TaxTMI 
TaxTMI 
2017 (5) TMI 66
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....PO') erred in carrying on the assessment proceedings in the name of the Company and further passing the assessment orders u/s 143(3) r/w section 144C(4) of the Act and U/S 92CA(3) of the Act respectively in the name of the Company (formerly known as CFC India Services Private Limited) which was a nonexisting entity and the Commissioner of Income Tax (Appeals) - II, Hyderabad ['Ld. CIT(A)'] further erred in upholding the said action of the Ld. AO and Ld. TPO". 3. In addition to the above, the assessee has also raised other grounds on the merits of the additions confirmed by the CIT (A) and also the T.P. adjustment made by the AO. 4. As regards the preliminary ground of appeal, brief facts are that the assessee, CFC India Services Pvt. Ltd with PAN: AACCC 3062 D, filed its return of income on 28.09.2008. Since the assessee had entered into international transaction, the determination of the Arm's Length Price (ALP) was referred to the TPO at Mumbai. Subsequently, this company got merged with BA Continuum India Pvt Ltd with PAN: AACCC 2310 C with effect from 1.4.2008 by virtue of the Hon'ble High Court order dated 18.12.2009. Vide letter dated 29.03.2010, this fa....
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....ion to the notice of the AO, the case has been transferred to the jurisdiction of the AO under whom, the amalgamated company's registered office was located and the assessment is also made in the name of the amalgamated company. The mention of the PAN No. of the amalgamating company is only to differentiate between the amalgamated and amalgamating companies. Therefore, we see no reason to interfere with the order of the CIT (A) and the assessee's ground of appeal No.1 is thus rejected. 8. The other grounds raised by the assessee are as under: "2 On the facts and in the circumstances of the case and in law, the Ld. AO erred and the Ld. CIT(A) further erred in including other income of Rs. 1,84,60,617 [comprising of foreign exchange fluctuation gain amounting to Rs. 1,51,95,408 and miscellaneous income amounting to Rs. 32,65,209] the 'total turnover' of the Company for the purpose of computing deduction u/s 10A of the Act. 3 Without prejudice to Ground 2 above, on the facts and circumstances of the case, the Ld. AO/Ld. CIT(A) having held foreign exchange fluctuation gain of Rs. 1,51,95,408 and miscellaneous income of Rs. 32,65,209 as part of total turnover, erred in ....
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....observed that this sum cannot be part of export turnover. He therefore, excluded the same from export turnover but did not exclude it from the total turnover. On appeal, the CIT (A) observed that the other income of Rs. 1,84,60,617 includes forex gain of Rs. 1,51,95,408 and miscellaneous income of Rs. 32,65,209. The CIT (A) was of the opinion that the forex gain or loss is part of the operating income and hence part of export turnover and therefore, the gain should be allowed as a deduction u/s 10A of the Act. However, as regards the other income is concerned, the CIT (A) held that it is not part of the export turnover. Against this finding of the CIT (A), the assessee is in appeal before us stating that if it is treated as part of the total turnover, then it should also be considered as part of export turnover. We find that the Revenue is also in appeal before us against treating the forex fluctuation gain as export turnover as well as total turnover. We find that the forex gain is on account of the export turnover of the assessee and therefore, it is to be part of the export and total turnover as rightly held by the CIT (A). The CIT (A) had followed the decisions of various High ....
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....on'ble Supreme Court in the case of Yokogawa India Ltd (Supra). 12. The learned DR however, supported the orders of the CIT (A). 13. Having regard to the rival contentions and the material on record, we find that the issue before the Hon'ble Supreme Court in the case of Yokogawa India Ltd (Supra) was with regard to the true and correct meaning of the provisions of section 10A of the I.T. Act. The Hon'ble Supreme Court at Para No.3 has framed the following specific questions thereunder for adjudication. "(i) Whether Section 10A of the Act is beyond the purview of the computation mechanism of total income as defined under the Act. Consequently, is the income of a Section 10A unit required to be excluded before arriving at the gross total income of the assessee? (ii) Whether the phrase "total income" in Section 10A of the Act is akin and pari materia with the said expression as appearing in Section 2(45) of the Act? (iii) Whether even after the amendment made with effect from 1.04.2001, Section 10A of the Act continues to remain an exemption section and not a deduction section? (iv) Whether losses of other 10A Units or non 10A Units can be set off against....
