9911796707
TMI Blog2019 (7) TMI 1883X X X X Extracts X X X X X X X X Extracts X X X X ..... below 200 crores cannot be compared with the companies above 200 crores. In this regard, Bangalore Bench of the Tribunal in the case of Auto Desk India Pvt. Ltd. [ 2018 (12) TMI 1742 - ITAT BANGALORE] has taken the aforesaid view after considering several decisions on the issue. In view of the above, we find no grounds to interfere with the exclusion of the aforesaid 5 companies by the CIT(A). Exclusion of M/s. Exensys Software Solutions Ltd., and Thirdware Solutions Ltd., as not comparable companies by the CIT(A) on the ground that these companies showed abnormal profits - On the issue of exclusion of companies on account of abnormal profits, the law is well settled that abnormal profits by itself is not a ground to exclude a company which is otherwise comparable, but if the abnormal profits are owing to some unusual circumstances, then those companies can be excluded. As far as exclusion of M/s. Exensys Software Solutions Ltd., is concerned, the same is due to amalgamation that happened between this company and some other company during the relevant previous year and therefore the CIT(A) was justified in excluding this company. Thirdware Solutions Ltd company was a product compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... HELD THAT:- Taking into consideration the decision rendered by the Hon ble High Court of Karnataka in the case of CIT v. Tata Elxsi Ltd [ 2011 (8) TMI 782 - KARNATAKA HIGH COURT] , we are of the view that communication charges should be excluded both from export turnover and total turnover. We are of the view that as of today, law declared by the Hon ble High Court of Karnataka which is the jurisdictional High Court is binding on us. X X X X Extracts X X X X X X X X Extracts X X X X ..... by the TPO were as follows: Operating Income ₹ 8,32,56,664 6,36,70,924 Operating Cost ₹ 6,91,02,400 5,78,81,989 Operating Profit ₹ 1,41,54,264 57,88,935 Operating Profit/ Operating Cost OP/OC (as percentage) 20.48% 10% 6. The Transfer Pricing Officer (TPO) to whom the AO made a reference for determination of ALP u/s 92CA of the Act had chosen 17 comparable companies. The Arithmetic Profit Margin (APM) of these companies were 26.59 before working capital adjustment and 24.99 after working capital adjustment as per the following chart:- SI No. Particulars Unadjusted Margin (%) Adjusted Margin (%) 1. Bodhtree Consulting Limited 24.85% 23.57% 2. iGate Global Solutions Limited 4.32% 2.65% 3. Infosys Technologies India Limited 42.83% 42.59% 4. Lanco Global Systems Limited 13.65% 10.44% 5. Larsen & Toubro Infotech Limited 10.33% 9.47% 6. R S Software (India) Limited 8.07% 7.66% 7. Sasken communications Technologies Limited 14.42% 14.26% 8. Sasken Network Systems Limited 16.64% 15.05% 9. Satyam Computers Services Limited 29.44% 28.26% 10. Visualsoft Technologies Limited 23.52% 21.26% 11. Exensys Software Solutio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the taxpayer. 4. The Ld. CIT(A) erred in rejecting the diminishing revenue filter used by the TPO to exclude companies that do not reflect the normal industry trend. 5. The Ld.CIT(A) erred in directing the AO to include M/s. Quintegra Solutions Ltd. as a comparable in the case of the taxpayer without appreciating the fact that the different year ending filter applied by the TPO is necessary to exclude companies which do not have the same or comparable financial cycle as the tested party. 6. The CIT (A) erred, on the facts and in the circumstances of the case, in directing the AO to exclude Bodhtree Consulting Ltd, Geometric Software Solutions Co and Tata Elxsi Ltd from the final set of comparables. 7. The learned CIT (A) erred in directing inclusion of M/s VJIL Consulting Ltd as a comparable. 7. The CIT (A), on the facts and circumstances of the case erred in directing the AO to allow an appropriate working capital adjustment to the mean margin to the selected set of 9 comparables. 8. The CIT (A) erred in directing the AO to recompute the deduction allowable u/s 10A of the I.T.Act after reducing the telecommunication charges of ₹ 23,91,701/- from the total tur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owed abnormal profits. On the issue of exclusion of companies on account of abnormal profits, the law is well settled that abnormal profits by itself is not a ground to exclude a company which is otherwise comparable, but if the abnormal profits are owing to some unusual circumstances, then those companies can be excluded. As far as exclusion of M/s. Exensys Software Solutions Ltd., is concerned, the same is due to amalgamation that happened between this company and some other company during the relevant previous year and therefore the CIT(A) was justified in excluding this company. As far as Thirdware Solutions Ltd. is concerned, there has been no specific reason for abnormal profits and therefore the exclusion of this company on the ground of abnormal profits by the CIT(A) cannot be sustained. However, the Assessee in ground No.6(b) has prayed that the functional comparability of this company was challenged by the Assessee before CIT(A) but the CIT(A) has not given any decision on the same. He also brought to our notice that the ITAT Bangalore Bench in the case of M/s. Sharp Software Development (India) Pvt.Ltd. Vs. DCIT IT(TP) A.No.1109/BANG/2011 order dated 25.1.2017 vide parag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5. As far as ground No.7 raised by the revenue is concerned, the same relates to inclusion of M/s. VJIL Consulting Ltd., as not comparable. It was agreed by the parties that this company can be treated as a comparable company and hence ground No.7 raised by the revenue is allowed. 16. The next ground which is again numbered as ground No.7 is with reference to directing working capital adjustment to be allowed. Even the TPO in his order has allowed working capital adjustment. In transfer pricing analysis allowing working capital adjustment is necessary and it is settled law that such adjustment should be made for proper comparison of profit margin of Assessee and the comparable companies. We find no merit in this ground of appeal raised by the revenue. 17. The Revenue in grounds No.8 to 10 has projected its grievance regarding the action of the learned CIT(A) in excluding, while computing deduction u/s.10A of the Act, internet access charges of ₹ 23,91,701/- from the export turnover as well as the total turnover while computing deduction u/s.10A of the Act. The Assessee was entitled to claim deduction u/s.10A of the Act on the profits derived from its Software Technology Par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... turnover and in this regard has placed reliance on the decision of the Hon'ble Karnataka High Court in the case of CIT v. Tata Elxsi Ltd [2012] 349 ITR 98 (Karn) wherein it was held that while computing deduction u/s.10A of the Act expenses that are reduced from the export turnover should also be reduced from the total turnover. The CIT(A) however agreed with the alternative prayer of the AO and reduced the sum in question both from the export turnover and the total turnover. 19. Aggrieved by the order of CIT(A), the revenue has raised grounds No.8 to 10 before the Tribunal. We have considered the rival submissions. Taking into consideration the decision rendered by the Hon'ble High Court of Karnataka in the case of CIT v. Tata Elxsi Ltd [2012] 349 ITR 98 (Karn), we are of the view that communication charges should be excluded both from export turnover and total turnover. We are of the view that as of today, law declared by the Hon'ble High Court of Karnataka which is the jurisdictional High Court is binding on us. Moreover, the order of the Hon'ble Karnataka High Court has been upheld by the Hon'ble Supreme Court in the case of CIT v. HCL Technologies Ltd. in ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
