TaxTMI 
TaxTMI 
2017 (1) TMI 1673
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.... the assessee are as under : S.No. Name of the company Weighted Average NCP 1 Aditya Birla Minacs Worldwide Ltd 8.76% 2 Cosmic Global Ltd. 32.38% 3 Informed Technolo ies India Ltd 10.89% 4 Nittany Outsourcing Services Pvt Ltd 19.38% 5 Datamatics Financial Services Ltd -3.03% 6 Omega Healthcare Management Services Pvt Ltd 9.34% 7 Jeevan Softech Ltd 13.44 8 R Systems International Ltd. 10.43% 9 Caliber Point Business Solutions Ltd 21.16% 10 Ultramarine & Pigments Ltd 13.28% Arithmetical Mean 13.60% The TPO rejected 8 comparable companies selected by the assessee and accepted only 2 companies namely Cosmic Global Ltd. and Informed Technologies India Ltd. The TPO then added 8 more comparable companies and determine the ALP by considering the set of 10 companies as under : Sl. No. Name of the company Operating Margin on Cost FY 2009-10 1 Accentia Technologies Ltd 43.06% 2 Acropetal Technologies Ltd (Seg.) 22.27% 3 E-Clerx Services Ltd 55.97% 4 Fortune Infotech Ltd 22.80% 5 ICRA Online Ltd (Seg) 43.39 6 Informed Technologies India Ltd 26.15% 7 Infosys BPO 31.23% 8 Cosmic Global L....
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....ort turnover as envisaged by sub-cause (4) of Explanation 2 below sub-section 8 of Section IOA. On the other hand, there is no specific provision in section IOA warranting exclusion of above expenses from the total turnover also. The DRP also erred in placing the reliance on the decision of the Hon'ble High Court of Karnataka in the case of M/S Tata Elxsi ltd., which has not become final since the same has been not accepted by the department and SLPs are pending before the Hon'ble Supreme Court. 4. The Ground No.1 is regarding turnover filter applied by the DRP. 5. At the time of hearing, the learned A.R. stated at Bar that the assessee has no objection if no turnover filter is applied for the purpose of deciding the functional comparability of these companies however the issue of functional comparability has been raised by the assessee in its appeal. Therefore the learned Authorised Representative has submitted that the assessee has no objections if the directions of the DRP is reversed and no turnover filter is applied. Accordingly, in view of no objection of the assessee's counsel, we decide this ground in favour of the revenue and set aside the directio....
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.... The export turnover constitutes the numerator in the formula prescribed by sub-section (4). Export turnover also forms a constituent element of the denominator in as much as the export turnover is a part of the total turnover. The export turnover, in the numerator must have the same meaning as the export turnover which is constituent element of the total turnover in the denominator. The legislature has provided a definition of the expression "export turnover" in Expln.2 to s.10A which the expression is defined to mean the consideration in respect of export by the undertaking of articles, things or computer software received in or brought into India by the assessee in convertible foreign exchange but so as not to include inter alia freight, telecommunication charges or insurance attributable to the delivery of the articles, things or software outside India. Therefore in computing the export turnover the legislature has made a specific exclusion of freight and insurance charges. The submission which has been urged on behalf of the revenue is that while freight and insurance charges are liable to be excluded in computing export turnover, a similar exclusion has not been provided in r....
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....judgments, what emerges is that, there should be uniformity in the ingredients of both the numerator and the denominator of the formula, since otherwise it would produce anomalies or absurd results. Section 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 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 section 80HHC, the export profit is to be derived from the total business income of the assessee, whereas in section 10A, the export profit is to be derived form the total business of the undertaking. Even in the case of business of an undertaking, it may include export business and domestic business, in other words, export turnover and domestic turnover....
