2014 (12) TMI 386
X X X X Extracts X X X X
X X X X Extracts X X X X
....dings as contained in the tribunal order vide para 6 to 6.6. Ld. A.R. further submitted that the Hon'ble High Court has already dismissed the appeal of the Revenue against the said Tribunal order vide order dated 18.07.2014 in I.T.A.No. 285 and 286 and in this respect, he placed a copy of the Hon'ble High Delhi Court order. 3. As regards the other issue of transfer pricing addition, the Ld. A.R. invited our attention to grounds raised by it as contained in para 3 to 3.12. In this respect, the Ld. A.R. submitted that this ground No.3 is general in nature and he will not be pressing grounds No.3.2, 3.7, 3.8 and 3.11. As regards ground No.3.3, the Ld. A.R. submitted that this ground is against the assessee in assessment year 2006-07, therefore, it needs to be dismissed. Ld. A.R. submitted that in rest of the grounds the grievance of the assessee is on four counts the first of which is the turnover filter. It was submitted that TPO has chosen to take lower filter with respect to turnover and did not include companies having turnover of less than Rs. 1 crore whereas on the other hand, he has not capped upper filter. Ld. A.R. submitted that the appellant had operating revenue of....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hire personnel as their employees to render services and on the contrary a company may enter into an agreement with an independent contractor for supply of personnel and in that case, the expenses incurred for contracting employees would be depicted in the P & L account as administrative costs and not as employee cost and, therefore, it was submitted that such a filter can never be applied. To support his arguments, Ld. A.R. invited our attention to order dated 15.01.2013 of Hyderabad Bench of ITAT in I.T.A.No. 645/2009 wherein the Tribunal had upheld the action o Ld. CIT(A) in deciding the application of this filter. In view of the above, it was argued that TPO may be directed to include all companies which have been excluded on the basis of this filter for the purpose of benchmarking the international transactions. 4. The 3rd argument taken by the Ld. A.R. is with respect to inclusion of 4 comparables namely M/s. Avani Sincom Technologies, Kals Information System, Bodhtree Consulting Ltd. and LGS Global Ltd. Ld. A.R. submitted that M/s. Avani Cincom Technologies and Kals Information System are also engaged in the development and sale of products and therefore, was not comparable....
X X X X Extracts X X X X
X X X X Extracts X X X X
....software development services and whether it was engaged in the business of I T enabled services. 5.1 Making fourth argument Ld. A.R. submitted that finance and bank charges form part of operating expenses and therefore Assessing Officer's action in excluding the same while computing the margin of comparable was not justified. In this respect reliance was placed in the case of Polartech India (P) Ltd. Vs ACIT 1156 TJ 659 wherein DRP itself upheld the action of TPO in including finance and bank charges in operating expense while computing the margins. Ld. A.R. further submitted that the above proposition is also supported by the fact that even in the Safe Harbour Rules dated 18.09.2013, the finance and bank charges have not been excluded from the list of operating expenses even though interest and foreign exchange gain / loss has specifically been excluded from the list of operating expenses. 6. Ld. D.R. in respect of deduction u/s 10A has relied upon the orders of authorities below. Arguing upon the transfer pricing issue, Ld. D.R. submitted that considering objections of the assessee, DRP had already directed the exclusion of one comparable. As regards the argument of the Ld. A.....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... has repeatedly been rejected by various benches of ITAT and, therefore, it was argued that application of this filter is valid and deserves to be upheld. Reliance in this respect was placed on the following case laws as stated in the written synopsis at page 6. i) Capital I Q Informatin Systems (I) P.Ltd. I.T.A.No. 1961/Hyd/2011 ii) Wills Processing Services (I) P. Ltd. I.T.A.No. 4547/Mum/2012 iii) Maersk Global Service centre (I) P.Ltd. I.T.A.No. 3774/Del/2011 iv) ITO Vs M/s. Nextlink India P. Ltd. I.T.A.No. 454/Bang/2011 v) Nomura Fin Services P. Ltd. I.T.A.No. 7046/Del/2012 vi) Cognizant Technology Services P. Ltd., I.T.A.No. 2106 & 1864/Hyd/2011 vii) Zavata India P. Ltd. I.T.A.No. 1781/Hyd/2011 viii) Market Tools Research Pvt. Ltd., I.T.A.No. 2066/Hyd/2011 8. Replying to the argument of Ld. A.R. regarding exclusion of 4 comparables, namely M/s. Avani Sincon Technologies, Kals Information System, Bothtree Consulting Ltd. and LGS Global Ltd. Ld. D.R. submitted that in respect of Avani Sincon Technologies, the TPO has used segmental data and had obtained information u/s 133(6) to find out comparability. Moreover, it was submitted that Avani Sincon Technologies has termed....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rtion in the assessment order, the Tribunal has recorded finding of fact that the assessee had made and issued invoices on 31.03.2005. Categorical factual finding is that the assessee satisfied the requirement of commencement of production stipulated in Section l0A of the Act. We shall examine, whether the said factual finding requires interference. Commissioner of Income Tax (Appeals) has noticed that the assessee was incorporated sometimes in December 2003 and had applied for STPI approval on 14.12.2004. Subsequently, letter dated 15.03.2005 was issued by STPI, granting approval and stipulating that the assessee should commence production within three years. Thereafter, the legal formality was completed when agreement dated 31.03.2005 was executed between STPI and the assessee. The assessee could not place on record the copy of the letter written by them, informing STPI about commencement of production, but, there was evidence in the form of reports for the months of January, February and April, 2006, which were examined and referred by the _ Tribunal. The date of commencement of production as recorded therein was 01.04.2004. Thus, confirming that the date of commencement of com....
