STERLING COMMERCE PRIVATE LIMITED,BANGALORE vs DCIT, BANGALORE

Income Tax Appellate Tribunal, “C” BENCH : BANGALORE

Before: SHRI N.V. VASUDEVAN & SHRI B.R. BASKARAN

For Appellant: Shri Padamchand Khincha, CA

For Respondent: Shri Pradeep Kumar, CIT(DR)(ITAT), Bengaluru

Hearing: 26.06.2019Pronounced: 28.06.2019

Per N.V. Vasudevan, Vice President This appeal by the assessee is against the order dated 11.10.2010 of the Deputy Commissioner of Income Tax, Circle12(4), Bangalore passed u/s. 143(3) r.w.s. 144C of the Income-Tax Act, 1961 [“the Act”].

The Assessee earlier known as Telelogic India Private Limited is a 100% subsidiary of Telelogic AB. The Assessee is engaged in providing software development services (SWD services) and Information

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Technology enabled Services (ITeS) to its Associated Enterprises (AE). The transaction of providing SWD services and ITeS to its AE by the Assessee were international transactions and the price received for rendering such services by the Assessee from its AE has to pass the Arm’s Length Price (ALP) test as provided u/s.92 of the Income Tax Act, 1961 (Act). In this appeal two of the disputes are with regard to addition made consequent to determination of ALP and consequent upward revision and adjustment made to the price at which international transactions were carried out by the Assessee with its AE in respect of (1) Software development Services and (2) IT enabled Services.

TP ADJUSTMENT RELATING TO IT SERVICES (Software Development Services:

There is no dispute that the Most Appropriate Method chosen for the purpose of comparison of the profit margin of the Assessee with that of the comparable companies was the Transaction Net Margin Method (TNMM) and the Profit Level Indicator (PLI) chosen for the purpose of such comparison was Operating Profit to Operating Cost (OP/OC). The OP/OC of the Assessee in the SWD services segment was as follows:-

Description Amount Operating Revenue Rs.6,31,98,998/- Operating Cost Rs.5,86,25,045/- Operating Profit (PBIT) Rs. 45,73,953/- Operating Profit to Cost Rati 7.80 %

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Comparable ultimately selected by TPO and their arithmetic mean :-

Sl. Name of company OP / TC Sales No (FY 2006-07) (Rs.Cr.) 1 Aztec Software Limited 18.09 128.61 2 Geometric Software Limited (Seg.) 6.70 98.59 3 Infosys Ltd 40.38 9028.00 4 KALS Info Systems Limited 39.75 1.97 5 Mindtree Consulting Ltd 14.67 448.79 6 Persistent Systems Ltd. 24.67 209.18 7 R.Systems International Ltd. (Seg.) 22.20 79.42 8 Sasken Communications Ltd. (Seg.) 13.90 240.03 9 Tata Elxsi Ltd (Seg.) 27.65 188.81 10 Lucid Software Ltd 8.92 1.02 11 Mediasoft Solutions Ltd 6.29 1.76 12 R S Software (India) Ltd 15.69 91.57 13 S I P Technologies & Exports Ltd 3.06 6.53 14 Bodhtree Consulting Ltd. 15.99 5.32 15 Accel Transmatic Ltd. (Seg.) 44.07 8.02 16 Synfosys Business solutions Ltd. 10.61 4.49 17 Flextronics Software Systems Ltd. 27.24 595.12 18 Lanco Global Solutions Ltd 5.27 35.63 19 Megasoft Ltd 52.74 56.15 20 iGate Global solutions Ltd.(Seg.) 15.61 527.91 Arithmetic Mean 20.68% Less:Ad-hocWorkingcapitalAdjustment 1.00% Adjusted profit margin mean 19.68%

The TPO finally passed an order u/s. 92CA of the Act and on the basis of the comparables set out above, arrived at arithmetic mean of

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20.68%. After factoring the working capital adjustment of 1.00%, the adjusted arithmetic mean was determined at 19.68%. The computation of the ALP by the TPO in this regard was as follows:-

“19.6. Computation of Arms Length Price: The arithmetic mean of the Profit Level indicators is taken as the arms length margin. (Please see Annexure B For details of computation of PLI of the comparables). Based on this, the arms length price of the software development services rendered by you is computed as under: Arithmetic mean PLI 20.68% Less: Working capital Adjustment (Annexure-C) 1.00% Adj.Arithmetic mean PLI 19.68% Arm’s Length Price: Operating Cost Rs.5,64,27,676 Arms Length Margin 19.68% of the operating cost Arms Length Price (ALP) Rs.6,74,98,786/- At 119.68% of operating cost 19.7. Price received vis-à-vis the Arms Length Price: The price charged by the tax payer to its Associated Enterprises is compared to the Arms Length Price as under: Arms Length Price (ALP) Rs.6,74,98,786/- At 119.68% of operating cost Price charged in the internation Rs.6,31,98,998/- transactions Shortfall being adjustment Rs.42,99,788/- u/s.92CA The above shortfall of Rs.42,99,788/- is treated as transfer pricing adjustment u/s 92CA.”

