TaxTMI 
TaxTMI 
2019 (1) TMI 1691
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....from the total turnover also. The Ld. DR submitted that the CIT (A) was wrong in directing the AO to reduce the expenses deducted both from export turnover as well as from the total turnover for the purpose of computation of deduction u/s.10A of the Act. He further submitted that the CIT (A) had not appreciated the fact that the statute allows exclusion of such expenditure only from export turnover. 05. On the other hand the Ld. AR for the assessee supported the order of the lower authorities. 06. We have heard the rival contentions and perused the material on record. We find that this issue is put to rest by the judgment of the Hon'ble Supreme Court in the matter of CIT v. HCL Technologies Ltd [(2018) 93 taxmann.com 33], wherein the Hon'ble Supreme Court has decided the issue in favour of the assessee holding that the expenses be reduced both from the export turnover as well as from the total turnover. The Hon'ble Supreme Court in paras 20 and 21, held as under : 20. Even in common parlance, when the object of the formula is to arrive at the profit from export business, expenses excluded from export turnover have to be excluded from total turnover also. Otherwise, a....
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....nctional profile of these companies, 11. We have heard the rival submissions and perused the record. The Hon'ble jurisdictional High Court in the matter of Acusis Software India p. Ltd (supra) had approved the order passed by the tribunal wherein it has applied the filter of ten times of both sides of the assessee. As this Tribunal falling within the territorial jurisdiction of the Karnataka High Court, hence it is bound by the judgment passed by High Court of Karnataka, hence we are bound to apply the ratio of Acusis Software India p. Ltd (supra), in the present matter. 12. In view of the above, this ground of the revenue appeal is required to be allowed with respect to the following comparables, namely, iGate Global Solutions Ltd (turnover 406 cr), Flextronics Software Systems Ltd (turnover 457.45 crores) and L & T Infotech Ltd (turnover Rs. 562.45 crores) as the turnover of these companies fall broadly within the range of ten time of the turnover of the assessee company. Accordingly the matter is remanded back to the file of CIT( A) with a direction to examine the functional profile of all the comparable on the touch stone of FAR and decide the comparability of these compa....
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....sentative has submitted that the CIT (Appeals) has excluded two companies viz. Accentia Software Solutions Ltd. and Thirdware Solutions Ltd. on the ground that these companies are having abnormal profits of more than 50%. Thus the learned Departmental Representative contended that high profits or high loss cannot be a reason for exclusion of a company in the list of comparables. He has relied upon the order of the TPO and submitted that the TPO found that these two companies are in the similar business and therefore functionally comparable with the assessee. 8.2 On the other hand, the learned Authorised Representative of the assessee has submitted that the CIT (Appeals) has excluded these two companies by considering various facts on functional comparability as well as extra-ordinary events during the year under consideration and not merely on the basis of high profit margins. He has further submitted that the company like Accentia Software Solutions Ltd. is functionally different and there is an extra ordinary event of amalgamation during the year under consideration with M/s. Honlool India Ltd. He has referred the Annual Report of this company in support of his contentio....
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....ducts developed and owned by Sankhya are listed below: (1) SILICON' rm Training Suite of Products: The products are a comprehensive enterprise wide training platform that covers the entire spectrum of training in a paperless environment. It comprises of four products:- - SILICON TM LMS (Training Management Information - SILICON TM QT (Online Assessment System) - SILICON TM LCMS (Learning Content Management System) - IRMAQTM This is an integrated resource planning, management tracking system exclusively developed for Airline operations. It is an end-to- end solution for all Flight Operations. - Sakai OLE This is a widely used and popular open source LMS used in many leading educational institutions and corporate. The relevant extract from the Annual report substantiating that the company also engages in different activities is reproduced below: "2. Activities The company as engaged in the business of development of Software Products & Services and training. The production of software is not capable of being expressed in any generic unit and hence 11 is riot possible to give the information as required by cer....
