AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2015 (11) TMI 1793
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....in the segment. 3. The ld.CIT(A) has rejected companies on the basis of abnormal profit without defining what constitutes abnormal profit filter and how the same is determined and erred in excluding the comparable company M/s Vishal Information Technologies Ltd. 4. The ld.CIT(A) erred in rejecting the diminishing revenue filter used by the TPO to exclude companies that do not reflect the normal indust6ry trend. 5. The ld.CT(A) has erred in eliminating M/s Nucleus Netsoft & GIS Ltd. as comparable without recording any finding as to how he company does not pass through the filters applied by the TPO. 6. The ld. CIT(A) has erred in eliminating M/s Microland Ltd. as a comparable without recording any finding as to how the company does not pass through the filters applied y the TPO and upheld by the CIT(A). 7. The ld. CIT(A) has erred in directing for under utilization of capacity adjustment ignoring the facts that the adjustment is abstract in nature and exact under utilization of the fixed costs cannot be quantified objectivity as it is not possible to ascertain the same. 8. The ld. CIT(A) was not justified in directing the AO to c....
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.... comparables by using the following filters; a. Companies listed in the data bases as engaged in business services were identified. b. Companies not having data for FY: 2003-04 or 2004-05 were ignored. c. Companies which had not incurred expenditure on marketing and sales were calculated. d. Financial data relating to only companies engaged in call centre, customer care or ITES/BPO were considered. Other service companies were excluded. The average gross profit margin of the comparables worked out at16.92% on the cost. The learned TPO vide his order dated 26-09-2014 passed u/s 92CA of the IT Act rejected the TP study of the assessee company and proceeded to select the following comparables whose average margin in cost worked out to 24.68% by adopting TNM method as the most appropriate method. Image No. 1 5. After allowing the working capital adjustment of 3.10% the arithmetic mean was of PLI worked out to 23.08% and finally the ALP was determined as follows; 5.1 The transactions relating to rendering of software development services, [payment of salary to directors and borrowing of interest free loans were considered to be at arm's le....
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....r directed the AO to include this company called M/s Microland Ltd. in the list of comparables and finally, the arithmetic mean was computed as follows; Sl.No Comparable company OP/OC(%) 1 Allsec Tdechnologies Ltd 26.19 2 Saffron Global Ltd 24.88 3 Cosmic Global Ltd 17.02 4 Transworks Information Services Ltd 02.81 5 Ace Soft Exports Ltd. 14.50 6 Maple E-Solutions Ltd 28.75 7 Microland Ltd 01.72 Arithmetic mean 16.55 The CIT(A) has further allowed the adjustment on account of under utilization capacity. The CIT(A) further directed that the benefit u/s 10A should be worked out before setting of the brought forward losses following the decision of the jurisdictional High Court in the case of ACIT Vs M/s Yokogawa India Ltd. (2012) 21 Taxmann.com 154(Kar.) 13. Being aggrieved by this order, the revenue is in appeal before us in the present appeal. 14. The learned Senior DR vehemently argued before us that the CIT(A) ought not to have deleted the comparable of M/s Vishal Information Tech.Ltd (Supra) applying the filter of abnormal profit and M/s Wipro BPO Solution....
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.... viii Brigade Global Services Pvt.Ltd. vs ITO (2013) 33 Taxmann.com 618 (Hyd.) ix. M/s Capital IQ Information Systems (Ind.) Pvt.Ltd ITA No.1961/Hyd/2011 x. Stream International Services Pvt. Ltd Vs ADIT ITA No.8997/Mum/2010 xi. M/s First Advantage Offshore Services Pvt.Ltd. ITA No.IT(TP)A No.1086(Bang.)/2011 In the case of M/s Tulsyan Tech.Ltd. formerly known as cosmic Global Company Ltd. that it has to be rejected as comparable on the ground of functional dissimilarity. He relied on the decision of ACIT Vs Maersk Global Service Centre (Ind.) Pvt.Ltd (2011) 16 Taxmann..com 47 (Mum.) for AY: 2005-06. He further submitted that M/s Wipro BPO Solutions Ltd. should be rejected as a comparable on the basis of high turnover filter. In this regard he relied on the following decisions; M/s Wipro BPO Solutions Ltd. has to be rejected as a comparable on the basis of high turnover in view of Hon'ble ITAT in the following decisions; i. ACIT Vs Maersk Global Service Centre (Ind.)Pvt.Ltd(2011) 16 Taxmann.com 47 (Mum) for AY: 2005-06 ii. Market Tools Research Pvt.Ltd. TS-30-ITAT-2014(HYd.)-TP-AY: 2005-06. iii.Deloite Consulting Indi....
