TaxTMI 
TaxTMI 
2020 (10) TMI 188
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....he same by holding that the undertaking of the assessee has been formed by splitting up or reconstruction of a business already in existence. 3. In the appellate proceedings, the Ld. CIT(A) noticed that the issue relating to deduction claimed u/s 10A of the Act has been decided in favour of the assessee by the ITAT in ITA No.616/Bang/2009. Following the same, the Ld. CIT(A) held that the deduction u/s 10A of the Act is allowable to the assessee. The revenue is aggrieved by the said decision of CIT(A). In respect of transfer pricing adjustment, the Ld. CIT(A) gave partial relief to the assessee and hence the assessee is in appeal before us seeking further relief. 4. We shall first take up the appeal filed by the revenue. We notice that the issue whether the undertaking of the assessee has been formed by splitting up or reconstruction of existing business was examined by the coordinate bench in the assessee's own case in ITA No.616/Bang/2009 and the Tribunal, vide its order dated 10th August, 2010 allowed the deduction u/s 10A of the Act to the assessee. For the sake of convenience, we extract below the relevant observations made by the coordinate bench in this regard. ....
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....der of the CIT(A) and also placed reliance upon the decision of the 'B' Bench of this Tribunal in the case of Dy CIT Vs. M/s. L.G. Soft India Pvt. Ltd. in ITA Nos.623 & 847/Bang/2010 dated 19.5.2010 wherein it has been held that where an undertaking existed in the same place, form and substance and did carry on the same business before and after the change in the legal character of the form of organization, the assessee is eligible for deduction u/s 10A of the Act. He also placed reliance upon the decision of the Calcutta High Court in the case of CIT Vs. P.K. Engg. & Forging (P) Ltd., reported in 87 Taxman 101 wherein, while considering the assessee's claim for deduction u/s 80-J, it was held that where the industrial undertaking run by a firm which had been allowed deduction u/s 80-J for a period of 5 years, it would be entitled to benefit of residuary period. He also placed reliance upon the decision of the Delhi Bench of the Tribunal in the case of Tech Books Electronics Services (P) Ltd. Vs. Addl. CIT (100 ITD 125) wherein it was held that merely because of change in ownership the exemption cannot be denied. Another decision relied upon by him is in the case of Kumaran Systems....
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....see and proceeded to select his own comparables. The TPO selected 17 companies as comparable companies and they are listed below: Sl.No. Company Name Sales (Rs.Cr.) OP to total cost% 1 Bodhtree Consulting Ltd. 3.87 24.85 2 Lanco Global Systems Ltd. 6.11 13.65 3 Exensys Software Solutions Ltd. 7.3 70.68 4 Sankhya Infotech Ltd. 12.99 27.39 5 Sasken Network Systems Ltd. 14.44 16.64 6 Four Soft Ltd. 15.94 22.98 7 Thirdware Solution Ltd. 29.11 66.09 8 R S Software (India) Ltd. 81.69 8.07 9 Geometric Software Solutions Co. Ltd. 95.44 20.34 10 Tata Elxsi Ltd. (seg) 146.46 24.35 11 Visual Soft Technologies Ltd. (seg) 185.43 23.52 12 Sasken Communication Technologies Ltd.(seg) 189.05 14.42 13 Igate (seg) 406 4.32 14 Flextronics (seg) 457.45 32.19 15 L&T Infotech 562.45 10.33 16 Satyam 3464.2 29.44 17 Infosys 26.59% 9. The arithmetic mean of comparable companies selected by the TPO was 26.59% after allowing working capital adjustment of 1.47% the adjusted arithmetical m....
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....ssee as it was engaged in developing Software Products and for the reason that this company was rendering both SWD services and was also in providing Information Technology Enabled Services (ITES) and the break up of the revenues from these two segments was not available. (Vide paragraph 134 to 136 at pages 42 to 43 of his order. We have heard the submissions of the learned DR on Gr.No.8 who relied on the order of the TPO. We find that this company has been excluded from the list of comparable companies in the decision of the Tribunal Bangalore Benches in the case of Sysarris Software (P.) Ltd. (supra) wherein Vide paragraphs 20-21 at pages 7-9 of the said order Bodhtree has been held to be not functionally comparable with a company providing SWD services. Similarly Tata Elxsi Ltd., directed to be removed by the CIT(A) from the list of comparable companies for the reason that this company was providing niche products and services entirely different from the Assessee company. In coming to the above conclusion the CIT(A) has followed the decision of the Mumbai ITAT in the case of Telecordia Technologies (P.) Ltd. v. Asstt. CIT [IT Appeal No.7821 (Mum.) of 2011 vide paragraph....
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....gard. (C) SANKHYA INFOTECH LIMITED:- 25. In Ground No.4(a) the Assessee challenges the action of the CIT(A) in not excluding a company by name Sankhya Infotech Limited from the list of comparable companies for the purpose of comparison of profit margin of comparable companies. The Assessee seeks the rejection of Sankhya Infotech Limited as comparable company on the ground that it is functionally not comparable as it is engaged in the business of development of software products & services and training whereas the Assessee is engaged only in rendering SWD services. The order of CIT(A) does not deal with this company specifically regarding comparability of this company with that of the Assessee. The Assessee in its appeal had challenged the action of the TPO in choosing companies which are not functionally comparable. There are no specific submissions before CIT(A) brought to our notice regarding exclusion of this company on the ground of functional comparability. According to the Assessee, this company focuses on the development of niche products for the transport and aviation industry and that no proper segmental details are available in relation to the said diver....
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....clusion of Exensys Software Solutions Ltd. and Thirdware Solutions Ltd. on the ground that apart from the fact that the profit margins of these companies were abnormally high owing to extraordinary events that happened during the relevant previous year, these two companies have to be excluded on the ground that these two companies are functionally dissimilar to that of the Assessee which is SWD service provider. As far as Exensys Software Solutions Ltd. is concerned, we have already held that the CIT(A) was justified in excluding this company from the list of comparable companies on the ground that its profits were abnormally high owing to extraordinary event of merger/amalgamation that took place during the relevant previous year. Since no such extraordinary events took place, in the case of Thirdware Solutions Ltd., we held that this company ought not to have been excluded on the ground of abnormal profits owing to extraordinary events happening in the relevant previous year. The Assessee now seeks to support exclusion of this company on the ground of functional comparability. There is no discussion in the order of CIT(A) on the functional comparability of this company. ....