TaxTMI 
TaxTMI 
2017 (4) TMI 1541
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....Bang/2010 for the assessment year 2002-03, 2003-04 and 2004-05, wherein it was held that if freight expenses are not included in export turnover and total turnover, then they cannot be reduced while computing the deduction u/s 10B of the Act. In our view this issue is no more res integra and it is covered by the decision of Hon'ble Jurisdictional High Court in 349 ITR 98. Therefore, the grounds raised are required to be allowed and accordingly we allow the grounds of the assessee on the similar lines as held by the coordinate bench in the assessee's own case. Accordingly, ground Nos.2 to 2.4 of the assessee's appeal is allowed. 7. Ground Nos.3 to 3.3 is with regard to disallowance u/s 14A of the Act, ground Nos.3.1 and 3.2 are as under: 3.1. Ground 3.1: That the Ld. AO/DRP erred in disallowing the expenditure of INR 9,70,000 under Section 14A read with Rule 8D of Income-tax Rules, 1962 ("Rules") holding that expenditure is attributable to earning of exempt income (dividend) 3.2. Ground 3.2: That the Ld. AO/DRP erred in proposing to apply the provisions of Rule 8D of the Rules for the year under consideration. 8. The ld Authorized Representative on behalf of the assessee has su....
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....gh in the case of Godrej and Boyce Mfg. Co. Ltd., Vs. DCIT [2010] 194 Taxman 203 has held that Rule 8D is prospective in nature and is not retrospective in nature and is only applicable from asst. year 2008-09 onwards. Therefore, in our view, Rule 8D cannot be invoked by the AO for calculating disallowance u/s 14A. In the case of Godrej and Boyce Mfg. Co. Ltd., (Supra) at para 67 it is held as under:- 67. Even in the absence of sub-sections (2) and (3) of section 14A and of rule 8D, the Assessing Officer was not precluded from making apportionment. Such an apportionment would have to be made in order to give effect to the substantive provisions of sub-section (1) of section 14A which provide that no deduction would be allowed in respect of expenditure incurred in relation to income which does not form part of the total income under the Act. Consequently, de hors the provisions of sub-sections (2) and (3) of section 14A and rule 8D, the Assessing Officer was entitled to determine by the application of a reasonable method what quantum of the expenditure incurred by the assessee would have to be disallowed on the ground that it was incurred in relation to the earning of income which ....
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....TPO passed an order dated 27 October 2010 under Section 92CA of the Act making an adjustment of INR 152,450,673 to the international transaction of ITES entered by the Appellant with the AEs. 13.4 The international transaction of the Appellant with its AE during the captioned AY is as under: S. No. Nature of International Transaction Amount in INR 1. Provision of customer support service (ITES) 158,08,98,347 2. Provision of software services 275,63,51,266 3. Provision of personnel sourcing services 25,289,189 4. Purchase of fixed assets 7,072,770 5. Recovery of expenses 1,241,646 6. Purchase of components 135,527 7. Export of finished goods 3,483,883 8. Reimbursement of expenses 137,879,045 13.5 The TPO selected the following companies as comparable: ---- space left blank intentionally ---- Sl. No. Company name Net margin as per TP order 1 Accentia Technologies Limited (seg) 30.61% 2 Bodhtree Consulting Limited (seg) 29.58% 3 Eclerx Services Limited 89.33% 4 HCL Comnet Systems & services Limited (seg) 44.99% 5 Informed Technologies India Limited 35.56% 6 Mold Tek Technologies Limited(S....
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....s are not functionally comparable to the Appellant, therefore has erred in law and facts in considering them as comparable companies: a) Mold-Tek Technologies Limited; b) eClerx Services Limited; c) Vishal Information Technologies Limited; d) Infosys BPO Limited; e) Accentia Technologies Limited; f) Bodhtree Consulting Limited; e) Accurate Data Converters Private Limited; f) iServices India Private Limited 9. Without prejudice to the transfer pricing documentation maintained by the Appellant, the learned TPO / AO has failed to appreciate the fact that Wipro Limited is not functionally comparable to the Appellant, therefore has erred in law and facts in considering it as a comparable company." 13.10 However during the course of argument the appellant has restricted his argument in respect of companies mentioned at S. Nos. 6, 7, 8 and 9 of the Chart. Hence, we shall only be examining the comparability of these 4 companies only. Mold Tek Technologies Limited ("Mold-Tek") 13.11 The assessee has submitted that this company is not comparable with the assessee as the profile of the company is different. In the written submissions filed with the assessee it is mentioned as un....
