TaxTMI 
TaxTMI 
2017 (4) TMI 1574
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....t runs it business from two units, viz Pinnacle Unit & UB Plaza Unit. The TPO rejected the assessee's TP study and made an adjustment of Rs. 12,61,34,044/- & Rs. 13,53,00,046/-towards providing SWD Services & ITE Services to its AEs, respectively. 03. On the domestic tax front, the assessee did not claim deduction u/s 10A for the Pinnacle Unit for the reason that the tax holiday period ended last year. It acquired the UB Plaza Unit in Bengaluru which is registered with the STPI authorities, from Thomson Business Information India Private Limited (TBIIPL) with effect from 01.07.2005 pursuant to a Business Transfer Agreement dated 15.06.2005 on a slump sale basis. The UB Plaza Unit was admittedly, an eligible unit for deduction u/s 10A from its formation, i.e. on 24.03.2004, and TBIIPL had been allowed the deduction u/s 10A from the first year of its formation till it held the Unit, i.e. till 30.06.2005. Since it has acquired that Unit, the assessee claimed deduction u/s 10A for the balance period of eligibility, i.e. from a y 2006-07 onwards. The AO did not allow this claim for this a y, although its claim in a y 2006-07 ie ., for the immediately preceding year and the first year....
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.... 3 Celestial Labs Ltd 4 Datamatics Ltd 5 E-Zest Solutions Ltd 6 Flextronics Software Systems Ltd (seg) 7 Geometric Ltd (seg) 8 Helios and Matheson Information Technology Ltd 9 iGate Global Solutions Ltd 10 Infosys Technologies 11 Ishir Infotech Ltd 12 KALS Information Systems Ltd (seg) 13 LGS Global Ltd (Lanco Global Solutions Ltd 14 Lucid Software Ltd 15 Mediasoft Solutions Ltd 16 Megasoft Ltd (seg) 17 Mindtree Ltd 18 Persistent Systems Ltd 19 Quintegra Solutions Ltd 20 R S Software (India) Ltd 21 R Systems International Ltd (seg) 22 Sasken Communication Technologies Ltd (seg) 23 SIP Technologies & Exports Ltd 24 Tata Elxsi Ltd (seg) 25 Thirdware Solutions Ltd 26 Wipro Ltd (seg) 08. Out of which, the assessee is seeking rejection of 17 comparables and inclusion of Megasoft Ltd . Out of those 17 comparables, 15 are sought to be rejected on the basis functional dissimilarity, one on the basis of the RPT filter and the last one, both on the basis of the employee filter & the RPT filter . Fourteen comparables at SI. Nos. 1, 2, 3, 5, 6, 8, 10....
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....ge 20 of PB-Il), it is stated that "the company has applied for Income Tax concession for in-house R&D centre expenditure at Hyderabad under section 35(2AB) of the Income Tax Act." * As per the Notes to Accounts - Schedule 15, under "Deferred Revenue Expenditure" (page 31 of PB-II), it is mentioned that, "Expenditure incurred on research and development of new products has been treated as deferred revenue expenditure and the same has been written off in 10 years equally yearly installments from the year in which it is incurred." An amount of Rs. 11,692,020/- has been debited to the Profit and Loss Account as "Deferred Revenue Expenditure" (page 30 of PB-II). This amounts to nearly 8.28 percent of the sales of this company. It was therefore submitted that the acceptance of this company as a comparable for the reason that it is into pure software development activities and is not engaged in R&D activities is bad in law. 43. Further reference was also made to the decision of the Mumbai Bench of the Tribunal in the case of Teva Pharma Private Ltd. v. Addl. CIT - ITA No.6623/Mum/2011 (for AY 2007-08) in which the comparability of this company for clin....
