TaxTMI 
TaxTMI 
2014 (5) TMI 107
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....s contested in the grounds are not pressed and comparables were contesteded without there being any ground. Grounds are considered based on the written submissions as well as amended grounds raised by Assessee and also on the basis of paper books filed in this regard. 3. We have heard the learned counsel and the learned DR in detail. 4. Briefly stated, Assessee is a company registered in India and is engaged in the business of information technology, engineering and GIS services. Assessee filed its return of income for AY 2007-08 on 30-10-2007 declaring gross profit originally at Rs. 1,77,13,278/- and claiming exemption u/s 10A on the above business income and offering other income at Rs. 1,45,963/- to tax. During the course of assessment proceedings, Assessee filed revised computation along with revised Form 56F claiming deduction at Rs. 2,01,58,456/-, which was accepted by the AO but the exemption was restricted to the gross total income available under the head 'business'. In the course of assessment proceedings, as Assessee has transactions with its Associated Enterprise (AE), transactions were referred to TPO for analyzing the arm's length price of transactions. Assessee rep....
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....d suggested an adjustment of Rs. 2,78,56,195/- on the entire turnover of Assessee. Assessee objected before the DRP about adopting entire turnover for benchmarking as against turnover pertaining to AE transactions and further objected to various comparables. The DRP in the order rejected various objections raised by Assessee but only accepted about one comparable in the case of Maple e Solutions Ltd, which was directed to be excluded. Consequently, the AO while giving effect to the order of the DRP reworked out the arithmetic mean PLI at 30.06% thereby making an addition of Rs. 2,76,28,627/- being adjustment recommended and confirmed by the DRP. 6. Assessee in its original grounds has contested the amount of Rs. 2,78,56,195/- but in the amended grounds contested the amount of Rs. 2,77,75,000/-. This amount is taxable income, which included other income returned by Assessee. The Actual addition made, which should have been correctly contested by Assessee is only Rs. 2,76,28,627/-, therefore, this amount is only considered. While arriving at the adjusted arithmetic mean PLI, TPO allowed working capital adjustment at 1.38%. Assessee objected to the working capital adjustment wherein ....
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....lable at the time of preparing TP documentation, the Tribunal uniformly is holding that comparable data available at the time of analysis by the TPO should also be used provided information available with either in the public domain or specifically obtained by the TPO was made available to Assessee for its objections, if any. Since TPO has given enough opportunity to Assessee, we do not find any merit in the contentions raised. There is no necessity for re-preparing the TP documentation, which has already been furnished to the TPO at the time of filing return as exercise of verifying arm's length price is with the TPO and in the proceedings before the TPO enough opportunity was given to Assessee. In fact, Assessee also suggested fresh comparables and the comparables rejected by the TPO out of the selected companies of Assessee were also accepted. In view of this factual position, we do not find any merit in the contention on this issue. Accordingly, ground No. 3(i) stands rejected. (B) Segment wise data ( ground Nos. 3(ii) & 3(v): (a) It was submitted that Assessee company has three business verticals, namely, a) GIS Services - STPI Unit, b) Software Serv....
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....bmitted that the segmental data is not audited and as per the annual report there is no segmental reports, therefore, allocation of expenditure and profits arrived at by Assessee cannot be relied upon. (f) After considering rival contentions, we are of the opinion that Assessee has a valid ground on this issue. First of all, as seen from the order of the AO, the AO while considering deduction u/s 10A himself categorised the profits earned by various units, as under: GIS Division Rs. 1,64,45,398 IT Division (-) Rs. 47,97,187 Engineering Division Rs. 60,62,067 Total Rs. 1,77,13,278 This indicates that Assessee's computation of profits on different units, two units being eligible units i.e. GIS and Engineering Division and one non-eligible unit of IT Division are available separately and the AO has neither raised any objection on the profit computation nor made any adjustments to the working given by Assessee. Even though Assessee's entire business activity is coming under one segment under Company Law, but for the purpose of transfer pricing these activities are entirely different. As held by the coordinate bench in the case of Benetton India Pvt. L....
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....th reference to the transaction with non-AE also and it was submitted that it resulted in addition of Rs. 1,80,04,041/-on the non-AE transactions, which are almost on par with AE transactions. The learned counsel brought out the facts to our notice and submitted that segmental data as provided for the claim of section 10A is available with AO, which are duly signed by CA. It was further submitted that TPO as well as DRP rejected this on the reason that segment-wise data is unaudited and cannot be relied, in a way of violating of principles of natural justice. (b) The learned DR, however, relied on the contentions raised by the TPO and DRP and submitted that segment-wise details are not available, therefore, they do not have any option but to adopt enterprise profit alone. (c) In the rejoinder, the learned counsel referring to the objections made before DRP submitted that DRP also noted that there is strong merit in the claim of Assessee but, rejected the same that the issue is pending before various appellate-for a and, hence, not reached finality. In view of this, it was submitted that adjustment should be made only with referenc....
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.... If this sort of adjustment is permitted this will result in increasing the profit of assessee on the entire non-AE sales also, which is not according to the provisions of Transfer pricing mandated by the Act for the impugned assessment year." (g) Similar decision was also taken in other cases relied upon by the learned counsel as under: (i) Genisys Integrating Systems (India) Pvt. Ltd. (ITA No. 1231/Bang/2010) (ii) Dy. CIT v Starlite [2010] 40 SOT 421 (Mum.). (iii) DCIT Vs. Ankit Diamonds (43 SOT 523 (Mum). (h) Respectfully following the decisions of the coordinate bench, we direct the AO/TPO to re-workout the addition accordingly. (D) Selection of wrong comparables by the TPO Ground No 3(iv), 3(viii) and 4: (a) In the written submissions, Assessee however limited its objections to the following companies: 1. Accentia Technologies Ltd &....