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Against the said adjustment proposed by the TPO which was incorporated in the draft assessment order by the AO, the assessee filed objections before the DRP. The DRP rejected those objections and confirmed the transfer pricing adjustment suggested by the TPO. The adjustment confirmed by the DRP was added to the total income of the assessee by the AO in the fair order of assessment. Against the said order of the Assessing Officer, the assessee has preferred the present appeal before the Tribunal.

The assessee filed a chart showing turnover and the margins of the 20 comparable companies finally chosen by the TPO after giving effect to adjustment towards working capital as allowed by the TPO and also as claimed by the Assessee. The Chart also explains as to how some of the comparable companies chosen by the TPO are not comparable (a) for the reason that the turnover of those companies were beyond Rs.200 crores and therefore cannot be compared with the Assessee whose turnover is only Rs.6.31 Crores, (b) for the reason that these companies were not functionally comparable; (c) for the reason that the related party transaction (RPT) carried out by the comparable companies during the previous year was beyond 15% of its revenue and hence ought not to be included as a comparable. The Chart also gives the cases decided by various Benches of the ITAT where the comparable companies have been held to be not comparable with that of an Assessee providing IT Software development Services. The learned DR relied on the order of the revenue authorities. We will proceed to consider the comparability of companies chosen by the TPO and listed in para- 4 of this order.

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The ld. counsel for the assessee brought to our notice that out of the 20 comparable companies chosen by the TPO, the following companies will have to be excluded as the turnover of these companies are more than Rs.200 crores and cannot be compared with the Assessee whose turnover is less than Rs.100 crores:-

(1) Flextronics Software Systems Ltd. 595.12 crores (2) iGate Global Solutions Ltd. 527.91 crores (3) Mindtree Ltd. 448.79 crores (4) Persistent Systems Ltd. 209.18 crores (5) Sasken Communication Technologies Ltd. 240.03 crores (6) Infosys Technologies Ltd. 9028.00 crores. 9. As far as excluding the companies on the basis of turnover is concerned, the issue has been settled in several decisions of the Tribunal and has been elaborately discussed by this Tribunal in the case of Autodesk India Pvt. Ltd. v. DCIT in IT(TP)A No.540 & 541/Bang/2013, order dated 06.07.2018. The Tribunal in this decision after review of entire case laws on the subject, considered the question, whether companies having turnover more than 200 crores upto 500 crores has to be regarded as one category and those companies cannot be regarded as comparables with companies having turnover of less than 200 crores, the Tribunal held as follows:-

“17.7. We have considered the rival submissions. The substantial question of law (Question No.1 to 3) which was framed by the Hon'ble Delhi High Court in the case of Chryscapital Investment Advisors (India) Pvt.Ltd., (supra) was as to whether comparable can be rejected on the ground that they have exceptionally high profit margins or fluctuation profit margins, as compared to the Assessee in transfer pricing analysis. Therefore as rightly submitted by the learned counsel for the Assessee the observations

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of the Hon'ble High Court, in so far as it refers to turnover, were in the nature of obiter dictum. Judicial discipline requires that the Tribunal should follow the decision of a non-jurisdiction High Court, even though the said decision is of a non-jurisdictional High Court. We however find that the Hon'ble Bombay High Court in the case of CIT Vs. Pentair Water India Pvt.Ltd. Tax Appeal No.18 of 2015 judgment dated 16.9.2015 has taken the view that turnover is a relevant criterion for choosing companies as comparable companies in determination of ALP in transfer pricing cases. There is no decision of the jurisdictional High Court on this issue. In the circumstances, following the principle that 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 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 counsel for the Assessee. The decisions rendered in the case of M/S.NTT Data (supra), Societe Generale Global Solutions (supra) and LSI Technologies (supra) were rendered later in point of time. Those

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decisions follow the ratio laid down in Willis Processing Services (supra) and have to be regarded as per incurium. These three decisions also place reliance on the decision of the Hon’ble Delhi High Court in the case of Chriscapital Investment (supra). We have already held that the decision rendered in the case of Chriscapital Investment (supra) is obiter dicta and that the ratio decidendi laid down by the Hon’ble Bombay High Court in the case of Pentair (supra) which is favourable to the Assessee has to be followed. Therefore, the decisions cited by the learned DR before us cannot be the basis to hold that high turnover is not relevant criteria for deciding on comparability of companies in determination of ALP under the Transfer Pricing regulations under the Act. For the reasons given above, we uphold the order of the CIT(A) on the issue of application of turnover filter and his action in excluding companies by following the ratio laid down in the case of Genisys Integrating (supra).”