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....f the learned counsel that the company is functionally different as this company is engaged in the business of providing call centre services. The Hon'ble Delhi High Court in the case of M/s Rampgreen Solutions Pvt. Ltd Vs CIT in ITA No.105/2015 dated 10-08-2015 had distinguished the nature of business between the KPO and ITES as follows; "34. We have reservations as to the Tribunal's aforesaid view in Maersk Global Centres (India) Pvt. Ltd. (Supra). As indicated above, the expression BPO and KPO are plainly, understood in the sense that whereas, BPO does not necessarily involve advanced skills and knowledge, KPO, on the other hand, would involve employment of advanced skills and knowledge for providing services. Thus, the expression KPO in common parlance is used to indicate an ITEs provider providing a completely different nature of service than any other BPO service provider. A KPO service provider would also be functionally different from other BPO service providers, in asmuchas the responsibilities undertaken, the activities performed, the quality of resources employed would be materially different. In the circumstances, we are unable to agree that broadly ITEs sector....
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.... Systems (Ind.) Pvt.Ltd Vs DCIT in ITA No.1231(B)/2010 2. M/s Google India Pvt.Ltd Vs DCIT (IT)TS-261-ITAT-2014(B)/TP 3. ITO Vs CRM Services India Pvt. Ltd(2011) 14 Taxmann.com 96(Del.) 4. Fiat India Pvt.Ltd Vs ACIT 2010-TII-30-ITAT-Mum-TP 5. Global Turbine Services Inc Vs ADIT TS-259 ITAT-2013- 9(Del.)-TP 6. DCIT Vs Panasonic AVC Networks India Co. Ltd TS-55-ITAT-2014(Del.)-TP 7. DCIT Vs Petro Araldite Pvt.Ltd TS-201-ITAT-2013(Mum)-TP 8. Ariston Thermo India Ltd. Vs DCIT TS-221-ITAT-2013 (Pune)-TP 9. Honeywell Technology Solutions Pvt.Ltd Vs DCITIT(TP)A No.1344/Bang/2011 10. M/s Toyota Kirloskar Motors Pvt. Ltd Vs ACIT (2012) 28 Taxmann.com 293 (bang.). Therefore, we do not find any reason to interfere with the reasoning of the learned CIT(A). Hence, these grounds of appeal filed by the revenue are dismissed. 21. Ground no.5 challenges the directions of the learned CIT(A) to exclude Ms/s Nucleus Netsoft & GIS Ind. Ltd from the list of comparables selected by the TPO. The CIT(A) deleted this company on the ground that the TPO had not clarified whether this company satisfies the filter of related ....
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....ile doing so, the learned CIT(A) relied on the decision of the Hon'ble Delhi Bench in the case of M/s Global Vanttedge Pvt.Ltd (2010-TIOL-24-ITAT-Del.) For the purpose of benchmarking the international transactions, it is imperative that the effect of such underutilization of capacity/excess fixed costs is eliminated, while computing the operating margins of the appellant. Rule 10B(3) of the Rules provides that an appropriate adjustment is required to be made to account for the differences between the controlled and uncontrolled transactions: "An uncontrolled transaction shall be compara.ble to an international transaction if-- (i) none of the differences, if any, between the transactions being compared, or between the enterprises entering into such transactions are likely to materially affect the price or cost charged or paid in, or the profit arising from, such transactions in the open market; or (ii) Reasonably accurate adjustments can be made to eliminate the material effects of such differences." Reliance in this regard is also placed on the recent decision of Chennai Bench of the Tribunal in the case of Mando India Steering Systems Pvt. Ltd. vs. ACIT (ITA No. 2092/Mds/2....
