AI Drafter 
TaxTMI 
TaxTMI 
2019 (6) TMI 1697
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....y the TPO to exclude companies that do not reflect the normal industry trend. 6. The learned CIT(A) erred in holding that the size and turnover of the company are deciding factors for treating a company as a comparable, and consequently erred in excluding M/s Infosys Technology Ltd. and Wipro Ltd. (segment) as a comparables in the case of the taxpayer. 7. The Ld CIT(A) has rejected companies on the basis of Abnormal Profit without defining what constitutes abnormal profit filter and how the same is determined and consequently erred in excluding Aditiya Birla Minacs Worldwide Ltd., Coral Hubs Ltd., Eclerx Services Ltd., Jindal Intellicom Pvt. Ltd., Mold-Tek Technologies Ltd. and Allsec Technologies Ltd. as comparables in the case of the taxpayer. 8. The Ld. CIT(A) has erred in failing to appreciate that the different year ending filter applied by the TPO is necessary to exclude companies which do not have the same or comparable financial cycle as the tested party. 9. In the facts and circumstances of the case, the learned CIT(A) erred in rejecting M/s Accentia Technologies Ltd. as comparable in the case of the taxpayer, holding that events of acqu....
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....s far as the question of determination of ALP of the international transaction is concerned, the facts are that the assessee is a company engaged in the business of development of software and rendering of ITeS. During the previous year, the assessee provided transcription services to its AE in USA. The assessee received a sum of Rs.26,24,05,361 for providing medical transcription services to its AE. The Operating Profit to Operating Cost (OP:OC) ratio in the matter of providing ITeS to AE was as follows:- Description IT Enabled Services Operating Revenue Rs.26,24,05,361 Operating Cost Rs.22,51,66,145 Operating Profit (PBIT) Rs.3,72,39,216 Operating Profit to Cost Ratio 16.53% 6. The price received in the international transaction has to satisfy the arm's length test as laid down in section 92 of the Income-Tax Act, 1961 ["the Act"]. In support of its claim that the price received from the AE was at arm's length, the assessee filed a TP study in which the assessee chose to Transactional Net Margin Method (TNMM) as the Most Appropriate Method (MAM) for determining the ALP. The Profit Level Indicator (PLI) chosen for the purpose of comparison of the p....
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.... 23.61 Operating Cost Rs. 22,51,66,145 Arms Length Price(ALP)@ 123.61% of 27,83,27,871 Price Received Rs.26,24,05,361 Short fall being adjustment u/s.92CA Rs.1,59,22,510 The above shortfall of Rs.1,59,22,510/- is treated as transfer pricing adjustment u/s 92CA in respect of software development segment of the taxpayer's international transactions." 8. The additions suggested by the TPO was incorporated by the AO in the final order of assessment. Aggrieved by the aforesaid addition, the assessee preferred appeal before the CIT(Appeals). 9. The CIT(Appeals) excluded some of the comparable companies chosen by the TPO and consequent to the order of CIT(Appeals), the price charged by the assessee was to be regarded as at arm's length. The revenue by its grounds of appeal sought to assail the findings of the CIT(Appeals). 10. As far as ground No.5 of the raised by revenue is concerned, there is no company which was excluded by the CIT(Appeals) by applying diminishing revenue filter and therefore ground No.5 by the revenue has no basis and hence dismissed. 11. As regards ground No.6, the CIT(Appeals) took the view that size and turn....
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.... where two views are available on an issue, the view favourable to the Assessee has to be adopted, we respectfully follow the view of the Hon'ble Bombay High Court on the issue. Respectfully following the aforesaid decision, we uphold the order of the DRP excluding 5 companies from the list of comparable companies chosen by the TPO on the basis that the 5 companies turnover was much higher compared to that the Assessee. 17.8. In view of the above conclusion, there may not be any necessity to examine as to whether the decision rendered in the case of Genisys Integrating (supra) by the ITAT Bangalore Bench should continue to be followed. Since arguments were advanced on the correctness of the decisions rendered by the ITAT Mumbai and Bangalore Benches taking a view contrary to that taken in the case of Genisys Integrating (supra), we proceed to examine the said issue also. On this issue, the first aspect which we notice is that the decision rendered in the case of Genisys Integrating (supra) was the earliest decision rendered on the issue of comparability of companies on the basis of turnover in Transfer Pricing cases. The decision was rendered as early as 5.8.2011. The ....