10.

Respectfully following the aforesaid decisions of the Tribunal referred to above, we hold that the following companies whose turnover is above Rs.200 Crores should be excluded from the list of comparable companies:-

The AO is directed to compute the Arithmetic mean by excluding the aforesaid companies from the list of comparable.

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Improper selection of comparables:

11.

It was submitted by the learned counsel for the Assessee that the following 2 companies are not functionally comparable with that of the Assessee.

a) KALS Information Systems Limited b) Accel Transmission Limited. In this regard our attention was drawn to the decision of the Hon’ble ITAT Bangalore Bench in the case of Trilogy E-Business Software India Pvt.Ltd. ITA No.1338/Bang/2010 for AY 2007-08 wherein these two companies were held to be not functionally comparable with that of a pure software developer like the Assessee.

12.

The following were the relevant observations of the Tribunal on the aforesaid comparable companies in the case of Triology E-Business Software India Pvt.Ltd.(supra):-

“(d) KALS Information Systems Ltd. As far as this company is concerned, the contention of the assessee is that the aforesaid company has revenues from both software development and software products. Besides the above, it was also pointed out that this company is engaged in providing training. It was also submitted that as per the annual report, 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:

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“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 of I T enabled services and that the said company is into development of software products, etc. All these aspects have not been factually rebutted and, in our view, the said concern is liable to be excluded from the final set of comparables, and thus on this aspect, assessee succeeds.” Based on all the above, it was submitted on behalf of the assessee that KALS Information Systems Limited should be rejected as a comparable. We have given a careful consideration to the submission made on behalf of the Assessee. We find that the TPO has drawn conclusions on the basis of information obtained by issue of notice u/s.133(6) of the Act. This information which was not available in public domain could not have been used by the TPO, when the same is contrary to the annual report of this company as highlighted by the Assessee in its letter dated 21.6.2010 to the TPO. We also find that in the decision referred to by the learned counsel for the Assessee, the Mumbai Bench of ITAT has held that this company was developing software products and not purely or mainly software development service provider. We therefore accept the plea of the Assessee that this company is not comparable.”

“(e) 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 Transmatic should be rejected as comparable. The

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relevant observations of DRP as extracted by the ITAT in its order are as follows: “In regard to Accel Transmatics Ltd. the assessee submitted the company profile and its annual report for financial year 2005-06 from which the DRP noted that the business activities of the company were as under. (i) Transmatic system - design, development and manufacture of multi function kiosks Queue management system, ticket vending system (ii) Ushus Technologies - offshore development centre for embedded software, net work system, imaging technologies, outsourced product development (iii) Accel IT Academy (the net stop for engineers)- training services in hardware and networking, enterprise system management, embedded system, VLSI designs, CAD/CAM/BPO (iv) Accel Animation Studies software services for 2D/3D animation, special effect, erection, game asset development. 4.3 On careful perusal of the business activities of Accel Transmatic Ltd. DRP agreed with the assessee that the company was functionally different from the assessee company as it was engaged in the services in the form of ACCEL IT and ACCEL animation services for 2D and 3D animation and therefore assessee’s claim that this company was functionally different was accepted. DRP therefore directed the Assessing Officer to exclude ACCEL Transmatic Ltd. from the final list of comparables for the purpose of determining TNMM margin.” Besides the above, it was pointed out that this company has related party transactions which is more than the permitted level and therefore should not be taken for comparability purposes. The submission of the ld. counsel for the assessee was that if the above company should not be considered as comparable. The ld. DR, on the other hand, relied on the order of the TPO.

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50.

We have considered the submissions and are of the view that the plea of the assessee that the aforesaid company should not be treated as comparables was considered by the Tribunal in Capgemini India Ltd (supra) where the assessee was software developer. The Tribunal, in the said decision referred to by the ld. counsel for the assessee, has accepted that this company was not comparable in the case of the assessees engaged in software development services business. Accepting the argument of the ld. counsel for the assessee, we hold that the aforesaid company should be excluded as comparables.”

13.

