TaxTMI 
TaxTMI 
2019 (11) TMI 1023
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....es and support services. The assessee filed the Return of Income on 12.10.2010 with total income of Rs. 7,14,01,486 under normal IT provisions and Rs. 10,01,14,926 under MAT provisions and Return of Income was processed under Section 143(1) of the Act. Subsequently the case was selected scrutiny and Notices under Section 143(2) and 142(1) of the Act along with Questionnaire were issued. In compliance, the learned Authorised Representative of the assessee appeared from time to time and Books of Accounts are produced and details were furnished. The Assessing Officer found that the assessee has claimed deduction under Section 10A of the Act of Rs. 5,14,98,661 and the assessee company has entered into international transactions with AE which exceeded the prescribed limit and matter was referred to the TPO with prior approval of CIT. The assessee has Indian Infrastructure to provide authority of services and busineses to find internet security transact across Internet, telecommunications and networks. The TPO found the PLI of operating profit on cost is as under : 4. The assessee's international and segmental information as per the TP Document referred at paras 3.1 and 3.2 as unde....
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....5 along with TP Adjustment under Section 92CA and assessed the total income of Rs. 14,98,69,091 and passed under Section 143(3) r.w.s. 144C of the Act dt.6.5.2014. Aggrieved by the order, the assessee has filed an appeal with the learned CIT(Appeals). Whereas the learned CIT(Appeals) considering the grounds of appeal, submissions on the deduction of 10A and the comparables selected on software development services and marketing support services has partly allowed the appeal. Aggrieved by the order of learned CIT(Appeals), the assessee has filed an appeal with the Tribunal. 7. At the time of hearing, the learned Authorised Representative argued on the Revised grounds of appeal and on software development services and prayed for exclusion of companies (i) Infosys Limited, (ii) Persistent Systems Limited and filed chart and submitted that the turnover of the Infosys Ltd. was Rs. 21,140 Crores and PLI is 44.98% and the turnover is more than 476 times of assessee's turnover and also made submissions on profiles functioning and supported with Paper Book and judicial decisions and further argued that the Infosys Ltd. and Persistent Systems Ltd. be excluded and prayed for inclusion o....
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....note that in the case of Agnity India Technologies (P.) 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 offers software product for banking industry. Thus, this company is engaged in diversified services including design as well as technical consultancy, consulting re-engineering, maintenance, systems integration as well as products for banking industry." 20. In view of this, we do not find any reason t....
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....of two comparables under the Software Development Services segment and in respect of inclusion of Akshay Software Technologies Pvt. Ltd.. The ld. AR contention that the Akshay Software Technologies Pvt. Ltd. is functionally comparable and passes all the filters of RPT and is predominantly into Software Development Services and Revenue from software development of fixed price and fixed time frame contracts. Whereas the ld. DR objected to the inclusion and referred to Annual Report at page 940 of the Paper Book where 50% of the services out sourced and do not fit into the category and has a different model of business and relied on the observations of the TPO. We find that this disputed issue is dealt by co-ordinate Bench of Tribunal in the case of Novell Software India Pvt Ltd Vs. DCIT for Assessment Year 2010-11 in ITA No.281/Bang/2016 at pages 15 to 17 as under : " 18. Additionally, the Assessee seeks inclusion of the following two companies, which were part of its TP study, in the final list of comparables: * Akshay Software Technologies Ltd: The company is functionally comparable to the assessee. Originally, the TPO proposed to reject the said company as a comparable on th....
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.... (ii) HCCA Business Services Pvt. Ltd., (iii) Hindustan Housing Co. Ltd. and (iv) Killick Agencies & Marketing Ltd. The learned Authorised Representative on the first comparable under marketing services segment prayed for exclusion of Asian Business Exhibition & Conferences Ltd. and explained that the comparable is functionally dissimilar and it is engaged in organizing exhibitions and conferences and derives revenue from sale of stall space in exhibitions and events and earn commission income from advertisement in external publications, sponsorship income and income from delegate fees and entry charges and the ld. AR supported the arguments with co-ordinate Bench decisions and we find co-ordinate Bench in the case of Alcon Laboratories Pvt. Ltd. Vs. ITO for the Assessment Year 2010-11 in IT(TP)A 391/Bang/2015 dt.21.11.2017 at pages 4 & 5 paras 4 & 5 has observed as under : " 4. It was submitted by the learned AR of the assessee that in the C.O. filed by the assessee, the only grievance of the assessee is regarding one Comparable i.e. Asian Business Exhibition & Conferences Ltd. As per the assessee, this is not a good comparable and it should be excluded. In support of this cont....
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.... services. We found this issue was dealt by the coordinate Bench in the case of Alcon Laboratories Pvt. Ltd. (supra) at pages 6 & 7 paras 8 & 9 has observed as under : " 8. We have considered the rival submissions. We find that in respect of all these three comparables, the DRP excluded them on this basis that these are functionally different. Before us, in respect of Hindustan Hosing Co. Ltd., the argument of the learned AR of the assessee is this that it should be excluded by applying RPT filter of 25% but since, actual RPT % of this company is not examined and commented upon by any of the lower authorities, we feel it proper to restore the matter back to AO/TPO for a fresh decision in respect of inclusion/exclusion of this comparable by applying 25% RPT filter. We order accordingly. 9. In respect of remaining two comparables i.e. 1) HCCA Business Services Pvt. Ltd. and 2) Killick Agencies & Mktg. Ltd., we find that as per the tribunal order rendered in the case of DCIT vs. Electronics for imaging India Pvt. Ltd. (Supra), it was held that these two are not good comparables because these are functionally different. We have already noted that this tribunal order is applicable....
