TaxTMI 
TaxTMI 
2019 (6) TMI 1697
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....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 acquisitions and amalgamations has impacted its profitability. 10. In the facts a....
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....aged 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 profit margin of the assessee with the comparable companies was OP to OC. The assessee in its TP study had applied a different criterion for accepting and rejecting....
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....ayer'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 turnover of a company are material for deciding the comparability. The assessee's turnover was Rs.26.24 crores. The CIT(Appeals) took the view that companies whose turnover was more than Rs.200 crores have to be regarded as large size companies and hence not comparable to the assessee. By doing so, he had excluded Infosys BPO Ltd. and Wipro Ltd. from the list of com....
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....urnover 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 decisions rendered by the ITAT Mumbai Benches cited by the learned DR before us in the case of Willis Processing Services (supra) and Capegemini India Pvt.Ltd. (supra) are to be regarded as per incurium as these decisions ignore a binding co-ordinate bench decision. In this regard the decisions referred to by the learned counsel for the Assessee supports the plea of the learned....
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....e 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 of this company was sub-contracting and outsourcing. As far as Mold-Tek Technologies Ltd. is concerned, in para 19 of this aforesaid order, this company was regarded as functionally not comparable as it provided engineering services like civil and structural engineering and GIS services. As far as Eclerx Services Ltd. is concerned, the Tribunal came to the conclusion that extra-ordina....
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....resaid 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 appreciated that there is no provision in section 10A which requires the concerned expenses, which are required to be reduced from the export turnover as per clause (iv) of the Explanation to Section 10A to be reduced from the total turnover also. 4. The Ld.CIT(A) ought to have considered the fact that the jurisdictional High Court decision relied upon by him has not been accepted by the department and SLP has been filed be....
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..... 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 of deduction is given by the Act to the individual undertaking and resultantly flows to the assessee. This is also more than clear from the contemporaneous Circular No. 794, dated 9-8-2000. If the specific provisions of the Act provide [first proviso to sections 10A(1); 10A(1A) and 10A(4)] that the unit that is contemplated for grant of benefit of deduction is the eligible undertaking and that is also how the contemporaneous Circular of the dep....
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....ssessee 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 which is entitled to claim deduction on such profits u/s. 10A of the Act and therefore the impugned addition even if sustained, will be tax neutral. In other words, the assessee claims that even on the addition made consequent to disallowance u/s. 40(a)(i) of the Act, deduction u/s. 10A should be allowed. 32. In this regard, the dl. Counsel for the assessee has placed reliance on the decision of two High Courts viz., Hon'ble Bombay High Court in the case of CIT v. Gem Plus Jewellery Indi....