AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2012 (10) TMI 1029
X X X X Extracts X X X X
X X X X Extracts X X X X
....lowing grounds of appeal: "i. The CIT(A) erred in directing the AO to exclude the communication expenses amounting to Rs. 10,05,350/-, travel and onsite expenses amounting to Rs. 4,01,009/- and subscription fees amounting to Rs. 61,905/- from total turnover for the purposes of computation of deduction u/s 10A of the IT Act, 1961. ii. The CIT(A) erred in rejecting Vishal Information Technology and Nuclear Netsoft and GIS as comparables stating that these companies earned super profits without mentioning the bench mark for profitability above which a company can be considered as earning super profits in the IT enabled service industry in which the tax payer is operating. iii. The CIT(A) erred in rejecting Vishal Information Technology and ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rking capital adjustment as adopted by the TPO for nine comparables without revising the working capital adjustment downward after exclusion of 3 comparables for working out revised PLI. 3. As regards ground No.1, we find that this issue is covered by the decision of the Hon'ble Karnataka High Court in the case of Tata Elxsi and the CIT(A) has followed the same in granting relief to the assessee. In view of the same, we do not see any reason to interfere with the order of the CIT(A) on this issue. This ground of appeal is accordingly rejected. 4. Coming to the grounds No.2 and 3, the brief facts of the case are that the assessee company, which is a 100% export oriented unit, is engaged in software development, rendering services exclusive....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ned by the CIT(A) are mentioned before their exclusion. He submitted that no bench marking for super profit making companies is prescribed by the law. According to him, as long as two companies are functionally similar, they are to be considered as comparables unless it is proved that certain circumstances influencing the profit making capacity of the said company exist and are distinguishable factors demanding such exclusion. He submitted that the assessee has a net margin of 13%, while the TPO has arrived at net margin of 24% and the net profit margin of Vishal Informational Technology and Nuclear Netsoft& GIS (I) Ltd., is around 40% which cannot be said to be extraordinarily high. Similarly, he submitted that the lower profit margin of 2....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... where the assessee was carrying out the work by itself. In the case before us also the assessee was also carrying out its work by itself. So respectfully following the same, we uphold the finding of the CIT(A) that Vishal Information Technology cannot be considered as a comparable. However, as regards Nuclear Netsoft being excluded from the list of comparables is concerned, we find that CIT(A) has relied upon the orders of the Tribunal, wherein a catena of decisions, it was held that super profit making companies are to be excluded from the list of comparables. The word 'super' is a superlative word which denotes that it is something extra ordinary i.e the profit which is far above what the industry in general is making. In all the cases w....
X X X X Extracts X X X X
X X X X Extracts X X X X
....IT(A). 12. Having heard both the parties and having considered the rival contentions, we find that the adjustments are to be made to the ALP having regard to its profit making capacity in India compared to the comparable companies. The factor of loss in the parent company would not be a guiding factor for making any adjustment to the arms length price of the international transaction. If the parent company is making any losses, it is for the said company to claim the losses in accordance with the laws of the country in which it is taxable. The assessee cannot be given any deduction for such an event and the CIT(A) has erred in giving such a deduction. 13. In the result, this ground of appeal is allowed. 14. As regards grounds No. 5 and 6....