The facts and circumstances under which the aforesaid companies were considered as comparable is identical in the case of the Assessee as well as in the case of Triology E-Business Software India Pvt.Ltd. (supra). Respecfully following the decision of the Tribunal referred to above in the case of Trilogy E-Business Software India Pvt.Ltd.(supra), we direct that KALS InfoSystems Ltd. And Accel Transmatic Ltd. be excluded from the list of 20 comparable arrived at by the TPO.

14.

The learned counsel for the Assessee brought to our notice that the comparable company chosen by the TPO viz., Lucid Software Limited, has to be excluded as functionally not comparable with that of the assessee in view of the decision of the Mumbai Bench of the Tribunal in the case of Telcordia Technologies India Private Ltd. in ITA No.7821/MUM/2011, which was followed by the ITAT Bangalore Bench in the case of Logica Private Ltd. ITA No.1129/Bang/2011 for AY 07-08, wherein it was held as under:-

“7.2 Lucid Software Limited It has been submitted before us that this company, besides doing software development services, is also involved in development of software product. The learned AR has tried to distinguish by pointing out that product development expenditure in this case is around 39% of the capital

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employed by the said company, and, therefore, such a company cannot be considered as tested party. Even as per the information received in response to notice under Section 133(6), the company has described its business as software development company or pure software development service provider. This information itself is very vague as the segmental details of operating revenue has not been made available to examine how much is the ratio of sale from software product and sale of software service and development. Looking to the fact that it has developed a software product named as “Muulam” which is used for civil engineering structures and the product development expenditure itself is substantial vis-a-vis the capital employed by the said company, this criteria for being taken as comparable party, gets vitiated. For the purpose of comparability analysis, it is essential that the characteristics and the functions are by and large similar as that of the assessee company and T.P. analysis/study can be made with fewest and most reliable adjustment. If a company has employed heavy capital in development of a product then profitability in the sale of product would be entirely different from the company, who is involved in service sector. Therefore, this company cannot be treated as having same function and profitability ratio. In our view, due to non-availability of full information about the segmental details as to how much is the sale of product and how much is from the services, therefore, this entity cannot be taken into account for comparability analysis for determining arms length price in the case of the assessee. ……… ………” 15. The facts and circumstances under which the aforesaid companies were considered as comparable is identical in the case of the Assessee as well as in the case of Logica Private Ltd., (supra). Respecfully following the decision of the Tribunal referred to above in the case of Logica Pvt.Ltd. (supra), we direct that the company viz., Lucid Software be excluded from the list of 20 comparable arrived at by the TPO.

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16.

As far as comparable companies chosen by the TPO viz., Aztec Software Limited and Geometric Software Ltd. (Seg.) and Megasoft Ltd., are concerned, it is not in dispute before us that the related party transaction in the case of companies exceeds 15% and in view of the decision of the Tribunal in the case of 24 X 7 Customer.Com Pvt. Ltd. in ITA No.227/Bang/2010, followed by this Tribunal in the case of Logica Private Ltd. (supra) wherein it was held that where the RPT exceeds 15%, such companies should not be taken as comparable companies. Following the said decision, we hold that the aforesaid companies referred to above be excluded from the list of comparable companies while working out the ALP.

17.

As far as comparable company chosen by the TPO viz., Tata Elxsi Ltd., is concerned, the comparability of the aforesaid company with that of the software service provider such as the Assessee was considered by the Mumbai Bench of this Tribunal in the case of Logica Pvt.Ltd. IT (TP) 1129/Bang/2011 AY 07-08) wherein on the comparability of the aforesaid company, the Tribunal held as follows:-

“14. As far as comparable at Sl.No.6 & 24 are concerned, the comparability of the aforesaid two companies with that of the software service provider was considered by the Mumbai Bench of the Tribunal in the case of Telcordia Technologies India Private Ltd. (supra) wherein on the aforesaid two companies, the Tribunal held as follows:- “7.7.Tata Elxsi Limited.: From the facts and material on record and submissions made by the learned AR, it is seen that the Tata Elxsi is engaged in development of niche product and development services, which is entirely different from the assessee company. We agree with the contention of the learned AR that

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the nature of product developed and services provided by this company are different from the assessee as have been narrated in para 6.6 above. Even the segmental details for revenue sales have not been provided by the TPO so as to consider it as a comparable party for comparing the profit ratio from product and services. Thus, on these facts, we are unable to treat this company fit for comparability analysis for determining the arms length price for the assessee, hence, should be excluded from the list of comparable parties.” 15. In view of the above, the ld. counsel for the assessee fairly admitted that comparable company at Sl.No.6 viz., Flextronics Software Systems Pvt. Ltd. should be taken as a comparable, while comparable at Sl.No.24 viz., Tata Elxsi Ltd. should be rejected as a comparable.”