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....r Chapter VI of the Act for arriving at the total income of the assessee from the gross total income. The somewhat discordant use of the expression "total income of the assessee" in Section 10A has already been dealt with earlier and in the overall scenario unfolded by the provisions of Section 10A the aforesaid discord can be reconciled by understanding the expression "total income of the assessee" in Section 10A as 'total income of the undertaking'. 18. For the aforesaid reasons we answer the appeals and the questions arising therein, as formulated at the outset of this order, by holding that though Section 10A, as amended, is a provision for deduction, the stage of deduction would be while computing the gross total income of the eligible undertaking under Chapter IV of the Act and not at the stage of computation of the total income under Chapter VI. All the appeals shall stand disposed of accordingly". 14. Thus, it can be seen that the profits and gains of each of the eligible unit is to be computed independently for allowing deduction u/s 10A of the Act with regard to an undertaking. Therefore, Ground No.4(a) is allowed and Ground No.4(b) is remanded to the file o....
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..... It was the submission that there was an Extraordinary situation during the year. Accentia's annual report for the financial year 2007-08 clearly shows business restructuring/peculiar economic circumstances during the year under consideration. It was further contended that the employee cost of Accentia is only 16.81 % of total operating cost. The relevant employee cost calculation of Accentia was given below to substantiate the contention: Particulars Amount (Rs.) Reference Total operating cost as per TPO's order(A) 34,93,32,496 As per TPO's order Employee cost: Salary & Allowance to staff 5,48,44,678 AR Pg.58 Contribution to ESI 38,507 AR pg.58 Contribution to PF 5,76,925 AR pg. 58 Staff welfare expenses 17,08,901 AR pg.58 Total employee cost (B) 5,71,69,011 Employee cost % 16.37% 10.1. The TPO did not agree to the contentions of assessee with regard to extraordinary business operations. Assessee did not raise its contentions with regard to employee cost filter before the TPO. Ld. CIT(A) has rejected the contention of assessee with regard to Accentia's....
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....s for the A.Y. 2007-08. The TPO had considered Accentia Technologies Ltd. as a comparable. The DRP however held that the said company cannot be compared as a comparable owing to extra ordinary events that took place during the previous year. The Tribunal upheld the order of the DRP observing as follows :- "I. Accentia Technologies Ltd. 10. It is the submission of the assessee that this company cannot be treated as a comparable because of uncomparable financial results arising out of amalgamation in the company. In this regard, the assessee has relied upon the order of the DRP for the assessment year 2008-09 in assessee's own case. It is seen that the DRP while considering similar objection placed by the assessee in the case of another company, viz. Mold Tek Technologies Ltd., in the proceedings relating to the assessment year 2008-09, has observed in the following manner- "17.5. In addition to the above, the Director's Report of the company for the FY 2007- 08 revealed the merger and the demerger. A company known as Techmen Tools Pvt. Ltd. had amalgamated with Mold-tek Technologies Ltd. with effect form 1st October, 2006. There was a de- merger of....
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....laid down by the Hyderabad Bench of the ITAT is squarely applicable to the present case also. Similar View was also taken in the case of Symphony Marketing Solutions India(p) Ltd (supra) by the Bangalore Bench. It is clear that during the previous year there were extra ordinary events that took place in this company which warrants exclusion of this company as a comparable. We therefore hold that this company cannot be considered as a comparable". 10.4. Respectfully following the decision of the Coordinate Bench, we direct the AO/TPO to exclude Accentia Technologies Limited from the list of comparables. II. Coral Hub Limited ('Coral') Formerly known as Vishal Information Technologies Limited: 11. It was submitted that Coral Hub Limited (formerly known as Vishal Information Technologies Limited) is functionally different and operates on a different business model. It primarily outsources its work to the vendor's vis-avis the Assessee which carries out the entire work on its own. The relevant details are tabulated below: Computation of outsourcing cost to total cost of Coral: Particulars Amount (Rs.) Reference Salary cost 21,68,01,923 AR pg. 8....