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....in functional comparability can be eliminated. By not resorting to such a process of making adjustment, the TPO has rendered this company as not qualifying for comparability. We therefore accept the plea of the Assessee in this regard." 44. It was submitted that the learned DR in the above case vehemently argued that this company is into research in pharmaceutical products. The ITAT concluded that this company is owner of IPR, it has software for discovery of new drugs and has developed molecule to treat cancer. In the ultimate analysis, the ITAT did not consider this company as a comparable in clinical trial segment, for the reason that this company has diverse business. It was submitted that, however, from the above extracts it is clear that this company is not into software development activities, accordingly, this company should be rejected as a comparable being functionally different. 45.From the material available on record, it transpires that the TPO has accepted that up to AY 06-07 this company was classified as a Research and Development company. According to the TPO in AY 07-08 this company has been classified as software development service provider in ....
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....is company was mainly in the business of providing software development services. We therefore accept the plea of the Assessee that this company ought not to have been considered as comparable." 2) "E-Zest Solutions Ltd. 14.1 This company was selected by the TPO as a comparable. Before the TPO, the assessee had objected to the inclusion of this company as a comparable on the ground that it was functionally different from the assessee. The TPO had rejected the objections raised by the assessee on the ground that as per the information received in response to notice under section 133(6) of the Act, this company is engaged in software development services and satisfies all the filters. 14.2 Before us, the learned Authorised Representative contended that this company ought to be excluded from the list of comparables on the ground that it is functionally different to the assessee. It is submitted by the learned Authorised Representative that this company is engaged in 'e-Business Consulting Services', consisting of Web Strategy Services, I T design services and in Technology Consulting Services including product development consulting services. These services,....
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.... that this company, i.e. e-Zest Solutions Ltd. be omitted from the set of comparables for the period under consideration in the case on hand. The A.O. /TPO is accordingly directed." 3) Infosys Technologies Ltd. 12.1 This was a comparable selected by the TPO. Before the TPO, the assessee objected to the inclusion of the company in the set of comparables, on the grounds of turnover and brand attributable profit margin. The TPO, however, rejected these objections raised by the assessee on the grounds that turnover and brand aspects were not materially relevant in the software development segment. 12.2 Before us, the assessee contended that this company is not functionally comparable to the assessee and in this context has cited various portions of the Annual Report of this company to this effect which is as under :- (i) The company has an Intellectual Property (IP) Cell to guide its employees to leverage the power of IP for their growth. In 2008, this company generated over 102 invention disclosures and filed an aggregate 10 patents in India and the USA. Till date this company has filed an aggregate of 119 patent applications (pending) in India and ....
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....g training. It was also submitted that as per the annual repot, the salary cost debited under the software development expenditure was Q 45,93,351. The same was less than 25% of the software services revenue and therefore the salary cost filter test fails in this case. Reference was made to the Pune Bench Tribunal's decision of the ITAT in the case of Bindview India Private Limited Vs. DCI, ITA No. ITA No 1386/PN/1O wherein KALS as comparable was rejected for AY 2006-07 on account of it being functionally different from software companies. The relevant extract are as follows: "16. Another issue relating to selection of comparables by the TPO is regarding inclusion of Kals Information System Ltd. The assessee has objected to its inclusion on the basis that functionally the company is not comparable. With reference to pages 185-186 of the Paper Book, it is explained that the said company is engaged in development of software products and services and is not comparable to software development services provided by the assessee. The appellant has submitted an extract on pages 185-186 of the Paper Book from the website of the company to establish that it is engaged in providing ....
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....des Benz Research & Development India Pvt. Ltd. dt 22.2.2013, wherein at pages 17 and 22 of its order the distinctions as to why these companies should be excluded are brought out. He submitted that the facts of the case before us are similar and, therefore, the said decision is applicable to the assessee's case also. 23. The learned DR however objected to the exclusion of these two companies from the list of comparables. On a careful perusal of the material on record, we find that the Tribunal in the case of Mercedes Benz Research & Development India Pvt. Ltd. (cited supra) has taken a note of dissimilarities between the assessee therein and Lucid Software Ltd. As observed therein Lucid Software Ltd. company is also involved in the development of software as compared to the assessee, which is only into software services. Similarly, as regards Ishir Infotech Ltd., the Tribunal has considered the decision of the Tribunal in the case of 24/7 Co. Pvt. Ltd to hold that Ishir Infotech is also outsourcing its work and, therefore, has not satisfied the 25% employee cost filter and thus has to be excluded from the list of comparables. As the facts of the case before us are similar....