18.

In view of the aforesaid decision, we hold that Tata Elxsi has to be excluded from the list of comparable chosen by the TPO.

19.

The learned counsel submitted that Bodhtree Consulting Ltd., should be excluded from the list of comparable companies chosen by the TPO, as it is functionally different as held in the case of Support.Com India Pvt.Ltd. (TS 609-ITAT-2015 (Bang)TP) (copy at page 2104 of Paper Book-III filed by Assessee) which case also relates to a SWD service provider such as the Assessee. Respectfully, following the same, we hold that Bodhtree Consulting Ltd., should be excluded from the list of comparable companies chosen by the TPO.

20.

We direct the TPO to compute ALP in SWD service segments, after excluding the aforesaid companies from the list of comparable companies after giving the benefit of the second proviso to Sec.92(2) of the Act. The relevant grounds of appeal of the Assessee are treated as allowed.

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TP ADJUSTMENT IN THE IT ENABLED SERVICES TRNSACTIONS WITH AE:

21.

Description Amount Operating Revenue Rs.4,87,32,573/- Operating Cost Rs.4,10,87,673/- Operating Profit (PBIT) Rs. 76,44,900/- Operating Profit to Cost Rati 18.61 %

FINAL SET OF COMPARABLE COMPANIES CONSIDERED BY THE TPO AND THE OP TO TOAL COST % Sl.No. Company Name OP to Total Cost% 1. Maple eSolutions Ltd. 32.66 2. AllsecTechnologies Ltd 28.51 3. Datamatics Financial Services Ltd. (Seg.) 24.99 4. Transworks Information Services Ltd. 19.56 5. Cosmic Global Ltd.(Seg.) 16.03 6. Vishal Information Technologies Ltd. 19.56 7. Asit C.Mehta Financial Services Ltd. (earlier 34.52 known as Nucleus & GIS (India) Ltd. 8. Goldstone Infratech Ltd. (Seg.) (earlier 29.01 known as Goldstone Teleservices Ltd.) 9. Spanco Ltd. (seg.) (earlier known as Spanco 20.86 Telesystems & Solutions Ltd.) 10. Ace Software Exports Ltd. 7.72 11. Apex Knowledge Solutions Pvt.Ltd. 20.48

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12.

R Systems International Ltd. (Seg.) 15.11 13. Flextronics Software Systems Ltd. (Seg.) 14.54 Average 24.00

22.

The TPO finally passed an order u/s. 92CA of the Act and on the basis of the comparable set out above, arrived at arithmetic mean of 24.00%. After factoring the working capital adjustment of 1.00%, the adjusted arithmetic mean was determined at 23.00%. The computation of the ALP by the TPO in this regard was as follows:-

“38.6 Computation of Arms Length Price: The arithmetic mean of the Profit Level indicators is taken as the arms length margin. (Please see Annexure E For details of computation of PLI of the comparables). Based on this, the arms length price of the software development services rendered by you is computed as under: Arithmetic mean PLI 24.00% Less: Working capital Adjustment(Annexure-F) 1.00% Adj.Arithmetic mean PLI 23.00% Arm’s Length Price: Operating Cost Rs.4,82,74,952 Arms Length Margin 23.00% of the operating Cost Arms Length Price (ALP) Rs.6,51,61,645/- At 123% of operating cost

38.7 Price received vis-à-vis the Arms Length Price: The price charged by the tax payer to its Associated Enterprises is compared to the Arms Length Price as under:

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Arms Length Price (ALP) Rs.6,51,61,645/- At 123% of operating cost Price charged in the international Rs.5,34,34,568/- transactions Shortfall being adjustment Rs.1,17,27,077/- u/s.92CA The above shortfall of Rs.1,17,27,077/- is treated as transfer pricing adjustment u/s 92CA.”

23.

24.

We have heard the submissions of the learned counsel for the Assessee and the learned DR. The assessee filed a chart showing how the companies ultimately chosen by the TPO for the purpose of comparison are not functionally comparable with the Assessee as has been held by the Tribunal in various decisions rendered in the case of Assessees rendering ITES such as the Assessee. The learned DR relied on the order of the DRP.

25.

We have considered the rival submissions. As far as comparable companies chosen by the TPO at S.No.1,3,6,7 & 8 viz., Maple ESolution Ltd., Datamatics Financial Services Ltd., Vishal Information Technological

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Services Ltd., Asit C.Mehta Financial Services Ltd., and Gold Stone Infratech Ltd., in the list of comparable companies chosen by the TPO, we find that the Hyderbad Bench of the ITAT in the case of HSBC Electronic Data Processing India Ltd. Vs. ACIT, ITA No.1624/Hyd/2010 by order darted 28.6.2013 considered comparability of these companies in the case of a company engaged in rendering IT enabled services to its AE similar to that of the Assessee in the present case. The tribunal held that the aforesaid companies are not comparable. The following were the relevant observations of the Tribunal.

