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TMI Blog2020 (12) TMI 213X X X X Extracts X X X X X X X X Extracts X X X X ..... we direct exclusion of Acropetal Technologies and L T Infotech Ltd. Excluding M/s. E-Infochips, by DRP on the ground that it fails service income filter - This Tribunal consistently in various decisions for A.Y.: 2011-12 held that, this company does not satisfy service income filter being 75%. We therefore, do not see any reason to set aside this company to Ld. TPO. Therefore, respectfully following view taken by coordinate bench of this Tribunal in DCIT vs. M/s. CGI Information Systems and Management Consultations Pvt. Ltd. [ 2018 (4) TMI 567 - ITAT BANGALORE] we direct Ld. TPO to exclude this company. ICRA Techno Analytics Ltd., E-Zhest Solutions Ltd., M/s. Infosys Technologies Ltd. and M/s. Tata Elxsi Ltd., have been consistently excluded by this Tribunal in case of a captive service provider like assessee. Further Ld. CIT DR could not establish anything contrary to observations of this Tribunal reproduced hereinabove. Deduction u/s 10A - excluding communication expenses for computing total turnover and export turnover and excluding loss earned from non-eligible unit for purposes of 10 A deduction - HELD THAT:- DRP by following decision in the case of CIT v. Tata Elx ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e M/s. Acropetal Technologies Ltd., from the list of final comparable also for the reason that clear segmental information of the employee cost was not available. Without appreciating that proper segmental information was available on prowess database as well audited finials. 5. The DRP erred in directing to exclude E-infochips Ltd, from the list of comparables holding these no segmental information is available and that it fails 75% services revenue filter by not acknowledging the fact that entire revenue of the company comes provision of services, and services income being 100% of its sales, the company qualifies the filter. 6. The I)RP erred in directing exclusion of M/s. ICRA Techno Analytics Ltd., from the list of comparables on the ground that it is into diversified activity and no segmental data is available, without appreciating that the basic faction of the company is developing software talons in those and other verticals. The company's business of analysis of statistical data of its clients before providing software solutions does no render the services to be functionally incomparable. 7. The DRP erred directing to exclude MIs. E-Zest Solutions Ltd. fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hould be reduced from the total turnover also, as clause (iv) of the explanation to section I OA provides that that Such expenses are to be reduced only from the export turnover. CO No. 7/B/2017 (by assessee) 1. The directions dated December 28, 2015 passed by the Honorable Dispute Resolution Panel ( DRP ) in so far as it relates to the following ground are opposed to law and facts of the case. 2. The Honorable DRP and the learned Assessing Officer ( AO ) have erred in upholding the action of the Transfer Pricing Officer ( TPO ) in rejecting the Transfer Pricing ( TP ) documentation maintained and the detailed benchmarking analysis conducted by the Cross-Objector; 3. The Honorable DRP and learned TPO have erred in law and on facts in rejecting the use of multiple year data, without considering that the past year data had an influence on the determination of arm's length price and that the Cross-objector had considered contemporaneous data available at the time when it carried out the benchmarking study having regard to the statutory requirement to maintain the TP documentation by the specified date; 4. The Honorable DRP and the TPO have erred in law an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mation Technology Ltd. LGS Global Ltd M/s.LGS Global Ltd. M/s.Melstar Information Tecnology Ltd. RS Systems International Ltd RS software (I) Ltd M/s.Sasken Cmmunication Technology Ltd Mean 12% 6. Ld. TPO though agreed with most appropriate method, however, was of the opinion that, TP study filed by assessee was unreliable. Ld. TPO thereafter applied certain filters and selected following 13 comparables. Sl. No Company name Net margin as per TP order 1 Acropetal Technologies Ltd. 31.98% 2 E Zest Solutions 21.03% 3 E-Infochips Ltd 56.44% 4 Evoke 8.11% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Average 19.94% 11. DRP allowed working capital to be computed as per actual following decision of this Tribunal in case of M/s. Rambus Chip Technologies (I) Pvt. Ltd., in IT(TP) A No. 23/Bang/2015. DRP also directed to rectify the arithmetical mistake if any in computation of adjustment in respect of comparables retained. 