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.....391/Bang/2012. iv) Textron Global Technology Centre Pvt. Ltd. in IT(TP)A No.29/Barig/2012. 9.2 The learned Departmental Representative has submitted that the TPO has analysed the functions of this company and it was found that this company is engaged in the similar activity of providing software development services. He has relied upon the orders of the authorities below. 9.3 We have heard the rival submissions as well as considered the relevant material on record. The learned Authorised Representative of the assessee has contended that this company is having diversified activities including software product as well as trunky project. We find that as per Schedules 12 as well as 14 of the balance sheet of this company, this company has sale of license, purchase of license and purchase of AMC charges. The details of the sales in Schedule 12 and details of purchase in Schedule 14 are as under Training Expenses 554,296 Purchase others 0 Thus it is clear from the Schedules 12 & 14 of the balance sheet of this company that this company is in trading of licenses and no separate segmental data are available. Therefore, this company cannot be....
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....us other comparables would be available as the said comparable amounts have been rejected by the TPO on the basis of different accounting year. 20. The Ld. AR has relied upon the order passed by the CIT (A). 21. We have heard the rival submissions and perused the record. In our view, the otherwise valid comparables which are matching with the profile of the assessee with respect to FAR should not be rejected on the basis of its using different financial year. The results on quarterly basis are available in public domain and it should be an endeavour on the part of the TPO to recast the accounts after excluding / including the quarters based on the accounting year used by the assessee. For example, if the comparable is using the calendar month instead of financial year 1st April to 31st March then the TPO can exclude the results of the first three months and include the results of the subsequent three months of the next English calendar year. This is in line with the decision rendered by the Hon'ble Punjab & Haryana High Court in the matter of Mercer Consulting India P. Ltd, (390 ITR 615). Therefore respectfully following the judgment of the Hon'ble Punjab & Haryana High Court....
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....ping and licensing of products and product life cycle management services which are not similar to the functions of the assessee. The learned CIT (Appeals) has also observed that the revenue break up between products and services is not available and therefore directed exclusion of this company from the set of comparables. This finding of the learned CIT (Appeals) that this company is functionally dissimilar to the assessee, has not been controverted by the learned Departmental Representative. In this view of the matter, we find no reason to interfere with the decision of the learned CIT (Appeals) in directing exclusion of this company, M/s. Geometric Software Solutions Company Ltd., from the set of comparables.: Respectfully following the decision of the coordinate bench, we allow the ground of the assessee and reject the ground raised by the Revenue. M/s. Tata Elxsi Ltd : 26. As regards the exclusion of Tata Elxsi Ltd. as being functionally dissimilar to the Assessee, the Assessee submits that the segment selected by the TPO for the purposes of comparability comprises services such as product design, design engineering and visual computing labs which are in the nature of....
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....of this Tribunal in the case of Logica Pvt.Ltd. IT (TP) 1129/Bang/2011 AY 07-08) wherein on the comparability of the aforesaid company, the Tribunal held as follows:- "14. As far as comparable at Sl.No.6 & 24 are concerned, the comparability of the aforesaid two companies with that of the software service provider was considered by the Mumbai Bench of the Tribunal in the case of Telcordia Technologies India Private Ltd. (supra) wherein on the aforesaid two companies, the Tribunal held as follows:- "7.7. Tata Elxsi Limited.: From the facts and material on record and submissions made by the learned AR, it is seen that the Tata Elxsi is engaged in development of niche product and development services, which is entirely different from the assessee company. We agree with the contention of the learned AR that the nature of product developed and services provided by this company are different from the assessee as have been narrated in para 6.6 above. Even the segmental details for revenue sales have not been provided by the TPO so as to consider it as a comparable party for comparing the profit ratio from product and services. Thus, on these facts, we are unable to treat....