"8. The first objection is with reference to selection of comparable data by the TPO with reference to the following five companies- (a) Vishal Information Technologies Ltd. (b) Goldstone Infratech Ltd. (c) Datamatic Financial Services Ltd.(seg) (d) Maple e-Solutions Ltd. (e) Nucleus Netsoft & GIS(India) Ltd. (now known as (Asit C. Mehta Financial Services Ltd.) Vishal Information Technologies Ltd. 9. The assessee’s objection with reference to inclusion of this comparable is on the reason that the company is functionally different, also does not satisfy the filters such as employee cost and on-site revenue filter. It was submitted that employee cost forms a major portion of the total cost of BPO services and in the assessee’s case employee cost is 62% of the total cost, whereas in the selected company the employee cost is less than 2%, which indicates that most of the work was outsourced and the out-sourcing cost was at 88.64% of the operating cost. It was further submitted that the ITAT Bangalore in the case of First Advantage Off-shore Services (ITA No.1252/Bang/2010) has directed to use employee

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turnover filter in a consistent manner for selection of comparables and in the case of Maersk Global Services Centre (India) Pvt. Ltd. (14 ITR(Trib) 541) the Mumbai Bench of the Tribunal has analysed and rejected this company as comparable for the reason that it has outsourced a considerable portion of it’s business and is functionally different. Moreover, it was also submitted that the DRP in the later year of 2008-09 vide its order dated 3.8.2012 has rejected this company as a comparable (name changed to Coral Hub Ltd.), vide para 18 of the order, wherein ultimately, it was decided that there is major difference in functionality and the business model and the DRP Bench was of the view that Coral Hub (formerly known as Vishal Information Technology Ltd.) was not a suitable comparable and needs to be dropped from the final set of comparables. Based on the above submissions, it was submitted that this company cannot be used as a comparable and has to be excluded. 9.1. The learned Departmental Representative, however relied on the orders of the TPO.

9.2. After considering the rival contentions, we find considerable force in the contentions advanced by the learned counsel. There is no dispute with reference to the fact that most of the cost incurred by the company taken as comparable is outsourcing cost, as can be seen from the Annual report placed in the paper-book and ITAT, Mumbai in the case of Maersk Global Service Centre (supra) has analysed and rejected this company as comparable, due to the reason that it has outsourced a considerable portion of its business and it is functionally different. This factor was also approved by the DRP in assessee’s own case in the later year, as can be seen from the copy of the order placed on record, for assessment year 2008-09. In view of this, we

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direct the Assessing Officer to exclude this company from the list of comparables.

Goldstone Infratech Ltd 10. The assessee’s objection for inclusion of this comparable is on the basis of the filter on foreign exchange earnings, diminishing revenue filter and functionality, being run on lease basis. It was submitted that this company was rejected in the case of Stream International Services Pvt. Ltd. V/s. ADIT(International Taxation) by the Mumbai Bench of the Tribunal, vide its order dated 11.1.2013 in ITA No.8997/Mum/2010 for assessment year 2006-07. 10.1. After considering the rival contentions, we are of the opinion that the business model of the above company is different from that of the assessee. In this case, the foreign exchange revenue is less than 1% of the total turnover. Therefore, it fails the filter provided by the Assessing Officer, on the basis of the foreign exchange earnings. Further, the Revenue from BPO is failing over a period of three years. This issue was considered by the coordinate Bench (Mumbai Bench) of the Tribunal in the case of Stream International Services Ltd.(supra) wherein it was considered as under-

“14. The inclusion of second case objected to by the Id. AR is that of Goldstone Infratech Limited (Seg) (earlier known as Goldstone Teleservices Limited). Here it is relevant to note that the TPO, inter alia, applied filter of ‘Companies with export revenues more than 25% of the revenues’. Annual accounts of Goldstone Teleservices Limited indicate total revenue of the company at Rs. 30.89 crore from three segments, viz., Telecommunication at Rs. 13.63 crore, BPO

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at Rs. 5.02 crore and Insulator at Rs. 12.23 crore. The break up of such revenue of Goldstone Teleservices Limited has been provided at page 236 of the paper book. Schedule forming part of the annual accounts of Goldstone Teleservices Limited divulges earnings in foreign currency at Rs. 4.24 lakh. Such detail is available at page 239 of the paper book. When we compare earning in foreign currency at Rs. 4.24 lakh with the earnings of BPO at Rs. 5.02 crore or for that purpose of the entity as a whole at Rs. 30.89 crore, it becomes manifest that this case does not pass through the filter adopted by the TPO, being, the ‘companies whose export revenues are more than 25% of the revenues’. Therefore, we are of the opinion, that this company cannot be considered as a comparable for the purpose of determining the ALP in this case. We direct the same to be excluded.