12. DRP further allowed sum of ₹ 73,75,224/- towards expenditure incurred in foreign currency on travel and ₹ 1,60,25,123/- as expenditure towards repairs and maintenance, while computing export turnover and total turnover for purposes of deduction under section 10A of the Act by following decision of Hon'ble Karnataka High Court in case of Tata Elxsi reported in [2012] 17 taxmann.com 100. DRP also held that losses suffered by non-eligible units cannot be set off against the eligible profit by following decision of Hon'ble Karnataka High Court in case of CIT vs. Yukogava India Ltd. reported in (2012) 21 Taxmann.com 154. 13. On receipt of DRP directions, Ld. AO passed final assessment order by making, transfer pricing addition as per proposed adjustment by Ld. TP O. 14. Aggrieved by order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ware, embedded software and hardware design solutions to support broadband wireless access. The Company provides embedded software and hardware design solutions a are incorporated in the chipsets manufactured by its associated enterprises. These comprise: Physical layer algorithm development and implementation Media access controller (MAC) algorithm development and implementation Design, implementation, and integration of protocol stacks that will enable communication according to the standards approved and authorized by the international community. 22. The assessee's product offering is to enable the manufacture of a point-to-point and point to multi-point broadband communication system. 23. Assessee has entered into an inter-company agreement for provision of software development services to its associated enterprises. For the provision of said services, BCTPL is compensated on a cost plus basis. Assets Owned: 24. It has been submitted that assessee owns routine tangible assets like, furniture, fixtures, computers etc. It is also submitted that it does not possess nor does it develop any non-routine valuable intangibles. Risk Assumed: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es, and excluding them. On this, we agree with contention raised by Ld. CIT. DR that a filter cannot be applied once TP analysis has been concluded by Ld. TPO However, on perusal of observations recorded by DRP, Acropetal Technologies Ltd., L T Infotech Ltd., was primarily excluded on basis of functional dissimilarities and that segmental information not being available. DRP further observed that these comparables cannot be considered as comparable with low risk bearing contract service provider like assessee. Further, Ld. AR relied on decision of coordinate bench of this Tribunal in case of Electronics for Imaging India Pvt. Ltd., vs. DCIT for assessment year 2011-12 reported in [2017] 85 taxmann.com 124, wherein these comparables have been held to be functionally different with a contract service provider like assessee. 33. At this juncture, we note that application of 'suo moto' on site revenue filter has been considered by this Tribunal for same assessment year in following cases, where DRP excluded same comparables. We also not that, DRP therein excluded same set of comparables, based on identical observations: DCIT vs. CGI Information Systems Management Con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee made submissions before us that this company was rightly directed to be excluded by the DRP on the above basis and further contended that even otherwise, this company is not functionally comparable to the Assessee. As already stated, we do not wish to go into this aspect as this company goes out of comparability on other reasons. 20. L T Infotech Ltd.-This company was directed to be excluded by the DRP for the following reasons: (i) 48.84% of its total expenses are incurred in foreign currency, which includes substantial expenses on sub-contracting, indicating that the company has high onsite revenue; (ii) the TPO has considered the entire revenue from its 3 segments, viz. financial services, manufacturing and telecom as was disclosed in its Annual Report for FY 2010-11, for the purposes of comparability to the Assessee's software development services; and (iii) predominantly engaged in the onsite development of software in FY 2010-11. The learned DR submitted before us that the Assessee's profile also is similar to the profile of L T Infotech Ltd. and therefore this company should be included as comparable company. He also submitted that what is the quantum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by DRP as these comparables are even otherwise functionally not similar with assessee. Respectfully following the aforesaid decisions, we direct exclusion of Acropetal Technologies and L T Infotech Ltd. 36. Ground No. 5 is against excluding M/s. E-Infochips, by DRP on the ground that it fails service income filter. 