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....nbsp; (d) We have considered and examined various comparables selected as well as perused various orders of the coordinate benches on the issue. It is true that in the transfer pricing analysis comparability is at the heart of transfer pricing analysis. The foundation for comparability analysis is the need for a comparison between conditions made or imposed between AE and those which will be made between independent enterprises. As per the provisions, FAR analysis is must. As per Rule 10B if there are any differences between comparables, relevant transactions should be taken and differences to be adjusted to arrive at the ALP for the reason that after taking number of companies as comparables, the TPO should allow adjustments towards differences in depreciation, differences in risk perceptibility, of working capital adjustments, etc depending on the facts of the case. But selecting a company, which is not comparable at all or which affects comparison due to unusual features cannot be taken as a comparable company. Assessee's objection is with reference to such companies, which are selected by the TPO as comparable but in fact there are certain extraordinary events or di....
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....eld that Eclerx Services Ltd. cannot be taken into account in view of their extra ordinary profits and that company was engaged with knowledge process outsourcing business which is distinct and different from the line of nature of activities of the assessee. Hence this company should be excluded while determining ALP" Even in the case of Zavata India (P.) Ltd. (supra), on which Assessee relied, similar view was taken. Respectfully following the said decisions of the coordinate bench, we direct the AO/TPO to exclude the said company while determining ALP. (3) Mold Tek Technologies Ltd. We find that there is merger in the company and also fails employee filter cost. We find that in the case of Capital IQ Information Systems India (P.) Ltd. (supra), for the AY 2007-08, the coordinate bench of ITAT, Hyderabad held as under: "The assessee has objected for this company being taken as comparable mainly on the ground that since there is a merger from 1st October, 2006, the financial results of the company cannot be taken as a comparable. The assessee, relying upon the observations of the DRP, in the case of this particular company, in the proceeding for the AY ....
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....ollowing decisions of the coordinate bench, submitted to exclude the said companies from the list of comparables on the ground that the said companies turnover is many times more as compared to that of Assessee. 1. Patni Telecom Solutions (P.) Ltd. (supra) 2. Zavata India (P.) Ltd. (supra) We find that in the case of Patni Telecom Solutions (P.) Ltd.(supra) the coordinate bench excluded the high turnover companies. Therefore, there is justification in the claim. However, we are not able to examine whether there are any companies accepted by assessee with lower turnover when compared to assessee's turnover. The norm should be uniform. Therefore, we direct the AO/TPO to exclude the said companies from the list of comparables only if there are no companies with similar ratio of lower turnover, in the other accepted comparables, while determining ALP. AO is directed to examine this and decide accordingly. 8. Asit C Mehta Financial Services Ltd. After considering the submissions and perusing the record, it is observed that the TPO had included the said company which was also engaged in portfolio management services and investment ac....
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...., there is no need to separately adjudicate on these filters as Assessee's objection with reference to other comparables selected by the TPO have already been addressed in the above grounds. Therefore, giving any finding on these objections will only be academic in nature, as the specific objections to the comparables were already dealt with. Hence, these two objections raised by Assessee in Ground No. 3(vi) and 3(vii) are considered academic in nature and accordingly rejected. ADDITIONAL GROUND 11. The additional ground raised by Assessee is with reference to improper calculation of working capital adjustment by the TPO. 12. It was the contention that the TPO by not taking into consideration the amount of advances from customers as on 31-03-2007 as also on 31-03-2006 did not calculate the adjustment correctly. Assessee prayed for inclusion of advance from customers under trade payables for calculation of working capital adjustment. It was submitted that if the account payables of Assessee was considered on 31-03-2007 and 31-03-2006 (both of trade payables) working capital adjustment would be 3.30% as against 1.38% percent. Assessee furnished detailed working of the capital adju....
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....riving the arithmetic mean of PLI, if any further adjustment towards working capital is required, the same may be considered after verification as directed above. If required, the TPO or AO can seek information from the Assessee and decide accordingly. 16. The other ground raised is with reference to setting off of brought forward losses and unabsorbed depreciation before giving effect to deduction u/s 10A 17. As briefly stated above, the AO has set off of losses of Rs. 47,97,187/- of non 10A unit before providing deduction u/s 10A. It was the contention that deduction u/s 10A is undertaking specific and should be computed without considering losses of the other units. It was submitted that this contention is supported by the judgment of the Hon'ble High Court of Karnataka in the case of CIT v. Yokogawa India Ltd. 341 ITR 385 (Kar.).The learned counsel also relied on the decision of the coordinate bench in the case of M/s Genisys Integrating System (India) Pvt. Ltd. in ITA No. 908/Bang/11, for AY 2007-08, dated 29-01-2013.The learned DR, however, relied on the orders of the AO. 18. We have considered rival contentions and perused material on record. The Hon'ble Karnataka High in....
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...., it is clear that though the assessee may be having more than one undertaking for the purpose of section 10A it is the profit derived from export of articles or things or computer software from the business of the undertaking alone that has to be taken into consideration and such profit is not to be included in the total income of the assessee. It is only after the deduction of the said profits and gains, the income of the assessee has to be computed. 30. The provisions of this sub-section will apply even in the case where an assessee has opted out of section 10A by exercising his option under sub-section (8). As discussed, it is permissible for an assessee to opt in and opt out of section 10A. In the year when the assessee has opted out, the normal provisions of the Act would apply. The profits derived by him from the STP undertaking would suffer tax in the normal course subject to various provisions of the Act including those of Chapter VI-A. If in such a year, the assessee has suffered losses, such losses would be subject to inter source and inter head set off The balance if any thereafter can be carried forward, for being set off against profits of th....