TaxTMI 
TaxTMI 
2015 (10) TMI 1085
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....e bad in law and void ab- initio. 2. That the Ld. CIT(A) grossly erred on facts and in law by concluding that the reference made by the Ld. AO to the Ld. Transfer Pricing Officer (Ld. TPO), under section 92CA(3) of the Income Tax Act, 1961 ('Act') was validly made. The Ld. CIT(A) completely failed to appreciate that the l.d. AO had not recorded any reasons under section 92CA of the Act which made it expedient and necessary for him to make a reference under that provision. 3. That the Ld. CIT(A) grossly erred on facts and in law in confirming an adjustment of Rs. 11,00,92,376 out of the total adjustment of Rs. 11,26,75,000 made by the ld. Transfer Pricing Officer (TPO) to the arm's length price on providing of software services and other services declared by the appellant in respect of the international transactions entered into by it with overseas associated enterprises (AEs). 4. That the Ld. CIT(A) grossly erred on facts and in law in: (a) rejecting the 'TNMM' analysis undertaken by the appellant using multiple year data to substantiate that its international transactions with its AEs are at arm's length, and in inappropriately using data/ infor....
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....facts and in law in confirming the action of the Ld. AO of reducing the deduction claimed by the appellant under section 10A of Act to Rs. 12,56,84,892 as against Rs. 12,60,73,272 thereby reducing the deduction by Rs. 3,88,340 on erroneous and untenable grounds. 8. That the Ld. CIT(A) erred in facts and in law in not appreciating that other incidental services are inextricably linked with IT-enabled services provided by the appellant to its customer, and are covered by notification SO/890(E) dated September 26, 2000, which is wide enough to include all such back-office operations and support services. 9. That the Ld. CIT(A) erred in facts and in law in confirming the action of Ld. AO of disallowing a sum of Rs. 53,08,491 representing the accrued liability on account of leave encashment by invoking the provisions of section 43B(f) of the Act. 10. That the Ld. CIT (A) erred in law in not following the decision of Hon'ble Calcutta High Court in the case of Exide Industries Ltd & Anr Vs UOI, (2007) 292 ITR 470 wherein the Hon'ble High Court struck down the provision of section 43B(f) by holding it invalid and ultra vires." 2. For A.Y. 2003-04, the assessee had filed....
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....re, issued a show cause notice requiring the assessee to show cause as to why the following 9 comparables be not disregarded: (1) Escosoft Technologies Limited (2) IKF Technologies Ltd., (3) ORG Informatics Ltd. (4) PSI Data Systems Ltd. (5) Sundaram Telematics Ltd. (6) Themax Systems & Software Ltd. (7) Zenith Global Consultants Ltd. (8) Zensar Technologies Ltd. (9) Mindtech India Ltd. 3.4. Further, he gave a list of 44 companies which were sought to be considered for being used as comparables. After considering the assessee's reply, ld. TPO rejected 7 companies from the comparables selected by the assessee in its TP report for the following reasons: S. No. Name of the company Reasons for Exclusion 1 Escosoft Technologies Ltd. The company has expertise in application development, facilities management, ERP, EMS, e-Business and IT outsourcing. The functions of the company are varied and not comparable to those of the assessee. 2 ORG Informatics Ltd. The object of the company is related to manufacture of microprocessor based system, computer peripherals like line printers, magnetic tape and disk drives etc. These functions are....
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....ly one. These were rejected on the ground that they had substantial related party transactions. 3.8. Ld. CIT(A) had retained only Aftek Infosys Ltd. 18 companies had been rejected by ld. CIT(A), though there was agreement between the assessee and the TPO regarding their comparability with the assessee. Ld. CIT(A) also confirmed the rejection of 7 companies which were considered by the assessee in its TP documentation but were rejected by ld. TPO in the TP order on the basis of final set of 18 companies, the OP/.TC margins of the revised comparable set was computed at 18.60%. Ld. CIT(A) while applying the above arm's length margin also denied the 20% risk adjustment ( to the mean margin of the OP/TC of the comparables), allowed by TPO to the assessee on account of the risk free nature of its software development services as compared to the full fledged risk bearing comparable companies. Ld. CIT(A) reduced the quantum of TP adjustment of Rs. 25,82,624/- and finally sustained the TP adjustment at Rs. 11,00, 92,,376/-. 3.9. As regards other additions made by AO on corporate issues, we will consider the same after disposing of the grounds raised by assessee in regard to TP issues.....