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....ctual property in the form of registered patents and several pending applications for grant of patents. In this regard, the co-ordinate bench of this Tribunal in the case of 24/7 Customer.Com Pvt. Ltd. (ITA No.227/Bang/2010) has held that a company owning intangibles cannot be compared to a low risk captive service provider who does not own any such intangible and hence does not have an additional advantage in the market. As the assessee in the case on hand does not own any intangibles, following the aforesaid decision of the coordinate bench of the Tribunal i.e. 24/7 Customer.Com Pvt. Ltd. (supra), we hold that this company cannot be considered as a comparable to the assessee. We, therefore, direct the Assessing Officer/TPO to omit this company from the set of comparable companies in the case on hand for the year under consideration." 8) Accel Transmatic Ltd. 48. With regard to this company, the complaint of the assessee is that this company is not a pure software development service company. It is further submitted that in a Mumbai Tribunal Decision of Capgemini India (F) Ltd v Ad. CIT 12 Taxman.com 51, the DRP accepted the contention of the assessee that Accel ....
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.... counsel for the assessee, we hold that the aforesaid company should be excluded as comparables." 20. Respectfully following the decision of the Tribunal in similar set of facts, these companies are directed to be excluded from the list of comparables." 9) Avani Cimcon Technologies Ltd. "39. As far as this company is concerned, the plea of the Assessee has been that this company is functionally different from the assessee. Based on the information available in the company's website, which reveals that this company has developed a software product by name "DXchange", it was submitted that this company would have revenue from software product sales apart from rendering of software services and therefore is functionally different from the assessee. It was further submitted that the Mumbai Bench of the Tribunal to the decision in the case of Telcordia Technologies Pvt. Ltd. v. ACIT - ITA No.7821/Mum/2011 wherein the Tribunal accepted the assessee's contention that this company has revenue from software product and observed that in the absence of segmental details, Avani Cincom cannot be considered as comparable to the assessee who was rendering software devel....
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....ms Ltd (seg), it is true that the decision of Motorola Solutions (India) P. Ltd (supra) also was for the very same year and also on software development services sector. This Tribunal held as under : "97.2 For a company to be included in the list of comparables, it is necessary that credible information is available about the company. Unless this basic requirement is fulfilled, the company cannot be taken as a comparable. It is true that ld. TPO is entitled to obtain information us/ 133(6), the object of which is primarily only to supplement the information already available on record, but not, as rightly submitted by ld. Counsel for the assessee, to replace the information. If there is a complete contradiction between the information obtained u/s 133(6) and annual report then the said information cannot be substituted for the information contained in annual report. We, therefore, are in ITA No. 5637/D/2011 149 agreement with ld. counsel for the assessee that this company cannot be included as a comparable in the set of comparables selected by ld. TPO on account of clear contradiction between contents of annual report and information obtained u/s 133(6). 27. Rule ....
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....effect that the said concern's application software segment is engaged in the development of software which can be considered as comparable to the assessee company. The said concern is engaged in two segments namely application software segment and Training. As per the TPO, the application software segment is functionally comparable to the assessee as the said concern is engaged in software services. The stand of the assessee is that a perusal of the Annual Report of the said concern for F.Y. 2006-07 reveals that the application software segment is engaged in the business of sale of software products and software services. The assessee pointed out this to the TPO in its written submissions, copy of which is placed in the Paper book at page 420.3 to 420.4. The assessee further pointed out that there was no bifurcation available between the business of sale of software products and the business of software services, and therefore, it was not appropriate to adopt the application software segment of the said concern for the purposes of comparability with the assessee's IT-Services Segment. The TPO however, noticed that though the application software segment of the said concern may be ....
