TaxTMI 
TaxTMI 
2016 (10) TMI 1138
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 3. Aggrieved, assessee filed objection before the Dispute Resolution Panel (DRP). The ld. DRP vide its order rejected all the comparables selected by the assessee. Further the ld. DRP adjudicated the objections raised by the assessee against following comparables taken by the TPO :- 1. Spry Resources India Pvt. Ltd., 2. Kuliza Technologies Pvt. Ltd. 3. E-Infochips Bangalore Ltd. 4. Thirdware Solutions Limited. 5. Thinksoft Global Services Ltd. Ld. DRP rejected most of the objections raised by the assessee with the directions in the case of Kuliza Technologies Pvt. Ltd. to treat the claim of bad debts as regular business expenditure, excluding EInfochips Bangalore Ltd. being functionally not comparables to the assessee. Ld. DRP further held in favour of assessee by observing that disallowance u/s 10A of the Act is to be restricted only to the amount by way of adjustment at Rs. 43,19,987/- and the balance claim should be allowed as per the law. 4. Aggrieved assessee is now in appeal before the Tribunal against the directions of ld. DRP u/s 144C of the Act and against the order u/s 143(3) r.w.s. 144C of the Act. 5. First we take....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ware development services as no trading can be carried out of tax exempt units. This gets further fortified from the following extract of the annual report which describes the revenue recognition policy of the assessee. D) Revenue Recognition Revenue from Software development and implementation on time and material contracts is recognised and are billable to clients as per the terms of specific contracts. On fixed - price contracts revenue is recognised and billable based on milestones achieved and after receiving the sign-off certificates from the customers for the specific milestones as specified in the contracts Revenue from Subscription contract is recognised on acceptance or renewal of the contract and ts accrued over the pence of the contract. Revenue from sale of user licenses for software applications is recognised on physical delivery of the software and transfer of the title in the user license to the customer. Revenue from sale of investment is recognised on transfer of title from the Company and dividend income is recognised when the Company's right to receive dividend is established. Interest is recognised using the time-proporti....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ng outsourcing of software services unlike the assessee. Accordingly, the Hon'ble Delhi Tribunal excluded this company from the list of software development comparables. The relevant extract of the decision is reproduced below for your Honours' ready reference: (Page No. 42 to 44 - Para 55 and 56) "56. We have heard the rival submissions and perused and carefully considered the material on record. It is seen from the details on record that the functions of Thirdware are in contrast with the assessee which only provides software development in the finance domain as per the instruction of its AE. Also, Thirdware has incurred expenses towards import of software services, evidencing outsourcing of software services unlike the assessee. Since it is also engaged in outsourcing its activities as it has incurred expenses towards imports of software services, evidencing outsourcing of software services unlike the appellant company. Hence, it is functionally not comparable and cannot be treated as a comparable to assessee. We order accordingly." A copy of the order is enclosed herewith marked as Annexure-D(i) (Page No 83 to 139 of the paper book). ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sst. Year 2010-11 has held as under :- "56. We hove heard the rival submissions and perused and carefully considered the material on record. It is seen from the details on record that the functions of Thirdware are in contrast with the assessee which only provides software development in the finance domain as per the instruction of its AE. Also, Thirdware has incurred expenses towards import of software services, evidencing outsourcing of software services unlike the assessee. Since it is also engaged in outsourcing its activities as it has incurred expenses towards imports of software services, evidencing outsourcing of software services unlike the appellant company. Hence, it is functionally not comparable and cannot be treated as a comparable to assessee. We order accordingly." 11. We further observe that the Co-ordinate Bench, Deli in the case of Sun Life India Service Centre Pvt. Ltd. vs. DCIT (ITA No.5799/Del/2012 for AY 2008-09 has held as under :- "21. We hove perused the Annual report of this company which is available on pages 100 onwards of the paper book. The Profit & Loss Account of this company is at page 107, which shows 'Sales & Other income....
X X X X Extracts X X X X
X X X X Extracts X X X X
....are squarely applicable to the facts of the assessee to the extent that assessee is also engaged in software development valuation of production works of computer software and operates mainly on the instructions of its associate enterprises whereas the impugned comparable Thirdware Solution is additionally also in the business of trading of software outsources it activities. We are, therefore, of the view that Thirdware Solution is not a fit comparable in the case of assessee for the purpose of making T.P. adjustment. We allow this ground of assessee. 14. Now we take ground no.2 of assessee's appeal which reads as under :- (B) Against the order of 143(3) rws 144C 2. The Ld. AO erred in law as well as on facts in making adjustment u/s 144C of the Act inspite of the fact that DRP has not directed to make any adjustment to the income. Ld. AO further erred in not holding that there is no adjustments u/s 144Cof the Act. 15. Ld. AR submitted as follows :- The learned AO has made the following apparent errors while giving effect of the order of the Hon'ble DRP. 1. Exclusion of E-lnfochips Bangalore Limited: The Appellant would like to....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... revenue if it is not of operating nature, However, the learned AO has not given effect of the above directions of the Hon'ble DRP to correct the operating profit margin of Kuliza Technologies and thus, wrongly considered operating profit margin of Kuliza Technologies while determining ALP. In view of the above, the Appellant humbly requests your Honours to direct the learned AO/TPO to correctly compute the operating profit margin of Kuliza Technologies by considering bad debts as an operating expense and other income (consisting of interest, amount written back and miscellaneous income) as non-operating income as per the directions of the Hon'ble DRP. The calculation of the correct operating profit margin of Kuliza Technologies after giving effect of Hon'ble DRP order is enclosed herewith marked as Annexure-F (Page No 342 of the paper book). 16. On the other hand, ld. DR supported the orders of lower authorities. 17. We have heard the rival contentions and perused the material on record. Through this ground assessee has challenged the order of Assessing Officer u/s 143(3) r.w.s 144(C) of the Act being erroneous as adjustments as per dir....