TaxTMI 
TaxTMI 
2020 (11) TMI 411
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....is in appeal in respect of following issues:- (a) Whether foreign exchange gains/loss are operating in nature or not? (b) Whether the Ld DRP was justified in directing the AO to follow the decision of Karnataka High Court rendered in the case of Tata Elxsi Ltd, i.e., exclusion of expenses incurred in foreign currency from both export turnover and total turnover. (c) Relief granted by Ld DRP in respect of addition made on account of transfer pricing adjustment. 4. The facts relating to the case are discussed in brief. The assessee company is now known as M/s Synamedia India Private Limited. Earlier, it was known as M/s Cisco Video Technologies India P Ltd and prior to that, it was known as M/s NDS Services Pay TV Technology P Ltd. It is providing following support services to its AE, M/s NDS UK, as narrated by Transfer Pricing Officer (TPO):- Software research and development services:- NDS India primarily operates as a delivery R & D centre which is a sub-division of the global R & D division of NDS group. NDS India undertakes software research and development activities according to the functional specifications provided by NDS UK fo....
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.... Persistent Systems Ltd. 6,101,270,000 4,971,860,000 22.84% 11 R.S. Software (India) Ltd. 1,882,638,471 1,617,804,170 16.37% 12 Sasken Communication Technologies Ltd. 3,941,962,000 3,175,616,000 24.13% 13 Tata Elxsi Ltd. (seg) 3,581,985,000 2,962,533,352 20.91% AVERAGE MARGIN 24.82% After making negative working capital adjustment, the TPO arrived at adjusted margin of 25.44%. Accordingly, he made transfer pricing adjustment of Rs. 30.24 crores. 6.2 The Ld DRP directed the AO/TPO to exclude following ten companies:- (a) Acropetal Technologies Limited (b) E-Zest Solutions Limited (c) E-infochips Limited (d) ICRA Techno Analytics Limited (e) Infosys Limited (f) Evoke Technologies Limited (g) R S software (India) Ltd (h) Mindtree Limited (i) Tata Elxsi Ltd (seg) (j) Larsen & Toubro Infotech The Ld DRP upheld the selection of following two companies:- (a) Persistent Systems & Solutions Limited (b) Persistent Systems Limited However, there was no discussion in the DRP order on M....
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....nd relating to five companies is not adjudicated. 6.6 He submitted that all his submissions are supported by the decision rendered by co-ordinate bench of Tribunal in the case of (i) M/s AMD India Private Limited vs. ACIT (IT(TP)A No.1487/Bang/2015 (ii) M/s Applied Materials India Pvt Ltd vs. ACIT (IT(TP)A No.17/Bang/2016) (iii) M/s L G Soft India P Ltd vs. DCIT (IT(TP)A No.52/Bang/2016 dated 05th August, 2020) 6.7 The Ld D.R, on the contrary, submitted that the assessee has accepted many comparable companies selected by the TPO in the proceedings before him. He invited our attention to page no.10 of TPO's order, wherein the assessee had accepted Larsen & Toubro Infotech Ltd; Mindtree Ltd, Persistent Systems & Solutions Ltd, Persistent Systems Ltd, R.S. Software (India) Ltd, Sasken Communications Ltd. Hence these companies should be taken as comparable companies. The three companies retained by Ld DRP are Persistent Systems & Solutions Ltd, Persistent Systems Ltd and M/s Sasken Communications Ltd are included in the list of companies accepted by the assessee before TPO. Accordingly, he submitted that the assessee cannot go back on its stand and now ....
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....imited (f) Tata Elxsi Ltd (seg) (g) Larsen & Toubro Infotech 6.13 We have heard rival contentions and perused the record. The Ld A.R submitted that all the above said companies have been directed to be excluded by the co-ordinate bench in the case of Applied Materials India P Ltd (supra) and also in the case of M/s LG Soft India P Ltd (IT(TP)A No.52/Bang/2016 and IT(TP)A No.97/Bang/2016 dated 05-08-2020. We notice that the co-ordinate bench, in the case of M/s LG soft India P Ltd (supra) has followed the decision rendered by another co-ordinate bench in the case of Electronic for Imaging (I) Pvt Ltd (2017)(85 taxmann.com 124). For the sake of convenience, we extract below the discussions made and the decision taken by the Tribunal in the case of L G Soft India P Ltd (supra):- "10. With regard to the other 7 comparable companies, whose exclusion is challenged by the revenue in ground No.2 of its appeal, we find that exclusion of these comparables from the list of companies selected by the TPO had come up for consideration before the Bangalore ITAT in the case of Electronic for Imaging (I) Pvt. Ltd. v. DCIT [2017] 85 taxmann.com 124 [Bang. Trib]. ; Syman....