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....O to exclude Coral Hub Limited (Formerly known as Vishal Information Technologies Limited) from the list of comparables. III. Eclerx Services Limited ('Eclerx'): 12. It was submitted that this company is functionally different as it is engaged in providing high end services in the nature of KPO activities like Data Analytics, and customized process solutions. These include data analytics, operations management, audits and reconciliation, metrics management and reporting services. Further there was an extraordinary situation of merger during the year. Eclerx acquired UK-based Igentica Travel Solutions Limited on July 27,2007. The integration process was on track as of March 2008. This fact was evident as per Page Nos. 14, 18 & 19 of annual report of Eclerx. The TPO did not agree to the contention of assessee that Eclerx is functionally different and involved in high end KPO services. However, assessee has not raised contention on extraordinary situation before TPO. Ld. CIT(A) rejected the contentions of assessee on functional difference, however has not commented on contention of assessee with regard to extraordinary situation of Eclerx. 12.1. Assessee placed relian....
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.... 15. On considering the objections of the assessee in relation to this company, we accept the contention of the assessee that this company cannot be taken as a comparable both for the reasons that it was having supernormal profit and it is engaged in providing KPO services, which is distinct from the nature of services provided by the assessee." We are of the view that in the light of the decision of the Hyderabad Bench referred to above, this company cannot be regarded as a comparable for the reason that it was having extraordinary event and super normal profits. Similar view was also taken in the case of Symphony Marketing Solutions India(p) Ltd (supra) by the Bangalore Bench. 12.3. Respectfully following the decision of the Coordinate Bench, we direct the AO/TPO to exclude Eclerx Services Limited from the list of comparables. IV. Mold-tek Technologies Limited ('Moldtek'): 13. It was submitted that this company is functionally different as it is engaged in providing engineering design services for construction of buildings by using design tools like CADI CAM, Stadd Pro by employing highly skilled software engineers for the purpose. These service....
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....usiness segments: Plastic division: The plastic division is engaged in the manufacture of tube & oils, paints, pet products, consumer products, etc. The company demerged the said segment effective 1 April, 2007 and transferred the business unit to the Company Plastics Lt. The extract from the annual report confirms the fact that the Company had restructured its operations resulting in demerging the plastic segment business. Information Technology (IT) division: The IT division (also referred to as the KPO division by the company) of the company specializes in providing structural design and detailing services which can be categorized as structural engineering services. The structural engineering services provided by the IT division of the company cannot be classified as falling with the scope and ambit of ITES services. On the contrary, the said services would fall under the category of engineering services. Excerpts from the Annual Report of the company Page 10 of the Annual Report for the FY 2007-08 contains the following observation regarding the KPO division of the Company: 'The Company has achieved about 56.49% growth in 2007-08....
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...., assessee prays to exclude Genesys International Corporation Ltd., from the list of comparable companies. 14.2. We have considered the rival contentions and perused the orders relied on. As far as this comparable is concerned, the same has been decided by the Co-ordinate Bench in the case of Hyundai Motors India Engineering P. Ltd., Vs. ITO in ITA No. 1850/Hyd/2012 (AY. 2008-09) dt. 21-02-2014, wherein the Coordinate Bench held as under: "V. GENESYS INTERNATIONAL CORPORATION LTD. This company is listed at Sl. No.11 in the list of comparable companies chosen by the TPO. As far as this company is concerned, the stand of the assessee has been that this company is functionally not comparable and that it has a different employee skill set and that this company performs R&D services and also owns intangibles. This company is a geospatial services content provider specialising in land based technologies. From the notes to accounts of this company, it is seen that this company is engaged in providing geographical information services comprising of photogrammetry, remote sensing cartography, data conversion related computed based services and other related services. Further the bu....
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....es as Rs. 47,37,03,063/- instead of Rs. 23,68,51,532/- and thus resulted in erroneous computation of working capital adjustment. Once the correct average receivables is considered for computing the working capital adjustment, the ALP after working capital adjustment will come to 25.74% instead of 26.36%, as calculated by the TPO and the margin earned by assessee would fall within the +/- 5% range as provided in proviso section 92C(2) of the Act and thus there will be no TP adjustment to assessee. 15.4. We have considered the rival contentions and perused the orders of earlier assessment years. As far as working capital adjustments are concerned, there is no dispute about the adjustment per se. the dispute is regarding the working of adjustment only. As regards the quantum of working capital adjustment, we direct the AO/TPO to verify the correctness of the amount of working capital adjustment claimed by the assessee and then decide as per facts and law. The ground is allowed accordingly". 23. Respectfully following the same, this ground of appeal is also allowed. 24. In the result, assessee's appeal is partly allowed. 25. As regards Revenue's ground of appeal, the Revenu....