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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 ..... of deduction u/s 10A in respect of sale proceeds which have not been realised within a period of six months - HELD THAT:- 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. Disallowance u/s 14A - AO noticed that the assessee has earned exempt dividend income from mutual funds - AO computed disallowance under Rule 8D(2)(iii) @ 0.50% of average value of investments - HELD THAT:- The assessee has made fresh investments in six schemes of mutual funds during this year, out of which three schemes fall under Growth/reinvestment schemes. Considering the less number of schemes, in our view, it may not be proper to apply Rule 8D mechanically. Accordingly, we are of the view that the disallowance may be estimated to meet the requirements of sec.14A of the Act. Accordingly, we estimate the disallowance u/s 14A at ₹ 2.00 lakhs and in our view, the same would meet the requirements of the provisions of sec.14A of the Act. Accordingly, we set aside the order passed by Ld C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing 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: The learned CIT(A) erred in holding that the size and turnover of the company are deciding factors for treating a company as a comparable and also RPT (% of sales) filter and accordingly erred in excluding the following comparables. 6. In the facts and circumstances of the case the Ld. CIT(A) erred in holding that M/s. Accentia Technologies Ltd. had extraordinary circumstances, cannot be taken as comparable. 7. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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. CIT(A) with the following observations: 16. We have considered the rival submissions. It is clear from the decision of the Hyderabad Bench of the ITAT that to exclude expenses incurred in foreign currency from the export turnover, the assessee should have obtained the benefit of section 10A on income from rendering technical services outside India. The admitted factual position in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ars 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 the export turnover has to be reduced from the total turnover also as held by Hon ble Supreme Court in the case of HCL Technologies Ltd, (404 ITR 179)(SC). Accordingly, the decision rendered by Ld CIT(A) on this issue does not require interference. SOFTWARE DEVELOPMENT SEGMENT:- 5. Ground Nos. 3 to 5 urged by the revenue relates to the transfer pricing adjus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 19.35 18 Wipro Ltd(Seg) 28.45 19 Softsol India Ltd 17.89 20 Lucid Software Ltd 16.50 AVERAGE 23.65 After making working capital adjustment, the TPO made transfer pricing adjustment of ₹ 48.69 crores. 5.2 Before Ld CIT(A), the assessee insisted for application 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 ₹ 606.03 crores, following the study of Dun Brads Street, he held that the companies having turnover in the range of 200 crores to 2000 crores alone 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 an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no.3 to 5 (first part), the revenue is assailing the decision of Ld CIT(A) in respect of following comparable companies:- (i) KALS information Systems Ltd (ii) Bodhtree Consulting Ltd (iii) Flextronics Software (iv) iGate Global Solutions Ltd (v) Infosys Technologies Ltd (vi) Mindtree Consulting Ltd (vii) Persistent Systems Ltd (viii) Sasken Communication Technologies Ltd (ix) Tata Elxsi Ltd (x) Wipro Ltd In total, the revenue is contesting exclusion of ten companies cited above. 5.7 (a) Out of the above said ten companies contested by the revenue, M/s Mindtree Ltd and M/s Tata Elxsi Ltd have been retained by Ld CIT(A), i.e., he has not directed exclusion of these two companies. Hence the ground of the revenue in respect of these two companies is liable to be rejected. (b) The Ld CIT(A) has not rendered any decision on M/s Bodhtree Consulting Ltd. Hence the ground of the revenue in respect of this company is liable to be rejected (c) In respect of application of turnover filter, we notice that the co-ordinate bench has followed the classification of companies on the basis of turnover criteria by the study of Dun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ems Ltd from the list of comparable companies. Accordingly the remaining three companies are liable to be included as comparable companies. We order accordingly. ITES SEGMENT:- 6. As per segmental details, the turnover of the assessee in ITES segment was ₹ 54.39 crores (However in the list of international transactions, the turnover is mentioned as ₹ 53.59 crores). The assessee adopted TNM method as most appropriate method. The Profit level indicator was taken as Operating profit/operating cost. 6.1 The TPO rejected the transfer pricing study of the assessee in respect of ITES services also and selected following 20 comparable companies, whose average margin worked out to 24.75%:- SI.No. Name of the company OP/TC% 1 Accentia Technologies Ltd (Seg. 41.77 2 Acropetal Technologies Ltd (Seg.) 35.30 3 Aditya Birla Minacs Worldwide Limited (Earlier known as Transworks Information Services Ltd.) -4.00 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ld CIT(A) accepted this contention of the assessee. Since the turnover of the assessee in Software development segment was ₹ 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 exclusion of following companies:- ITES Segment Company Turnover (Rs in cr) RPT (% of sales) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... seg) (xiv) Wipro Ltd In total, the revenue is contesting exclusion of 14 companies. 