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....ssee, it is correctly asserted that the application software segment of the said concern is not comparable to the assessee's segment of IT services. 20. With regard to the inclusion of Helios & Matheson Information Technology Ltd., the assessee has raised similar arguments as in the case of KALS Information Solutions Ltd. (Seg). We have perused the relevant para of the order of the TPO i.e., 6.3.21, in terms of which the said concern has been included as a comparable concern. The assessee pointed out that as in the case of KALS Information Solutions Ltd. (Seg), in the instant case also for A.Y. 2006-07 the said concern was found functionally incomparable by the assessee in its Transfer pricing study and the said position was not disturbed by the TPO. The relevant portion of the Transfer pricing study, placed at page 432 of the Paper book has been pointed out in support. Considered in the aforesaid light, on the basis of the discussion in relation to KALS Information Solutions Ltd. (Seg), in the instant case also we find that the said concern is liable to be excluded from the list of comparables." 12) Persistent Systems Ltd. "17.1.1 This company was select....
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.... the TPO in including this company in the list of comparables. 17.3 We have heard the rival submissions and perused and carefully considered the material on record. It is seen from the details on record that this company i.e. Persistent Systems Ltd., is engaged in product development and product design services while the assessee is a software development services provider. We find that, as submitted by the assessee, the segmental details are not given separately. Therefore, following the principle enunciated in the decision of the Mumbai Tribunal in the case of Telecordia Technologies India Pvt. Ltd. (supra) that in the absence of segmental details / information a company cannot be taken into account for comparability analysis, we hold that this company i.e. Persistent Systems Ltd. ought to be omitted from the set of comparables for the year under consideration. It is ordered accordingly. 13) Sasken Communication Technologies Ltd.: "109. Ld TPO noticed that the company was rejected in the TP document on the ground that the company fails its filter of business review and R&D to sales was more than 3%. However, no reasons were given for the business review....
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....where the contested comparable formed part of assessee's own study, then the AO / TPO has to be given a chance for verification, in view of judgment of Hon'ble Pun jab & Haryana High Court in the case of Quark Systems India P. Ltd (supra). Accordingly we remit the issue of comparability of Sasken Communication Technologies Ltd back to the AO / TPO for consideration afresh as per law. Ordered accordingly." 14) Tata Elxsi Ltd. 14.1 This company was a comparable selected by the TPO. Before the TPO, the assessee had objected to the inclusion of this company in the set of comparables on several counts like, functional dis-similarity, significant R&D activity, brand value, size, etc. The TPO, however, rejected the contention put forth by the assessee and included this company in the set of comparables. 14.2 Before us, it was reiterated that this company is not functionally comparable to the assessee as it performs a variety of functions under the software development and services segment namely (a) Product design services (b) Innovation design engineering and (c) visual computing labs. In the submissions made the assessee had....
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.... by the TPO. Before the TPO, the assessee objected to the inclusion of this company in the list of comparables on the ground that its turnover was in excess of Rs. 500 Crores. Before us, the assessee has objected to the inclusion of this company as a comparable for the reason that apart from software development services, it is in the business of product development and trading in software and giving licenses for use of software. In this regard, the learned Authorised Representative submitted that :- (i) This company is engaged in product development and earns revenue from sale of licences and subscription. It has been pointed out from the Annual Report that the company has not provided any separate segmental profit and loss account for software development services and product development services. (ii) In the case of E-Gain communications Pvt. Ltd. (2008-TII-04-ITAT-PUNETP), the Tribunal has directed that this company be omitted as a comparable for software service providers, as its income includes income from sale of licences which has increased the margins of the company. The learned A.R. prayed that in the light of the above facts and in view of the afore cit....
