TaxTMI 
TaxTMI 
2017 (4) TMI 1484
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....ome from various units registered with the Software Technology Parks of India ("STPI"). 3. GEIE provides ITES in accordance with specific directions, guidelines and criteria established by the Associated Enterprise ("AE"). The customer support services include handling the queries of credit card customers of AE through the call centre located at Hyderabad and providing other back end support to credit cardholders. The pricing for such services is done on the basis of actual cost plus mark-up. GEIE, through its 100% export oriented units, also provides software development services in accordance with the directions, guidelines and specifications provided by the AEs. Under this segment, GEIE also provides IT project management, IT infrastructure management, application management and other forms of support for IT operations to the AEs. The pricing for all the services is done on the basis of actual cost plus mark-up. Further, GEIE is characterized as captive service provider in respect of provision of ITES and software development services. First we shall take up the appeal in IT(TP)A No.840/Bang/2013 for the assessment year 2008-09. IT(TP)A No.840/Bang/2013 4. The ground....
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....the course of assessment proceedings the assessee's AR was asked to furnish the details of expenditure attributable to earn exempt income. In response assessee's AR filed a letter dt. 24.10.2011 contending that section 14A is not applicable in the present case relying on various case laws. As I am not satisfied with the explanation offered by the assessee's authorized representative, I proceed to bring to tax the expenditure on exempt income as follows: Average investment x 0.5% 2 388000000 + 388000000 x 0.5% = Rs. 19,40,000/- 2 The expenditure on exempt income works out to Rs. 19,40,000/- and the same is brought to tax. The draft asst. order dated 8.12.2011 was forwarded to the assessee vide letter dated 8.12.2011. The assessee filed a letter dated 10.1.2012 stating that based on the clarification issued by the CBDT dated 20.1.2010 the assessee company does not intend to file objection against the draft assessment order before the Dispute Resolution Panel and requested this office to pass final assessment order. 7. Feeling aggrieved by the order, the assessee preferred an appeal before the CIT(A). The ld CIT(A) in....
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....ent from those of the present case where the appellant is neither a dealer in shares and securities, nor has it sold any shares. Thus, the ratio of the case cited by the appellant does not apply to the facts of its own case." 8. Before us, the ld AR has submitted that no expenses in relation with the earning of dividend income were incurred. 9. The ld AR has submitted that the assessee has not incurred any expenditure, therefore, the provision of sec. 14A is not applicable. It is submitted that there should be proximate cause for disallowance which is in relation to the tax exempt income. In the absence of proximate cause, the disallowance u/s 14A of the Act cannot be invoked. The ld AR relied upon the judgment of CIT Vs. Karnataka State Industrial & Infrastructure Development Corpn., Ltd. [2016] 65 taxmann.com 295 to say that the recording of the satisfaction by the AO is necessary before calculating the amount under Rule 8D. It is submitted that if the assessee is having interest free fund available then it is presumed that the assessee had made the investment from interest free eve if there is some borrowing of loan by the assessee. 10. We have heard rival contentions o....
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....anced income." In this regard, the ld AR has submitted that in case this Tribunal disallows the ground 2.1 and held that the sec. 14A is applicable for instant case then in such eventuality, the expenditure should be added back to the income of the undertaking and deduction u/s 10A should be allowed on such enhanced income. The CIT(A) in paragraph 173 of the order records the submission of the assessee in the following manner:- "Deduction u/s 10A was allowed on profits earned by the appellant form of the business of its undertaking. Any adjustment made during the computation of income under the head profits and gains of business or profession increased the profit of the business of the undertaking which was then eligible for tax holiday benefits. The provisions of sec. 10A did not provide for any limitation the grant of tax holiday on any additions made. It was only the provisions of sec. 92C which provided for a limitation on grant of tax holiday u/s 10A on adjustments made to ALP determined by assesses, implying that all the other adjustments made were eligible for tax holiday deductions." The ld AR for the assessee further relied upon the judgment of Pune Bench....
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....ubs, Eclerx, Jindal Intellicom. Mold-Tek and Allse Technologies Ltd on the basis of Abnormal Profit without defining constitutes abnormal profit filter and how the same is determined. 4. The learned CIT (A) erred in holding that M/S Genesys International Corporation Ltd. being functionally different, cannot be taken as comparable without appreciating the that he himself has held that services the being in the nature of ITES services, it is not necessary tor the TPO to go into the horizontal and vertical segments of the same sub segment. 5. The learned CIT (A) erred in rejecting Genesys International Corporation Ltd as a comparable without identifying any extraordinary\ variable which distinguish this company from the taxpayer in terms of functions performed, assets used and risk undertaken i.e. quantitative and qualitative anal} sis. 6. The CIT(A) erred in directing the AO to re-compute the deduction allowable u/s 10A of the l.T. Act after reducing the communication expenses amounting to Rs. 22,95.328/- from the total turnover also. 7. The learned CIT(A) erred in not appreciating the fact that there is 110 provision in section IOA which requires ....