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....Tribunal in following the judgments rendered in the context of section 80HHC in interpreting section 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." Respectfully following the aforementioned decision of the Hon'ble High Court of Karnataka in the case of CIT Vs. Tata Elxsi Ltd. (supra), we uphold the directions of DRP in directing the Assessing Officer to reduce the expenditure incurred on telecommunications, freight and insurance incurred in foreign currency from export turnover as well as total turnover. Consequently this ground raised by revenue is dismissed. 7. The assessee has raised the following grounds : I. Transfer Pricing 1. The learned Additional Commissioner of Income Tax (Transfer Pricing-111), Bangalore ("Transfer Pricing Officer" or "learned T PO") grossly erred in determining an adjustment to the Arm's Length Price ('ALP') of the Appellant's international transactions with Associated Enterprises ("AEs") with respect the IT Enabled services ("ITeS") rend....
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....(ii) Acropetal Technologies Ltd. (Seg.) (iii) Fortune Infotech Ltd. (iv) ICRA Online Ltd (Seg.) (v) Sundaram Business Services Ltd. 10. We have heard the learned Authorised Representative as well as learned Departmental Representative and considered the relevant material on record. The ld. AR of the assessee has stated that the functional comparability of these four companies have been examined by this Tribunal in assessee's own case for the Assessment Year 2008-09 and there is no material difference in the functions of the assessee or in the comparable companies for the year under consideration. He has further pointed out that in case of Accentia Technologies Ltd., the company has undergone business restricting as this company is amalgamated with Accentia Technologies Ltd. Apart from that the company is also engaged in medical transcription and coding. This company also develops in software products for business process outsourcing. Further this company is having 'on site' service as well as intangibles. Similarly, the other companies are also functionally not comparable as providing high end services. As regards the Fortune Infotech Ltd., the RPT of this company is....
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....works (India) Pvt. Ltd. Vs. DCIT in IT(TP)A No.1540/Bang/2012 has considered the functional comparability and found that this company is not comparable with a captive service provider. Accordingly we direct the Assessing Officer/TPO to exclude these companies from set of comparables. E-clerx Services Limited 14.1 We have considered the rival submissions and relevant record. At the out set, we note that the comparability of M/s Eclerx Services Ltd. has been examined by the Special Bench of the Tribunal in the case of Maersk Global Centres (India ) (P) Ltd (supra) in para 82 and 83 as under : "82. In so far as M/s eClerx Services Limited is concerned, the relevant information is available in the form of annual report for financial year 2007-08 placed at page 166 to 183 of the paper book. A perusal of the same shows that the said company provides data analytics and data process solutions to some of the largest brands in the world and is recognized as experts in chosen markets-financial services and retail and manufacturing. It is claimed to be providing complete business solutions by combining people, process improvement and automation. It is claimed to have employed over....
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....ing services. It has two business verticals - financial services, retail and manufacturing. It was found to have being providing complete business solutions in the nature of high end services. The nature and different field of services provided by this company clearly show that it is not functionally comparable with the ITES. Accordingly, we direct the TPO/AO to exclude this company from the set of comparables. Infosys BPO Ltd. 15.1 This was a comparable selected by the TPO. Before the TPO, the assessee objected to the inclusion of the company in the set of comparables, on the grounds of turnover and brand attributable profit margin. The TPO, however, rejected these objections raised by the assessee on the grounds that turnover and brand aspects were not materially relevant in the ITES segment. 15.2 Before us, the learned Authorised Representative contended that this company is not functionally comparable to the assessee in the case on hand. The learned Authorised Representative drew our attention to various parts of the Annual Report of this company to submit that this company commands substantial brand value, owns intellectual property rights and is a market leader with bra....
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....company is functionally dis-similar and different from the assessee and hence is not comparable and the finding rendered in the case of Trilogy E-Business Software India Pvt. Ltd. (supra) for Assessment Year 2007-08 is applicable to this year also. We are inclined to concur with the argument put forth by the assessee that Infosys BPO Ltd. is not functionally comparable since it has the benefit of market value as well as brand value. This company enjoys the benefits of scale and market leadership. In this view of the matter, we hold that this company ought to be omitted from the set of comparable companies. It is ordered accordingly. Since we have directed the A.O/TPO to exclude these companies from the set of comparables therefore the TPO is directed to compute the ALP on the basis of remaining comparables. 16. The next ground is regarding disallowance of lease rentals. 17. The Assessing Officer has disallowed the vehicle lease rentals of Rs. 1,50,90,890 on the ground that the payments were made towards purchase of vehicles. The DRP allowed the interest portion of the vehicle lease rentals and disallowed the principle portion. Therefore both the revenue as well as the assesse....
