TaxTMI 
TaxTMI 
2020 (1) TMI 248
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....Infosys Technologies Ltd M/s. Flextronics Software Systems Ltd as comparables in the segment. 3.The Ld. CIT (A) erred in rejecting companies on the basis of Abnormal Profit without defining what constitutes abnormal profit filter and how the same is determined and consequently erred in excluding the comparable companies Exensys Software Solutions Ltd and Thirdware Solutions Ltd. 4. The learned CIT (A) erred in rejecting the diminishing revenue filter used by the TPO to exclude companies that do not reflect the normal industry trend. 5.The honorable CIT(A) erred in computation of the margins of M/s Quintegra Solutions Ltd, by determining the same as average of margins of 6.85% and 10.68% for FY ended 30/09/2004 and 30/09/2005 respectively, without appreciating the fact that an average cannot represent the arm's length margin of any comparable company for the purposes of arm's length margin determination 6.The honorable CIT(A) erred in computation of the margins of M/s Quintegra Solutions Ltd, by determining the same as average of margins of 6.85% and 10.68% for FY ended 30/09/2004 and 30/09/2005 respectively. without appreciating the fact the same is contradictory to....
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.... 16.The appellant craves leave to add, to alter, to amend or delete any of the grounds that may be urged at the time of hearing of the appeal. Grounds raised by assessee in its CO No.155(B)/2015 (AY: 2005-06) On the facts and circumstances of the case and in law: 1. The learned CIT(A) has erred, in law and in facts, by not accepting the Respondent's plea in entirety and confirming with the Learned AO/TPO on not accepting the economic analysis undertaken by the Respondent in accordance with the provisions of the Act read with the Income Tax Rules, 1962 and conducting a fresh economic analysis for the determination of the arm's length price in connection with the impugned international transaction and holding that the Respondent's international transaction is not at arm's length. 2. The learned CIT(A) has erred, in law and in facts, in not accepting the Respondent's plea and confirming with the Learned AO/TPO by determining the arm's length margin/ price using financial year 2004-2005 data which was not available to the Respondent at the time of complying with the transfer pricing documentation requirements. 3. The learned CIT(A) has erred in law and ....
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....s-objections at any time before, or at the time of, hearing of the appeal, so as to enable the Appellate Tribunal to decide this response according to law. 2. Brief facts of the case are as under: Assessee is a company and wholly owned subsidiary of M/s Analog Group engaged in providing technical, project management, marketing and sales support services. For year under consideration assessee filed return of income on 31/10/05 declaring total income of Rs. 3,13,75,410/-. The case was selected for scrutiny and notice under section 143(2) was issued along with questionnaire and notice under section 143(1) of the Act. In response to statutory notices, representative of assessee appeared before Ld.AO and filed requisite details as called for. During assessment proceedings, Ld.AO observed that assessee had international transaction with its associated enterprises. Accordingly, reference was made under section 92CA to Ld.TPO for determination of arm's length price of international transactions. 2.1 On receipt of reference, Ld.TPO called for details in respect of international transaction entered into by assessee with its AE in Form 3 CEB. Ld.TPO observed that assessee had following int....
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.... (supra) and present case are identical. 4. In our considered opinion, comparability is to be carried out on broad object of benchmarking international transaction and according to law laid down under section 92B of the Act, read with Rule 10B(2) Income Tax Rules, 1963. Comparables must be similar in material aspects and must be compared on the basis of products/services, characteristics, functions undertaken, assets used and risk assumed. Merely because certain comparables has been upheld for its exclusion/inclusion by various decisions, does not ipso facto lead to exclusion/inclusion in a given set of facts. In our considered opinion, exclusion/inclusion of any comparables must be strictly analysed on basis of FAR, in accordance with Rule 10 B (2). We also are of opinion that comparables selected must be for relevant year which is to be compared and unless contemporaneous data as section 92D read with Rule 10 D (4), is not available for relevant year, multiple year data should not be used. 5. Before we undertake comparability analysis, it is sine qua non to understand functions performed by assessee, risks assumed and assets owned during the year under consideration. Transfer ....