6.6 While adjudicating issue in respect of Software development segment, we have upheld the adoption of turnover filter and further we have held that the RPT filter should be taken as 15%. We direct to follow the same for ITES segment also. 6.7 (a) Out of the fourteen companies, M/s Accentia Technologies Ltd and M/s Genesys International Corporation Ltd have been retained by Ld CIT(A). Hence the ground of the revenue on these two comparable companies is liable to be deleted. (b) On applying turnover criteria, companies having turnover exceeding ₹ 200 crores is liable to rejected. The turnover of M/s Infosys BPO Ltd and M/s Wipro Ltd exceeds ₹ 200 crores. Accordingly the decision of Ld CIT(A) in directing exclusion of these two companies is upheld. (c) In respect of M/s I service India 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 S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt authority in terms of provisions of said section had vide its Master Circular No/o9/2007-08 dated July 2, 2007, applicable for the period AY 2008-09, permitted STP Units to realise and repatriate the full value of export proceeds within a period of 12 months from the date of export. b) The Learned CIT (A) - LTU erred in confirming the order of the AO in reducing from the export turnover the SUM of ₹ 7,15,89,738 and ₹ 2,14,69,416 as unrealised export turnover. c) The Learned CIT (A) - LTU erred in confirming the order of the AO in making a disallowance of an amount of ₹ 29,04,760 u/s 14A as expenditure attributable to earning exempt income. d) The Learned CIT (A) - LTU erred in holding that a sum of ₹ 10,992 incurred towards language training cost of spouses of employees of the Appellant as not a business expenditure and hence not allowing the said amount'' e) The Learned CIT (A) - LTU ought to have directed the AO to grant TDS credit of a sum of ₹ 1,98,67,264 as claimed by the Appellant as against a sum of ₹ 1,97,61,981 as granted by the AO. Transfer Pricing related 1. That the lear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ocuments before or at the time of hearing of this Appeal. 8. Ground (a) and (b) urged under the heading corporate tax matters relate to rejection of deduction u/s 10A in respect of sale proceeds which have not been realised within a period of six months. 8.1 The AO noticed that the assessee has not realised export proceeds within six months to the extent of ₹ 7.15 crores and ₹ 2.14 crores in respect of Bangalore and Coimbatore units respectively. Since the assessee did not furnish any certificate from RBI for extension of period for realisation of export proceeds, the AO reduced the above said amounts while computing deduction u/s 10A of the Act. The Ld CIT(A) also confirmed the same. 8.2 In this regard, the Ld. A.R. invited our attention to Master Circular No.9/2007-08 dated 2nd July, 2007 issued by RBI. The Ld. A.R. submitted that the RBI has granted general permission to realize the export proceeds within a period of 12 months from the date of export on or after 1st September, 2004. Accordingly, he submitted that the period of realisation should be taken as 12 months and not six months. The Ld D.R, on the contrary, submitted that the extension ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same would meet the requirements of the provisions of sec.14A of the Act. Accordingly, we set aside the order passed by Ld CIT(A) on this issue and direct the AO to restrict the disallowance u/s 14A to ₹ 2.00 lakhs. 10. The ground (d) relates to disallowance of ₹ 10,992/- incurred towards foreign language training of spouses of employees. The AO disallowed the above said claim holding that the expenses incurred on spouses of employees for imparting training in foreign language is not for the purposes of business. The Ld CIT(A) also confirmed the same. 10.1 We heard the parties on this issue. The Ld A.R submitted that the above said expenditure on spouses of employees is only a measure of staff welfare. Accordingly, he submitted the same has been incurred for the purposes of business only. On the contrary, the Ld D.R supported the order of Ld CIT(A). 10.2 We notice from the order passed by Ld CIT(A) that the AO has allowed expenditure of ₹ 7,20,076/- incurred on employees towards foreign language training. Accordingly, the Ld CIT(A) has held that the payment for language skill enhancement of spouses of employees has got no link with the business of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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