X X X X Extracts X X X X
X X X X Extracts X X X X
.....2014 in ITA No. 54212013, The Commissioner of Income Tax Tax- Vs. M/s. Quantum Coders Ltd. The said judgment takes note of the judgment of the Kamataka High Court in ITA No. 32312010, Commissioner of Income Tax Vs. M/s. Expert Outsource Pvt .. Ltd., (2013) 358ITR 518 (Karn) and the decision of IT AT, Chennai Bench in Nagesh Chundur Vs. Assistant Commissioner of Income Tax, ITA 83/Mds/20 11 dated 01.06.2011. Learned counsel for the respondent-assessee has drawn our attention to the decision of the Madras High. Court in Nagesh Chundur Vs. Commissioner of Income Tax and Commissioner of Income Tax Vs. Nagesh Chundur, (2013) 358 ITR 521 (Mad), wherein the view taken by the Tribunal has been affirmed. This is in consonance with the view expressed by the Division Bench of this Court in M/s. Quantum Coders Ltd. (supra). On this aspect, therefore, the answer being clear and already adjudicated, no substantial question of law arises. The appeals are accordingly dismissed. 9.1 Therefore, following the above we also hold the issue in favour of the assessee and in view of this, grounds No.1, 2 - 2.15 are decided in favour of the assessee. 10. As regards the determination of arms length pric....
X X X X Extracts X X X X
X X X X Extracts X X X X
....% 5.1 In the proceedings before the TPO, the number of comparable cases was reduced to 20. He included the case of Infosys Technologies Ltd. and excluded some case for the reasons mentioned earlier. No adjustment was made on account of working capital The mean was worked' at 27.08% against the margin of 17% declared by the assessee. 5.2 Various arguments, as stated earlier, were. taken before the DRP which inter-alia included rejection of comparable cases; application of arbitrary filter of wage to sales ratio; ignoring that the assessee is a limited risk company; inclusion of Infosys Technologies Ltd.; and inclusion of Sat yam Computers' Services Ltd. in. spite of the. fact that its data is not reliable as publicly known. On the basis of these. arguments, the DRP excluded the case of Sat yam Computers Services Ltd., thereby reducing the arm's length margin to 25.6%. It is argued that the case of the assessee is not comparable with Infosys Technologies Ltd., the reason being that the latter is giant in the area of development of software and it assumes all risks, leading to higher profit. On the other hand, the assessee is a captive unit of its parent company ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... India (P.) Ltd. (supra), Telecordia Technologies India (P.) Ltd. (Supra) and CSR India (P.) Ltd. (supra) are similar, namely, development of software and the size turnover range was also similar to that of the assessee's in the instant case. Further, the assessment year 2007-08 was subject matter of consideration in the case of Trilogy E-Business Software India (P.) Ltd. (supra),- Telecordia Technologies India (P.) Ltd. (supra) and CSR India (P.) Ltd. (supra) and the cornparables selected by the TPO in those cases are identical to that of the present case. Therefore, the finding recorded in the Case of Trilogy E-Business Software India (P.) Ltd. (Supra), Telecordia Technologies India (P.) Ltd. (Supra) and CSR India (P.) LId. (supra) will hold good in -this case also. We shall now proceed to dispose off of the issues raised by the assessee as under: Turnover filter: 3.6.1 The TPO had, while selecting the above 26 com parables, applied a lower turnover filter of Rs. 1 crore, but, preferred not to apply any upper turnover limit. The size of the comparable is an important factor in comparability. The ICAI TP Guidance Note has observed that the transaction entered into by a Rs. 1....
X X X X Extracts X X X X
X X X X Extracts X X X X
....a particular range and the assessee being in that range having turnover of 8.15 crores the companies which also have turnover of 1.00 to 200 crores only should be taken into consideration for the purpose of making TP study." 3.6.3 The above view has been followed in the case of Trilogy E Business Software India (P) Ltd. (supra) and the relevant portion of the finding is extracted as under: "20. In this regard, we find that the provisions of law pointed out by the learned counsel for the assessee as well as the decisions referred to by the Id. Counsel for the assessee clearly lay down the principle that the turnover filter is an important criteria in choosing the comparables. The assessee's turnover is Rs. 47,46,66,638/-. It would, therefore, fall within the category of companies in the range of turnover between 1 crore and 200 crores (as laid down in the case of Genesis Integrating Systems (India) Pvt. Ltd vs. DCIT in ITA.No.1231/Bang/20 I 0). Thus, companies having turnover of more than 200 crores have to be eliminated from the list of comparables as laid down in several decisions referred to by the Id. Counsel for the assessee. Applying those tests, the following companies w....