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....ely the core point in comparability analysis is to benchmark the margin of a given period of a comparable uncontrolled transaction with controlled transaction. If the financials of the corresponding period is available then it cannot be rejected simply on the ground that it has a different financial year. Assuming that instead of financial year i.e 1st April to 31st March, the comparable companies adopted the financial year from 1st January to 31st December and 3 months financials of the comparables are otherwise available in the public domain then in our view it can be considered as comparable as different reporting/ accounting period would be not effect FAR analysis by TPO or by assessee, as financial for the year under consideration are derivable by reconstructing it on the basis of information available in public domain however this is subject to reporting of extraordinary event in the said three months which has an effect on profitability, expenses and sale of the comparable , thus making the comparable unfit. Hence, this ground is decided against the Revenue. 17. Ground No. 3 is with respect to exclusion of following six companies on the basis of abnormal profit. Sl. No....
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....d plant design and delivered technologically superior outputs. The company also has in-house software development team, quality control training and troubleshooting facilities. 6.1.3 In this regard, the extract of segmental information from the annual report of Mold-Tek provided below (Refer page 749 of the paper book): Segment wise/product wise performance The Company's business segments are Plastics & IT (KPO) Divisions. Further, plastics can be segmented to the lube & oils, paints, pet products, consumer products etc. areas. The sales performance during the year is: 6.1.4 The Hon'ble Members would appreciate the fact that the Engineering services being in the nature of KPO, is not comparable to the Appellant's activities. The Appellant reproduces the following extracts from the response of the company u/s133(6) evidencing these facts: 4. Description of Business activities At Mold-Tek Technologies Limited we use software tools which are used to produce structural engineering outputs and these are delivered to our clients serving construction Industry segment. Our clients mainly located in Canada, USA, Europe, Dubai and Aus....
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....e relevant extract from the Annual Report of the company for FY 2007-08 is provided below; 7 Page 6 of the Annual report (Refer Page 818 of the Paper book): eClerx is a very different company, with industry specialized services for meeting complex client needs. We are sometimes compared to a BPO or an IT offshoring company, which we are not. We are a data analytics KPO service provider specializing in two business verticals - Financial Services and Retail and Manufacturing. We provide solutions that do not just reduce cost, but help our clients increase sales and reduce risk, by enhancing efficiencies and by providing valuable insights that empower better decisions. We provide services to 50 large global corporations across multiple geographies. 7.1.2 Page 4 of the Annual report (Refer Page 816 of the paper book): We document everything we do, everything we learn. everything we change. We use this to develop our own training programmes, today covering more than 1,000 individual courses, exams and certifications. Thon we put each of our employees through grueling training programmes, again and again. Imparting critical knowledge ....
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.... 16. We have gone through the profile of the assessee wherein it is stated that the assessee is providing specialized services and is not simply into BPO services provider as projected by the assessee. The work scope and the agreement of the assessee with its AE clearly provides that the assessee is providing high end technical services to its AE and for that purposes has engaged various technical staffs in the form of IT Team Leader, Program Manager, Project Manager, Enterprise Architect/Application Architect/Design Architect, Business Analyst/Project Leader, Product Developer/Senior Product Developer, Product Quality Engineer/Senior Product Quality Engineer, Technical Author/Senior Technical Author, Team Lead (Development), Team Lead (QA) and various functions of these persons are provided in detail in the agreements. The kind of services each persons are rendering to the organization shows the scope and profile of the Assessee. 16. The judgment relied upon by the ld AR for the assessee was rendered in the case of Societe Generale Global Solution in ITA No.1188 of 2011 dated 22/4/2016 was rendered in the facts of said case and in the said judgment the exclusion of Mold....
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....pectations. It is claimed to have in-house software development team, quality control training and trouble shooting facilities. M/s Mold-Tek is also rendering web design and development services with experience in turning them into an effective graphic design representation and creating dynamic and graphic rich web applications from IT specs, design prints etc. Keeping in view this information available in the annual report of Mold-Tek as well on its website, we are of the view that the said company is mainly involved in providing high-end services to its clients involving higher special knowledge and domain expertise in the field and the same cannot be taken as comparable to the assessee company which is mainly involved in providing low-end services. It may be pertinent to note here that the financial year 2007-08 was a unique year for Mold-Tek Technologies Ltd. as the scheme of arrangement involving amalgamation between Tekmen Tool Pvt. Ltd. and Mold-Tek Technologies Ltd. and demerger between Mold-Tek Technologies Ltd. simultaneously was sanctioned by the Hon'ble AP High Court by 15th July, 2008 with the appointed date for amalgamation and de-merger being 1st October, 2007 an....
