TaxTMI 
TaxTMI 
2020 (1) TMI 616
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.... erred in not considering the Appellant's submission regarding the exclusion of certain companies that otherwise fail the test of comparability. In doing so, the learned CIT(A) erred in not excluding Acropetal Technologies Ltd. (Seg), ICRA Techno Analytics Ltd., Persistent Systems Ltd., Sasken Communications Technologies Ltd., that otherwise fail the test of comparability. 7. That the learned CIT(A) erred in not considering the Appellant's submission regarding inclusion of certain companies in the set of comparable companies. To that extent, the learned CIT(A) erred in not including Spry resources India Pvt. Ltd., Akshay Software Technologies Ltd., Thinksoft Global Services Ltd., FCS Software Solutions Ltd. that are otherwise functionally comparable to the Appellant. 3. The Brief facts of the case are that the assessee is a subsidiary of Rhombus (K M Ltd.) Grand KM which is a wholly owned subsidiary of Rhombus Inc., US and engaged in rendering software design, development services to Rhombus US and compensated on cost-plus mark up basis and the services provided, and is also engaged in the Business of software development segment (SDS) and filed the Return of In....
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.... The arithmetic mean of the Profit Level indicators is taken as the arms length margin. Please see Annexure B for details of computation of PLI of the comparables. Based on this, the arms length price of the services rendered by the taxpayer to its AE(s) is computed as under: SOFTWARE DEVELOPMENT SERVICES Arm's Length Mean Mar in on cost 24.82% Less: Working Capital Adjustment 1.61% As per Annex. C Adjusted margin 23.21% Operating Cost 337,079,242 Arms Length Price ALP 415,315,334 123.21% of Operating Cost Price Received 377,657,435 Shortfall being adjustment u/s 92CA: 37,657,899 The TPO has passed order under Section 92CA of the Act dt. 28.01.2015. The Assessing officer subsequently passed the Draft assessment order with Transfer Pricing Adjustment under Section 92CA of Rs. 3,76,57,899 and other additions of foreign exchange loss, and restricting the claim under Section 10A of the Act and Assessed the total income at Rs. 3,94,85,126 and passed under Section 143(3) r.w.s. 144C(1) Dt. 9.3.2015. Subsequently, the final assessment order was passed under Section 143(3) r.w.s. 144C(3) dt. 17.4.2015. Aggrieved by the ass....
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....ur view relying on the decision of Finastra Software Solutions (India) Pvt. Ltd. Vs. ACIT (supra) . The Hon'ble Tribunal has observed at page 8 para 15 and excluded the comparable read as under : "15. We will first deal with the plea of the Assessee for exclusion of comparable companies chosen by the TPO. The first company which the Assessee seeks exclusion is Accropetal Technologies Ltd. On exclusion of this company, we have heard the rival submissions. We find that the TPO has himself applied a filter for exclusion of companies for the purpose of comparison, viz., revenue from software development service should be more than 75% of the total operating revenue. The admitted factual position is that revenue from software development service of this company was 81.40 Crores out of the total operating revenue of Rs. 141 Crores. Thus the revenue from software development is admittedly less than 75% of the total operating revenue of this company. Therefore his company has to be excluded from the list of comparable companies. It was also brought to our notice that the ITAT Bangalore in the case of Applied Materials Pvt.Ltd., in IT (TP) A.No.17 & 39/Bang/2016 for AY 2011-12 ....
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....ing the same, we uphold its exclusion. Exclusion of 1) e - Zest Solutions Ltd., 2) Infosys Ltd., 3) Larsen & Toubro Infotech Ltd., 4) Persistent Systems & Solutions Ltd., 5) Persistent Systems Ltd., 6) Sasken Communication Technologies Ltd. and 7) Tata Elxsi Ltd. are also covered in favour of the assessee by the same tribunal order rendered in the case of Applied materials India Pvt. Ltd. vs. ACIT (Supra). Respectfully following the same, we uphold the exclusion of these Seven comparables also. Exclusion of E - Infochips Ltd. is covered in favour of the assessee by the tribunal order rendered in the case of Saxo India Pvt. Ltd. vs. ACIT in ITA No. 6148/De1/2015 dated 05.02.2016 Para 10.1 & 10.2 available at pages 221 to 223. Respectfully following the same, we uphold its exclusion. In this manner, we uphold the exclusion of six comparables excluded by DRP out of 9 comparables excluded by DRP and exclude 4 comparables retained by DRP and we have already held that out of 9 comparables excluded by DRP, 3 have to come back being I) Evoke Technologies Pvt. Ltd., 2) Mindtree Ltd. (Seg) and 3) R S Software (India) Ltd. Now, we decide about LGS Global Ltd. As per the tribunal order rendere....
