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TMI Blog2020 (10) TMI 1356X X X X Extracts X X X X X X X X Extracts X X X X ..... the total turnover in same proportion as well. On the issue of expenses on technical services provided outside, we have to follow the same principle of interpretation as followed in the case of expenses of freight, telecommunication etc., otherwise the formula of calculation would be futile. Hence, in the same way, expenses incurred in foreign exchange for providing the technical services outside shall be allowed to exclude from the total turnover. Gain/loss arising on account of fluctuation in foreign exchange as operating income/expenses - HELD THAT:- DRP has followed the decision rendered by the Tribunal in the case of Sap Labs India (P) Ltd [ 2010 (8) TMI 676 - ITAT, BANGALORE] and Cisco Systems Services BV [ 2014 (10) TMI 852 - ITAT BANGALORE] and accordingly held that the foreign exchange fluctuation gain/loss arising to the assessee on realization of trade debtors, payment to creditors etc were nothing but operation income. DRP has directed the AO to consider the foreign exchange fluctuation gain/loss as operating in nature both in the hands of the assessee and in the hands of comparable companies. Since the ld DRP has followed the decision rendered by the Tribunal i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... services was Rs.32.16 crores. The assessee adopted Transactional Net Margin Method (TNMM) as most appropriate method. It adopted Operating Profit/Operating Cost (OP/OC) as the Profit level indicator (PLI). The assessee declared a margin of 11.48% in the software development segment. 5.1 The assessee had selected 5 comparable companies in its transfer pricing study. The TPO rejected the transfer pricing study of the assessee and he finally selected following 13 comparable companies, whose average margin worked out to 24.82%:- Sl.No. Name Sales Cost PLI 1 Acropetal Technologies Ltd. (seg) 814,016,893 616,754,876 31.98% 2 E zest solutions (from Capitaline) 112866098 93255341 21.03% 3 E-infochips Ltd 260384251 166447527 56.44% 4 Evoke (from Capitaline) 144869912 133996568 8.11% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dditional ground, which reads as under:- 12. The DRP erred by rejecting Mindtree Ltd as a comparable which was selected by the TPO, stating that Mindtree Ltd undertakes on site activities through its branches and therefore not comparable to the assessee company. This filter (on site) was neither used by the assessee not by the TPO in selecting the comparables. The grounds and additional ground urged by the assessee seek exclusion of (a) Persistent Systems Solutions Limited (b) Persistent Systems Limited (c) Sasken Communications Technologies Ltd and inclusion of (a) R.S Software Ltd (b) Evoke Technologies Ltd (c) Mindtree Ltd. 5.4 The Ld A.R submitted that all his submissions are supported by the decision rendered by co-ordinate bench of Tribunal in the case of (i) M/s AMD India Private Limited vs. ACIT (IT(TP)A No.1487/Bang/2015 (ii) M/s Applied Materials India Pvt Ltd vs. ACIT (IT(TP)A No.17/Bang/2016) (iii) M/s L G Soft India P Ltd vs. DCIT (IT(TP)A No.52/Bang/2016 dated 05th August, 2020) 5.5 The revenue is challenging the decision of Ld DRP in excluding all ten comparable companies listed earlier. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... followed the decision rendered by another co-ordinate bench in the case of Electronic for Imaging (I) Pvt Ltd (2017)(85 taxmann.com 124). For the sake of convenience, we extract below the discussions made and the decision taken by the Tribunal in the case of L G Soft India P Ltd (supra):- 10. With regard to the other 7 comparable companies, whose exclusion is challenged by the revenue in ground No.2 of its appeal, we find that exclusion of these comparables from the list of companies selected by the TPO had come up for consideration before the Bangalore ITAT in the case of Electronic for Imaging (I) Pvt. Ltd. v. DCIT [2017] 85 taxmann.com 124 [Bang. Trib]. ; Symantech Software Services (I) Pvt. Ltd. v. DCIT, ITA No.614/Mds/2016; DCIT v. Ikanos Communication Pvt. Ltd. in ITA 137/Bang/2015; Ness Technologies (I) Pvt. Ltd. v. DCIT in ITA No.696/Mum/2016 which are also decisions rendered in relation to AY 2011- 12 in the case of a companies providing SWD services such as the assessee in the present appeal. It is also relevant to point out that the very same comparable companies chosen by the TPO in the present appeal IT(TP)A Nos.52 97/Bang/2016 had been chosen by the TPO as co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pectfully following the aforesaid decisions, we uphold the exclusion of the aforesaid 7 companies from the list of comparable companies and ground No.2 raised by the assessee to this extent is dismissed. We may add that the other grounds raised by the revenue in its appeal are purely supportive of ground No.2 and are general grounds with no specific reference to instances of comparables excluded and hence dismissed. 5.10 Following above said order of co-ordinate bench, we confirm exclusion of above said seven companies. Since the assessee has sought for inclusion of three companies out of the ten companies excluded by Ld DRP, viz., M/s Evoke Technologies Ltd, R.S software India Ltd, Mindtree Limited, the ground of revenue in respect of above said three companies are allowed. 5.11 In the appeal of the assessee, the assessee seeks exclusion of all the three companies retained by Ld DRP, viz., M/s Persistent Ltd, M/s Persistent Systems Solutions Ltd and M/s Sasken Communications Ltd. 5.12 The above said three companies, viz., M/s Persistent Ltd, M/s Persistent Systems Solutions Ltd and M/s Sasken Communications Ltd have been dealt by the co-ordinate bench in the case o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o. Otherwise, any other interpretation makes the formula unworkable and absurd. Hence, we are satisfied that such deduction shall be allowed from the total turnover in same proportion as well. 21. On the issue of expenses on technical services provided outside, we have to follow the same principle of interpretation as followed in the case of expenses of freight, telecommunication etc., otherwise the formula of calculation would be futile. Hence, in the same way, expenses incurred in foreign exchange for providing the technical services outside shall be allowed to exclude from the total turnover. Accordingly, following the decision rendered by Hon'ble Supreme Court, we uphold the order passed by Ld DRP on this issue. 7. The revenue is assailing the decision of Ld DRP in holding that the gain/loss arising on account of fluctuation in foreign exchange is operating income/expenses. We notice that the Ld DRP has followed the decision rendered by the Tribunal in the case of Sap Labs India (P) Ltd (2011)(44 SOT 156) and Cisco Systems Services BV (IT(TP)A No.270/Bang/2014) and accordingly held that the foreign exchange fluctuation gain/loss arising to the assessee on rea ..... 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