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....ocess and analytics services which are in the nature of KPO. For the relevant FY, eClerx has employed over 1500 domain specialists working for its clients. eClerx offers industry specialized services for meeting complex client needs, data analytics KPO services in two business verticals - financial services and retail and manufacturing. eClerx offers solutions that do not just reduce cost, but also help their clients increase sales and reduce risk by enhancing efficiencies and by providing valuable insights that empower better decisions. eClerx provides tailored process outsourcing and management services along with data aggregation, mining and maintenance services. 6.1.7 The 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 Paperbook): 7.1.2 Page 4 of the Annual report (Refer Page 816 of the paperbook): 7.1.3 In support of the above contentions, the Appellant relied upon the following judicial pronouncements: * Societe Generale Global Solution Centre Pvt. Ltd .[IT(TP)A No. 1188/Bang/2011] dated 22 Apr 2016 (page 1514 to 1516) * M/s. Pole to Win India Pvt. Ltd. (formerly e....
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.... as functionally comparable with that of the assessee's profile. 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-Tek and Eclerx Services was considered on the basis of the assumption that the assessee before this Tribunal was not into KPO services and whereas Mold-Tek and Eclerx Services are into KPO services and the Tribunal relied upon the judgment of Hon'ble Delhi High Court in the matter of Rampgreen Solutions Ltd., has held that the KPO company cannot be compared with BPO, hence Mold-Tek and Eclerx Services are not required to be treated as comparable and, therefore, is required to be excluded. 17. The reliance of the assessee in the matter of Ariba Technologies India Pvt. Ltd., in ITA No.441/Bang/2012 is also not correct. In paragraph 2, it is only mentioned that the assessee is engaged in providing software development and information technology enabled services. Further in the said judgment, Tribunal relied on the decision rendered in the case of Maersk Global Solution Vs.....
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....ment involving amalgamation between Tekmen Tool Pvt. Ltd. and Mold-Tek Technologies Ltd. and de-merger 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 and 1st April, 2007 respectively. It is also pertinent to note that while working out the operating margin of the said company, provision for derivative loss of Rs. 6.43 crores made by Mold- Tek technologies Ltd. was excluded by the A.O. treating the same as non-operating expenses whereas in the case of Rushabh Diamonds (supra), it was held by the Division Bench of this Tribunal that the gain or loss arising from the forward contract entered into for the purpose of foreign currency exposure on the export and import has to be taken into consideration while computing the operating profit. 82. In so far as M/s eClerx Services Limited is concerned, the relevant information is available in the form of annual report for financial year 2007-08 placed at page 166 to 183 of the paper book. A perusal of the same shows that the said company provides data analytics and data process solutions to som....
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.... taken by the AO/TPO as per the direction of the DRP. 18. The co-ordinate Bench in the matter of Tesco Hindustan Service Centre Pvt. Ltd., in ITA No.1285/Bang/2011 dated 9.12.2016 has examined the above comparables Eclerx and Mold-Tek in paragraph 39-40 and 57 and has held that on account of abnormal profits on these two companies and on account of the Mold-Tek failing0 employee cost filter, these 2 comparables cannot be comparable with comparable. The coordinate bench held as under 39. Having carefully examined the orders of lower authorities in the light of Tribunal's finding in the case of Stream International Services (P) Ltd. (supra), we find that the profile of this company was examined by the Tribunal in this case and following the order of the Special Bench of the Tribunal in the case of Maersk Global Centres (India) (P.) Ltd. (supra), the Tribunal held this company to be non-comparable. For the sake of reference, we extract the relevant portion of the order of the Tribunal:- "(xi) Eclerx Services Ltd. & Mold-Tek Technologies Ltd.:- For both these companies, the ld. Counsel for the assessee stated that these companies are functionally different, therefore, ca....
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....Ltd. Therefore, we find no justification to reproduce the same again. We, therefore, following the order of the Tribunal, direct the AO/TPO to exclude this comparable from the list of final comparables. 19 In view thereof respectfully following the judgment of co-ordinate bench in the matter of Tesco Hindustan Service Centre Pvt. Ltd., (Supra), we hold that these 2 companies are not a good comparable and we direct the AO/TPO to exclude it from the list of comparables. Vishal Information Technologies Ltd. And Infosys BPO, 20. The assessee has submitted that these companies are not comparable with the assessee as the profile of the company is different. In the written submissions filed by the assessee, it is mentioned as under 6.1.9. Vishal has a different business model as compared to the business model of the Appellant. Vishal sub-contracts majority of its ITES works to third party vendors. As per the annual report of the company for FY 2006-07, the company had incurred employee cost of INR 70,27,631 which is 2.3% of the revenue earned by the company during the year. Further, about 43% of the revenue is expended towards payment to vendors. 6.1.10. It is evident from the abov....