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....nd abnormal profits and losses filter starts at para 156 and till para 164, there a discussion only about turnover filter and no discussion on abnormal profits & losses filter. However, in conclusion at para 165, the CIT(A) has held that abnormally high profits or losses making companies should be excluded. Therefore, the grievance projected by the revenue in ground No.6 needs to be accepted. 15. However, in additional grounds 6 & 7 raised by the assessee in its appeal, the assessee has pointed out that 3 out of 6 companies excluded by applying abnormal profit or loss filter are functionally not comparable viz., Mold-Tek Technologies Ltd., Eclerx Services Ltd. and Coral Hubs Ltd. In this regard, the ld. counsel for the assessee drew our attention to decision of the Tribunal rendered in the case of Flextronics Technologies India Pvt. Ltd. v. DCIT in IT(TP)A No.1559/Bang/2012 , order dated 23.10.2015 rendered for AY 2008-09 in the case of a similar company such as the assessee. In para 14 of this order, the Tribunal has considered the comparability of these companies and came to the conclusion that Coral Hubs Ltd. cannot be regarded as a comparable company, as the business model o....
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....company on the ground that this company was rendering geographical information systems services and cannot be compared with a company providing ITeS. It is not in dispute before us that the ITAT Bangalore Bench in the case of Flextronics Technologies India Pvt. Ltd. (supra) vide para 17 had excluded this company on the similar ground on which it was excluded by the CIT(A). In view of the aforesaid decision, we find no merits in ground Nos. 8, 9 & 10 raised by the revenue in its appeal. 20. Ground Nos.11 to 13 by the revenue are general in nature and call for no specific adjudication. 21. As far as ground Nos.1 to 4 by the revenue are concerned, the same reads as follows:- "1. The order of the Learned CIT (Appeals), in so far as it is prejudicial to the interest of revenue, is opposed to law and the facts and circumstances of the case. 2. The CIT(A) was not justified in directing the AO to recompute the deduction allowable u/s 10A of the I.T. Act after reducing the Internet charges of Rs.27,27,786/- and foreign currency incurred for foreign travel amounting to Rs.4,80,079/- from the total turnover also. 3. The Ld.CIT(A) ought to have appreciate....
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....61 (Act). The assessee had claimed deduction u/s 10A of the Act before setting of unabsorbed depreciation of earlier years. The AO was of the view that deduction u/s 10A of the Act was not in the nature of exemption provision and, therefore, the business loss and unabsorbed depreciation of the earlier years has to be first set off against the income of the eligible unit and only on the reminder deduction u/s 10A of the Act has to be allowed. The view of the AO was confirmed by the CIT(A), hence this ground of appeal by the Assessee before the Tribunal. 28. At the time of hearing it was agreed by the parties before us that this issue is no longer res integra and has been concluded by the Hon'ble Supreme Court in the case of Yokogawa India Ltd., 391 ITR 274 by its order dated 16.12.2016 and in the aforesaid decision the Hon'ble Supreme Court took the following view :- "That from a reading of the relevant provisions of section 10A it is more than clear that the deductions contemplated therein is qua the eligible undertaking of an assessee standing on its own and without reference to the other eligible or non-eligible units or undertakings of the assessee. The benefit....
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....osses and unabsorbed depreciation of non- Sec.10A units before allowing the deduction under section 10A of the Act. In view of the aforesaid decision of the Hon'ble Supreme Court, the AO is directed not to set off the brought forward unabsorbed depreciation of non10A units against profits of 10A units before allowing deduction u/s. 10A of the Act. 30. Grounds 2 to 5 raised by the are with regard to disallowance made u/s. 40(a)(i) of the Act. As far as this issue raised by the assessee is concerned, it would be sufficient if ground No.5 is adjudicated, which reads as follows:- "5. The learned CIT(A) has erred in law and facts, by not considering the alternative plea that, if any disallowance is made under section 40(a)(i) of the Act, the same should be considered towards 'profits of the undertaking' in computing the eligible deduction under section 10A of the Act." 31. The issue is with regard to disallowance of expenses u/s.40(a)(i) of the Act. The ld. counsel for the assessee has submitted that even assuming disallowance u/s. 40(a)(i) of the Act has to be sustained, the addition made consequent to such disallowance will go to increase the profits of the unit....