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....onment. Thereupon the company takes up the job of customizing the packaged software. The company also explained that 30 to 40% of the product software would constitute packaged product and around 50% to 60% would constitute customized capabilities and expenses related to travelling, boarding and lodging expense. Based on the above reply, the TPO proceeded to hold that the comparable company was mainly into customization of software products developed (which was akin to product software) internally and that the portion of the revenue from development of software sold and used for customization was less than 25% of the overall revenues. The TPO therefore held that less than 25% of the revenues of the comparable are from software products and therefore the comparable satisfied TPO's filter of more than 75% of revenues from software development services. The basis on which the TPO arrived at the PLI of 60.23% is given at page-115 and 116 of the order of the TPO. It is clear from the perusal of the same that the TPO has proceeded to determine the PLI at the entity level and not on the basis of segmental data. 25. In the order of the TPO, operating margin was computed for this c....
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....is Tribunal in Meritor LVS India P. Ltd (supra), concluded as under : 14. Accordingly, following the above order we direct exclusion of Celestial Labs Ltd, E-Zest Solutions Ltd, Infosys Technologies Ltd, Kals Information Systems Ltde (seg), Lucid Software Ltd, Wipro Ltd (seg), Accel Transmatic Ltd (seg), Avani Cimcon Technologies Ltd, Flextronics Software Systems Ltd (seg), Helios & Matheson Information Technology Ltd, Ishir Infotech Ltd, Persistent Systems Ltd, Sasken Communication Technologies Ltd (Seg), Tata Elxsi Ltd (seg) and Thirdware Solutions Ltd. In so far as Megasoft Solutions Ltd is concerned, we direct the AO / TPO to rework its segmental results and consider its comparability only with regard to the software development services segment. Ordered accordingly." 10. The relevant portion from this Tribunal's decision in NXP Semiconductors India P. Ltd v ACIT [dated 14.11.2014 in IT(TP) A No. 1174/Bang/2011], for AY.2007-08 is extracted as under : "18. Quintegra Solutions Ltd. 18.1 This case was selected by the TPO as a comparable. Before the TPO, the assessee objected to the inclusion of this company in the set of comparables on the ground tha....
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.... company's Annual Report for F.Y. 2007-08, the period under consideration. The learned Authorised Representative prays that in view of the submissions made above, it is clear that inter alia, this company i.e. Quintegra Solutions Ltd. being functionally different and possessing its own intangibles / IPRs, it cannot be considered as a comparable to the assessee in the case on hand and therefore ought to be excluded from the list of comparables for the period under consideration. 18.2 Per contra, the learned Departmental Representative supported the action of the TPO in including this company in the set of comparables to the assessee for the period under consideration. 18.3.1 We have heard the rival submissions and perused and carefully considered the material on record. It is seen from the details brought on record that this company i.e.Quintegra Solutions Ltd. is engaged in product engineering services and is not purely a software development service provider as is the assessee in the case on hand. It is also seen that this company is also engaged in proprietary software products and has substantial R&D activity which has resulted in creation of its IPRs.....
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....t ".....We are further of the view that an entity can be taken as uncontrolled if its related party transactions do not exceed 10 to 15% of total revenue. Within the above limit, transactions cannot be held to be significant to influence the profitability of the comparables. For the purpose of comparison what is to be judged is the impact of the related party transactions vis-à-vis sales and not profit since profit of an enterprise is influenced by large number of other factors....." Respectfully following the decision of the Tribunal in the case of Sony India (P) Ltd. (supra), the Assessing Officer/TPO are directed to exclude after due verification those comparables from the list with related party transactions or controlled transactions in excess of 15% of total revenues for the financial year 2003-04. " 12. From the above , it clear that this Tribunal has examined the above comparables elaborately, supra, in those decisions, following them we direct exclusion of Celestial Labs Ltd, E-Zest Solutions Ltd, Infosys Technologies Ltd, Kals Information Systems Ltde (seg), Lucid Software Ltd, Wipro Ltd (seg), Accel Transmatic Ltd (seg), Avani Cimcon Technolog....
