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TMI Blog2021 (9) TMI 350X X X X Extracts X X X X X X X X Extracts X X X X ..... elecom charges of Rs. 6,24,40,116/- and expenditure incurred in foreign currency of Rs. 111,35,86,587/- from the total turnover. 3. In the facts and circumstances of the case, the learned CIT(A) erred in holding that M/s. KALS Information Systems Ltd cannot be taken as comparable as the company carries inventories. 4. In the facts and circumstances of the case, the Learned CIT(A) erred in holding that M/s. Bodhtree Consulting Ltd. being functionally different, cannot be taken as comparables ignoring the fact that it contracting his own finding that the services offered are in the nature of the ITES services and relying on the website information without giving any finding from the annual report. 5. Software Segment: The Learned CIT(A) erred in holding that the size and turnover & RPT of the company are deciding factors for treating a company as a comparable and accordingly erred in excluding the comparables, M/s. Flextronics Ltd., IGate Global Solutions Ltd., SaskenCommunication Technologies Ltd., Tata Elxsi Limited and Wipro Limited in Software development segment on similar issue the department is in further appeal hence further appeal is hereby suggested. ITES segment: T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndia and does not apply to export of computer software by the assessee. The Ld CIT(A) noticed that an identical issue is pending before the Tribunal as well as in High Court in the assessee's own case. He also noticed that his predecessor has decided this issue against the assessee in Asst. Year 2007-08. However, he decided this issue in favour of the assessee on the reasoning that the decision of ITAT as on date is in favour of the assessee. The revenue is aggrieved by this decision. 4.2 We notice that an identical issue has been restored to the file of Ld CIT(A) by the co-ordinate bench in the assessee's own case in AY 2009-10 in ITA No.1688/Bang/2017 order dated 28-06-2021. For the sake of convenience, we extract below the discussions made by the co-ordinate bench in Assessment Year 2009-10:- "10. We heard the parties on this issue and perused the record. We notice that the issue whether the expenditure incurred in foreign currency is required to be excluded from the export turnover or not when the assessee is exporting only software, was examined by the coordinate bench in the assessee's own case in assessment year 2007-08 and the matter was restored to the file of the Ld. C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore him. We accordingly allow the appeal of the assessee for statistical purpose." 11. In assessment year 2004-05 also, the coordinate bench restored the issue to the file of the Ld. CIT(A) for examining this issue in the light of decision rendered by Hon'ble jurisdictional High Court in the case of Infosys Ltd. (supra). Consistent with the view taken in the above said two years in the assessee's own case, we set aside the order passed by Ld. CIT(A) on this issue and restore the same to his file for examining it afresh on similar lines." 4.3 Consistent with the view taken by the Tribunal in Asst. Year 2007-08 and 2009-10, we restore this issue to the file of Ld CIT(A) for examining it afresh. 4.4 The second ground relate to exclusion of telecommunication charges from export turnover and total turnover while computing deduction u/s 10A of the Act. The Ld CIT(A), after deciding the issue relating to "expenditure incurred in foreign currency" in favour of the assessee, has held that the telecommunication charges and expenditure incurred in foreign currency should be deducted both from export turnover and total turnover. In any case, it is now settled that the amount reduced from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lone can be considered as comparable with the assessee. 5.3 The TPO had applied the Related party transaction filter (RPT filter) of 25% and above and accordingly the TPO had rejected the companies with RPT in excess of 25% of operating revenues. The assessee contended before the Ld CIT(A) that the RPT filter may be fixed at 10%. In this regard, the assessee had placed its reliance on the decision rendered by Delhi bench of Tribunal in the case of Sony India Pvt Ltd vs. DCIT (ITA No.1189/Del/2005 and 819 & 820/Del/2007), wherein RPT was range was fixed between 10% to 15%. However, the Ld CIT(A) fixed RPT filter @ 1% of sales. 5.4 Accordingly, applying both Turnover filter and RPT filter, the ld CIT(A) directed exclusion of following companies:- Turnover (Rs in cr) RPT (% of sales) ITS Segment Flextronics Software 954.42 5.24% (failed) I-gate Global Solutions Ltd. 781.56 4.44% (-do-) Infosys Technologies Ltd. 15,672.00 (failed) 5.31% ( -do-) KALS Information Systems Ltd 2.05 (-do-) - Persistent System 383.41 . 8.95% (-do-) Sasken Communication Tech Ltd.(Seg) 335.80 1.14% (-do-) Wipro Ltd .