TaxTMI 
TaxTMI 
2016 (7) TMI 1409
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....deduction u/s 10A, without appreciating the fact that the statute allows exclusion of such expenditure only from export turnover by way of specific definition of export turnover as envisaged by Sub-clause (4) of Explanation 2 below Sub-section (8) of Section 10A and the total turnover has not been defined in this Section. 3. On the facts and in the circumstances of the case the Dispute Resolution Panel erred in directing the AO to compute deduction u/s 10A in the above manner by placing reliance on the decision of Hon'ble High Court of Karnataka in the case of M/s Tata Elxsi Ltd., which has not become final since the same has not been accepted by the Department and SLPs are pending before the Hon'ble Supreme Court. 4. On the facts and in the circumstances of the case, whether the Hon'ble Dispute Resolution Panel can make adjustment on the basis of advance received from AEs in absence of debtors and inventory in the case of assessee for calculating the cost of working capital built in the profit margin. 5. On the facts and in the circumstances of the case, whether the Hon'ble Dispute Resolution Panel were justified in directing the TPO to adjust the profit m....
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.... enterprises i.e. Broadcom International Ltd. Cayman Island. 4. Return of income for the assessment year 2010-11 was filed on 29/09/2010 declaring a total income of Rs. 83,87,525/- after claiming deduction u/s 10A to the extent of Rs. 11,61,21,985/-. The assessee-company also reported the following international transactions with its Associated Enterprises (AE): Descriptions Paid Received Purchases 326,743 - Provision for research and development services - 863,139,674 Interest on CEB 822,249 - Repayment of loan 25,475,000 - Reimbursement of expenses 549,949 - Remittance of ESPP contributions 33,323,341 - The assessee-company sought to justify the consideration received for the international transaction entered with its AE to be at arm's length price [ALP]. The assessee-company had also submitted transfer pricing study report adopting TNMM as the most appropriate method and operating margin by the operating cost as the profit level indicator for the transferring pricing study. The assessee-company applied TNMM which was considered to be the most appropriate method for purposes of bench marking the ....
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....d matrix of the comparables selected by assessee-company as under: Sl No Comparables Selected by the Taxpayer Remarks 1 Accel Transmatic Ltd. Rejected: disqualifies RPT filter 2 Akshay Software Technologies Ltd Rejected: No RPT details reported 3 Aztecksoft Ltd Rejected: No data available for the FY 2009-10 in public domain 4 Bells softech Ltd Rejected: Sakescr. 5 CG-VaK software & Exports Ltd Rejected: Fails compensation to employees filter 6 Goldstonet Technologies Ltd Rejected: Fails compensation to employees filter 7 LGS Global Ltd Rejected: No data available for the FY 2009-10 in public domain 8 Maars Software International Ltd. Rejected Different accounting year ending 9 Mascon global Ltd Rejected: Fails compensation to employees filter 10 Mindtree Ltd Accepted: It qualifies all the filtes applied by the TPO 11 RS Software (India) Ltd Accepted: It qualifies all the filtes applied by the TPO. 12 Saskent Communication Technologies Ltd Accepted: It qualifies all the filtes applied by the 13 Sonata Software Ltd. Rejected: fails RPT filter 14 Tata elx....
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.... expenditure from export turnover. 7. The AO passed draft assessment order u/s 143(3) r.w.s.144C of the Act dated 7th March 2014 proposing the above addition of Rs. 6,78,86,443/- u/s 92CA and disallowing excess claim of Rs. 34,12,149/- u/s 10A of the Act. 8. Being aggrieved, objections were filed before the Hon'ble DRP. It was contended inter alia before DRP that the TPO was not justified in reducing telecommunication expenditure from export turnover and also in respect of TP adjustment. It was contended that the TPO was not justified in rejecting the TP study undertaken by the assessee-company and also not using the multiple years' data for selecting or rejecting companies as comparables. The assessee-company also contended that the TPO ought not to have applied the filter of 25% of relatable party transaction. All these contentions were overruled by the DRP. However, the DRP accepted the contention of the assessee that company ICRA Techno Analytics Ltd., is not comparable as no segmental information of software development, software consultancy, engineering services, web development, web hosting, etc. were available. As regards Infosys Technologies Ltd., the DRP held that t....