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....s pointed out by ld. counsel for the assessee in synopsis, have not been critically examined with reference to the annual report and, therefore, we restore this matter to the file of AO to find out the factual aspects on this count and, if, the company is found to be only a software product company, then the same cannot be compared with the assessee company, which is primarily a designing and developing software on contract basis for its AE. This issue is allowed for statistical purposes. 6. Infosys Technologies Ltd. - In the list of 41 comparables, finally selected by ld. CIT(A), Infosys Technologies Ltd. was included, inter alia, pointing out that there was agreement between TPO and the assessee on this comparable. 6.1. Ld. counsel pointed out that the comparison of the functional and risk profile of the assessee vis a vis Infosys Technologies Ltd., is as under: Basis/ Particular Infosys Technologies Ltd. Appellant Risk Profile Operate as full fledged risk taking entrepreneurs Operates at minimal risks as all the software development services are rendered to the AEs only. Nature of Services Diversified- consulting, application design, development, re....
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....at due to unreliable financial data of Satyam Computers Services Ltd., which is in public domain now, the company cannot be considered as a comparable to the assessee. 8. Xansa India Ltd. : Ld. counsel for the assessee submitted that this company could not be included in the final set of comparables because it has a significant RPT/ Sales ratio of 100.45%. 8.1. Ld. counsel very fairly contended that no plea was taken before ld. CIT(A) on the basis of RPT, but now this objection has been taken as annual report is available and, therefore, the matter may be restored back to the file of ld. CIT(A) in order to arrive at proper conclusion. 8.2. Having heard both the parties, we restore this issue to the file of ld. CIT(A) for decision afresh in accordance with law. We order accordingly. 9. Geodesic Information Systems Ltd.: Ld. counsel for the assessee submitted that this company has been included in the final set of comparables by ld. CIT(A) observing that there was agreement between the TPO and the assessee. He submitted that this company is a software product development company, offering products such as its interoperable instant messaging platform known as 'Mundu' to va....
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....(A). 10.2. After hearing both the parties we find that ld. CIT(A) has simply rejected this comparable observing that TPO had excluded it for functional dissimilarity. He further submitted that the last annual report placed on the record of the assessee pertained to FY 2001-02 but no subsequent final data was available. He further observed that it had 4 overseas subsidiaries in UK, US, Mauritius and Singapore. RPT information was not available. Accordingly, this was rejected on account of non-availability of financial data. 10.3. As far as observation of ld. CIT(A) confirming the TPO's action on the basis of functional profile are concerned, we find that the comparable Ecosoft Technologies Ltd. had expertise in application development, facilities management, ERP, EMS, e-Business and IT Outsourcing. The assessee was also engaged in the business of development of software, subcontracting and exports system engineering services, technical services including systems installation maintenance. Therefore, this comparable could not be excluded on the ground that the functions of the comparable were different as compared to assessee because essentially both were in the business of deve....
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.... annual report for the FY 2002-03 submitted by the appellant, however reveals that the financial results bare available only on a consolidated basis including the results of its subsidiaries. Further, the profit before tax of Rs. 0.09 crores against the consolidated turnover of Rs. 69.27 crores do not reflect the profitability of the functionally similar company as consolidation of results transform the risk profile of the company. In the absence of segmental results and due to the possibility of related party transaction, this company is rejected as a comparable. 12.1. Ld. counsel pointed out that all the three reasons given for rejection are not correct as is evident from the annual report of this company filed from pages 74 to 135 of the PB. He pointed out that this company earned revenue from software services as is evident from P&L A/c. Further, the necessary details relating to RPT were also given in the annual report and, therefore, the matter should be restored to the file of CIT(A) for decision afresh in respect of this comparison. 12.2. Having heard both the parties, we find that the financial details as mentioned in the TPO's order are available in the annual repor....
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.... ground has not been pressed, hence rejected. 17. Ground no. 7: Brief facts apropos ground no. 7 are that assessee had claimed exemption u/s10A amounting to Rs. 12.60 crores. The AO noticed that while computing exemption u/s 10A the assessee had taken the total turnover at Rs. 114.18 crores as against Rs. 127.41 crores in the P&L A/c. The reason for variance was that the service receipts aggregating to Rs. 9,99,34,000/- were not included in the total turnover. 17.1. After considering the assessee's submissions he concluded that service receipts would form part of the total turnover of the business as such income had been generated by carrying out the main business activity of the assessee company, even if it was not eligible for tax holiday. He, accordingly, recomputed allowable deduction u/s 10A at Rs. 11,63,73,564/-. 17.2. Ld. CIT(A) examined the details of service provided by the assessee and categorized them in two parts - (a) I.T. support services; HR support services; accounting and financials, IT network and software support services = Rs. 9,44,16,872/-. (b) PR, supply chain, CT head and SMG = Rs. 55,17,672/-. 17.3. He observed that as far as the service cl....