(Seg.,) 11,955.60 (failed) 0.02% (-do-) LGS G ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had adopted RPT filter of 25% and the assessee had pleaded before the Ld CIT(A) to adopt 10%. However, the Ld CIT(A) has adopted RPT filter of 1% of sales, which was not the prayer of anyone. In any case, co-ordinate benches have determined the RPT filter @ 15% in many cases. Accordingly, we modify the order of Ld CIT(A) and determine the RPT filter @ 15% of sales. In that case, following companies are liable to be included as comparable companies:- (i) Flextronics Software (ii) iGate Global Solutions Ltd (iii) Persistent Systems Ltd (iv) Sasken Communication Technologies Ltd Hence the decision rendered by Ld CIT(A) in respect of these four companies is liable to be reversed. The Ld A.R, however, submitted that the Ld CIT(A) has excluded these four companies only application of RPT filter of 1%. However, some of the above said companies have been held to be not a good comparable on the basis of functions performed, extra ordinary events. In this regard, he placed his reliance on the following decisions rendered by the Tribunal:- (a) M/s 3DPLM Software Solutions Ltd (IT (TP) A No.1303/Bang/2012) (b) M/s Mphasis Ltd (ITA No.325/Bang/2014 and ITA No.313/Bang/2014) (c) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of turnover filter. In this regard, the assessee placed its reliance on the decision rendered by the Tribunal in the case of Genisys Integrated System (India) P Ltd vs. DCIT (ITA No.1231/Bang/2010). The Ld CIT(A) accepted this contention of the assessee. Since the turnover of the assessee in Software development segment was Rs. 53.59 crores, following the study of Dun & Brads Street, he held that the companies having turnover in the range of 1 crore to 200 crores alone can be considered as comparable with the assessee. 6.3 The TPO had applied the Related party transaction filter (RPT filter) of 25% and above and accordingly the TPO had rejected the companies with RPT in excess of 25% of operating revenues. The assessee contended before the Ld CIT(A) that the RPT filter may be fixed at 10%. In this regard, the assessee had placed its reliance on the decision rendered by Delhi bench of Tribunal in the case of Sony India Pvt Ltd vs. DCIT (ITA No.1189/Del/2005 and 819 &820/Del/2007), wherein RPT was range was fixed between 10% to 15%. However, the Ld CIT(A) fixed RPT filter @ 1% of sales. 6.4 Accordingly, applying both Turnover filter and RPT filter of 1%, the ld CIT(A) directed exc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ia P Ltd, the Ld CIT(A) has not rendered any decision. Accordingly, the ground of the revenue in respect of this company is liable to be rejected. (d) The percentage of RPT on sales exceeds the limit of 15% in respect of following companies:- (i) Asit C Mehta Financial Services Ltd (19.69%) (ii) Calibre Point Business Solutions Ltd (19.69%) (iii) Jindal Intelecom P Ltd (29.94%) (iv) Mold Tek Technologies Ltd (20.45%) (e) The Ld CIT(A) has excluded the following five companies applying RPT filter of 1%. Since we have determined the RPT filter at 15%, the decision of Ld CIT(A) in respect of following five companies is liable to be reversed:- (i) Aditya Birla Minacs World Wide Ltd (ii) Datamatics Financial Services Ltd (seg.) (iii) e4e Health Care Solutions Ltd (iv) E clerx Services Ltd (v) Spanco Ltd (seg.) The Ld A.R, by placing reliance on the following case laws, submitted that some of the above said companies have been held to be not a good comparable:- (a) M/s Mphasis Ltd (ITA No.325/Bang/2014 and ITA No.313/Bang/2014) (b) Flextronics Technologies (India) P Ltd (IT(TP)A No.1559/Bang/2012) (c) Symphony Marketing Solutions (IT(TP)A No.1316/Bang/2012) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laimed by the Appellant as against a sum of Rs. 1,97,61,981 as granted by the AO. Transfer Pricing related 1. That the learned CIT (A) - LTU erred in upholding the rejection of Transfer Pricing ('TP') documentation by the learned Transfer Pricing Officer (`TP0')/ Assessing Officer (`A0') and in upholding the adjustment to the transfer price of the Appellant in respect of its Information Technology enabled Services (`ITeS'). 2. That on the facts and in the circumstances of the case, the learned CIT (A) - LTU erred in; (a) Upholding the rejection of comparability analysis of the Appellant in the TP documentation and accepting the comparability analysis performed by the learned TPO in the TP Order. (b) Not addressing the Appellants grievances in full with respect to the application of additional filters by the TPO (c) Disregarding application of multiple year/ prior year data as used by the Appellant in the TP documentation and holding that current year (i.e. Financial Year 2007-08) data for companies should be used for comparability. (d) Upholding the learned TPO's approach of using data as at the time of assessment proceedings, instead of that a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R, on the contrary, submitted that the extension has to be given by the competent authority, which is RBI. 8.3 We find merit in the submissions of Ld A.R. We notice that the circular issued by RBI allowed a period of 12 months for realisation of export proceeds. Accordingly, we direct the AO to recompute the deduction u/s 10A of the Act by considering the permitted period of realisation of export proceeds as 12 months. 9. The ground (c) urged by the assessee relates to the disallowance made u/s 14A of the Act. The AO noticed that the assessee has earned exempt dividend income from mutual funds to the tune of Rs. 2,51,41,451/-. The assessee did not make any disallowance u/s 14A of the Act. The AO computed disallowance under Rule 8D(2)(iii) @ 0.50% of average value of investments at Rs. 29,04,760/- and disallowed the same. The Ld CIT(A) also confirmed the same. 9.1 We heard the parties on this issue. The Ld A.R invited our attention to page 521 of the paper book, wherein the details of investments are given. He submitted that the assessee has made investments only in units of various mutual funds. The aggregate amount of investments made during this year was Rs. 90.59 crores. He f ..... X X X X Extracts X X X X X X X X Extracts X X X X
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