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TMI Blog2018 (10) TMI 1841X X X X Extracts X X X X X X X X Extracts X X X X ..... Hon ble jurisdictional High Court in Agnity India [ 2013 (7) TMI 696 - DELHI HIGH COURT] we hold that Infosys Technologies Ltd., cannot be treated as comparable with the assessee company. This company is, therefore, directed to be excluded from the list of comparables. WIPRO Technologies Services Ltd - Comparable as excluded by the Tribunal in the case of Microsoft India [R D] Pvt Ltd. [ 2018 (10) TMI 70 - ITAT DELHI] Reduction in deduction allowed u/s 10A - HELD THAT:- Once the forex fluctuation gain is treated as part of operating profit, then the same deserves to be allocated amongst various units of the assessee and basis of allocation should be same as that deduction for the allocation of expenses amongst various units. We, accordingly, direct the Assessing Officer to allocate forex fluctuation gain also to Pune unit based on turnover. The assessee succeeds on this issue. Calculation of surcharge and education cess - AO has calculated surcharge and education cess on the gross amount without giving effect to the MAT credit deduction by the assessee for the year under consideration - HELD THAT:- As relying on M/S. VACMENT INDIA AGRA [ 2014 (10) TMI 787 - ALLAHABAD HIGH COURT] w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... having sales below ₹ 5 crores. Hence, not a suitable comparable. 3 Aztecsoft Ltd. (consolidated) Annual Report for the current year is not available on the public domain. Hence, not a suitable comparable. 4 Caliber Point Business Solutions Ltd. This company is an ITES company and having different' financial year ending. Hence, can't be taken as suitable comparable. 5 Cat Technologies Ltd. This company is an ITES company and having significant RPT too. Hence, can't be taken as suitable comparable. 6 CC - VakSoftware & ExportsLtd. This company fails employee cost filter (6%). Hence, not a suitable comparable. 7 Evoke Technologies Pvt. Ltd. This is a suitable comparable. ' 8 Giodstone Technologies Ltd. This company fails export filter (55.09%). Hence, not a suitable comparable. 9 Helios & Matheson Information Technologies Ltd. This company fails' export filter '(2.66%). Hence, not a suitable comparable. 10 KP1T cummins InfosystemsLtd. (Consolidated) This company is having' significant RPT. Hence, not a suitable comparable. 11 Larsen & Turbo infotech Ltd. This is a suitable comparable. 12 LGS Global ltd. This company fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... td 8 Tata Elxsi Ltd [Segment] 8. At the end of the aforestated exercise, the following comparables were proposed to be used to determine the ALP of the international transactions related to provisions of ITES: Sl. No. Company Long Name OP/OC 1 Akshay Software Technologies Ltd. 0.16% 2 Celstream Technologies Pvt. Ltd. 12.26% 3 Evoke Technologies Pvt Ltd 8.11% 4 iGate Global Solutions Ltd 23.71% 5 Infosys Ltd 43.53% 6 Kireeti Soft Technologies Ltd. 3.63% 7 Larsen & Toubro Infotech Ltd. 18.40% 8 Mindtree Limited (Segment] 10.740% 9 Persistent Systems & Solutions Ltd. 22.12% 10 Persistent Systems Ltd. 23.08% 11 R S Software (India],Ltd. 16.20% 12 * Sankhya Infotech Limited 26.20% 13 Sasken Communication Technologies Ltd. 24.36% 14 Tata Elxsi Ltd. (Segment] 13.00% 15 Thirdware Solutions 16.19% 16 Wipro Technologies Limited 54.42% 17- Zylag Systems Ltd 28.74% Average 20.28% 9. The assessee's PLI was recomputed by removing forex fluctuation gain as non operational item and PLI was computed at 8.48%. As the average of the final set of comparables was taken at 20.28% and that of the assessee at 8.48%, proposed adjustment u/s 92C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... actions entered into by FIPL with its AEs keeping in view the observations made in the order of the ITAT. 9. In the present appeal, the Revenue has projected the following questions for consideration by the Court: (i) Whether the ITAT was right in rejecting the comparables, as noted above, and whether the application of stringent standards of comparability will defeat the purpose of flexibility provided in the comparability analysis for determining ALP? (ii) Whether the ITAT was right in foreign exchange fluctuation as operating expenses/income without considering that it has no bearing on the transaction and that Safe Harbour Rules stipulate exclusion of foreign exchange gain/loss as operating expenses/ income? 10. As regards question (ii) it is pointed out by learned counsel for the Assessee that the Safe Harbour Notification dated 18th September 2013 relied upon by the Revenue is prospective and did not apply to the AY in question. Even otherwise the Court finds that the decisions relied upon by the ITAT in the impugned order covers this issue in favour of the Assessee ITA No. 17/2016 Page 6 of 6 as far as the AY in question is concerned. Consequently, the Court declines ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the judgment of the Hon'ble jurisdictional High Court in CIT vs. Agnity India Technologies Pvt. Ltd. (2013) 219Taxmann 29 (Del) in which Infosys Technologies Ltd., has been held to be not comparable with a company engaged in the business of development of software for its parent company. Similar view has been taken by the Tribunal in the case of Toluna India Pvt Ltd. Following the above precedents, we direct not to consider this company." 