TaxTMI 
TaxTMI 
2018 (4) TMI 1621
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.... claimed by the appellant under section 10B of the Act. 1.2 That the Assessing Officer/ DRP erred on facts and in law in holding that the appellant was ineligible to claim deduction under section 10B of the Act on the ground that the appellant had received approval from the Director of Software Technology Park of India (STPI ) and not by the Board appointed in this behalf by the Central Government in exercise of the powers conferred by section 14 of Industrial (Development arid Regulation) Act, 1951. 1.3 That the Assessing Officer/ DRP erred on facts and in law in not appreciating that the approval granted to the appellant by STPI, was under delegated powers from the Inter Ministerial Standing Committee in terms of Notification No. 4 (RE-95/92-97) dated 30.04.1995, issued by the Director General (Foreign Trade), Ministry of Commerce and Inter - ministerial communication letter No. D.O. No. 4(1)/2006 IPHW dated March 23rd 2006, issued by the Secretary of Ministry of Communications & Technologies. Without Prejudice 1.4 That the Assessing Officer/ DRP erred on facts and in law in rejecting the claim of deduction under section 10B of the Act which ha....
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.... therefore affected by some peculiar economic circumstances. 2.5 That the DRP/TPO erred on facts and in law in considering Accentia Technologies Ltd. as comparable without appreciating that during the year the company was amalgamated with Asscentlnfoserve Pvt. Ltd. and accordingly, the financial results of the company are influenced with the financial statement of another company. 2.6 That the DRP/TPO erred on facts and in law in considering TCS E- Serve Ltd. and TCS E-Serve International Ltd. as comparable to the appellant without appreciating that these companies are providing services to a single customer and therefore, does not satisfy the filter of related party transactions applied by the TPO. 2.7 That the DRP/TPO erred on facts and in law in considering TCS E- Serve Ltd. in the final set of comparable companies without appreciating that the financial results of the company cannot be considered on account of (i) provision for errors amounting to Rs. 4,28,54 thousands made in the accounts and (ii) change in the method of revenue recognition. 2.8 That the DRP/TPO erred on facts and in law in considering following companies in the final set al....
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....see is a subsidiary of M/s Smart Cube Limited, UK and was incorporated on 08/01/2004. The assessee company is engaged in providing research and analyst services by a team of professional, specialized in delivering high-value and customizing research and analysis to its Associated Enterprises (AEs). For the year under consideration, the assessee filed return of income on 30/09/2010 declaring income of Rs. 3,78,120/- after claiming a deduction of Rs. 2,79,46,551/- under section 10B of the Income-tax Act, 1961 (in short 'the Act'). The case was selected for a scrutiny and notice under section 143(2) of the Act was issued and complied with. During assessment proceeding, the Assessing Officer noticed following international transaction carried out by the assessee company: S. No. Type of international transaction Method selected Total value of transaction (Rs.) MAM PLI 1. Provision of re-search and analyst services TNMM OP/TC 183,835,355 2.1 For determining arm's-length price of the above international transaction, the Ld. AO referred the matter to the Ld. Transfer Pricing Officer (TPO). The Ld. TPO in his orde....
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....ection 147 of the Act are for the benefit of the Revenue and not for the assessee, whereas the Ld. AR submitted that it is open for the assessee to contend that the items sought to be brought to tax by initiating proceeding under section 147 of the Act, are non-taxable at all under section 10A of the Act. The Tribunal (supra) permitted the assessee to agitate the ground which rendered the escaped income as non-taxable and restored the matter to the file of the Assessing Officer to examine the allowability of deduction under section 10A of the Act. The relevant finding of the Tribunal (supra) is reproduced as under: "12. Now coming to the submission of the learned AR basing on the decision of the jurisdiction High Court in review petitions in Regency Creations Ltd. (supra) and Valiant Communications (supra), we find that the Regency Creations, the Hon'ble jurisdictional High Court held as follows: "We have carefully considered the records and submissions. It appears that the assessee had claimed the benefit of Section 10A. Therefore, AO must in fairness consider the documents on the basis of the claim and ascertain whether they are proper and after verifying them, ....
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...., PLI of the assessee is 15.97%, which being higher than the average PLI of the comparables, the transaction was at arm'slength. The Ld. TPO rejected the approach of the assessee of using multiple year data. He also applied certain filters like related party transactions (RPT) exceeding 25% of sales, export income at least 75% of total income etc., for bringing the comparables nearer in terms of quality. The Ld. TPO made his own search of comparables and finally selected 9 comparables and also allowed working capital adjustment to the PLI of the comparables, list of which is reproduced as under: S.No. Company Name OP/OC Working Capital Adj. OP/OC i. Accentia Techologies Ltd. 43.07 42.20 ii. Cosmic Global Ltd. 18.28 22.29 iii. e4e Healthcare 31.03 33.55 iv. I-gate Global Ltd. 24.54 26.09 v. Infosys BPO Ltd. 31.46 32.17 vi. Jindal Intellicom Ltd. 13.62 16.95 vii. Omega Healthcare 15.31 16.74 viii. TCS E-Serve International Ltd. 53.80 57.43 ix. TCS E-serve Ltd. 63.38 67.27 Average 32.72 34.97 5.2 The Ld. TPO c....
