TaxTMI 
TaxTMI 
2018 (11) TMI 1743
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....s. 2,780,728 On the facts and in the circumstances of the case and in law, the Ld. AO and the Ld. TPO have erred in proposing and DRP has further erred in: 1. making a Transfer Pricing ('TP') adjustment of Rs. 2,780,728 in relation to provision of software development services to its Associated Enterprises ('AE'); 2. disregarding the benchmarking analysis and comparable companies selected by the Appellant based on the contemporaneous data in the transfer pricing study report maintained as per Section 92D of the Act read with Rule 10D of the Income-tax Rules, 1962 ('the Rules') and the various submissions made by the Appellant; 3. introducing additional new companies without providing any cogent reason, to benchmark the international transactions of the Appellant; 4. not sharing the search strategy adopted for selection of alleged comparable companies during the course of assessment proceedings in violation of the principles of natural justice; 5. rejecting comparable companies by erroneously applying a comparability criteria based on strict comparison of products / services and in doing so ignoring the ba....
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....ware development services to its AE; 17. denying the Appellant the benefit of variation of 5% from the arithmetical mean of the comparable entities margins while determining the ALP of the international transactions of the Appellant pertaining to provision of software services to its AE; 18. not appreciating that the Appellant has no motive to shift profits outside India by manipulating the prices charged in its international transactions which is a pre-requisite condition to make any adjustment under the provision of Chapter X of the Act., as the Appellant has been availing the benefit of deduction under section 10A of the Act during the year in question II. In respect of other disallowances/ additions other than transfer pricing adjustment 19. Disallowance of foreign travel expenses The Ld. AO erred in not appreciating the fact that foreign travel expenses of INR 1,335,310 have been incurred wholly and exclusively for the purpose of the Appellant's business; accordingly, has erred in not allowing the same under section 37(1) of the Act. 20. Set-off of losses of other units prior to deduction under section 10B of the Act ....
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....ssues vide grounds of appeal No.19 to 21. The assessee has also raised additional ground of appeal which has not been pressed, hence the same is dismissed as not pressed. 6. Briefly, in the facts of the case, the assessee for the year under consideration had furnished return of income declaring loss of (-) Rs. 2.45 crores. The case of assessee was picked up for scrutiny. The assessee was engaged in the business of automated metrology and had Manufacturing Division, Software Division, Sourcing Division and Sales & Marketing Division. The assessee has entered into various international transactions with its associated enterprises. The Assessing Officer noted that the assessee had entered into international transactions of provision of software development services to the tune of Rs. 1,82,94,050/- with its associated enterprises. The Assessing Officer made reference under section 92CA(1) of the Act to the TPO to benchmark arm's length price in the hands of assessee. The TPO first looked into international transactions of rendering of software development services. The assessee had adopted TNNM method as the most appropriate method and had taken the Profit Level Indicator (PLI) ....
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.... have heard the rival contentions and perused the record. The first issue raised is against transfer pricing adjustment made by authorities below in the segment of provision of software development services by the assessee to its associated enterprises. The total value of international transactions for the year under consideration was Rs. 1,82,94,050/-. The assessee had applied TNNM method as most appropriate method and had taken net profit / total cost as its PLI. The margins of assessee worked out to 13.49%. The assessee had initially picked up weighted average of three years margin of comparables which were not accepted by the TPO and the assessee was directed to file data for the contemporaneous period. After much deliberations, the TPO finally selected following eight concerns as functionally comparable to the assessee:- Sr. No. Name of the company Unadjusted margins as per TPO (OP/TC) (%) Working capital adjusted margin 1 Bodhtree Consulting Ltd. 19.14 21.96 2 E Infochips Ltd. 30.32 31.53 3 eZest Solutions Ltd. 28.58 30.84 4 Goldstone Technologies 27.06 22.53 5 Helios and Matheson Informati....
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....t such activity is quite distinct from the developing and selling of software products. The Pune Bench of the Tribunal in the case of Bindview India Pvt. Ltd. (supra) has also found the said concern to be functionally dissimilar from a concern which was engaged in the business of software development services, which is the case before us. Though, the decision of the Tribunal in the case of Bindview India Pvt. Ltd. (supra) relates to the assessment year 2006-07 whereas the present case of the assessee is for assessment year 2008-09 yet there is no material on record to suggest that the activities carried out by Kals Information Systems Limited in the current assessment year are different from those noted by the Tribunal in the case of Bindview India Pvt. Ltd. (supra) for assessment year 2006-07. 18. Considering the aforesaid discussion, in our view, the concern i.e. Kals Information Systems Limited is liable to be excluded from the list of comparables for the purposes of benchmarking international transactions of provision of software development services. We hold so. Thus, on this aspect assessee succeeds." 12. The said principle has been applied by Pune Bench of Tribun....
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.... Ltd. Vs. ACIT (supra), wherein it has been noted that operating margins of said concern did not reflect consistent trend over the years and in any case the current year's operations i.e. for assessment year 2008-09 in comparison to earlier years were quite abnormal. Following the same parity of reasoning, we hold that FCS Software Solutions Ltd. is to be excluded from the final list of comparables while benchmarking international transactions undertaken by assessee. 16. The next concern under dispute is E-Zest Solutions Ltd., which is engaged in e-business consultancy services including portal development services. The Tribunal in Symphony Services Pune Pvt. Ltd. Vs. ITO (supra) while deciding the issue for assessment year 2008-09 had held that since the said concern was engaged in e-business consultancy services consisting of web strategy services, ITES services and technology consultancy services including portal development services, which were the kind of services understood to be KPO services and hence, was excluded while benchmarking a concern providing software development services. The said principle has been applied by Pune Bench of Tribunal in Barclays Technology Cent....
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....2014, judgment dated 06.01.2017 had held that merely because comparable had made loss in one year would not be ipso facto result in its exclusion from the comparable analysis. 21. Similar propositions have been laid down in other decisions of Pune Bench of Tribunal, which have been relied upon by the assessee. Accordingly, we hold that the said concern SIP Technologies Ltd. being not persistent loss making entity, functionally comparable, is to be included in the final list of comparables. The assessee before us has also filed the margins of comparable companies after exclusion / inclusion of the companies i.e. out of eight concerned picked up by the TPO, five concerns have been directed by us to be excluded and one concern has been directed to be included and the arithmetic mean margins of balance entities works out to 12.96% as against assessee's margin of 13.49%. Accordingly, we hold that no adjustment on account of arm's length price needs to be made in the hands of assessee. The upward adjustment made by Assessing Officer / TPO is thus, deleted. The ground of appeal No.I is thus, allowed in favour of assessee. 22. Now, coming to corporate issues raised by assessee, w....
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.... the employees of assessee and the visits were meant for business purpose of assessee, who was captive service provider to associated enterprises, hence the expenditure was allowed as business expenditure. The factual aspects of the issue raised are similar and in the nature of business carried on by the assessee, wherein it is providing services to its associated enterprises in all the divisions, then the expenditure incurred on foreign travel expenses on the employees of assessee concerned, are to be allowed as business expenditure. Hence, we hold so. The ground of appeal No.19 raised by the assessee is thus, allowed. 25. Now, coming to the issue raised vide grounds of appeal No.20 and 21, wherein the assessee has raised the issue of computation of deduction under section 10B of the Act, wherein the Assessing Officer had set off all the losses of other units with profits of manufacturing unit prior to computing the deduction under section 10B of the Act. 26. The learned Authorized Representative for the assessee pointed out that the assessee had earned profit in manufacturing unit of Rs. 2.59 crores, against which it had claimed deduction under section 10B of the Act. Howev....