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....the following effect: 12.2 Per contra, the learned Authorised Representative of the assessee supported the decision of the learned CIT (Appeals) in including this company in the set of comparables and in support of the assessee's contentions placed reliance on the decision of the Delhi Bench of ITAT in the case of Qualcomm India (P.) Ltd. v. Asstt. CIT [2013] 37 taxmann.com 306/[2014] 147 ITD 17. 12.3.1 We have heard the rival contentions, perused and carefully considered the material on record; including the judicial pronouncement cited (supra). The learned CIT (Appeals), in the impugned order, has observed that the TPO, after selecting this company as a comparable in the show cause notice has rejected this company in the final order, without assigning any proper reasons. The only reason given by the TPO for rejecting this company is that the company has paid substantial amount as VAT, which indicated that this company is not into software development services. The learned CIT (Appeals) held the aforesaid observation of the TPO to be factually incorrect, as the VAT has been paid in UK and not in India. In this view of the matter, the learned CIT (Appeals) has....
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....e, this ground of the Revenue is allowed for statistical purpose. Assessee's C O : 33. Re. Ground No.14 in the cross objections: The Assessee submits that one company, namely, Sankhya Infotech Limited ('Sankhya' for short), selected by the TPO and retained by the CIT(A), ought to stand rejected as it is not functionally comparable to it. The said company is engaged in the business of development of software products as well as services and training. Further, Sankhya focuses on the development of niche products for the transport and aviation industry. However, segmental information in relation to the above activities is not available in the public domain. Therefore, as Sankhya engages itself in products and services as well as software training, it cannot be considered as a comparable of the Assessee. The products developed and owned by Sankhya are Listed below: SILICONTM Training Suite of Products The products suite is a comprehensive enterprise wide training platform that covers the entire spectrum of training in a paperless environment. It comprises of four products: * SILICONTM TMIS (Training Management Information System) * SILICONT"" LMS (....
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....by the learned counsel for the Assessee that Sankhya is engaged in the business of development of software products & services and training. The company focuses on the development of niche products for the transport and aviation industry. However, segmental information in relation to the above mentioned activities is not available in public domain. Therefore, as Sankhya engages itself in products and services as well as software training, it cannot be IT(T.P)A No.1099/Bang/2011 & C.O. No.19/Bang/2012 considered as a comparable of the Appellant. The products developed and owned by Sankhya are listed below: (1) SILICONTM Training Suite of Products: The products are a comprehensive enterprise wide training platform that covers the entire spectrum of training in a paperless environment. It comprises of four products:- - SILICONTM LMS (Training Management Information - SILICON TM QT (Online Assessment System) - SILICONTM LCMS (Learning Content Management System) - IRMAQTM : This is an integrated resource planning, management tracking system exclusively developed for Airline operations. It is an end-to end solution for all Flight Operations. ....
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....al contentions and perused the material on record. Recently this Tribunal in the matter of ACI Worldwide Solutions P. Ltd (IT(TP)A.262/Bang/2015, dt.26.07.2017, has extensively dealt with the issue of RPT filter, to the following effect: "12. We have heard the rival contentions and perused the record. We would like to bring on record that the assessee has not raised the objection with regard to RPT either at the stage of TPO or before the DRP. Therefore, the DRP did not have the occasion to examine the RPT of L & T Ltd, with its other related parties. Nonetheless, the Tribunal in its order in Electronics for Imaging India Ltd (supra), has not disputed that RPT of L & T Ltd was 18.66% and therefore, in para 65 of the order has directed to apply 15% of RPT in respect of all comparables. 12. Further we notice Bengaluru ITAT in a recent decision in the matter of SunGard Solutions (India) P. Ltd [IT(TP)A.1041, 1379, 1106/Bang/2011, dt.28.04.2017] has held in Para 5 as under: 5. RPT filter of 0%:- We have heard the ld. AR as well as ld. DR and considered the relevant material on record. The TPO applied the filter of 25% of RPT while selecting the comparables. Whereas th....