Datamatic Financial Services Ltd. 11. The assessee’s objection to inclusion of this comparable is on the basis of Related Party Transactions filter. It was submitted that RPT exceeds 25% of the sales and therefore, to be excluded. The assessee relied on the decision of the coordinate Bench of the Tribunal (Mumbai Bench) in the case of Stream International Services (supra), wherein, wherein with reference to this comparable company, it was held as under : “11. The first is M/s. Datamatics Financial Services Limited. It can be observed that the TPO applied filter of “Companies with less than 25% related party transactions”. The learned Counsel for the assessee took us through the Annual accounts of Datamatics Financial Services Limited, and submitted that the gross income of this company for the year ending on 31.03.2006 was at Rs. 2.31 crore as against total

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expenses of Rs. 1.84 crore. Referring to pages 319 and 320 of the paper book, our attention was drawn towards Annexure-2 to demonstrate that the “Transactions with the Associated Parties within the meaning of section 92A and 92B of the Income-tax Act, 1961” showed one major transaction with Datamatics Limited towards ‘Reimbursement of expenses’ at Rs. 99.14 lakh. The learned AR contended that the transactions of Datamatics Financial Services Limited with other AEs amounted to Rs. 14.31 lakh making total of transactions with the AEs at Rs. 1.13 crore. It was submitted that the percentage of transaction with related parties is much more than 25%, being, the filter adopted by the TPO himself and hence the same should be excluded. 12. In the opposition, the learned Departmental Representative contended that the major transaction of Rs. 99.14 lakh of Datamatics Financial Services Limited with Datamatics Limited was towards ‘Reimbursement of expenses’. Since the reimbursement of expenses does not include any profit element, the Id. DR urged that the same be excluded. He stated that once this transaction is excluded, the other transaction of Rs. 14.31 lakh are less than 25% of the total transaction with related parties. 13. We do not find any force in the contention advanced by the learned Departmental Representative for the exclusion of transactions with Datamatics Limited towards ‘Reimbursement of expenses’ from the overall transactions entered into by Datamatics Financial Services Ltd. with its AEs. Section 92F(v) defines ‘transaction’ in the context of transfer pricing provisions to include an arrangement, understanding or action in concert whether or not it is formal or in writing or whether or not it is intended to be enforceable by legal proceeding. There is no reference to any transaction having necessarily including profit element or

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mark-up so as to fall within the definition of ‘transaction’ under Chapter X of the Income-tax Act. Since the TPO applied filter of having companies with less than 25% related party transactions, it is not open to argue that the transactions of reimbursement of expenses duly reported by Datamatics Financial Services Limited as an ‘international transaction’ within the meaning of section 92B should be ignored simply because they represent reimbursement of expenses. If the contention of the Id. DR that the reimbursement of expenses not involving profit element should not be construed as a transaction, is taken to a logical conclusion, it would mean that all such dealings will cease to be transactions for the purposes of Chapter-X of the Act. Once these dealings are not considered as ‘transactions’, these will also cease to be international transactions, going out of the purview of section 92 itself. Obviously, such a view point is contrary to the clear intention and the language of the relevant provisions. A pure reimbursement of expenses by one AE to another AE is very much a ‘transaction’ as per section 92F(v) and consequently is equally an international transaction as per section 92B requiring consideration as per section 92 of the Act. Be that as it may, the learned Departmental Representative could not demonstrate the fact that such reimbursement of expenses was without any markup. As the so called comparable case of Datamatics Financial Services Limited was included by the TPO in the final list of comparables, in our considered opinion, the same is liable to be excluded as it involves related party transactions at much higher level, as against the filter adopted by the TPO himself, being companies with less than 25% related party transactions. We order accordingly.” In view of the above, since this company fails in this filter adopted by the TPO, we direct the TPO to exclude this company from the list of comparables adopted.

