TaxTMI 
TaxTMI 
2014 (4) TMI 615
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....g total income of Rs.15,27,145/- after claiming deduction u/s 10A of the Act. During the scrutiny assessment proceedings, the Assessing Officer noticing that the international transactions of the assessee with its AE exceeded turnover of Rs.5 crores referred the matter to the Transfer Pricing Officer u/s 92CA of the Act for determining the ALP. The TPO from the TP study submitted along with return filed by the assessee noticed that the assessee had shown reported revenue earned from international transaction with its AE as under:- (i) Software development services Rs.18,90,57,493/- (ii) Software development services Rs.13,26,28,711 (iii) Import of software for distribution Rs.18,74,557 3. On examining the TP study, the TPO noted that the assessee had adopted transactions net margin (TNMM) as most appropriate method and operating profit/total cost as ....
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.... the ALP of international transaction at Rs.37,44,30,857/- as against the price of Rs.32,63,76,762/- shown by the assessee. This resulted in a shortfall of Rs.4,80,54,095/- which was directed to be treated as the income of the assessee. Being aggrieved of the aforesaid direction of the CIT (A), the assessee is in appeal before us. 4. At the very outset, the learned AR submitted that he does not want to press ground Nos. 1,2,7,8 and 9. In view of such submission, these grounds are dismissed as not pressed. 5. Ground No.3 reads as under:- "On the facts and in the circumstances of the case and in law, the learned CIT (A) erred in confirming the use of following filters in undertaking the comparative analysis: Different year ending filter; and Application of one side turnover filter." In so far as the aforesaid ground is concerned, the learned AR did not press the issue with regard to the application of different year ending filter. So far as the other issue of application of one side turnover filer is concerned, the learned AR objecting to the selection of Infosys Technologies Limited as a com....
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.... 10-7-2013 in case of CIT v. Agnity India Technologies (P.) Ltd. ITA 1204 of 2011 upheld the order of the Income-tax Appellate Tribunal, Delhi Bench holding that big companies like Infosys cannot be treated as comparable to small captive service providers like the assessee. In the aforesaid view of the matter, we direct the Assessing Officer/TPO to exclude M/s Infosys Technologies Limited from the list of comparables for determining the ALP. Hence, this ground of the assessee is partly allowed. 8. In ground No.4, the assessee has objected to rejection of the following companies selected as comparable by the assessee. (i) Bangalore Softsell Limited (ii) Cherrysoft Technologies Ltd., (iii) Future Software Ltd., and (iv) Mahindra Consulting Limited 9. Briefly the facts relating to the issue are, the assessee in its TP documentation had selected the aforesaid four companies as comparables claiming them to be functionally similar to the assessee as they are in the similar line of business of software development and services. The TPO however rejected them to be treated a....
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...., we direct the TPO to consider afresh as to whether the aforesaid company can be treated as comparable to the assessee after taking into consideration all materials and after affording a due opportunity of being heard to the assessee. Cherrysoft Technologies Limited and Future Software Limited-With regard to the aforesaid two companies, the learned AR submitted that the assessee in its TP documentation has selected the aforesaid two companies as comparables as they satisfy all the filters applied by the TPO and the annual reports are available in public domain which was provided to the TPO as well as CIT (A) during the proceedings before them. The learned AR relying upon the decision of Special Bench of the Income-tax Appellate Tribunal, Chandigarh in case of Dy. CIT v. Quark Systems (P.) Ltd. [2010] 38 SOT 307 submitted that every information has to be considered in the process of determination of ALP so that a fair view is adopted. It was thus submitted by the learned AR that the TPO should not have rejected the aforesaid companies as comparables on the ground of non availability of data in public domain when the annual reports of the comparable companies were submitted befor....
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.... is the specific contention of the learned AR that as per the annual report of the assessee, there is no related party transactions and whatever related party transactions are there are between the subsidiary company and other companies and not with the assessee company. Therefore, considering the aforesaid submissions of the assessee, we are of the view that the matter requires to be examined afresh by the TPO to ascertain as to whether actually there is any related party transaction and if at all there is any related party transaction whether they exceeded 25% threshold limit of related party transaction to turnover filter adopted by the TPO. The issue is therefore remitted to the file of the Assessing Officer/TPO for examining the same afresh after affording a reasonable opportunity of being heard to the assessee. Hence, this ground is treated as allowed for statistical purposes. 16. Ground No.5 raised by the assessee reads as follows:- "On the facts and in the circumstances of the case and in law, the learned CIT (A) erred in not accepting the submission of the appellant and the remand report of the TPO on the inclusion of bad debts in operating c....
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....lly objected to the profit margin adopted at 72.38% of VMF Softech Limited by contending that bad debts and provision for bad debts and advances should be considered as part of the operating cost. On the basis of the aforesaid contention of the assessee, the CIT (A) called for remand report from the Assessing Officer. As can be seen from para-6 of the remand report submitted by the TPO a copy of which was placed before us, the TPO re-computed the net profit margin of VMF Softech Limited on the basis of annual report which worked out at 4.37%. However, the CIT (A) in the order passed by him did not accept the net profit margin worked out to 4.37% by the TPO by observing that the computation made by the TPO is erroneous and himself proceeded to compute the net profit margin at 71.99%. However, the CIT (A) has not given any reason why the computation made by the TPO in the remand report is erroneous. In such view of the matter, we remit the issue back to the file of the TPO for fresh determination after affording a reasonable opportunity of being heard to the assessee. 19. The issue in ground No.6 is with regard to exclusion of foreign exchange fluctuations from operating income. T....
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....d that foreign exchange fluctuation gains form part of the sale proceeds of exporter-assessee. The foreign exchange fluctuations income cannot be excluded from the computation of the operating margin of the assessee company......." Following the aforesaid decision of the Bangalore Bench of the Tribunal, the Hyderabad Bench of the Tribunal held in the case of Four Soft Ltd. (supra) in the following manner- 16. With regard to the exclusion of gain on account of foreign exchange fluctuation while computing the net margin, as claimed by the assessee, we find that the exchange fluctuation gains arise out of several factors, for instance, realisation of export proceeds at higher rate, import dues payable at lower rate. Since the gain or loss on account of exchange rate fluctuation arises in the normal course of business transaction, the same should be considered while computing the net margin for the international transactions with the associated enterprises of the assessee. Our view in this behalf is fortified by the decisions of the Bangalore Bench of the Tribunal in the case of SAP Labs India Ltd. supra and Bombay bench of the Tr....