AI Drafter 
TaxTMI 
TaxTMI 
2020 (4) TMI 619
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....ngalore, relating to A.Y.2009-10. 2. The Assesseee is a company engaged in the business of rendering Software Development Services (SWD Services). During the financial year 2008-09 relevant to the assessment year 2009-10, the assessees provided contract software development services to its Associated Enterprises. As per the provisions of Sec.92 of the Income Tax Act, 1961 (Act), income from an international transaction has to determined having regard to the Arm's Length Price (ALP). 3. It is not in dispute between the Assessee and the revenue that the Transaction Net Margin Method (TNMM) was the Most Appropriate Method (MAM) of determination of ALP and that the Profit Level Indicator (PLI) to be adopted for the purpose of comparison o....
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....nformation Systems Ltd. 13.89 12.45 2 Akshay Software Technologies Ltd 8.11 8.62 3 Bodhtree Consulting Ltd. 62.27 60.76 4 RS Software (I) Ltd. 9.97 10.99 5 Tata Elxsi Ltd. (seg) 20.28 19.47 6 Sasken Communication Technologies Ltd 27.91 27.73 7 Persistent Systems Ltd. 41.40 40.05 8 Zylog Systems Ltd. 7.81 5.15 9 Mindtree Ltd. (seg) 5.52 3.87 10 L&T Infotech Ltd. 24.72 24.77 11 Infosys Technologies Ltd. 45.61 42.77 Arithmetical Mean 24.32 23.33 6. Computation of the arm's length price by the TPO and the adjustment made: Arm's Length Mean Margin 24.32% Less: Working Capital Adjustment (Annex....
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....that the size and turnover of the company are deciding factors for treating a company as a comparable and accordingly, erred in excluding the comparables. 3. The ld.CIT(A) erred in excluding uncontrolled comparables having turnover more than Rs. 200 Crores in the absence of turnover criterion prescribed in Rule 10B of Income Tax Rules and also there being no correlation between turnover and profit margin". 9. The Assessee in its appeal has raised several grounds challenging the order of CIT(A) in so far as it relates to determination of ALP in the SWD services segment. However at the time of hearing the learned counsel for the Assessee prayed for exclusion of only one comparable retained by the CIT(A) as a comparable company viz....
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....it is the plea of the Assessee that Bodhtree Consulting Ltd. (`Bodhtree' for short) follows a revenue recognition method, which is not comparable to the fixed price project model followed by the Assessee. Consequently, Bodhtree's profit margin fluctuates significantly on a year-on-year basis, with the result that it cannot be considered as comparable to the Assessee. Apart from the above, it the plea of the Assessee that Bodhtree is also engaged in the provision of software solutions developed in-house, like MIDAS, ShareTree, TeleTree, SecureTree, AppsScale. It is the plea of the Assessee that the Assessee is only a captive software development service provider that does not design/develop/sell software products and does not own IPs....
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....mputing deduction u/s.10A of the Act. The Assessee was entitled to claim deduction u/s.10A of the Act on the profits derived from its SWD services unit. Sec.10A(4) provides the methodology of computation of deduction u/s.10A of the Act and it lays down that the profits derived from export of articles or things or computer software shall be the amount which bears to the profits of the business of the undertaking, the same proportion as the export turnover in respect of such articles or things or computer software bears to the total turnover of the business carried on by the undertaking. Export turnover has been defined under Explanation 2 (iv) to Sec.10A as:- "export turnover" means the consideration in respect of export by the undertaking o....
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....nd in this regard has placed reliance on the decision of the Hon'ble Karnataka High Court in the case of CIT v. Tata Elxsi Ltd [2012] 349 ITR 98 (Karn). The CIT(A) accepted the alternate plea of the Assessee. The revenue is in appeal against the order of CIT(A). 15. We have heard the ld. counsel for the assessee and the ld. DR on the issues raised in this regard. Taking into consideration the decision rendered by the Hon'ble High Court of Karnataka in the case of CIT v. Tata Elxsi Ltd [2012] 349 ITR 98 (Karn), we are of the view that there is no merit in Gr.No.4 raised by the Revenue. it would be just and appropriate to direct the Assessing Officer to exclude the charges referred to in Gr.No.10 referred to above both from export turnover....