2008-09 12. We have considered the rival submissions and perused the relevant material on record. It can be seen that the TPO has included this company in the list of comparables by rejecting the assessee's contention about the brand of this company helping in earning huge profits and also the brand-related products swelling the ultimate profit rate of this company. We find that the assessee is a captive unit rendering services to its AE alone without acquiring any intellectual property rights in the work done by it in the development of software. The Hon'ble Delhi High Court in CIT vs. Agnity India Technologies (P) Ltd. (2013) 219 Taxmann 26 (Del) considered the giantness of Infosys Ltd., in terms of risk profile, nature of service ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Inc., a third person. 46. Rule 10B(1)(e)(ii) provides that it is the net profit margin realized from a comparable uncontrolled transaction, which is considered for the purposes of benchmarking. The epitome of `comparable uncontrolled transaction' is that the companies or transactions, in order to fall within the ambit of sub-clause (ii) of rule 10B(1)(e), should be both comparable as well as uncontrolled. `Uncontrolled transaction' has been defined in Rule 10A(a) to mean: 'a transaction between enterprises other than associated enterprises, whether resident or nonresident.' This shows that in order to be called as an uncontrolled transaction, it is essential that the same should be between the enterprises other than the associated enterprises. Section 92B(2) provides that: `A transaction entered into by an enterprise with a person other than an associated enterprise shall, for the purposes of sub-section (1), be deemed to be a transaction entered into between two associated enterprises, if there exists a prior agreement in relation to the relevant transaction between such other person and the associated enterprise, or the terms of the relevant transaction are det ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gh Court vide its judgment dated 28.09.2016 in ITA no.682/2016, C.M. APPL.35744-35746/2016 by holding that no substantial question of law arises from the Tribunal order. 21. Respectfully following the finding of the coordinate bench, we direct the Assessing Officer/TPO to exclude this comparable. The TP adjustment of ₹ 19,17,52,485/- is directed to be deleted. 22. The next issue relates to the reduction in deduction allowed u/s 10A of the Act. 23. The assessee is having four units at Noida, Bangalore, Pune and Nagpur. Out of these, Pune unit is eligible for deduction u/s 10A of the Act. The assessee has allocated expenses based on turnover. The assessee also made a plea that alongwith the expenses, gain on forex exchange fluctuation is also required to be allocated amongst various units of the assessee as the same relates to profits and gains derived by the assessee from export of computer software. This plea of the assessee was rejected by the lower authorities. 24. We are of the considered view that once the forex fluctuation gain is treated as part of operating profit, then the same deserves to be allocated amongst various units of the assessee and basis of allocation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess, including secondary and higher education cess on (5+6) Gross tax liability (5+6+7) The aforesaid entries leave no manner of ambiguity in regard to the method of computation of tax liability. Entry 3 requires computation of the gross tax payable. Under entry 4, credit is required to be given under Section 115JAA of the Act of the tax paid in earlier years. Entry 5 requires a computation of the tax payable after credit under Section 115JAA of the Act. The matter is placed beyond doubt by the parenthesis, which indicates that tax payable under entry 5 is to be arrived at by deducting the credit under Section 115JAA of the Act (under entry 3) from the gross tax payable (under entry 4). The surcharge is computed on the amount reflected in entry 5." 28. Respectfully following the findings of the Hon'ble Allahabad High Court [supra] we direct the Assessing Officer to calculate the surcharge and education cess on net tax liability. The assessee succeeds on this issue also. 29. Last issue relates to allowance of short credit of TDS. We direct the assessee to furnish relevant details of TDS and the Assessing Officer is directed to verify the same and allow credit of TDS as per pro ..... X X X X Extracts X X X X X X X X Extracts X X X X
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