TaxTMI 
TaxTMI 
2017 (1) TMI 1673
X X X X Extracts X X X X
X X X X Extracts X X X X
....te Method ('MAM') The comparables selected by 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 22.8....
X X X X Extracts X X X X
X X X X Extracts X X X X
....putation of deduction u/s IOA of the IT Act without appreciating the fact that the statute allows exclusion Of such expenditure only from the ETO by way of specific definition of export 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 D....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Total turnover of the business carried on by the undertaking The total turnover of the business carried on by the undertaking would consist of the turnover from export and the turnover from local sales. 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 insuran....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the denominator respectively in the formula....." The formula for computation of the deduction under section 10A would be as under : Profits of the business x export turnover / Total turnover From the aforesaid 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 sec....
X X X X Extracts X X X X
X X X X Extracts X X X X
....deduction under section 10A, would be as under : Profits of the business of the undertaking x Export turn over (Export turnover + domestic turn over) 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 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), Bangal....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... dismissed as not pressed. Accordingly, the Ground No.2B of the assessee's appeal is dismissed being not pressed. 9. Ground Nos.1 to 10 are regarding Transfer Pricing. The assessee is seeking exclusion of 7 companies from the set of 10 comparables selected by the TPO. We will deal with these companies one by one as under : (i) Accentia Technologies Limited (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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Technologies Ltd." We further note that the functional comparability has been examined in detailed by the co-ordinate bench of this Tribunal in the case of Equant Solutions India Pvt. Ltd. Vs. DCIT in IT(TP)A No.1202/Del/2015 as well as in the case of ITO Vs. Interwoven Software Services (India) Pvt. Ltd. in ITA No.461/Bang/2015. Further in the case of Acropetal Technologies Ltd. (Seg.), the co-ordinate bench of this Tribunal in the case of Kodiak Networks (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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n as comparables for the purpose of determining ALP of the transactions of the assessee company with its AEs. We, therefore, direct that these two entities be excluded from the list of 10 comparables finally taken by the AO/TPO as per the direction of the DRP." 14.2 As discussed by the Special Bench in the case of Maersk Global Centres (India ) (P) Ltd (supra), this company provides data analysis, operating management, audits, reconciliation, metrics management and operating 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ive submitted that comparability cannot be decided merely on the basis of scale of operations and the brand attributable profit margins of this company have not been extraordinary. In view of this, the learned Departmental Representative supported the decision of the TPO to include this company in the list of comparable companies. 15.4 We have heard the rival submissions and perused and carefully considered the material on record. We find that the assessee has brought on record sufficient evidence to establish that this 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he relevant material on record. There is no dispute that the assessee has taken vehicles on finance lease and is paying the lease rentals to the lessor. The vehicles are used in the course of business as provided to the employees of the assessee. The Assessing Officer has disallowed the claim of the assessee on the ground that the vehicles are for personal use of the employees. At the outset we note that an identical issue has been considered by the Gujarat High Court in the case of Sayaji Iron & Engg. Co. Vs. CIT (supra) in paras 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 b....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... view for this assessment year especially when it is an undisputed fact that in the past all such disallowances were deleted by the Tribunal and the said decision was not challenged. 9.3. The Tribunal has, in our view unfortunately, upheld the order of CIT(A) wherein Tribunal's earlier orders in assessee's own case have been distinguished by giving reasons which are, to say the least, unwarranted. The earlier orders of the Tribunal are distinguished by stating that even if there is no personal user of cars by the company it would yet be user for "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 Be....
X X X X Extracts X X X X
X X X X Extracts X X X X
....laimed by the assessee on the account of the personal use of the cars which were used by the directors. We, therefore, answer the question in the negative i.e., in favour of the assessee and against the Revenue." Further the Delhi Bench of this Tribunal in the case of Minda Corporation Limited Vs. DCIT (2016) 69 Taxmann.com 317 (Delhi-Trib.) has dealt with an identical issue in paras 5.1 to 5.6 as under : " 5.1 After having heard rival submissions, we are of the view that AS-19 on accounting for "Leases" issued by the ICAI is only applicable for accounting the lease transaction 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ssee shows the asset in his balance sheet, charges depreciation in accounts and even makes impairment provision, yet the assessee is not eligible to claim depreciation under the Act, which is allowed to the legal owner of the asset. Furthermore, not only the interest/ finance/ other charges component in the lease payments, but the entire lease payments are treated as a deductible expense and no deduction is allowed for the impairment provision. In the hands of the lessor, the entire 'lease rentals' and not merely the finance charges component thereof is taxed as income. The lessor, who is the legal owner of the asset, 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 ....