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TMI Blog2019 (12) TMI 78X X X X Extracts X X X X X X X X Extracts X X X X ..... ta Elxsi Ltd. [ 2011 (8) TMI 782 - KARNATAKA HIGH COURT] has held that whatever is excluded from the export turnover should also be excluded from the total turnover while computing deduction under section 10A of the Act. This view of the Hon ble Karnataka High Court has been upheld by the Hon ble Supreme Court in the case of CIT Vs. HCL Technologies Ltd. [ 2018 (5) TMI 357 - SUPREME COURT] . We hold that telecommunication charges should be excluded both from the export turnover as well as from the total turnover and deduction under section 10A computed accordingly. - ITA No. 2130/Bang/2017, ITA No.2588/Bang/2017 - - - Dated:- 27-11-2019 - Shri N.V. Vasudevan, Vice-President And Shri A.K. Garodia, Accountant Member For the Assessee : Shri K.R.Vasudevan, Advocate For the Respondent : Smt.Neera Malhotra, CIT(DR)(ITAT), Bengaluru. ORDER PER N.V. VASUDEVAN, VICE-PRESIDENT ITA No2130/B/17 and 2588/B/17 are cross appeals filed by the assessee and revenue respectively for the assessment year 2011-12 and the appeals are directed against the Order of CIT(A)-3, Bengaluru, dated 1.9.201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by way of adjustment to ALP should be made. 5. The Assessing Officer (AO) referred the question of determination of ALP to the Transfer Pricing Officer (TPO) as is required by the provisions of Sec.92CA of the Act. The TPO after accepting some of the comparable companies chosen by the Assessee, selected 13 comparable companies. The final list of comparable companies and their arithmetic mean profit margin of 24.82% is given at page-17 paragraph-9 of the TPO s order dated 28.1.2015. 6. On the basis of set margin, the price that ought to have been charged in the international transaction of rendering SWD services was computed by the TPO at ₹ 54,87,33,178. The Assessee had charged the AE only a sum of ₹ 47,51,99,133 and the difference of ₹ 7,35,34,045/- was added to the total income as addition on account of determination of ALP in SWD services segment. (Paragraph 12.4 at page-36 37 of the TPO s order dated 28.1.2015). 7. The addition suggested by the TPO was added to the total income of the Assessee by the AO in the draft order of assessment and the final order of assessment because the Assessee c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of a software development service provider such as the Assessee. The learned DR has however placed reliance on a decision of the ITAT Bangalore Bench in the case of M/S.Telsima Communications Pvt.Ltd. Vs. DCIT IT(T.P.)A.No.304/Bang/2016 order dated 22.2.2019 wherein at paragraph 7.3.2 wherein the question of comparability of this company was set aside to the TPO for consideration afresh. Though the learned counsel for the Assessee submitted that in the present case, all the details are available, we find that the details regarding functional dissimilarity, employee cost filter and 75% revenue from software development filter, were not discussed at the TPO/CIT(A) order with facts and figures. We therefore feel that it would be appropriate to remand the issue for fresh consideration regarding comparability of this company with a SWD services provider such as the Assessee. 10. The Assessee seeks to exclude from the list of comparable company E-Zest Solutions Ltd. The Assessee sought to exclude this company from the list of comparable companies on the ground that this company was functionally different in the sense it was engaged in product engineering and sof ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rendered in Autodesk India Pvt. Ltd.,(supra)(vide Paragraph-12) Larsen Toubro Infotech Ltd., was excluded from the list of comparable companies on the ground that this company had substantial onsite revenue and the revenue from all the 3 segments in which this company was engaged was considered by the TPO. In the decision rendered in Autodesk India Pvt. Ltd.,(supra)(vide Paragraph-26) Persistent Systems Ltd., was excluded from the list of comparable companies on the ground that this company was engaged in diverse activities and there was no segment details available and also for the reason that this company held IPR s indicating that this company was not a pure SWD service company but was also in SWD products. Following the precedent cited, the aforesaid three companies are directed to be excluded from the list of comparable companies. 12. In the decision rendered in Autodesk India Pvt. Ltd.,(supra)(vide Paragraph-27) Sasken Communication Technologies Ltd., exclusion of this company from the list of comparable companies was remanded to the TPO for fresh consideration on the ground that in IT (TP) A.No.17 39/Bang/2016 for AY 2011-12 order dated 21.9.2016. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sk India Pvt. Ltd., (supra) (vide Paragraph-20 18), this Tribunal has held that ICRA Technologies is not functionally comparable with a SWD services provider and that Tata Elxsi was also not functionally comparable with a SWD service provider as it was engaged in diversified activities. We therefore do not find any merit in Gr.No.2 raised by the revenue. The other grounds with regard to transfer pricing addition contained in Gr. No. 3 4 are general and do not require any specific adjudication as no instance of company which was excluded by the DRP on the grounds set out in those grounds have been elaborated. Hence, these grounds are dismissed. 17. We shall now deal with the grounds relating to ITES segment. For rendering ITES to its AE, the Assessee received a sum of ₹ 26,09,67,546/-. The operating cost incurred by the Assessee was ₹ 22,30,58,893/-. The Operating profit was ₹ 3,79,08,653/-. The Operating Profit on Operating Cost was 16.99%. In its Transfer Pricing Study, the Assessee chose the TNMM as the MAM and selected a set of 8 comparable companies. The TPO accepted 3 out of the 8 comparable companies and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ring the learned counsel for the Assessee pressed for adjudication only the following issue raised in Gr.No.9.1 of the revised grounds of appeal filed before the Tribunal, viz., exclusion of the following companies from the list of comparable companies viz., Acropetal Technologies Ltd., ICRA Online Ltd., Jeevan Scientific Technology Ltd., and iGate Global Solutions Ltd. 20. We have heard the rival submissions on the above issue. As far as Accropetal Technologies Ltd., and Jeevan Scientific Technology Ltd., are concerned, ITAT Bangalore Bench in the case of Swiss Re Shared Services India Pvt. Ltd. Vs. ACIT for AY 2011-12, in the decision reported in (2016) 76 taxmann.com 22 (Bang-Trib), ( a company which is also engaged in providing ITES such as the Assessee), was pleased to hold that these three companies cannot be regarded as comparable companies with companies providing ITES. The learned DR however pointed out that as far as Jeevan Scientific Technology Ltd., is concerned, the issue was remanded to the TPO for fresh consideration with certain directions in paragraph-31 of the order in Swiss Re shared Services India Pvt. Ltd. (supra). The contention of the learned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The grievance of the revenue in this regard is projected in Gr.No.5 6 of the grounds of appeal raised by the revenue. 25. The AO excluded from the total turnover telecommunication expenses and travel and other expenses attributable to the delivery of articles or things or computer software outside India from the total turnover without excluding them from the Export Turnover of the Assessee. Consequently, the deduction u/s.10A of the Act was allowed at a lesser sum than what was claimed by the Assessee. The CIT(A) appeal however held that whatever is excluded from export turnover should also be reduced from the total turnover while allowing deduction u/s.10A of the Act. The revenue is in appeal against the aforesaid direction of the CIT(A). It is not in dispute before us that the Hon ble Karnataka High Court in the case of CIT Vs. Tata Elxsi Ltd., 349 ITR 98 (Karnataka) has held that whatever is excluded from the export turnover should also be excluded from the total turnover while computing deduction under section 10A of the Act. This view of the Hon ble Karnataka High Court has been upheld by the Hon ble Supreme Court in the case of CIT Vs. HCL Technologies Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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