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....v. DCIT in ITA No.696/Mum/2016 held Infosys Ltd. to be not comparable for the reason that this company was engaged in manufacturing of software products and was a giant company assuming various risks. As far as Larsen & Toubro Infotech Ltd., is concerned, vide paragraph-8 page-16 of the order in the case of Electronics for imaging India Pvt. Ltd., (supra) this tribunal excluded this company on the ground of presence of onsite revenue of more than 50% and that the related party transaction was more than 15% (18.66%). 15. Respectfully following the aforesaid decisions, we uphold the exclusion of the aforesaid 7 companies from the list of comparable companies and ground No.2 raised by the assessee to this extent is dismissed. We may add that the other grounds raised by the revenue in its appeal are purely supportive of ground No.2 and are general grounds with no specific reference to instances of comparables excluded and hence dismissed." 6.14 Following above said order of co-ordinate bench, we confirm exclusion of above said seven companies. Since the assessee has sought for inclusion of three companies out of the ten companies excluded by Ld DRP, viz., M/s Evoke Technolo....
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....erence has been drawn by Shri Aggarwal. Datamatics does not appear to be comparable. Even if the taxpayer or its counsel had taken Datamatics as comparable in its I P audit, the taxpayer is entitled to point out to the Tribunal that above enterprise has wrongly been taken as comparable. In fact there are vast differences between tested party and the Datamatics. The case of Datamatics is like that of "Imercius Technologies" representing extreme positions. If Imercius Technologies has suffered heavy losses and, therefore, it is not treated as comparable by the tax authorities, they also have to consider that the Datamatics has earned extraordinary profit and has a huge turnover. Besides differences in assets and other characteristics referred to by Shri Aggarwal. The Income-tax Appellate Tribunal is a fact-finding body and, therefore, has to take into account all the relevant material and determine the question as per the statutory regulations. 31. In the case of CIT v. Bharat General Reinsurance Co. Ltd. [1971] 81 ITR 303, the Hon'ble Delhi High Court observed as under : "It is true that the assessee itself had included that dividend income in is return for the yea....
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....annot be estopped from claiming the benefit of such deduction, by reason of the fact that it erroneously allocated a part of it towards the profits earned in Karachi. What has, therefore, to be determined is whether, notwithstanding the apportionment made by the respondent in the profit and loss statements, the deduction is admissible under the law." 34. In the case of CIT v. V.MR.P. Firm, Muar [1965] 56 ITR 67 , the following observations of Their Lordships of Supreme Court are as under : "The decision in Amarendra Narayan Roy v. CIT AIR 1954 Cal. 271 has no bearing on the question raised before us. There the concessional scheme tempted the assessee to disclose voluntarily all his concealed income and he agreed to pay the proper tax upon it. The agreement there related to the quantification of taxable income but in the present case what is sought to be taxed is not a taxable income. The assessee in such a case can certainly raise the plea that his income is not taxable under the Act. We, therefore, reject this plea." 35. In para 4.16 of latest report, the OECD provides the following guidelines : "In practice, neither countries nor taxpayers shou....
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....gly." Following the decision rendered by Special bench of Tribunal (referred supra), we hold that the assessee cannot be precluded from challenging the inclusion of comparable companies, which had been accepted earlier by the assessee. 6.16 The above said three companies, viz., M/s Persistent Ltd, M/s Persistent Systems & Solutions Ltd and M/s Sasken Communications Ltd have been dealt by the co-ordinate bench in the case of LG Soft India P Ltd (supra) as under:- "16. Now we shall take up the appeal of the assessee. The assessee in ground No.13 seeks exclusion of 3 companies viz., Persistent Systems & Solutions Ltd., Sasken Communication Technologies Ltd. and Persistent Systems Ltd. Exclusion of these 3 companies was considered by the Tribunal in the case of Electronics for Imaging (I) Pvt. Ltd. (supra). In para 8 of the order, this Tribunal held that Persistent Systems & Solutions Ltd. was a company engaged in SWD services and products with no segmental details and excluded it. Similarly, Persistent Systems Ltd. was also excluded on the ground that it was engaged in diverse activities with no segmental break-up. As far as Sasken Communication Technologies Lt....