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....f software product and highly fluctuating margin, this company is also functionally dis-similar to the assessee as it is engaged in providing open and end-to-end web solution, software consultancy, design and development of solution by using latest technology. This company is also engaged in the development of software products. He has referred to the Annexure to the Directors Report and submitted that this company is following the method of revenue recognition from software development based on software developed and billed to client whereas the expenditure is recognized when it is incurred towards software development. Therefore, there is no match between the expenditure and the revenue from software development segment. Thus once this company is in the software development, the same cannot be compared with the assessee being ITES provided to its AEs. 8.2 On the other hand, the learned Departmental Representative has relied upon the orders of the authorities below and further submitted that the co-ordinate bench of this Tribunal in the case of Ariba Technologies India (P.) Ltd. (supra) found this company to be comparable. 8.3 We have considered the rival submiss....
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....al Centres (India) (P.) Ltd. v. Asstt CIT [2014] 43 taxmann.com 100/147 ITD 83. Thus in view of the decision of the co-ordinate bench, we find that this company is engaged in providing data analysis and process solutions and recognized as expert in market financial services, retail and manufacturing. Thus this company was providing complete business solutions which are in different field of services. Therefore this company cannot be considered as comparable with the low end service provider. Accordingly, we direct the A.O./TPO to exclude this company from the list of comparables. ................................................................................................................................................................... 10. Infosys Ltd. : As it is clear from the finding of this Tribunal in the case of Ariba Technologies India (P.) Ltd. (supra), this company is deriving revenue from the software product and has a huge intangible assets apart from the brand value and a leader in the market. Accordingly, by following the earlier orders of this Tribunal, we direct the A.O./TPO to exclude this company from the list of comparables. ............
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....ous fields including technology innovation, there was innovation and delivery innovation. This company is also having huge brand value and R&D activity. Therefore in view of the judgment of Hon'ble Delhi High Court in the case of CIT v. Agnity India Technologies (P.) Ltd. [2013] 219 Taxman 26/36 taxmann.com 289, this company cannot be considered as a good comparable with a low end and captive service provider in ITES segment. Accordingly, we direct the A.O./TPO to exclude this company form the list of comparables." 14.1 On comparables exceeding RPT at 15% : "7.5 We have heard the ld. A.R. & ld. D.R. and considered carefully the relevant material on record. We find that in the case of Ariba Technologies India (P.) Ltd. (supra), the TPO has selected the same set of 27 comparable companies as in the case of the assessee before us. We further note that in the case of the assessee, the TPO has accepted that the assessee is in the ITES segment which was also accepted in the case of Ariba Technologies India (P.) Ltd. (supra). We further find that most of the comparable companies are required to be excluded by applying the filter of RPT at 15%. Therefore, to the ....
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....found to be having more than 15% RPT revenue. Accordingly, we direct the A.O./TPO to exclude these companies from the set of comparables." 14.2 On 3 comparables being pleaded for fresh examination : "11.1 I-services India Pvt. Ltd. : The learned Authorised Representative of the assessee has submitted that the complete financial details are not available in the public domain in respect of this company despite the TPO has selected this company for the purpose of computing the ALP. He has pointed out that an identical issue has been considered by the co-ordinate bench of this Tribunal in the case of sister concern of the assessee i.e. e4e Business Solutions India (P.) Ltd. v. Dy. CIT [2016] 69 taxmann.com 73 wherein the Tribunal has remanded the issue to the record of the A.O./TPO. Thus the learned Authorised Representative has submitted that the assessee be given the complete financial information of this company for filing its objections and comments against the comparability of this company. 11.2 On the other hand, the learned Departmental Representative has relied upon the orders of the authorities below and submitted that the TPO has called the relevant....
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....hat the TPO/A.O has to furnish the copies of the information to the assessee and thereafter the assessee has to furnish its reply as to why this company should not be considered as a comparable company. In view of the order of the co-ordinate bench, we set aside this issue to the record of the A.O./TPO for deciding the comparability of the same after considering the reply of the assessee on furnishing of the information received under Section 133(6) of the Act." .................................................................................................................................. .................................................................................................................................. .................................................................................................................................. Accentia Technology Ltd. : 13.1 The learned Authorised Representative of the assessee has submitted that there is an extra-ordinary event of amalgamation during the year under consideration as this company has amalgamated its subsidiary namely Geo Soft Technologies Ltd. and Iridium Technologies....