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....as 9 & 10 as under : " 9. In our opinion, as the directors of the assessee were entitled to use the vehicles of the assessee-company for their personal use as per the terms and conditions on which they were appointed, it was not proper on the part of the AO to disallow 1/6th of the expenditure incurred by the assessee on maintenance of its vehicles. Sec. 309 of the Companies Act, 1956, provides the modality for determining the remuneration payable to directors, including any managing or full-time director. Such remuneration is payable either as stated in the articles of association of the company or in accordance with the resolution or if provided by articles, by a special resolution which might be passed by the company in the general meeting. This payment of remuneration is subject to overall limits of managerial remuneration laid down in s. 198 of the Act. What is more material for the purpose of the present controversy is Explanation to s. 198 of the Companies Act which permits and provides that "remuneration" shall include (a) any expenditure incurred in providing any rent-free accommodation, etc., (b) any expenditure incurred in providing any other benefit or amenity free o....
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....or "non-business purpose". As already stated hereinbefore once the expenditure in question is in terms as provided in ss. 309 and 198 of the Companies Act, 1956, there cannot be any "non business" purpose insofar as the assessee-company is concerned. 9.4. In relation to the aforesaid approach of the CIT(A) and the Tribunal we cannot do better than reiterate what Madras High Court has stated in the case of CIT vs. L.G. Ramamurthi & Ors. 1977 CTR (Mad) 416 : (1977) 110 ITR 453 (Mad) : TC 8R.129: "No Tribunal of fact has any right or jurisdiction to come to a conclusion entirely contrary to the one reached by another Bench of the same Tribunal on the same facts. It may be that the members who constituted the Tribunal and decided on the earlier occasion were different from the members who decided the case on the present occasion. But what is relevant is not the personality of the officers presiding over the Tribunal or participating in the hearing but the Tribunal as an institution. If it is to be conceded that simply because of the change in the personnel of the officers who manned the Tribunal, it is open to the new officers to come to a conclusion totally contradictory to the ....
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....saction in the books of accounts. It is a settled law that treatment in the books of accounts is not determinative of liability towards income-tax for the purpose of the Act. The liability under the Act is governed by provisions of the Act and is not dependent on the treatment followed for the same in the books of accounts. For above proposition, reference is made to Sutlej Cotton Mills Ltd. v. CIT [1979] 116 ITR 1 (SC) and Kedarnath Jute Mfg. Co. Ltd. v. CIT [1971] 82 ITR 363 (SC). AS-9 on accounting for leases classifies lease transactions for accounting purposes as under: (i) Finance Lease (ii) Operating Lease 5.2 Finance Lease, in AS-19, is described as a lease that transfers substantially all the risks and rewards in respect of ownership of an asset; title may or may not be transferred under such lease. An operating lease, on the other hand, is described as a lease other than a finance lease. The aforesaid Accounting Standard provides that under the finance lease, the lessee should recognize the asset in its books and should charge depreciation on the same. In the case of operating lease, the Accounting Standard provides that the lessee should recognize the lease paym....
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....t, is entitled to claim depreciation under the provisions of the Act. 5.5 The aforesaid legal position finds support from the decision of the Hon'ble Supreme Court in the case of ICDS Ltd. v. CIT [2013] 350 ITR 527/212 Taxman 550/29 taxmann.com 129, wherein the Hon'ble Court held that the lessor is the owner of the leased property in case of finance lease, entitled to depreciation of the same. The pertinent observation of the Hon'ble Court is reproduced hereunder : "The revenue's objection to the claim of the assessee is founded on the lease agreement. It argued that at the end of the lease period, the ownership of the vehicle is transferred to the lessee at a nominal value not exceeding one per cent of the original cost of the vehicle, making the assessee in effect a financier. However the revenue's contention cannot be accepted. As long as the assessee has a right to retain the legal title of the vehicle against the rest of the world, it would be the owner of the vehicle in the eye of law. A scrutiny of the sale agreement cannot be the basis of raising question against the ownership of the vehicle. The clues qua ownership lie in the lease agreement it....