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....ther RPT % of this comparable company is commented upon by any of the authorities below. In reply, he submitted that there is no such comment in the orders of the lower authorities and therefore, regarding this comparable, the matter may be restored to AO/TPO for a fresh decision after examining the RPT % of that company." The learned Authorised Representative submitted for exclusion of 4th comparable Killicks Agencies & Management Ltd. from the marketing segment which functionally dissimilar and acts as agent for various foreign agencies for sales of dredging equipment, steerable rudder propulsions, maritime and aviation lighting, acoustic communication equipment, etc and offers after sales services involving in export of micro switches, engineering items, acoustics item and headsets and no segmental information is available. The comparable was excluded by the co-ordinate Bench of Tribunal in the case of Alcon Laboratories Pvt. Ltd. (supra) at page 7 para 9 as under : " 9. In respect of remaining two comparables i.e. 1) HCCA Business Services Pvt. Ltd. and 2) Killick Agencies & Mktg. Ltd., we find that as per the tribunal order rendered in the case of DCIT vs. Electronics for....
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....aged by the ld. DR on claim of expenditure is foreign currency from export turnover and not from total turnover. We find the Hon'ble Karnataka High Court in the case of Tata Elxsi Ltd. (supra) has observed and held - " The Bombay High Court had an occasion to consider the earning of the word 'total turnover' in the context of section 10A, in the case of CIT Vs. Gem Plus Jewellery India Ltd. (2011) [330 ITR P. 175 (Bom)] (2010-TIOL-456-HC-MUM-IT). Interpreting sub-section (4) of section 10A, it is held as under : "Under sub-section (4) the proportion between the export turnover in respect of the articles or things, or as the case may be, computer software exported, to the total turnover of the business carried over by the undertaking is applied to the profits of the business of the undertaking in computing the profits of the business of the undertaking in computing the profits derived from export. In other words the profits of the business of the undertaking are multiplied by the export turnover in respect of the articles, things or, as the case may be, computer software and divided by the total turnover of the business carried on by the undertaking. The formula which is presc....
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....utory interpretation. Any other interpretation would lead to an absurdity. If the contention of the Revenue were to be accepted, the same expression viz. 'export turnover' would have a different connotation in the application of the same formula. The submission of the Revenue would lead to a situation where freight and insurance, though these have been specifically excluded from 'export turnover' for the purposes of the numerator would be brought in as part of the 'export turnover' when it forms an element of the total turnover as a denominator in the formula. A construction of a statutory provision which would lead to an absurdity must be avoided." The Special Bench of the Tribunal, in the case of ITO Vs. Sak Soft Ltd. (2009) 313 ITR (AT) 353 (Chennai) (SB) (2009-TIOL-187-ITAT-MAD-SB) also had an occasion to consider the meaning of the word 'total turnover'. After referring to the various judgments of the High Court as well as the Supreme Court held as under : "53. For the above reasons, we hold that for the purpose of applying the formula under sub-section (4) of section 10-B, the freight, telecom charges or insurance attributable to the delivery of articles or things or co....
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....ing in the said section to mandate that, what is excluded from the numerator that is export turnover would nevertheless form part of the denominator. Though when a particular word is not defined by the legislature and an ordinary meaning is to be attributed to the same, the said ordinary meaning to be attributed to such word is to be in conformity with the context in which it is used. When the statute prescribes a formula and in the said formula, 'export turnover' is defined, and when the 'total turnover' includes export turnover, the very same meaning given to the export turnover by the legislature is to be adopted while understanding the meaning of the total turnover, when the total turnover includes export turnover. If what is excluded in computing the export turnover is included while arriving at the total turnover, when the export turnover is a component of total turnover, such an interpretation would run counter to the legislative intent and impermissible. If that were the intention of the legislature, they would have expressly stated so. If they have not chosen to expressly define what the total turnover means, then, when the total turnover includes export turnover, themeani....
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....at pages 19 & 20 para 19 as under : " ICRA Techno Analytics Ltd., (seg) The learned CIT (A) argued that the Hon'ble DRP ought not to have deleted these companies from the list of the comparables on the ground of functional dissimilarity. On other hand the ld. Counsel for the assessee submitted that these comparables were excluded by the coordinate bench in the case of DCIT V. Electronics for Imaging India P. Ltd., [(2016) 70 taxmann.com 299. We heard the rival submissions and perused the material on record. We find from the order of the Hon'ble DRP that in the case of ICRA Techno Analytics Ltd., the Hon'ble DRP after perusing the Annual Report had come to conclusion that the service segment comprised of software development, software consultancy, engineering services, web development, web hosting etc., for which no segment details were available. The revenue had not led any evidence on record controverting the above findings. Even the Hon'ble coordinate bench in the case of DCIT V. Electronics for Imaging India P. Ltd., [(2016) 70 taxmann.com 299 had held that this company is not comparable with the software development company in view of the fact that it is engaged in the di....
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..... AR and considered the relevant material on record. The ld. DR has not disputed the fact that comparability of this company has been examined by this Tribunal in a series of decisions including in the case of Trilogy ebusiness Software India (P.) Ltd., (supra). We further note that in the balance sheet of this company as on 31.3.2010, there are inventories of Rs. 60,47,977/-. Therefore, when this company is in the business of software products, the same cannot be compared with a pure software development services provider. Accordingly, we do not find any error or illegality in the impugned findings of the DRP." 22. The decision of co-ordinate Bench in the case of CGI Information Systems Ltd. (supra) for A.Y. 2010-11 on exclusion of Tata Elxsi Ltd. at pages 26 to 28 paras 27 to 29 as under : " 27. As regards Tata Elxsi, the learned counsel for the assessee company submitted that the segment selected by the TPO for the purpose of comparability, comprising of services such as product design, engineering and visual computing labs which are in the nature of IT enabled services and thus this company cannot be compared with a company which is engaged in the software development like....