd. (supra), observed the ratio of RPT to total transactions have to be worked out by dividing RPT sales and RPT expenses with total sales and total costs. The aforesaid view expressed by the Tribunal, Pune Bench, was approved by the Hon'ble Jurisdictional High Court in PTC (I) (P.) Ltd. (supra) while holding that RPT has to be considered in the context of total transactions. In view of the aforesaid, we restore the issue relating to comparability of the aforesaid company to the Assessing Officer/Transfer Pricing Officer for deciding afresh after working out the RPT keeping in view the decisions referred to above. eClerx Services Ltd. 11. Objecting to selection of this company, learned Authorised Representative submitted, it is fun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent operation, sales and marketing support, product data management, revenue management. In addition, eClerx also offered financial services such as real-time capital markets, middle and back-office support, portfolio risk management services and various critical data management services. Clearly, the aforesaid services are not comparable with the services rendered by the Assessee. Further, the functions undertaken (i.e. the activities performed) are also not comparable with the Assessee. In our view, the Tribunal erred in holding that the functions performed by the Assessee were broadly similar to that of eClerx or Vishal. The operating margin of eClerx, thus, could not be included to arrive at an ALP of controlled transactions, which were materially different in its content and value. In Maersk Global Centers (India) Pvt. Ltd. (supra), the Special Bench of the Tribunal had noted the same and had, thus, excluded eClerx as a comparable. It is further observed that the comparability of eClerx had also been examined by the Hyderabad Bench of the Tribunal in M/s Capital Iq Information Systems (India) (P.) Ltd. v. Additional Commissioner of Income-tax (supra), wherein, the Tribunal dir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f this company, learned Authorised Representative submitted the company under no circumstances can be comparable to the assessee as a major portion of its work is out sourced to third parties. Learned Authorised Representative referring to the financials of the company for the year under consideration submitted, the assessee had paid an amount of ₹ 13.31 crore towards data entry charges and vendor payments which works out to almost 65% of the total expenditure. She submitted, the personnel cost of the company is merely 3.47% of the total cost as against assessee's personnel cost of 66.52%. She, therefore, submitted, the business model of the company being totally different from the assessee, it cannot be treated as comparable. In support of this contention, learned Authorised Representative relied upon the following decisions:- (i) Rampgreen Solutions (P.) Ltd.'s case (supra); (ii) Capital IQ Information Systems India (P.) Ltd.'s case (supra); (iii) Techbooks International (P.) Ltd. v. Asstt. CIT [2014] 150 ITD 732/45 taxmann.com 517 (Delhi - Trib.) and (iv) C3i Support Services (P.) Ltd.'s case (supra). 19. Learned Departmental Representative s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ge, it is necessary to deal with the Department's appeal in ITA No. 4950/Mum./2012, since, the only issue involved therein is in relation to exclusion of two comparables by the learned Commissioner (Appeals) viz. Wipro Ltd. and Infosys BPO Ltd. As could be seen from the materials on record, these two companies were not in the list of comparables selected by the assessee. The Transfer Pricing Officer had included these two companies as comparables in the course of proceedings before him. 23. The learned Commissioner (Appeals) had excluded the aforesaid companies on the reasoning that they have brand value, incurring heavy marketing and selling expenses and cost of software package for own use. 24. Learned Departmental Representative objecting to the exclusion of these two companies submitted, only on the basis of high turnover companies cannot be excluded from the list of comparable. He submitted, if high turnover filter was not applied earlier, it cannot be applied at a later stage. 25. Learned Authorised Representative on the other hand relied upon the observations of the learned Commissioner (Appeals). 26. Having considered the submissions of the parties and perus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount of ₹ 27 lakh as adjustment to the arm's length price. 31. The learned Commissioner (Appeals) also confirmed the addition accepting the reasoning of the Assessing Officer. 32. Learned Authorised Representative submitted, the assessee had purchased EDP software alongwith other assets from CCC Philippines for setting-up of Manila Branch and the purchase price was at the WDV of the said asset in the books of account of CCC Philippine. In this context, she drew our attention to the Balance Sheet of CCC Philippine at Page-84/85 of the paper book. Referring to the valuation report, the learned Authorised Representative submitted, the valuer has specifically stated that software having estimated book value of 2,27,71,892=60 peso were excluded in the valuation made, therefore, the Transfer Pricing Officer cannot assume that value of software is what is mentioned in the notes to the valuation report. Hence, Transfer Pricing Officer cannot make an ad-hoc adjustment without following the prescribed methods in the rules. Without prejudice to the aforesaid contention, she submitted software is depreciable, hence, depreciation cost is to be taken for PLI computation using ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ========== 37. On a perusal of the return of income, the Assessing Officer found that the assessee had claimed that it has five units engaged in the business of ITES. In respect of Unit-I and V, assessee did not claim any deduction under section 10A, as they are loss making units and Unit-IV was not eligible for deduction under section 10A. It is the claim of the assessee that Unit-I is engaged in I.T. service and Unit-II is engaged in providing ITES of insurance claim processing whereas Unit-III is engaged in the business of call centre. The Assessing Officer after verifying assessee's claim vis-a-vis the information submitted in the return of income and audit report in Form no. 56F observed that in assessment year 2005-06, assessee's claim of deduction in respect of Unit-II and III were thoroughly examined and it was held by the Assessing Officer that deduction claimed under section 10A in respect of Unit-II and Unit-III is not allowable. The Assessing Officer extensively relying upon the observations of the Assessing Officer in assessment year 2005-06 ultimately held that assessee's claim of deduction under section 10A is not allowable as the Unit-II and I ..... X X X X Extracts X X X X X X X X Extracts X X X X
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