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TMI Blog2019 (4) TMI 1752X X X X Extracts X X X X X X X X Extracts X X X X ..... , it has to be ascertained as to whether such gain / loss is in respect of current year s turnover or in respect of earlier year s turnover because for TP analysis, we are not comparing the operating profit alone of the tested party with the operating profit of the comparables. We are comparing the profit percentage of tested party with profit percentage of comparable companies. The profit percentage is worked out on the basis of operating profit divided by turnover and hence, if any part of the operating profit is computed by considering the item of income or loss, which is not arising out of the present year s turnover, it will give absurd result because such exchange fluctuation gain / loss will increase or decrease the operating profit being the numerator but the corresponding turnover will not be part of denominator if the same is not in relation to the current year s turnover - Set aside the order of CIT(A) on this issue and restore back the matter to his file for fresh decision in the light of above discussion after providing reasonable opportunity of being heard to both sides. Accordingly, ground nos. 3, 4 and 5 are allowed for statistical purposes. Rejecting compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llant. [corresponding to ground 3] 4. That the Learned CIT(A) erred in upholding inclusion of companies [(a) KALS Information Systems Limited, (b) Bodhtree Consulting Limited, (c) Tata Elxsi Limited, (d) Sasken Communication Technologies Limited, (e) Persistent systems Limited, (f) Larsen Toubro Infotech Limited in Software Development services segment) and (a) Infosys BPO Limited, (b) Accentia Technologies Limited, (c) Cosmic Global Limited, (d) Eclerx Services Limited in Customer Support services Segment)] in the comparability analysis, which are different from Appellant in functions, assets and risk profile and rejection of the companies that are similar to the Appellant, while performing comparability analysis by the Learned TPO and in doing so also erred in ignoring the low risk nature of the software development services and customer support services provided by the Appellant and not providing adjustment on account of risk differential with entrepreneurial comparables, as required while determining the arm's length price of the international transactions oftheAppellant. [corresponding to ground 4] 5. That the Learned CIT(A) erred in upholding appl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d qualitative filters byte Learned TPO in respect of the customer support services segment and in doing so grossly erred in Upholding the Learned TPO:s approach of applying the turnover 1crore for rejection of comparable companies. [corresponding to ground 6(b)] 11. That the Learned CIT(A)erred in upholding application of different quantitative and qualitative filters byte Learned TPO in respect of the customer support services segment and in doing so grossly erred in upholding the Learned TPO's approach of rejecting certain comparable companies identified by the Appellant for having diminishing revenues over a period of time, while at the same time rejecting the Appellant s approach of using multiple year data for selecting comparable companies. [corresponding to ground 7] 12. That the Learned CIT(A) erred in upholding rejection of the quantitative and qualitative filters applied byte Appellant and in doing so grossly erred in Rejecting certain comparable companies identified by the Appellant by applying export earnings greater than 25% of sales as a comparability criterion. .[corresponding to ground 8(a)] 13. That the Learned CIT(A) erred in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the softexform for March 2009 which was submitted by the Appellant during the assessment proceedings.[corresponding to ground 16] That the Appellant craves leave to add to and / or alter, amend, rescind or modify the grounds taken hereinabove before or at the time of hearing of this appeal. 3. Similarly, the grounds raised by the revenue in its appeal are as under. 1. The order of the CIT (A) is opposed to law and the facts and circumstances of the case. 2. The CIT(A) erred in holding that the 10 comparables examined by him shall form the final comparables on which the ALP adjustment needs to be carried out by the TPO without examining the inclusion / exclusion of M/s.InfosysLtd., which was included in the final set of comparables of the TPO. 3. The CIT (A) erred in holding that foreign exchange loss / gain is operating in nature without appreciating that such loss / gain though attributable to the operating activity is not derived from the operating activity and without ascertaining the nexus of the forex gain / loss with the business activity of the assessee in both the software development and ITES sectors. 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... v) of the explanation toSection10A provides that such expenses are to be reduced only from theexport turnover. 9. The CIT(A) erred in not appreciating the fact that the jurisdictional High Court s decision in the case of Tata Elxsi Limited 349 ITR 98 has not been accepted by the department and an appeal has been filed before the Hon'bleSupreme Court. 10. For these and such other grounds that may be urged at the time of hearing, it is humbly prayed that the order of the CIT(A) be reversed and that of the Assessing Officer be restored. 11. The appellate craves to ad, to alter, to amend or delete any of the grounds that may be urged at the time of hearing of the appeal. 