TaxTMI 
TaxTMI 
2019 (1) TMI 1691
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....ted 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, any other interpretation makes the formula unworkable an....
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.... 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 comparables, as the Ld. CIT (A) had not examined the functional profile o....
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....centia 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 contention. The learned Authorised Representative has further submitted that even otherwise this....
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....rehensive 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 certain clauses of paragraphs 3.40 and 4 D of Part II of Schedule VI of the Companies Act, 1956." The Delhi Tribunal in /TO v. Colt Technology Services India Pvt. Ltd. (judgment....
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....und 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 considered as a good comparable to the software development services provider, companies like assessee which is a captive service provider. Accordingly, we direct the A.O./TPO to exclude this company from the list of comparables. Therefore following the ....
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.... 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, we allow ground nos.8 and 9 of the Revenue's appeal and direct the TPO to examine afresh in the light of the observations made above and the TPO may consider other comparables which were excluded by him on account of different accounting year as good comparable, if other par....
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....ompany 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 IT enabled services and, thus, not comparable with the software development services provided by the Assessee. The CIT(A) rightly directed its exclusion by following the decision of this Hon'ble Tribunal in Telcordia Technologies India P. Ltd v. ACIT [ITA No.7821/Mum/2011]. in the Asses....
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....r 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 this company fit for comparability analysis for determining the arms length price for the assessee, hence, should be excluded from the list of comparable parties." 15. In view of the above, the ld. counsel for the assessee fairly admitted that comparable company at Sl.No.6 viz., Flextronics Software Systems Pvt. Ltd. should....
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.... 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 held this company to be a comparable company. 12.3.2 In the decision in the case of Qualcomm India (P.) Ltd. (supra), cited by the learned Authorised Representative, the Delhi Tribunal has rendered a finding that this company i.e. VJIL Consulting Ltd., is predominantly an exporter of software development services. Though this decision is for Assessment Year 2006-....
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....ed 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 (Learning Management System) * SILICON TM QT (Online Assessment System) * SILICONTM LCMS (Learning Content Management System) IRMAOTM 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 CLE This is a widely used and popular open source LMS used in many le....
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....ning, 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. - Sakai CLE : 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 ....
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....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 the CIT(A) has applied a filter of 0% RPT. We find that 0% related party transaction is a impossible situation and therefore if the said filter is applied then the comparable companies will not be available for determining the arms length price. Thus to avoid this practical difficulty of selecting the comparable companies this Tribunal in a series of decisions have taken a view that a tolerance range of related party transaction can be considered from 5% to 25% depending upon the facts and circumstances o....
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....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 enterprise holds, directly or indirectly, shares carrying not less than twenty-six per cent. of the voting power in the other enterprise ; or (b) any person or enterprise holds, directly or indirectly, shares carrying not less than twenty-six per cent. of the voting power in each of such enterprises ; or (c) a loan advanced by one enterprise to the other enterprise constitutes not less than fifty-one per cent. of the book value of the total assets of the other enterprise ; or (d) one enterprise guarantees not less than ten per cent. of th....
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.... 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 its paid-up share capital ; (vi) any body corporate whose board of directors, managing director or manager is accustomed to act in accordance with the advice, directions or instructions of a director or manager ; (vii) any person on whose advice, directions or instructions a director or manager is accustomed to act : Provided that nothing in sub-clauses (vi) and (vii) shall apply to the advice, directions or instructions given in a professional capacity ; (viii) any company which is- (A) a holding, subsidiary or an associate company of such company ; or (B) a subsidiary of a holding company to which it is also a subsidiary ; (ix) such ot....