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....d. (formerly known as Citigroup Global Services Ltd.), the India-based capital BPO, for a total consideration of USD 504.54 million.' This indicates that this company made acquisition during the year in question which is an extraordinary financial event. The Mumbai Bench of the Tribunal in Petro Araldite (P) Ltd. v. DCIT (2013) 154 TTJ (Mum) 176, has held that a company cannot be considered as comparable because of exceptional financial results due to mergers/demergers. Similar view has been adopted by the Delhi Bench of the Tribunal in several cases including Ciena India Pvt. Ltd. v. DCIT (ITA No.3324/Del/2013) vide its order dated 23.4.2015. The ld. DR contended that the mere fact of acquisition and merger should not be considered as a decisive test for exclusion of a company unless it has affected the profitability due to such merger etc. We are not inclined to accept this contention for the obvious reason that once acquisition and merger etc. has taken place, it is always likely to affect the profitability of such a company in the year of acquisition etc. There cannot be any standard yardstick to measure the impact of such a factor on the overall profitability of such a company....
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....the above facts brought to our notice, we set aside this issue to the record of the TPO/A.O for further verification and examination of the relevant record and financial data of this company. We make it clear that if this company is generating revenue from software development activity which is part of the operating revenue / margins of this company considered for the purpose of ALP then this company shall be excluded from the set of comparables." 15. From the above, it is clear that this Tribunal has examined and excluded the comparables Bodhtree Consultancy Ltd, e-clerx Services Ltd, Infosys Ltd, Mold-tek Technology Ltd. (Seg.) , Vishal Information Technology Ltd and Wipro Limited . Found that the comparables , Apollo Health Street Ltd, Asit C Mehta Financial Services Ltd, M/s. HCL Comnet Systems & Services Ltd and Informed Technologies India Ltd exceeded RPT at 15% and hence directed to excluded them. Set aside the issues in connection with comparables I-services India Pvt. Ltd, Accentia Technology Ltd. and Accurate Data Convertors Pvt. Ltd to the A.O/TPO with a direction to re-examine them in the light of their observations /directions, supra. Following the above decision, t....
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....18. The assessee submitted that it is now a well-settled position in law that the deduction u/s 10A is undertaking / unit specific and that, therefore, an undertaking otherwise eligible for deduction u/s 10A cannot be denied only because its ownership has changed. Further, as regards the AO's action in denying the deduction on the ground that the condition stated in Section 10A (2)(iii) has not been fulfilled, it is submitted that the word "formed" in the said clause is of crucial importance. Once a unit has been held to be eligible in the year of its formation, then the deduction under the said section cannot be denied. Further, since section 10A is an incentive provision, its provisions have to be interpreted in a beneficial or purposive manner so as to give effect to the benefit sought to be conferred thereby on assessees. It is now settled-law that the provisions of an incentive provision have to be construed liberally and that, furthermore in cases where there is an ambiguity in the wording of a section, such a provision would have to be interpreted in such a manner so as to favour of the assessee. 19. Further, as far as section 10A (7A) is concerned that there is nothing i....
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....mputing the deduction allowable to it u/s 1OA. Similarly, it contended that no part of the telecommunication charges were attributable to the delivery of computed software outside India and, hence, the said charges ought not to be reduced from its export turnover. In the alternative, it contended that if the travel expenses and telecommunication charges were to be reduced from its export turnover, then they should also be reduced from its total turnover. However, the DRP rejected the assessee's contentions in toto. The assessee submitted that for the above reasons, neither the travel expenses in foreign currency nor the telecommunication charges ought to be reduced from its export turnover. In the alternative, it pleaded that while computing the deduction allowable u/s 10A. If any item is excluded from the export turnover, then it should also be excluded from the total turnover as well. We heard the rival submissions. The assessee's plea is supported by the binding decision of the Hon'ble High Court of Karnataka in CIT v. Tata Elxsi Ltd. [2012] 349 ITR 98 (Karn). Hence, Consistent with the above decision, the AO is directed to exclude the above expenditure both from ETO and T....