4. At the very outset, it was submitted by ld. AR of assessee that out of various grounds raised by the assessee in its appeal, the assessee is pressing only ground nos. 4, 15, 20 and 21 and the remaining grounds are not pressed and out of the ground no. 4 also, the assessee is not pressing regarding exclusion of one comparable company i.e. KALS Information Systems Limited. Accordingly these grounds i.e. 1,2,3, part of Ground No. 4,5 to 14 16 to 19 are rejected as not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eld that exclusion of Infosys Ltd. is not justified. She also drawn our attention to page no. 10 of the TPO s order and pointed out that a specific finding has been given by the TPO that during 1997 to 2010, the turnover of Infosys Ltd. has increased 150 times. But the operating margin was in the range of 35% to 40%. On this basis, the TPO has drawn to this conclusion that turnover has no linkage with the margins. She submitted that therefore, Infosys Ltd. should not be excluded from the list of comparables. 7. We have considered the rival submissions. First of all, we decide regarding this aspect as to whether the exclusion of Infosys Ltd. by CIT(A) is proper or not because as per ground no. 2 of revenue s appeal, this is the grievance of the revenue that ld. CIT(A) has excluded M/s. Infosys Ltd. without any discussion. We find that it is noted by CIT (A) that in Para 8.2 on page no. 4 of his order that TPO selected 11 comparables including Infosys Ltd. But while deciding the issue about exclusion of some comparables as per Para 12.2.5 of his order, the ld. CIT (A) has examined only 10 comparables excluding Infosys Ltd. and thereafter, in Para 12.2.6 of his order, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e in respect of assessee s claim for exclusion of various comparables i.e. 1) Bodhtree Consulting Ltd. 2) Tata Elxsi Ltd. (segment) 3) Sasken Communication Technologies Ltd. (segment) 4) Persistent Systems Ltd. 5) Mindtree Ltd. (segment) 6) Larsen and Toubro Infotech Ltd. 7) Infosys Ltd. In course of hearing before us, it was submitted by ld. AR of assessee that exclusion of comparable Mindtree Ltd. as per ground no. 14 raised by assessee is not pressed and accordingly this part of ground no. 14 is rejected as not pressed. In respect of exclusion of remaining comparables as requested by the assessee, it was submitted in the chart that the assessee s request for exclusion of these five comparables i.e. 1) Bodhtree Consulting Ltd., 2) Infosys Ltd., 3) Persistent Systems Ltd., 4) Sasken Communication Technologies Ltd. and 5) Tata Elxsi Ltd. is as per the Tribunal order rendered in the case of Planet Online Pvt. Ltd. Vs. ACIT in ITA No. 464/Hyd/2014 dated 30.01.2015 copy of which is available in Paper Book no. II on pages 315 to 341. In particular, our attention was drawn to Para nos. 10.1 and 10.2 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of software products and was engaged in providing open end to end web solutions software consultancy and design development of software using latest technology. The decision rendered by the Mumbai Bench of the Tribunal in the case of Nethawk Networks Pvt. Ltd. (supra) is in relation to A. Y. 2008-09. It was affirmed by the learned counsel for the Assessee that the facts and circumstances in the present year also remains identical to the facts and circumstances as it prevailed in AY 08-09 as far as this comparable company is concerned. Following the aforesaid decision of the Mumbai Bench of the Tribunal, we hold that Bodhtree Consulting Ltd. cannot be regarded as a comparable. In this regards, the fact that the assessee had itself proposed this company as comparable, in our opinion, should not be the basis on which the said company should be retained as a comparable, when factually it is shown that the said company is a software product company and not a software development services company. 26.2 Infosys Ltd.:- As far as this company is concerned, it is not in dispute before us that this company has been considered to be functionally different from a compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany has generated several inventions and filed for many patents in India and USA ; (iv) the company has substantial revenues from software products and the break up of such revenues is not available ; (v) the company has incurred huge expenditure for research and development; (vi) the company has made arrangements towards acquisition of IPRs in AUTOLAY , a commercial application product used in designing high performance structural systems. In view of the above reasons, the learned Authorised Representative pleaded that, this company i.e. Infosys Technologies Ltd., be excluded from the list of comparable companies. 11.3 Per contra, opposing the contentions of the assessee, the learned Departmental Representative submitted that comparability cannot be decided merely on the basis of scale of operations and the brand attributable profit margins of this company have not been extraordinary. In view of this, the learned Departmental Representative supported the decision of the TPO to include this company in the list of comparable companies. 