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....Grounds No.1, 11, 12 and 13 are general in nature and do not require specific adjudication. 11. Grounds No.2 and 3 challenge the direction of the DRP to exclude telecommunication expenses from the total turnover as well as export turnover. This issue is squarely covered in favour of the assessee-company by the jurisdictional High Court in the case of ACIT vs. Tata Elxsi (349 ITR 98) wherein it is held as follows: "From the aforesaid judgments, what emerges is that there should be uniformity in the ingredients of both the numerator and she denominator of the formula, since otherwise it would produce anomalies or absurd results. Sec. 10A is a beneficial section. It is intended to provide incentives to promote exports. The incentive is to exempt profits relatable to exports. In the case of combined business of an assessee, having export business and domestic business, the legislature intended to have a formula to ascertain the profits from export business by apportioning the total profits of the business on the basis of turnovers. Apportionment of profits on the basis of turnover was accepted as a method of arriving at export profits. In the case of s. 80HHC, the export profit i....
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....and given effect to, while interpreting the total turnover which is inclusive of the export turnover. Therefore, the formula for computation of the deduction under s. 10A, would be as under : Profits of the business of the undertaking x Export turnover (Export turnover + domestic turnover) total turnover 11. In that view of the matter, we do not see any error committed by the Tribunal in following the judgments rendered in the context of s. 80HHC in interpreting s. 10A when the principle underlying both these provisions is one and the same. Therefore, we do not see any merit in these appeals. The substantial question of law framed is answered in favour of the assessee and against the Revenue." The directions of the Hon'ble DRP are in consonance with the law laid down by the Hon'ble Jurisdictional High Court in the above case. Therefore, we do not see any reason to interfere with the direction of the Hon'ble DRP. Hence, we dismiss the grounds of appeal Nos.2 & 3 raised by the revenue. 12. Ground No.4, 5 & 6 relates to the grant of working capital adjustment. From the perusal of the order of the DRP, it is clear that the DRP only directed to re-wo....
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....elopment service provider." Similar finding was recorded by the co-ordinate bench in the case of Ikanos Communication India Pvt. Ltd. in IT(TP)A No.137/2015 dated 10/11/2015. Respectfully following the decisions of the coordinate bench, we hold that this company cannot be included in the list of comparable and uphold the order of the DRP in deleting this company. 13.2 Persistent Systems & Solutions Ltd., The DRP deleted this company from the list of comparable on the ground that no segmental information was available. The relevant finding of the DRP is as under: "3.3.4 Having heard the assessee, we examined the annual report from which it is noticed that the entire receipt of Z504 crores are shown from 'Sale of software services & Product'. There is no segmental information available for sale of software services & product. It is also noticed from Note-1 of Schedule- 15 that the company is predominantly engaged in outsourced software product development services. The company offers complete product life cycle servi es.: It is also noticed from the Note H to Schedule 15 in regard to revenue recognition that the company in addition to software services also earns ....
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....ntioned by the assessee, The Assessing Officer, is therefore directed to exclude the above company from comparable. The revenue had not brought any evidence on record rebutting the above factual findings of the Hon'ble DRP. Therefore, we have no option but to confirm the findings of the Hon'ble DRP. 13.4 Persistent Systems Ltd. and R S Software Ltd: The DRP deleted these companies from the list of comparables on the ground that no segmental information was available. The relevant finding of the DRP is as under: "Considering the fact that the objections were raised by the assessee in respect of all higher margin comparables, it was found appropriate by us to examine other companies selected by the TPO as comparable in regard to their comparability. From the perusal of annual reports :- (i) It is noticed from the perusal of the Page 45 of annual reports in the case of R.S Software (India) Limited, the expenses on foreign branches are'incurred to the extent of T 12.42 crores (82%) of total expenses of 15 1crores debited in P&L account, which makes it clear that it is pre1ominantly onsite software development company and therefore, canhot be retained as comparable. T....
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....T vs. M/s.Electronics for Imaging India Pvt. Ltd., [IT(TP)A No.212/Bang/2015 dated 24/2/2016] to which one of us viz., the Judicial Member was a party, also considered this company and held as follows: "19. We have heard the ld.DR as well as ld. AR and considered the relevant material on record. We note that in the case of Agnity India Pvt. Ltd Ltd. (supra), the Delhi Bench of the Tribunal has considered the comparability of this company and the findings of the Delhi Bench of the Tribunal has been confirmed by the Hon'ble Delhi High Court. The Hon'ble Delhi High Court has observed that this company having brand value as well as intangible assets cannot be compared with an ordinary entity provide captive service. We further note that this company provides end to end business solutions that leverage cutting edge technology thereby enabling clients to enhance business performance. This company also provides solutions that span the entire software lifecycle encompassing technical consulting, design, development, re-engineering, maintenance, systems integration, package evaluation and implementation, testing and infrastructure management service. In addition, the company offe....