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....8-9-2008 in Special Leave to appeal (Civil) CC 12060/2008. 17.10. Ld. counsel for the assessee submitted that merely because the decision has been stayed does not mean that the same loses its precedential value and still remains binding. In this regard ld. counsel relied on the decision of Hon'ble Calcutta High Court in the case of Pijush Kanti Chowdhury v. State of West Bengal & Others dated 14-5-2007. 17.11. We have considered the submissions of both the parties. Admittedly, there is no decision of Hon'ble Jurisdictional High Court on this issue. The decision of Hon'ble Calcutta High Court having been stayed by Hon'ble Supreme Court, cannot be followed keeping in view the specific mandate of section 43B. As far as the decision of Hon'ble Calcutta High Court in the case of Pijush Kanti Chowdhury (supra) is concerned, the said decision was rendered with reference to the proceedings which took place in West Bengal. Once the decision of Hon'ble Calcutta High Court has been stayed, the specific mandate of section has to be followed. In view of above discussion, this ground is dismissed. 18. In the result, assessee's appeal for AY 2003-04 is partly allowed. ITA no. 2244/Del....
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....s mercantile the amount of Rs. 1,25,85,932 not being an actual loss but an anticipated loss cannot be allowed as a deduction. Admittedly, there is no settlement of the outstanding contracts during the accounting year. Whether the outstanding contracts will result in a loss or not will be known only when the outstanding contracts are settled. The possibility that there may be a favourable fluctuation cannot be ruled out and perhaps when the liability is actually discharged assessee may actually earn a profit. Assessee has simply debited the P&L a/c based on a notional loss without actually incurring any loss owing to foreign exchange fluctuation. Provisions of Sec 37(1) are categorical in stating that any expense actually incurred during the year, alone, can be allowed as deduction. Therefore claim of deduction on account of foreign exchange loss, amounting to Rs. 1,25,85,932 is hereby disallowed ." 21.2. Ld. CIT(A) allowed the assessee's claim following the decision of the ITAT Special Bench in the case of ONGC Ltd. Vs. DCIT 83 ITD 51 (Delhi ITAT)(SB) and that of the Jurisdictional High Court of Delhi in the case of CIT Vs. Woodward Governor India (P) Ltd. (2007) 162 Taxman 6....
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....s ground is dismissed. 21.4. In the result, departmental appeal is dismissed. ITA no. 2298/Del/08 ( Assessee's appeal for AY 2004-05): 22. Following grounds are raised: "1. That on the facts and in the circumstances of the case and in law, the orders passed by the Ld. Deputy Commissioner of Income-tax ('Ld. AO') and the Ld. Commissioner of Income Tax (Appeals) [CIT(A)], are bad in law and void ab-initio. 2. That the Ld. CIT(A) grossly erred on facts and in law by concluding that the reference made by the l.d. AO to the ld. Transfer Pricing Officer (Ld. TPO), under section 92CA(3) of the Income Tax Act, 1961 ('Act') was validly made. The Ld. CIT(A) completely failed to appreciate that the Ld. AO had not recorded any reasons under section 92CA of the Act which made it expedient and necessary for him to make a reference under that provision. 3. That the ld. CIT(A) grossly erred on facts and in law in confirming an adjustment of Rs. 13,03,09,390 out of the total adjustment of Rs. 13,22,71,294 made by the Ld. Transfer Pricing Officer (TPO) to the arm's length price on providing of software services and other services declared by the appellant in res....
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....on 92C(2) of the Act to the appellant. 7. That the Ld. CIT(A) erred in facts and in law in confirming the action of the Ld. AO of reducing the deduction claimed by the appellant under section 10A of Act to Rs. 17,30,35,950 as against Rs. 17,65,26,357 thereby reducing the deduction by Rs. 34,90,407 on erroneous and untenable grounds. 8. That the Ld. CIT(A) erred in facts and in law in not appreciating that other incidental services are inextricably linked with IT-enabled services provided by the appellant to its customer, and are covered by notification SO/890(E) dated September 26, 2000, which is wide enough to include all such back-office operations and support services." 23. Ground no. 1: This ground has not been pressed, hence rejected. 24. Ground no. 2: This ground has not been pressed, hence rejected. 25. Ground no. 3: This ground has not been pressed, hence rejected. 26. Ground no. 4: The main dispute is in regard to following comparables selected by TPO: - Bangalore Softsell - Infosys Technologies Ltd. - Satyam Computer - Intertec Communications - Cherrysoft Technologies Ltd. - Future Software Ltd. - Mahindra Consulting Ltd. - Brista....