11.4 We have heard the rival submissions and perused and carefully considered th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 386/PN/1O wherein KALS as comparable was rejected for AY 2006-07 on account of it being functionally different from software companies. The relevant extract are as follows: 16. Another issue relating to selection of comparables by the TPO is regarding inclusion of Kals Information System Ltd. The assessee has objected to its inclusion on the basis that functionally the company is not comparable. With reference to pages 185-186 of the Paper Book, it is explained that the said company is engaged in development of software products and services and is not comparable to software development services provided by the assessee. The appellant has submitted an extract on pages 185-186 of the Paper Book from the website of the company to establish that it is engaged in providing of I T enabled services and that the said company is into development of software products, etc. All these aspects have not been factually rebutted and, in our view, the said concern is liable to be excluded from the final set of comparables, and thus on this aspect, assessee succeeds. Based on all the above, it was submitted on behalf of the assessee that KALS Information Systems Limited shou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Systems Ltd. : The learned TPO has considered this company as a comparable based on 133(6) reply wherein this company reflected its software development services revenues to be more than 75% of the software products and services segment revenues. Flextronics has a hybrid revenue model and hence should be rejected as functionally different. Based on the information provided under Revenue recognition in its annual report, it can be inferred that the software services revenues are earned on a hybrid revenue model, and the same is not similar to the regular models adopted by other software service providers. The learned representative pleaded that a regular software services provider could not be compared to a company having such a unique revenue model, wherein the revenues of the company from software/product development services depends on the success of the products sold by its clients in the marketplace. Hence, it would be inappropriate to compare the business operations of the assessee with that of a company following hybrid business model comprising of royalty income as well as regular software services income, for which revenue break-up is not available. He finally submitt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e deleted from the list of six comparables and hence there remains only four companies as comparables, as listed below: 26.5. Following the aforesaid decision of the Tribunal, we hold that M/S.TataElxsi Ltd. should not be regarded as a comparable. 10.2 ITAT, Hyderabad Bench following the aforesaid decision of the ITAT, Bangalore Bench also excluded these four companies in case of M/s Kenexa Technologies Pvt. Ltd. Vs. DCIT in ITA No. 243/Hyd/2014 dt. 14/11/2014. Respectfully following the decisions of the ITAT, we direct AO/TPO to exclude these four companies. As far as Comp-U Learn Global Tech India Ltd. is concerned, ITAT, Hyderabad Bench in case of M/s Kenexa Technologies Pvt. Ltd. Vs. DCIT (supra) observed as under: 39. The assessee submitted before the DRP that Comp-ULearn Tech India Ltd. was engaged in the development of new software (product development) (page 7 of the Annual Report) in ITES call centre and BPO services (page 11 of Annual Report). It was further submitted that schedule XIII of the Annual Report shows software development expenditure at only 25% of the total expenditure. The TPO extracted the 133( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ually apply to AY under consideration as facts are identical. Therefore, respectfully following the view expressed by the coordinate bench, we exclude this company as comparable. 16. We find that this Tribunal order is for the same Assessment Year i.e. Assessment Year 2009-10 and in that case also, this company was engaged in providing software development services to its AE and hence, it is seen that the business profile of assessee is similar and Assessment Year is same and therefore, we hold that this Tribunal order is relevant in the present case. As per Para nos. 10.1 and 10.2 of this Tribunal order in that case, the Tribunal has excluded 3 comparables i.e. Bodhtree Consulting Ltd., Infosys Ltd. and Tata Elxsi Ltd. In Para 10.3 of this order, the Tribunal in that case has excluded M/s. Persistent Systems Pvt. Ltd. and as per Para 10.10 of that Tribunal order, another comparable M/s. Sasken Communication Technologies Ltd. was excluded. Respectfully following this Tribunal order, these five comparables i.e. 1) Bodhtree Consulting Ltd., 2) Infosys Ltd., 3) Persistent Systems Ltd., 4) Sasken Communication Technologies Ltd. and 5) Tata Elxsi Ltd. are excluded. Regar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ibunal order available on pages 3192 to 3201 of case law compendium. The ld. DR of revenue supported the orders of authorities below. 10. We have considered the rival submissions. For ready reference, we reproduce paras 12 and 13 of this Tribunal order which read as under. 