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....t of comparables but finally excluded from the set of comparables on the ground that their respective lost of working capitals are very high and impacting the profit margin of more than 4%. We note that the co-ordinate bench of this Tribunal in the case of ARM Embedded Technologies Pvt. Ltd. Vs. DCIT (supra) has considered an identical issue in paras 20 to 23 as under : "20. Coming to the ground for inclusion of M/s. Thinksoft Global Solutions Ltd and FCS Software Solutions Ltd, we find that TPO herself had suggested these in the show cause notice, but had thereafter come to a conclusion that working capital adjustment required for these two companies exceeded 4% of profits and could not be therefore taken as proper comparables. Reasons given by the TPO for excluding these two companies, appear at paras 3.6.5.1, of her order which reads as under : b) Two companies proposed in the show-cause notice are functionally similar to the taxpayer. However, when the working capital of these companies is considered, the profit margin gets distorted. It may not be out of context to mention that our search for comparable is primarily focus on those companies whose profit margi....
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....3. Compared to the software development services income, interest received by M/s. FCS Software Solutions Ltd, was in our opinion, insignificantly small. Thus the reasoning given by TPO for rejecting these two companies as proper comparables, was in our opinion, incorrect. We set aside the orders of the lower authorities in this regard and direct these two companies to be included in the list of comparables for working out the average PLI." Following the order of co-ordinate bench of this Tribunal, we direct the A.O./TPO to include these two companies in the set of comparables for determining the ALP." We considering the ratio of the co-ordinate Bench decisions, direct the TPO to include the comparable in the final list in determination of ALP. And the appeal of the assessee is partly allowed for statistical purposes. Now we shall take up the Appeal in IT(TP)A No.1029/Bang/2017. 7. The revenue has raised the following grounds of appeal : 1. The Ld. CIT(A) is not justified in giving relief on the issue of Foreign Exchange loss, which is notional in nature. 2. The Ld CIT(A) has not appreciated the fact that the loss has occurred towards statement o....
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....ntative argued Ground of appeal Nos.1 & 2 in respect of foreign exchange loss occurred towards the settlement of advance received from holding company which is not eligible for deduction under Section 43A of the Act. Further learned CIT (Appeals) has erred in allowing foreign exchange loss which is notional in nature. Contra, the ld. AR relied on the learned CIT (Appeals) order. 9. We found the learned CIT (Appeals) has dealt on this issue at para 10 page 61 as under : 10. The ground no. 16 is against the disallowance of foreign exchange loss of Rs. 37 made by the Assessing Officer by treating the same as being notional in nature. The foreign exchange loss of Rs. 37,49,314/- was recorded on account of exchange rate differences arising on account of restatement of balance in the debtors account/EEFC account and payment/receipt of forex to/from creditors/debtors. The appellant submitted that it has been consistency following the mercantile system of accounting in accordance with AS-Il which specifies that all exchange difference on foreign currency transactions should be recognize as income or expenses in the period in which they arise. In support its contention it relied....
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....idered by the jurisdictional High Court in the case of Tata Elxsi Limited Vs. CIT (supra) and ld Cit(A) fallowed the Hon'ble High court decision and Granted Relief. Accordingly we are not inclined to interfere with the order of Cit (A) and confirm the same and dismiss this ground of Appeal of the Revenue. 12. The Ld Dr argued on Ground of Appeal Nos.4 to 7, that the learned CIT (Appeals) has erred in selecting the comparables which are functionally different and the learned CIT (Appeals) erred in excluding E-infochip Ltd. in the absence of segmental data. whereas the learned Authorised Representative relied on the learned CIT (Appeals) order and the decision of Saxo India Pvt. Ltd. Vs. ACIT in IT (TP)A No.6148/Del/2015 Dt. 5.2.2015 at page 22 paras 10.1 to 10.2 which is read as under : "(i) E-Infochips Limited: 10.1. The Transfer Pricing Officer included this company in the list of comparables. On being called upon to explain as to why it should not be considered as a comparable, the assessee contended that there was functional dissimilarity inasmuch as this company was engaged in software development and IT enabled services and also Products. The Transfer Pric....