TaxTMI 
TaxTMI 
2016 (3) TMI 1236
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....-. Assessing Officer (AO) passed order accordingly. While completing assessment, AO also excluded certain expenditure from export turnover only and reduced the claim of 10A deduction. 3. Ld.CIT(A) on appeal, accepted certain filters, excluded some companies on functionality and filters and also decided to include two comparables in the list of comparables earlier rejected by the TPO. The Revenue is aggrieved and raised grounds on these issues. 4. Ground No. 2 to 4 is on the issue of computation u/s. 10A of the Act. AO while computing deduction u/s. 10A excluded certain expenditure under the head 'Telecommunication Charges' from the export turnover. Ld.CIT(A) accepted assessee contention that the same should be excluded from the total turnover also. This issue is covered in favour of assessee by the jurisdictional High Court in the case of Tata Elxsi Ltd., Vs. CIT [349 ITR 98 (Kar)], wherein the Hon'ble High Court has held that whatever is excluded from export turnover should also be excluded from total turnover for the purpose of computing deduction u/s. 10A of the Act. The order of Ld.CIT(A) is in accordance with the principles on the issue. The grounds of Revenue are ac....
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....n there was a limit for the lower end for identifying the comparables, there was no reason why there should not be an upper limit also, as size mattered in business. 100. While a big company would be in a position to bargain the price, attract more customers and have a broad base of skilled employees who were able to give better output, a small company might not have these benefits and therefore, the turnover also would come down reducing profit margin. Thus, when companies which were loss making were excluded from comparables, then the super profit making companies should also be excluded. For the purpose of classification of companies on the basis of net sales or turnover and of classification made by Dun & Bradstreet, the turnover filter was very important and companies which had turnover of Rs. 1 to Rs. 200 Crore should be taken into consideration for the purpose of making TP study. 101. The Hon'ble Delhi Bench of ITAT has in the case of Sony India (P.) Ltd., Vs. DCIT [2008] 114 ITD 448 (Del) upheld the objection of assessee on inclusion of a comparable when the distinctive difference like size and turnover materially affected performance or prices of prod....
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....cumstances, the justification for which is discussed elsewhere in this order. In any case, diminishing revenues or persistent losses do not necessarily result from 'peculiar economic circumstances' alone, but could also be a result of mismanagement, use of inappropriate business models or strategies, inability to meet competition even in a normal market, etc., which are all endogenous factors that have little do with economic circumstances. 113. I find merit in the appellant's contention that revenue is not a true indicator of a company's performance that may depend on its own business cycle, and that a company with increasing revenues over a period of time did not necessarily reflect better performance, as increase in expenses in the corresponding period could be higher than that in revenues and the company might still incur losses. Conversely, a company with diminishing revenues over a period of time may not necessarily be performing, badly, if it still had a good profit margin achieved through cost efficient. Growth of the Indian software industry cannot be attributed solely to existing companies, but also to new companies being set up. 114. Considering these a....
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....TPO excluded the above comparables on the reason of having accounts of different financial years and was difficult to compare the financial results. Assessee's contention that Accounting Standard (AS) 21 issued by the ICAI on consolidation of accounts as well as Section 212 of the Companies Act permit difference in the dates of financial year closure of companies within a six months time frame. Ld.CIT(A) accepted the above contention and directed to include. Revenue is aggrieved. 6.2. On considering the rival contentions and order of Ld.CIT(A), we are of the opinion that the TPO is correct in rejecting this comparable on the different financial year filter. AS 21 may allow consideration of accounts and Company Law may permit having different financial year ending for consolidation accounts, but the data available in public domain cannot be adjusted to the financial year of assessee-company. There may be many factors which may affect the results in the intervening period. Unless the data is completely available, averaging the financial results to suit assessee's financial year may give a distorted picture. Since the public data available pertain to a different financial year, we ....