12.Regarding exclusion of four comparables in ITES segment 1) Accentia Technologies Ltd., 2) Infosys BPO Ltd., 3) Cosmic Global Ltd. and 4) Eclerx Services Ltd., we reproduce paras 11.1 to 11.4 of the tribunal order rendered in the case of e4e Business Solutions India Pvt. Ltd. vs. DCIT in IT (TP) A No. 1845/bang/2013 dated 10.11.2015 copy on pages 49 to 80 of case law compilation and relevant pages being pages 61 to 75. These paras are as under:- 11.1 Accentia Technologies Ltd. The learned AR of the assessee has submitted that though the TPO has recorded the business profile of the assessee, however, the international transactions of the assessee are carried out only in respect of service of contact centre outsourcing to its AE as per the service agreement. The learned AR of the assessee has referred to Annual report of Accentia Technologies Ltd., and submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aordinary event of merger or acquisition, if influenced the business as well as the revenue of a company then said company is not considered as a good comparable for the purpose of determination of the ALP however, in this case, it is not clear from the Annual Report whether the business of M/s. Oak Technologies Inc has been acquired and merged with the said company during the year under consideration. It appears that Accentia Technologies Ltd., has purchased up to 96% of the share holding of M/s. Oak Technologies. If it is only a transaction of purchase of shares of the said company then it may be a case of purchase of ongoing business and may not be a case of merging the same with the business of Accentia Technologies Ltd. In the absence of the relevant fact that the business of the said company has been merged with Accentia Technologies Ltd., it may be a case of acquiring the shares and M/s. Oak Technologies still remains an independent entity and business activity. Therefore, in the absence of complete relevant facts, it cannot be held that the so- called acquisition of M/s. Oak Technologies can be considered as an extraordinary event having impact on the revenue as well as bus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this company is undisputedly in the business of ITeS and therefore, the nomenclature that of KPO will not make it functionally different from the assessee. He has relied upon the orders of the authorities below. (ii) We have considered the rival submissions as well as relevant material on record. We find that the company Eclerx Services Ltd. is engaged in diversified activity of providing services including analytic services and data process solutions to its global clients. The service provided by Eclerx Services Ltd., is in various areas including capital market and therefore, the services are in the nature of consultancy and end to end support through trade centre including trade confirmation, settlement, transaction, maintenance and analytic and reporting. Thus it is apparent from the nature of the activity of this company that it is not providing a simple service of data processing but it is engaged in the activity of providing high-end services involving decision making analysis which requires thought process and evaluation of various facts and factors. Functional comparability of this company with that of simple BPO's service providing company has been examined ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or its AEs are compared with the functional profile of M/s eClerx Services Pvt. Ltd. and Mold-Tec Technologies Ltd., it is difficult to find out any relatively equal degree of comparability and the said entities cannot be taken as comparables for the purpose of determining ALP of the transactions of the assessee company with its AEs. We, therefore, direct that these two entities be excluded from the list of 10 comparables finally taken by the AO/TPO as per the direction of the DRP. Thus it is clear that the Special Bench found that this company is not comparable with BPO company which are engaged only in low end services of data processing. Accordingly, we direct the AO/TPO to exclude Eclerx Services Ltd. from the list of comparables for the purposes of determining ALP. 11.3 Infosys BPO Ltd . The learned AR of the assessee has referred to the Annual Report of this company at page 57 of the paper book and submitted that though this company was initially selected by the assessee, however, the assessee has raised objections against this company even before the TPO and further before the DRP. Therefore, this company, if found functionally different, has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rvices India Private Limited ( PAN Financial ), a wholly owned subsidiary of the Company engaged in providing business process management of services, with the Company with effect from April 1. 2008 ( effective date ). The approval of the High Court was received on April 6, 2009 and filed with the respective Registrar of Companies of Karnataka and Tamilnadu on April 6, 2009 and March 10, 2009 respectively. Accordingly on the scheme becoming effective, the financial statement of PAN Financial has been merged with the company. It is clear that there was extraordinary event of amalgamation during the year under consideration. Therefore, in view of the extraordinary development of amalgamation of another company, this company cannot be considered as a good comparable for the assessment year under consideration. Apart from this, we further note that as per the segment reporting in para.16.2.21 this company is providing business process management services as under: Segment reporting The company's operations primarily relate to providing business process management services to organizations that outsource their business processes. Accordingly. revenues ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 37/Bang/2014 dated 30/4/2015. (i) On the other hand, learned Departmental Representative has submitted that the comparability of this company has been examined by the TPO as well as by the DRP. The TPO has rejected the objections raised by the assessee in respect of this company by holding that the translation service are in the nature of ITeS and therefore, it qualifies all the filters applied by the TPO. He has relied upon the orders