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....y M/s eClerx Services Pvt. Ltd. and its functional profile, we are of the view that this company is also mainly engaged in providing high-end services involving specialized knowledge and domain expertise in the field and the same cannot be compared with the assessee company which is mainly engaged in providing low-end services to the group concerns. 83. For the reasons given above, we are of the view that if the functions actually performed by the assessee company for its AEs are compared with the functional profile of M/s eClerx Services Pvt. Ltd. and Mold-Tec Technologies Ltd., it is difficult to find out any relatively equal degree of comparability and the said entities cannot be taken as comparables for the purpose of determining ALP of the transactions of the assessee company with its AEs. We, therefore, direct that these two entities be excluded from the list of 10 comparables finally taken by the AO/TPO as per the direction of the DRP. In our view, the assessee is providing highly skilled services which is technical in nature with inputs engineering and architect applications, therefore, in our view, the assessee cannot be said to be merely BPO and, therefo....
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....y view. Accordingly following the order of the Tribunal in the case of Stream International Services (P) Ltd. (supra), we hold that this company is not a good comparable and direct the AO/TPO to exclude it from the list of comparables. ........................................................... 57. Mold-Tek Technologies Ltd. : In this regard, the ld. counsel for the assessee has contended that this company's function is dissimilar, therefore it should be excluded from the list of comparables. The ld. counsel further contended that in this case the employee cost is 7.6% of sales, therefore this company can also be excluded by applying employee cost filter as the benchmark fixed by the TPO is at 25%. Moreover, it has abnormal growth of 204% in sales over the previous year. Therefore, for these reasons, the company should be excluded from the list of comparables. He also placed reliance upon the order of the Tribunal in the case of Stream International Services (P) Ltd. (supra) in which the Tribunal following the order of the Mumbai Special Bench in the case of Maersk Global Centres (India) (P.) Ltd. (supra), directed the exclusion of this company. The relevant o....
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....ew of this, Genesys could not be considered as an appropriate comparable company. 126. The Hyderabad bench of the hon'ble ITAT has held in the case of Capital IQ Information Systems (India) Pvt. Ltd. (ITA No. 1961/Hyd/2011) that extraordinary events like merger and de-merger impact profitability in the financial year in which such events take place and these companies cannot therefore be treated as comparables and if it is found that amalgamation has in fact taken place, then the comparable has to be excluded. 127. I am inclined to agree with the appellant that Genesys cannot be selected as a comparable to the appellant for being functionally different and in view of its abnormal results during the relevant FY. The hon'ble Pune Tribunal in the case of E-Gain Communication Pvt Ltd ([2008]118 TTJ 354) while deciding the arm's length nature of the tax payer, who is a contract service provider similar to that of the Appellant, has disregarded oversized/ extraordinary profit earning companies as comparables. Further, the hon'ble jurisdictional Delhi Tribunal in the case of Adobe Systems India Private Limited vs Additional Commissioner of Income Tax, Noi....
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....ing the deduction u/s 10A of the IT Act. 32. The case of the Revenue is that the telecommunication expenses should be excluded from the export turnover but should not be excluded from total turnover. On this issue, the judgment of Hon'ble Karnataka High Court rendered in the case of Tata Elxsi, 349 ITR 98 supports the case of the assessee because in this case, it was held by Hon'ble Karnataka High Court that the total turnover is sum total of export turnover and domestic turnover and, therefore, if an amount is excluded from export turnover, the total turnover is also reduced by the same amount as a consequences of deduction from export turnover. In this view of the matter, we find no infirmity in the order of the learned CIT(A) on this issue. Regarding the contention of the Revenue that the Revenue has not accepted the judgment of Hon'ble Karnataka High Court and has filed appeal before the Hon'ble Apex Court, we would like to observe that it is not the case of the Revenue that the judgment of Hon'ble Karnataka High Court has been stayed by Hon'ble Apex Court, and therefore, the judgment is valid and we are bound to follow the same. Accordingly ground Nos. 4 and 5 of the Revenu....
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....detailed technical designs Provide guidance to teams seeking suggestions to solve technical Issues & ensure architecture alignment with overall business objectives. • Ensure compliance with enterprise architecture standards • Ensure application integration with enterprise architectural framework Ensure system interoperability, performance and scalability' Ensure integrity and sharing of required services and data across the enterprise Develop and recommend appropriate technology stack for execution of IT projects 5) Business Analyst / Project Leader • . • " Working with business users and related IM teams to create functional specifications and requirements for IM projects. Develop subject matter expertise in various lines of business. Analyze, document, and help redesign business processes in line with technology. •Assist and help validate technical designs. Assist in the validation, testing, and deployment of new software applications. Assist in User Acceptance Tests (UAT) Utilize best practices for software development and project management. Document 3 6) Product Developer/Senior P....