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....ble goods wherein whole of the costs in the form of raw materials and labour incurred in the native country along with profit element are embedded in the invoice amount, software development and export involves mainly expertise and technical knowhow of specialised engineers who are employed partly in the native country and partly overseas'. Thus, it is clear that the AO has himself tacitly accepted that number of employees is the correct basis for allocation of such expenses in the services industry. * Also, the Appellant submits that it operates on a cost plus mark-up model. Therefore, since the revenue is recognized in its books of account on that basis, the legal and professional charges, staff recruitment charges and management fees have, accordingly, been allocated between the two Units on the same basis while arriving at the total cost for the purposes of applying such mark-up. The total costs would have to first be identified and the mark-up would then have to be applied on the same to arrive at its revenue. Consequently, as its revenue is determined on the basis of the total costs identified, the allocation of underlying costs on the basis of its revenue / turnover....
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....ed as a set-off in this assessment year, and as was carried forward from ay 2006-07, pertains to ays 1996-97 and 1999- 2000. A table indicating the year-wise amount is provided below for quick reference: Particulars Assessment Year Amount (Rs.) Unabsorbed depreciation 1996-1997 3,58,207/- Unabsorbed depreciation 1999-2000 12,56,436/- However, the AO denied the set-off of the above unabsorbed depreciation on the ground that the Pinnacle Unit was a profit making unit in all years prior to a y 2007-08 and that, therefore, the above unabsorbed depreciation is deemed to have been set-off in such years of profit before computing the deduction under Section 10A for those years. Further, the A O has also denied the claim for set-off contending that the same was allowed in the assessment order for AY 2006-07. The DRP, too, upheld the same. In this regard, the assessee submitted that the unabsorbed depreciation could not be claimed in any of the preceding assessment years as there were no profits available for such set-off after computing deduction u/s 10A in those assessment years. Further, it submitted that the AO, while computing the tax payable for a y 20....
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....to the extent prejudicial to the Appellant, is bad in law, contrary to facts and circumstances of the case and liable to be quashed. That the learned AO and the learned Dispute Resolution Panel ('Panel') erred in upholding the rejection of Transfer Pricing (TP) documentation by the learned Addl Commissioner of Income - tax (Transfer Pricing) - II, Bangalore (Transfer Pricing Officer' or 'TPO'). That the learned AO and the learned Panel erred both in facts and law in confirming the action of the learned TPO of making an adjustment to the transfer price of the Appellant by Rs.126,134,044 in respect of contract software development services and by Rs. 135,300,046 in respect of Information Technology enabled Services, holding that the international transactions do not satisfy the arm's length principle envisaged under the Income Tax Act, 1961 (the 'Act') and in doing so grossly erred in: 3.1. 3.2. 3.3. 3.4. Upholding the rejection of comparability analysis of the Appellant in the TP documentation and in submissions provided during the assessment proceedings, and confirming the comparability analysis as adopted by the learned TPO in the....
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....ficer and the learned Panel erred in applying the provisions of sub-section 7A to Section 10A in the Company's case. That the learned Assessing Officer and the learned Panel erred in holding that continuance of tax holiday under section 10A is only restricted to a case of amalgamation or a demerger. That the learned Assessing Officer and the learned Panel has erred in holding that if deduction under section 10A is allowed for the UB Plaza Unit, datalink charges of Rs 38,456,327 and travel expense in foreign currency of Rs 30,264.964 be reduced from 'export turnover' while computing deduction under section 10A of the Act as 'expenditure attributable to delivery of software outside India' under Explanation 2(iv) to Section 10A of the Act. That on the facts and in the circumstances of the case, the learned Assessing Officer and the learned Panel erred in not appreciating the fact that the Assessee is not engaged in the business of providing technical services outside India. That even assuming but not admitting that the above expenditure aggregating to Rs 68,721,291 is to be reduced from 'export turnover', the learned Assessing Officer and ....