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.... 1763- 2764IDel/09 (Del); Brintons Carpers' Asia (P) Ltd v. DCIT 139 TT J -177; and, Skoda, Auto India P. Ltd. v. A CIT 122 TT J 699. In our view, the matter requiring factual appreciation, the same is remanded back to the file of the Assessing Officer, who shall consider the propositions put forth by the assessee and allow appropriate economic adjustments on a reasonable basis." On the same lines, Delhi Bench of the Tribunal in the case of Global Turbine Services Inc. vs. ADIT (ITA No. 3484/0e1/2011) allowed economic adjustment on-account of under capacity utilization considering the fact that the year under consideration was the first full year of operation of the appellant. Relevant extract of the decision reads as under: "10. -We have heard the rival contentions and perused the material available on record. The suitable adjustment for non-utilisation of capacity is to be taken in to account after considering the ALP while working out TP adjustment, this proposition has been held by coordinate Bench in the case of the Amdocs Business Services (P.) Ltd. (supra) and various other cases as cited here in above . 11. In the given facts and circumstances it was required on the ....
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....similar adjustments made by the appellant in the immediate preceding years i.e. AY 2002- 03, 2003-04 as well as in the immediate succeeding years i.e. 2005-06 and 2006-07 wherein the facts involved were similar to that of the year under consideration i.e. AY 2004- 05; + accordingly, no infirmity is found in the impugned order of the CIT(A) as the adjustments made by the appellant in TNMM analysis were reasonable and accurate and as reflected in the said analysis, international transactions made by the appellant company with its associated concerns during the year under consideration were at arm's length requiring no adjustment/addition on this issue." 16. From the above, it is evident that the appellant is entitled to economic adjustments in the circumstances of under capacity utilization of the company. Of course, such adjustments must be restricted to fixed cost/overheads only. In the 14 instant case, the AO/TPO did not have the occasion to go into the period or the extent of the labour unrest, break-up of the claimed adjustments amounting Rs. 7.32 crores '(rounded off), fixed cost versus the variable cost etc as they' summarily rejected the external comparables in vi....
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....sed of. " Further, the Hon'ble Delhi' Bench of the Tribunal in the case of Transwitch India Pvt. Ltd VS. ACIT (I.T.A. No. 6083/De1/2010) held as under: "4.11 Another' TPO's contention is that claim of the appellant that the sealing drive reduced its revenue is unsubstantiated. In this regard, appellant has submitted that the appellant had placed on record its quarterly 'capacity' utilization statement demonstrating the fall in its capacity utilization during the quarter January to March, 2006. The capacity utilization, of the appellant during the quarter January to March, 2006 fell to i2% as' against the normal capacity utilization of 87% to 94% during the financial year ending December, 31, 2005. Further, the fact that the appellant had to shift its office premises at a very short notice, sufficiently substantiates the low capacity utilization of the appellant during the last quarter of financial year 2005-06. We find out ourselves in agreement with the appellant's submission in this regard." Hon'ble Delhi High Court, in the appeal preferred by the revenue in the case of Transwitch India (supra), vide order dated 17.07.2013, upheld the adj....
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....4(Kar.) wherein the Hon'ble High Court held as under; " As the income of the section 10A unit has to be excluded at source itself before arriving at the gross total income, the loss of the non-section 10A unit cannot be set off against the income of sec.10A unit u/s 72. The loss incurred by the assessee under the head 'Profits and gains of business or profession' has to set off against the profits and gains, if any, of any business or profession carried on by such assessee. Therefore, as the profits and gains under section 10A is not be included in the income of the assessee at all, the question of setting off of loss of the assessee of any profits and gains of business against such profits and gains of the undertaking would not arise. Similarly, as per section 72(2) unabsorbed business loss is to be fist set of and thereafter unabsorbed depreciation treated as current year's depreciation under section 32(2) is to be set off. As deduction under section 10A has to be excluded from the total income of the assessee the question of unabsorbed business loss being set off against such profit and gains of the undertaking would not arise. In that view of the matter, the approach o....