of the authorities below. (ii) We have considered the rival submissions as well as the relevant material on record. There is no dispute that this company is in the business of providing service of medical transcription and consultancy services, translations services and accounts BPO. The segmental revenue from the operations are given in schedule 8 to the Profit Loss account which reveals that major revenue of ₹ 6,99,35,756/- out of total revenue of ₹ 7.37 crores has been earned by this company from the activity of translation services. We further note that the company has debited an expenditure of more than ₹ 3 crore on account of translations charges paid. Thus it is clear that this company is outsourcing it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es. The reason for which we are not agreeable with the Id. AR is that we have to examine the revenue of this case only from Accounts BPO segment and not on the entity level, being also from Medical transcription and Translation charges. When we are examining the results of this company from the Accounts BPO segment alone, there is no need to examine the position under other segments. The entire outsourcing is confined to Translation charges paid at ₹ 3.00 crore, which is strictly in the realm of the Translation segment, revenues from which are to the tune of ₹ 6.99 crore. If this segment of Translation is not under consideration for deciding as to whether this case is comparable or not, we cannot take recourse to the figures which are relevant for segments other than accounts BPO. Thus it is held that this case cannot be excluded on the strength of outsourcing activity, which is alien to the relevant segment. 13.3 However, we find this case to incomparable on the alternative argument advanced by the Id. AR to the effect that total revenue of the Accounts BPO segment of Cosmic Global Limited is very low at ₹ 27. 76 lacs. We have discussed this aspect a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... osmic Global Limited and 4) Eclerx Services Limited are to be excluded from the final list of comparables. Respectfully following this Tribunal order, we hold that in present case also, these four comparables should be excluded from the final list of comparables in ITES segment. Ground no. 4 is allowed. 12. Now we discuss and decide ground no. 15. As per this ground, the assessee s grievance is this that two comparable companies in respect of software development services segment i.e. Thinksoft Global Services Limited and F C S Software Solutions Limited should not be excluded and the same should be included. Regarding this ground, reliance has been placed on the Tribunal order rendered in the case of M/s. TE Connectivity Global Shared Services India Pvt. Ltd. Vs. ITO in IT(TP)A No. 1280/Bang/2014 dated 13.12.2017, copy available on pages 3078 to 3118 of case law compendium. Reliance is also placed on another Tribunal order rendered in the case of ARM Embedded Technologies P. Ltd. Vs. DCIT in IT(TP)A No. 1659/Bang/2014 dated 31.08.2015, copy available on pages 3249 to 3267 of case law compendium. The ld. DR of revenue supported the orders of authorities below. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, the learned Authorised Representative submitted thatin similar factual circumstances, as those prevailing in the case on handwith respect to the aforesaid companies, for the same assessment year2009-10, a co-ordinate bench of this Tribunal in its order in the case ofARM Embedded Technologies P. Ltd. in IT(TP)A No.1659/Bang/2014dt.31.8.2015; where the assessee was engaged in, inter alia, provisions ofsoftware development and maintenance services to its AEs; just as in thecase on hand, the Tribunal directed inclusion of the aforesaid twocompanies in the final set of comparables and set aside to the file of theTPO the computation of working capital adjustment on actual basis forworking out the correct PLI of the final comparables. 13.4 Per contra, the learned Departmental Representative forrevenue supported the orders of the authorities below in excluding theabove two companies from the list of comparables. 13.5.1 We have heard the rival contentions, perused and carefullyconsidered the material on record; including the judicial pronouncementcited. We find the very same issue, in similar circumstances of inclusionof the aforesaid two companies i.e. (i) Thinksof ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the said company came to ₹ 920921452/-. Other income ofthe said company came to ₹ 35,738,801/-. Break-up of the other income as given atschedule 10 placed at paper book page.256 show that out of such amount ₹ 26,536,978/-was exchange gain. Interest received from deposits with banks and others came to₹ 29,15,080/- only. For better clarity this break-up is given hereunder : Other income Interest received on deposits with banks .. 2,371,740 Interest received from others .. 543,310 Profit on sale of fixed assets .. 6,276,773 Exchange gain (Net) .. 26,536,978 Miscellaneous income .. 