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....bles by revenue and assessee are mentioned. We have checked our records as well as the records filed by assessee with the registry and Ld. CIT DR. We note that there is no such paper book that is forming part of any of records. We are therefore referring to the extracts of annual reports that forms part of various written submissions filed by assessee before authority is below which is placed in Paper Book I (Part 2 of 2) Flextronics software systems Ltd (SEG) This comparable has been excluded by Ld.CIT(A) due to high turnover of about Rs. 457.45 crores. It has further been submitted by Ld.AR that this comparable is functionally different with that of assessee. It has been submitted that this company is engaged in end to end provider of communication products, services and solutions to network equipment providers, handset manufacturers, service providers and business process outsourcing sectors. At page 693 in Paper Book I (Part 2 of 2) extract of Schedule O being notes to financial statements of this company are placed, wherein this company is said to have acquired 52,49,719 fully paid-up equity shares of Rs. 5 each, being approximately 15.42% of paid-up capital of the company ....
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....assification has to be made. Dun & Bradstreet and NASSCOM have given different ranges. Taking the Indian scenario into consideration, the classification made by Dun & Bradstreet is more suitable and reasonable. In view of the same, it is held that the turnover filter is very important and the companies having a turnover of Rs. 1.00 crore to 200 crores have to be taken as a particular range and the assessee being in that range having turnover of 8.15 crores, the companies which also have turnover of 1.00 to 200.00 crores only should be taken into consideration for the purpose of making TP study" It is observed that comparables sought to be excluded are 100 % Software Development Companies, having high turnover and therefore respectfully following aforestated view in case of Genesis Integrating Systems India Pvt. Ltd., vs DCIT (supra) these comparables are to be excluded on both the counts of functionally not being similar with that of assessee and also because they have a high turnover of more than 200 crore. It is submitted that subsequently this Tribunal in case of Yodlee Infotech Pvt. Ltd vs ITO in IT(TP)A no. 108/Bang/2014 For assessment year 2009-10, vide order dated 12/12/14,....
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....are functionally similar with respect to the software service provided by assessee in the present case. In support he placed reliance upon the view of Ld. AO. 7.3. We have perused submissions advanced by both sides in light of records placed before us. As regards company Exenys software is concerned, page 430 of Paper Book I (Part 2 of 2), assessee refers to scheduled for of income statement wherein company has valued its brand at Rs. 5 crores which indicates that this company owns huge intangibles. Also that this company had an exceptional year of operation due to amalgamation with Holool India Ltd. Thus in our opinion this comparable needs to be excluded. As regards Thirdware Solutions Ltd is concerned, P&L account as well as schedules to P&L account are placed at page 675-676 of Paper Book I (Part 2 of 2) being part of written submission before Ld. CIT (A) by assessee. It is observed that this company earned revenue from software services amounting to Rs. 8, 06, 02, 781/-. As complete annual report of this company has not been placed before us, we are unable to ascertained the nature of such software services provided by this company. We therefore set aside this comparable t....
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.... as well as quantitative filters applied by Ld.TPO. Bodhtree consulting Ltd Ld. CIT(A) excluded this comparable by observing that this company is engaged in product development and offers product solutions in the areas of data quality, business intelligence and life sciences to reputed customer base worldwide and its products include spend data management solutions, multi-industry data and anomaly, data cleansing and integration software, patents asset management except etc. it has been observed by Ld. CIT (A) that this company does not have breakup of segmental revenues and it also fails functional tests set by Ld.TPO. CIT(A) thus held this company to be functionally not similar with that of assessee that is a captive service provider catering only to its AE on a cost +10% business model. Geometric Software Solutions Ltd Ld.CIT(A) observed that this company was functionally not comparable as it was predominantly and engineering company and not a software service company. Ld.CIT (A) from annual report observed that it is specialised in product trial life-cycle management services for mechanical design, manufacturing and industrial markets. It is also been submitted that there i....
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....lusion of telecommunication expenses while computing deduction under section 10 A of the Act, upheld by Ld. CIT (A). 12.1 Ld.AR placed reliance upon the decision of Hon'ble Karnataka High Court in case of CIT vs Tata Elxsi Ltd reported in 349 ITR 98 and submitted that this issue stands covered in favour of assessee. 12.2. On the contrary, Ld.CIT DR placed reliance upon order passed by Ld.AO. 12.3 We have perused submissions advanced by both sides in the light of the records placed before us. It is observed that, Hon'ble Karnataka High Court in case of CIT vs Tata Elxsi Ltd(supra) on identical issue held that telecommunication expenses is to be included while computing deduction under section 10A of the Act, as it is directly linked with earning of income. Ld CIT DR has not brought before us any contradictory/distinguishable facts in respect of present case before us. Respectfully following Hon'ble Karnataka High Court in case of CIT vs Tata Elxsi Ltd(supra), we direct Ld.AO to include telecommunication expenses while computing exempt income u/s10A of the Act. Accordingly the grounds raised by revenue stands dismissed. In the result appeal filed by revenue stands partly allow....