TaxTMI 
TaxTMI 
2020 (4) TMI 776
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....t services to its Associated Enterprises (AE). In the appeal by the revenue and the C.O. by the Assessee the disputes relate to determination of Arm's Length Price (ALP) in respect of provision of SWD services to the AE. 3. Grounds No. 1 to 8 raised by the revenue relates to the issue of determination of Arm's Length Price in respect of international transaction of rendering of SWD services by the Assessee to its AE for which the AE paid the Assessee a sum of Rs. 96,08,41,988/-. Since the transaction of provision of Software service by the Assessee to its AE was an international transaction, income from such international transaction has to be determined having regard to Arm's Length Price (ALP) as laid down in the provisions of Sec.92 of the Act. 4. The TPO to whom the question of determination of ALP of the international transaction of providing software development services by the Assessee to its AE suggested an addition to the total income of the Assessee consequent to determination of Transfer Price of a sum of Rs. 5,95,55,635/-. 5. The Assessee in support of its stand that the price paid to the AE for rendering software development services was at Arm's Length filed ....
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....re R.S.Software (India) Ltd. 16.37 14.88 12 Sasken Communication Technologies Ltd., 24.13 23.12 13 Tata Elxsi Ltd.(seg) 20.91 17.59 AVERAGE MARK-UP 24.82 22.04 Arm's Length Mean Margin on cost 24.82% Less: working capital Adjustment 1.63% (As per Annex -C) Adjusted margin 23.19% Operating cost Rs. 828,312,057/- Arms Length Price (ALP) Rs. 1,02,03,97,625/- 123.19% of Operating cost) Price Receive Price Received Rs. 960,841,988 Shortfall bei Shortfall being adjustment u/s. 92CA 59,555,635 9. The Assessee objected to the manner of determination of ALP by the TPO before the DRP. Briefly, the directions issued by the DRP are as follows: Functionality Filter: The following companies were directed to be excluded by accepting the contentions of the Assessee: i) E-Infochips Limited ii) CRA Techno Analytics Ltd. iii) Infosys Ltd. iv) Larsen & Toubro Infotech Ltd. v) Infosys Ltd. vi) Tata Elxsi Ltd. The DRP, however, rejected the contentions of the Assessee that Persistent Systems Ltd. and Sasken Communication Technologies Ltd. were not f....
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....eign exchange fluctuation to be treated as operating revenue in nature. (Gr.No.8) 12. The grounds in the cross-objections which are being pressed are as follows: (i) That the TPO erred and the DRP further erred in including two companies, viz. Persistent Systems Ltd. and Sasken Communications Technologies Ltd., in the list of comparables although they fail the test of comparability. (Ground No.2 & 4) 13. As far as Gr.No.2 & 3 in Revenue's appeal is concerned, the sum and substance of the ground of appeal is that the DRP ought not to have excluded 2 comparable companies from the list of final comparable companies chosen by the TPO for comparison of profit margin of the Assessee with comparable companies. The two companies that were excluded by the DRP which is in challenge by the Revenue before the Tribunal are (i) Larsen & Toubro Infotech Ltd., and (ii) RS Software (India) Ltd. 14. As far as Larsen & Toubro Infotech Ltd., is concerned it was the plea of the learned DR that the onsite revenue filter was not applied by the AO nor pleaded for application by the Assessee before DRP and in such circumstances, the DRP ought not to have applied the aforesaid filter witho....
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....der of CIT(A) excluding the aforesaid companies from the list of comparable companies. 16. As far as Ground No.6 is concerned, this ground raised by the Revenue is to the effect that the DRP should not exactly compare comparable companies with the Assessee and should only comparable similar companies and that under TNMM only if there is material differences in the comparability between the comparable companies and the Assessee they should be regarded as not comparable. According to the Revenue, the DRP failed to notice this legal position in its order. This ground is vague and does not set out any particular instance of such violation and are therefore held to be without any merit. 17. Gr.No.8 raised by the revenue with regard to the directions of the DRP directing considering foreign exchange fluctuation gain as part of the operating profit of the Assessee is without merit as the law by now is well settled that foreign exchange gain has to be regarded as part of operating profit as held by the ITAT Bangalore Bench in the case of Electronics for imaging India Pvt.Ltd. Vs. DCIT (2017) 85 taxmann.com 124 (Bangalore). 18. As far as Ground No.8 to 10 on Corporate tax issues ra....
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....f the Act, the Assessee has also made an alternate prayer that expenses that are reduced from the export turnover should also be reduced from the total turnover and 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) wherein it was held that while computing deduction u/s.10A of the Act expenses that are reduced from the export turnover should also be reduced from the total turnover. The CIT(A) however upheld the alternative prayer of the Assessee. 20. Aggrieved by the order of CIT(A), the Revenue has raised Gr.No.8 & 9 before the Tribunal. 21. We have considered the rival submissions. 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 the CIT(A) was justified in excluding expenses both from export turnover and total turnover. We are of the view that as of today, law declared by the Hon'ble High Court of Karnataka which is the jurisdictional High Court is binding on us. Moreover, the order of the Hon'ble Karnataka High Court has been upheld by the Hon'ble S....