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....the comparable and tested party. It is an admitted position, in some case, that if the transaction is between the two related parties, then the prices can be controlled and the transaction will lose its character of being an uncontrolled transaction. 14. An "Associated Enterprise" is defined u/s.92A under the Income-tax Act, 1961, as under : (1) For the purposes of this section and sections 92, 92B, 92C, 92D, 92E and 92F, associated enterprise, in relation to another enterprise, means an enterprise (a) which participates, directly or indirectly, or through one or more intermediaries, in the management or control or capital of the other enterprise ; or (b) in respect of which one or more persons who participate, directly or indirectly, or through one or more intermediaries, in its management or control or capital, are the same persons who participate, directly or indirectly, or through one or more intermediaries, in the management or control or capital of the other enterprise. (2) For the purposes of sub-section (1), two enterprises shall be deemed to be associated enterprises if, at any time during the previous year, (a) one ent....
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....uch individual ; or (k) where one enterprise is controlled by a Hindu undivided family, the other enterprise is controlled by a member of such Hindu undivided family, or by a relative of a member of such Hindu undivided family, or jointly by such member and his relative ; or (l) where one enterprise is a firm, association of persons or body of individuals, the other enterprise holds not less than ten per cent. interest in such firm, association of persons or body of individuals ; or (m) there exists between the two enterprises, any relationship of mutual interest, as may be prescribed. 15. whereas the "Related Party" is defined u/s.2(76) of the Companies Act, 2013, as under : (76) "related party", with reference to a company, means- (i) a director or his relative ; (ii) a key managerial personnel or his relative ; (iii) a firm, in which a director, manager or his relative is a partner ; (iv) a private company in which a director or manager is a member or director ; (v) a public company in which a director or manager is a director or holds along with his relatives, more than two per cent. of it....
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....5%. Theoretically, 0% RPT filter adopted by the DRP is correct, but with a view to appreciate the practical difficulties in finding out the comparable, the RPT filter was relaxed in some matters by the Tribunal to the extent of 25% and in some matters, it was relaxed up to 15%. In our view, a balanced view is required to be adopted and when sufficient number of comparables are available, then the RPT filter should be adopted at 15% otherwise it can be relaxed for 25% . Recently, there is a change in law ( CBDT issued in rules on multi year data and range concept after passing of Finance Act 2014 ) which requires that there should be a minimum of six comparables available for the purpose of determining the ALP. Though the said amendment is prospective nature, but taking clue from the wisdom of the legislature, we deem it appropriate if more than six comparables are available, then 15% RPT filter should be applied, but if the comparables after applying the 15% RPT filter is less than six, then the RPT filter should be brought up from 15% to 25%. In the present case, as most of the comparables taken by the TPO were directed to be deleted by the tribunal, therefore number of c....
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....s a comparable, and accordingly erred in excluding solutions, iGate Global Solutions Ltd., L&T Infotech Ltd., Satyam Computers Ltd., M/s Infosys Technology Ltd., M/s Flextronics Software Systems Ltd., as a comparable in the segment.. 6. 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 companies Exensys Software Solutions Ltd. and Thirdware Solutions Ltd. 7. The Ld. CIT(A) erred in rejecting the diminishing revenue filter used by the TPO, to exclude companies that do not reflect the normal industry trend. 8. The honorable CIT(A) erred in the 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 purpose of arm's length margin determination, and also since the same is contradictory to CIT(A)'s own decision who has upheld the rejection by the TPO of mult....
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....ricing documentation requirements. 3. That the decision of the learned CIT(A) is bad in law and on facts while upholding the learned TPO's approach of disregarding application of multiple year/ prior year data as used by the Respondent in the transfer pricing documentation and holding that current year (i.e. Financial Year 2004-05) data for companies should be used for comparability. 4. That the decision of the learned CIT(A) is bad in law and on facts while upholding the learned TPO's approach of upholding the rejection of comparable companies similar to the Respondent while performing the comparability analysis. 5. That the decision of the learned CIT(A) is bad in law and on facts while upholding the learned TPO's approach of collecting selective information of the companies by exercising powers granted to him under section 133(6) of the Act that was not available to the Respondent in the public domain and relying on the same for comparability purposes. 6. That the decision of the learned CIT(A) is bad in law and on facts while upholding the TPO's approach of ignoring the limited risk nature of the services provided by the Respondent and in ....