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....the tracker E) Deliver the final output to TSC" 5.6 In agreement between the assessee and the Smart Cube Inc. USA, which is available on page 192 to page 209 of the Paper Book Volume- 1, also similar services are provided. 5.7 From the services rendered, it is evident that the assessee has rendered services of the analysis of the projects and entering those details into the tracker and deliver the final output to its AE. Thus, assessee can be characterized as engaged in providing "High-end ITes services". 5.7 In background of the above functional analysis of the assessee, now we are adjudicating grounds of appeal of the assessee seeking exclusion of following comparables: Infosys BPO Limited 6. The learned counsel of the assessee submitted that the company is a part of Infosys group, a giant in the field of IT services and as a result of being a part of the Infosys group, it enjoys the benefits such as brand Infosys, availability of skilled manpower and technical know-how etc. During the year, the company has won many prestigious accolades, which has strengthen the reputation and goodwill of the company worldwide. 6.1 The Ld. counsel also submitted that d....
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..... 924/2016), the Hon'ble jurisdictional High Court following the decision of the Hon'ble Bombay High Court in the case of CIT Vs Pentair Water India Private Limited, (2016) 69 taxmann.com 180 (Bom.) affirmed the exclusion of the company. In the case of Pentair Water India Private Limited (supra), the Hon'ble High Court confirmed the action of the Tribunal of excluding the company on the basis of high turnover of Rs. 649.56 crores as compared to the turnover of Rs. 11 crore of the assessee in that case. The relevant finding of the Hon'ble Bombay High Court is reproduced as under: "9. Shri Jain, learned Counsel has rightly relied upon the Judgment of the Delhi High Court reported in (2013) 36 taxmann.com 289(Delhi) in the case of Commissioner of Income-tax vs. Agnity India Technologies (P.) Ltd. Learned Counsel has also brought to our notice the Order of the Income Tax Appellate Tribunal whilst examining similar circumstances for the assessment year 2005-06. He has taken us through the findings therein to point out that the conclusions arrived at are based on a comparison that the condition in any uncontrolled transaction between an independent enterprises for the purp....
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....ancial statements, the company cannot be compared with the assessee at entity level. 7.1 The Ld. counsel in support of his claim of exclusion of the company due to extraordinary events of amalgamation relied on numerous decisions including following: (i) The Delhi bench of the Tribunal in the case of Ameriprise India (Pvt.) Ltd. Vs. DCIT (ITA No. 7018/Del/2014 (ii) The Hyderabad bench of the Tribunal in the case of Excellence Data Research (P.) Ltd. Vs. ITO (ITA No. 159/Hyd/2014) (iii) The Delhi bench of the Tribunal in the case of Techbooks International Private Limited Vs. DCIT (ITA No. 240/Del/2015) 7.2 Ld. CIT(DR), on the other hand, opposed the exclusion of the company and submitted that the Ld. counsel has not demonstrated, how the amalgamation has impacted profitability of the company. The Ld. CIT DR referred to para 13.4 of the order of the Ld. TPO, wherein he has compared the margin of the company in preceding years as compared to the year under consideration. He submitted that margin of the company in financial year 2009-10 is 43.07% as compared to margin of the company in financial year 2008-09 and 2007-08 as 52.50% and 44.34% respe....
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.... of the fact that there was merger of Asscent Infoserve Pvt. Ltd. with Accentia Technologies Ltd. by way of amalgamation during the year itself we hold that this company cannot be considered as comparable due to 11 ITA No. 7014/Del./2014 this extraordinary financial event. Accordingly, the same is directed to be excluded from the final list of comparables. " 7.4 The appeal filed by the Revenue on the said issue has also been dismissed by the Hon'ble Delhi High Court (ITA 461/2016) in order dated 19/10/2016. 7.5 In other decisions cited by the learned counsel, also the company has been excluded on the ground of extraordinary event of amalgamation. 7.6 In view of the above, respectfully following the above decisions of the Tribunal, we direct the Ld. TPO/AO to exclude the company from the set of comparables. TCS E-serve International (I) Ltd. 8. Before us the Ld. counsel submitted that operation of this company broadly comprises of transaction processing and technical service. The Ld. counsel submitted that as per notes to the account forming part of financial statements of the company, the technical services involve software testing, verification and validation of sof....
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....e. 8.4 The Ld. counsel of the assessee has contended that company was engaged in software development and therefore it is functionally dissimilar to the assessee. On perusal of page 31 of the Annual Report of the company, we find that background and principal activities have been mentioned under schedule N of notes to account. In the said background it is clearly mentioned that company was engaged in the business of providing information technology enabled services/ BPO services primarily to Citigroup entities globally. It is further mentioned that company's operation broadly comprises transaction processing and technical services. The transaction processing has been reported as including the activities involving the processing, collection, customer care and payments in relation to services offered by Citigroup to its corporate and retail clients. The technical services have been reported as involving software testing, verification and validation of software at the time of implementation and data centre management activities. The contention of the learned counsel is that the activities of technical services are software development services. We do not agree with the above conten....
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....d back to the file of the TPO/AO for deciding a fresh after providing copy of the Annual Report of the company to the assessee. 10.1 In view of the submission of the parties, we are of the opinion that the assessee should be provided the copy of the Annual Report of the company for deciding the issue of retaining the company in the set of comparables. Accordingly, we direct the Ld. TPO/AO to provide a copy of the annual financial statements of the company for the year under consideration and then decide the issue of retaining/excluding of the company from the set of comparables. It is needless to mention that the services shall be afforded adequate opportunity of being heard. 11. Accordingly, the grounds of the assessee related to exclusion of the companies from the set of the comparables, have been allowed partly for statistical purposes. 12. The Ld. counsel of the assessee further submitted that following four companies have been rejected incorrectly without considering submission of the assessee: "1. Fortune Infotech Ltd:- The company has been rejected on diminishing revenue. 2. Datamatics financial services omitted:- The company has been rejected by t....