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TMI Blog2019 (4) TMI 2134X X X X Extracts X X X X X X X X Extracts X X X X ..... taxpayer has duly shown the misc. income in profit loss account under the head other income , which represents amount recovered from its employees towards the notice pay in relation to the period of notice not served. It is also not in dispute that the salary of the employees is claimed as expenses of the undertaking of the taxpayer and that subsequent recovery on termination of the employee should also be credited to the respective undertaking. Thus by applying the decision rendered in Birla Soft (India) Ltd. vs. DCIPT [ 2011 (12) TMI 385 - ITAT DELHI] CIT (A) has rightly allowed the notice period pay received as income while computing the deduction u/s 10B of the Act because amount received towards notice period pay was to be treated as income derived from the eligible undertaking. The decision rendered by the Hon ble Supreme Court in Liberty India [ 2009 (8) TMI 63 - SUPREME COURT] applies to DEPP/Duty Drawback benefits which do not form part of net profit for the purpose of computation of profits and do not fall within the expression profits derived from industrial undertaking for the purpose of section 80IB. So, ld. CIT (A) has rightly held that Liberty India (supra) is not a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... verticals in its search process and the TPO has reexamined it's accept/reject matrix accepting the keywords of assessee. • The TNMM method is more tolerant and less susceptible to the transactional and functional differences and therefore, if the companies are broadly comparables to the tested party, the same should be accepted. (ii) That on the facts and in the circumstances of the case the Ld. CIT(A) has erred in treating the miscellaneous income of Rs.17,90,39S/- from notice period pay from its ex-employees as income derived from export of article or thing to be eligible for deduction u/s 19B of the IT. Act, 1961. (iii) That on the facts and in the circumstances of the case the Ld. CIT(A) has erred in holding that notice period pay received should be considered as income while computing deduction under section 10B, where as the said income was not derived from industrial undertaking for the benefit of deduction u/s 10B of the I.T. Act, 1961." 3. The Appellant, M/s. Siemens Power Engg. Pvt. Ltd. (hereinafter referred to as 'the taxpayer') by filing the present appeal sought to set aside the impugned order dated 30.06.2014 passed by the ld. CIT (Appeals)-2, Fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly dissimilar to the Appellant. 7. On facts and in law, the Ld. CIT(A)/ Ld. AO/ Ld. TPO violated the provisions of Rule 10B (2) of the Rules by rejecting a comparable company Powersoft Global Solutions Ltd. identified by the Appellant in its TP documentation, holding that the Company's accounting year ended on 30 September instead of 31 March. 8. On facts and in law, the Ld. CIT(A)/ Ld. AO/ Ld. Ld. TPO have violated the provisions of Rule 10B (2) of the Rules by arbitrarily adding a new company, Stup Consultants Pvt. Ltd. as comparable to the Appellant, disregarding the fact that the Company is functionally dissimilar to the Appellant as the Company is a full service project delivery consultancy company offering integrated planning, architectural, engineering and project management services to varied industries and ignoring that there was an abnormal increase in the income growth during FY 2007-08. 9. On facts and in law, the Ld. CIT(A)/ Ld. AO/ Ld. TPO erred in re-computing the operating profit to operating cost ("OPITC") margin of the Appellant after incorrectly treating provision for anticipated loss guarantee (Rs.15,166,484) and provision for anticipated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thod (MAM). The taxpayer in its TP documentation computed its PLI at 20.53% on cost which has been recomputed at 18.14%, then recomputed at 14.35% as against the PLI of comparables at 40.50% by considering the data for AYs 2005-06, 2006-07 and 2007-08. 7. The TPO in order to carry out the TP analysis applied filters as under :- (i) Use of current year data; (ii) Reject companies where related party transactions exceed 25% of sales; and (iii) Companies that are affected by some peculiar economic circumstances. 8. TPO after FAR analysis examined the comparables on quantitative filters and qualitative filters with ratio of service income to total income at least 75%. TPO also proposed to consider the comparability in the economic activity of technical consultancy and engineering services and not in computer services. 9. After applying the aforesaid filters, TPO rejected 5 comparables out of 7 comparables chosen by the taxpayer and introduced 2 more comparables and computed OP/TC of comparables at 29.70% and adjusted OP/TC at 28.26% and thereby proposed an adjustment of Rs.9,65,99,160/- on Arm's Length Price (ALP). AO disallowed the claim of the taxpayer for including the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nalysis made by the TPO except rejection of one comparable, namely, Alphageo (India) Ltd.. Now, the Revenue has challenged exclusion of Alphageo (India) Ltd. by the ld. CIT (A). Ld. CIT (A) has also considered foreign exchange loss as non-operating. We would examine the comparability of Alphageo (India) Ltd. vis-à-vis the taxpayer to benchmark the international transactions qua engineering design services as under. ALPHAGEO (INDIA) LTD. (ALPHAGEO) 16. Ld. DR for the Revenue challenging the exclusion of Alphageo drew our attention to paras 7.2 and 7.3 at page 16 of the impugned order passed by ld. CIT (A) and contended that findings are cryptic one which need to be extensive one with FAR analysis and profit of business is very important. Ld. DR also relied upon the order passed by the TPO. 17. However, on the other hand, ld. AR for the taxpayer relied upon the order passed by the ld. CIT (A) excluding Alphageo and contended that Alphageo is functionally dissimilar and it also fails to satisfy the filter of export turnover which is less than 25% as proposed by the TPO. 18. Perusal of the annual report, available at page 1468 of the paper book, shows that Alphageo is provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... equently, ground no.(1) of the Revenue's appeal is determined against the Revenue. NO.4754/DEL/2014 (REVENUE'S APPEAL) CORPORATE GROUNDS GROUNDS NO.(ii) & (iii) 22. AO while computing allowable deduction u/s 10B of the Act excluded misc. income of Rs.17,90,395/- from the net profit of the business of the undertaking on the ground that the taxpayer has not fulfilled three conditions laid down u/s 10B inter alia that (i) profits should be directly derived from industrial undertaking and should not be merely attributable to the industrial undertaking; (ii) there should be a direct and proximate nexus between the income received and the activity carried out by the industrial undertaking; and the source of the income of profits should be the industrial undertaking itself. 23. AO further observed that the export incentive income is not having any direct nexus with the activities carried out by the taxpayer and relied upon the decision rendered by Hon'ble Supreme Court in the case cited as Liberty India vs. CIT - SLP CCJ No.5827/07 dated 31.08.2009. 24. However, ld. CIT (A) included the misc. income of Rs.17,90,395/- in the net profit of business of the taxpayer for computing the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... up that it is functionally dissimilar and it fails export filter of < 25%. But the TPO retained Stup as a suitable comparable. 29. The taxpayer challenged Stup before the ld. CIT (A) as is evident form ground no.7 extracted at page 449 of the paper book but ld. CIT (A) has not returned any findings on this issue. 30. When we examine the submissions made by the taxpayer before the ld. CIT (A), available at pages 411 to 453 of the paper book, relevant page 452, which is based upon Prowess Data Base, it has come on record that Stup Consultants Pvt. Ltd. is purely a consultancy firm which, renders consultancy and project management services for power, transportation, telecommunications, commercial, institutional, recreational and manufacturing facility infrastructure, whereas the taxpayer is into providing engineering design services in the form of customs software for planning and set up of power plants, hence Stup is not functionally comparable vis-à-vis the taxpayer. 31. Furthermore, Stup also fails export filters applied by the ld. TPO himself as it has export of > 25% as against 100% export of the taxpayer. So, when TPO has himself applied this export filter, he cannot b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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