37. Ld. CIT DR submitted that Ld. TPO while analysing comparables observed that, this company has revenue from software development up to 88%. Submitted that per contra, DRP observes that revenue earned by this company is less than 75%, and therefore cannot be included. She submitted that basis of DRP to hold that revenue is less than 75% has not been demonstrated and therefore needs to be reconsidered. 38. Ld. AR placed reliance upon decision of coordinate bench of this Tribunal in case of Electronics for Imaging India Pvt. Ltd. (supra) wherein, E-Infochips Ltd. is excluded for failing in service income filter. We have perused submissions advanced by both sides in light of records placed before us. 39. It is observed that this Tribunal in case of Autodesk India Pvt. Ltd. vs. ACIT (supra) excluded E-Infochips Ltd., by following view taken by this Trib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... M/s. CGI Information Systems and Management Consultations Pvt. Ltd. (supra), we direct Ld. TPO to exclude this company. Accordingly this ground raised by revenue stands dismissed. Ground 6-10: 41. ICRA Techno Analytics Ltd., E-Zhest Solutions Ltd., M/s. Infosys Technologies Ltd. and M/s. Tata Elxsi Ltd. It has been submitted by Ld. CIT. DR that, DRP erred in directing exclusion of ICRA Techno Analytics Ltd. on the ground that it is into diversified activity and no segmental details are available. In respect of E-Zhest Solutions Ltd., M/s. Infosys Technologies Ltd. and M/s. Tata Elxsi Ltd., Ld. CIT DR submitted that DRP excluded them for functionally not comparable. He submitted supporting order of Ld. TPO that they are predominantly into Software development. 42. Ld. CIT. DR thus submitted that, these comparables are into SWD and is functionally similar with assessee and deserves to be included. 43. On the contrary, Ld. AR relied on decisions of coordinate bench of this Tribunal in case of Applied Material India Pvt. Ltd. reported in TS-815-ITAT-2015, and GT Nexus Software Pvt. Ltd., Vs. DICT in IT(TP) A Nos. 31 409/Bang/2016 dated 18/4/2017 for same asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g various activities and segmental data are not available. We uphold its exclusion on account of RPT filter. Exclusion of Acropetal Technologies Ltd. (Seg) is covered in favour of the assessee by the same tribunal order rendered in the case of Applied materials India Pvt. Ltd. v. ACIT (Supra). Respectfully following the same, we uphold its exclusion. Exclusion of 1) e-Zest Solutions Ltd., 2) Infosys Ltd., 3) Larsen Toubro Infotech Ltd., 4) Persistent Systems Solutions Ltd., 5) Persistent Systems Ltd., 6) Sasken Communication Technologies Ltd. and 7) Tata Ebcsi Ltd. are also covered in favour of the assessee by the same tribunal order rendered in the case of Applied Materials India Pvt. Ltd. v. ACIT (Supra). Respectfully following the same, we uphold the exclusion of these Seven comparables also. Exclusion of E-Infochips Ltd. is covered in favour of the assessee by the tribunal order rendered in the case of Saxo India Pvt. Ltd. v. ACIT in ITA No, 6148/Del/2015 dated 05.02.2016 Para 10.1 10.2 available at pages 221 to 223. Respectfully following the same, we uphold its exclusion. In this manner, we uphold the exclusion of six comparables excluded by DRP out of 9 comparables exc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Karnataka High Court, in the case of CIT v. Tata Elxsi Ltd. reported in [2012] 17 taxmann.com 100 held that, if any expenditure is excluded from export turnover, then the same needs to be excluded from total turnover as well, accordingly, directing Ld. AO to exclude expenses deducted from export turnover from total turnover for computing deduction u/s. 10A of the Income-tax Act, 1961. 48. Further in respect of exclusion of loss earned from non-eligible unit for computing profits of eligible unit under section 10 A, DRP relied on decision of Hon'ble Karnataka High Court in case of and CIT v. Yokogava India Ltd. reported in [2012] 21 taxmann.com 154 49. We do not find any infirmity in the view taken by DRP as it is supported by ratios held by Hon'ble jurisdictional High Court. There is nothing on record brought by revenue to establish any distinguishing factors to deviate from the ratio of Hon'ble jurisdictional High Court. Accordingly these grounds raised by revenue stands dismissed. In the result appeal filed by revenue stands dismissed. 50. Since revenue's appeal is dismissed, cross objection filed by assessee becomes infructuous. In the resu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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