10,000 35,738,801 We cannot say that the other income arose ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The derailed discussion on this is given in the Annexure-D to the order. The computation of the working capital adjustment is annexed to this order as Annexure C. TPO had restricted the cost of capitalto 1.71%. Rationality for such an upper limit beingplaced on working capital adjustment was an issue which had come up before this Tribunal inthe case of M/s. Rambus Chip Technologies (India) P. Ltd v. DCIT [IT(TP)A.23/Ban/2015,dt.22.07.2015. Coordinate bench had held as under at para 13 and 14 of its order : 13. As regards ground No.3(f), learned counsel for theassessee submitted that the AO/TPO while considering theworking capital adjustment, has arrived at the working capitaladjustment in the case of the assessee at 5.97%, but while givingeffect to the working capital adjustment, has restricted the saidadjustment to 1.71% in case of uncontrolled comparablesselected by the TPO. The learned counsel for the assesseesubmitted that the TPO has not given any basis for suchrestriction of the working capital adjustment. He submitted thatthe CIT(A) also has not applied his mind to this issue but hassummarily confirmed the order of the AO and therefore it has tobe set ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deduction u/s. 10A was decided by CIT(A) as per Para 3 of his order and in the same, the only issue decided by him is this as to whether the value of telecommunication expenses reduced from export turnover by the AO should also be reduced from total turnover or not. But the issue raised by assessee in ground no. 6 raised before CIT(A) was not decided by him. Hence the matter should be restored back to his file for deciding this issue. The ld. DR of revenue supported the orders of authorities below. 16. We have considered the rival submissions. First of all, we reproduce ground no. 6 raised by assessee before CIT(A). 6. The learned AO has erred in law, by not considering export receipts for the months of January, February and March 2009 as part of export turnover and accordingly reducing the same from export turnover for computing the deduction under section 10A of the Act on the ground that the Appellant was unable to produce the softex forms for the said months during the assessment proceedings. The learned AO has erred in facts, by not considering the softex form for March 2009which was submitted by the Appellant during the assessment pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evenue s appeal, it was submitted by ld. DR of revenue that foreign exchange loss / gain should not be considered as operating gain / loss. As against this, the ld. AR of assessee submitted that the same is operating gain / loss. At this juncture, it was pointed out by the bench that if the exchange fluctuation gain / loss is in relation to turnover of the present year then only the same can be considered for TP analysis of the present year because for TP analysis, we are not comparing the operating profit of the tested party and of the comparables and we are comparing the profit percentage of tested party and that of comparable companies and for that purpose, only those gain / loss should be considered in the numerator if the corresponding turnover is forming part of denominator. The bench pointed out that this issue was decided by CIT(A) as per paras 12.5 to 12.5.3 and in these paras, there is no discussion about this aspect as to whether exchange fluctuation gain / loss is in respect of current year s turnover or of earlier year s turnover. The bench put out a proposition that this matter may be restored back to the file of CIT(A) for fresh decision after examining this aspe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ground no. 12.(c) and this issue was decided by CIT(A) against the assessee and for that, the assessee is in appeal before the Tribunal. She drawn our attention to Para nos. 15.1.8 to 15.1.9 of the order of CIT(A) and submitted that the ld. CIT(A) has suo moto decided the issue and directed the TPO that in ITES sector also, the export sales filter of 75% should be applied as has been applied in software development sector and therefore, this is not proper. The ld. AR of assessee supported the order of CIT (A). He also accepted that this was not the grievance raised by assessee before CIT(A). 24. We have considered the rival submissions. First of all, we reproduce Para nos. 15.1.8 to 16 of the order of CIT(A) for ready reference. These are as under. 15.1.8. I find this action of the TPO arbitrary in the sense that different criteria cannot be applied under the same set of circumstances. The export earning filter has been applied to exclude predominantly domestic companies or comparables catering to the domestic market. The reasons provided by the TPO are the same while applying this filter without providing the basis for alteration from 75% to 25% in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Business platforms, customer service outsourcing, finance and accounting, human resource outsourcing, legal process outsourcing. 8. Microland Ltd. Infrastructure management and modernisation, end-user services, Cloud Computing, Collaboration and Mobility. 15.3.2. In view of the aforesaid, I see no reason to exclude any further com parables on the ground of functional dissimilarity. as the business of the comparables vis- -vis the assessee company falls within the same sector. Thus. the 08 comparables mentioned above shall form the final comparables on which the ALP adjustment needs to be carried out by the TPO. This is subject to the earlier ruling with respect to application of export earning filter which may include some of the assessee's comparables. It is ordered accordingly. 16. In the result, it is ordered that the TPO shall apply export earning filter at 75% in the ITES sector include comparables of the assessee and shall include forex gain/loss in operating margins as directed in the software sector, accordingly. The assessee's appeal stands allo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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