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Maple e-Solutions Ltd. 12. The objection of the assessee with reference to this company is with regard to the financials of the company, on the ground of unreliability of data. It was submitted that selection of this company was rejected in the case of CRM Services India Pvt. Ltd in ITA No.468/Del/2009 and also in the case of Stream International Services (supra). Further, the assessee also relied on the DRP order in assessment year 2007-08, with reference to the above company. 12.1. We have considered the rival sub missions. We agree with the objections of the assessee. In the case of Stream International Services P. Ltd. (supra), it is held with reference to this company as under : “18. We are unable to uphold the contention raised by the learned Departmental Representative. It is apparent from two orders passed — one by the Delhi Bench and the other by the Hyderabad Bench of the Tribunal — that the case of Maple eSolutions Limited has been directed to be excluded from the list of comparables. As the assessment year under consideration is 2006-2007 and the Delhi Bench of the Tribunal has also considered the same assessment year while directing the exclusion of the case of Maple e Solutions Limited from the list of comparables, we are unable to accept the contention of the Id. DR in this regard. It is more so because no contrary view has been brought by the Ld. DR to our notice. Respectfully following the precedents, we direct the exclusion of this case from the final list of comparables." Since the DRP in assessee’s own case for assessment year 2007-08 also considered and excluded this company, we uphold the assessee’s objection in this regard and direct the Assessing Officer to exclude this company from the comparables adopted.

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Nucleus Netsoft & GIS(India) Ltd. 13. The last objection was with reference to the above company, which is on similar facts as that of Vishal Information Technologies, discussed above. It was submitted that this company is functionally different and fails under the employee cost filter. It was further submitted that there is a scheme of amalgamation of earlier company by the orders of the Hon’ble High Court of Judicature of Bombay, on 22.2.2006 and in view of amalgamation, the financials have changed and the business model also changed. Referring to the annual report placed on record, it was submitted that as against Rs.24.02 lakhs of employee costs for the year ending 31st March, 2005, the employee cost has increased to Rs.132.59 lakhs. Further, the data processing charges is also to the extent of Rs.1.04 crores, which indicates that the assessee is outsourcing the work. Accordingly, it cannot be selected as a comparable. Due to amalgamation during the year, the assessee’s business model has changed and because of employee cost filter also, this comparable has to be excluded. 13.1 After considering the rival submissions, we are of the opinion that this company cannot be selected as a comparable not only on the reason of failing employee cost filter, but also due to amalgamation during the year, which has changed the business model of the company. 14. In view of the foregoing discussion, we agree with the assessee’s objection that the above five comparables should be excluded. 26. The facts and circumstances and the Assessment year for which the aforesaid companies were not considered as comparable are identical to the case decided by the Hyderabad Bench of ITAT and that of the case of

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the Assessee. Respectfully following the decision of the Hyderabad Bench of ITAT, we direct the TPO to exclude the aforesaid companies from the list of comparable while arriving at the arithmetic mean of comparable. The relevant grounds of appeal of the Assessee are allowed.

27.

We direct the TPO to compute ALP in ITES segment, after excluding the aforesaid companies from the list of comparable companies after giving the benefit of the second proviso to Sec.92(2) of the Act. The relevant grounds of appeal of the Assessee are treated as allowed.

28.

Ground No.5 raised by the Assessee with regard to determination of ALP in the ITES segment requires consideration. Gr.No.5 raised by the Assessee reads as follows:-

“5. Mistakes apparent from record and erroneous computation of net cost plus margin by the AO/TPO a) The AO/TPO has erred on facts and in law in disregarding the segmental details as provided by the Appellant and in considering incorrect net profit margins of the Appellant. b) The AO/TPO has erred on facts in computing the operating cost of the Appellant in relation to the ITES segment.” 29. To appreciate the aforesaid ground, it is necessary to look into the basis on which the TPO computed the Operating expenditure to arrive at PLI (OP/OC) of the Assessee in its ITES segment. The OP/OC computed by the Assessee in the ITES segment was as follows:-

Description Amount Operating Revenue Rs.4,87,32,573/- Operating Cost Rs.4,10,87,673/- Operating Profit (PBIT) Rs. 76,44,900/- Operating Profit to Cost Ratio 18.61 %

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The TPO computed the OP/OC in all the three business segment of the Assessee i.e., SWD services, ITES and Distribution Segment, by disregarding the figures given in the financial statements and working out the operating profits in the following manner:-

MARGIN COMPUTATION OF THE APPELLANT -MODIFIED BY THE TPO

Unallocable Software IT enabled Distribution Total Particulars services services segment income

6,31,98,998 4,87,32,573 10,43,35,049 4,53,435 21,67,20,055 Operating Revenue as per the Appellant 53,27,085 Add: Reimbursements made by AE 6,25,090 Less: Reimbursements made by Appellant 10,43,35,049 4,53,435 22,14,22,050 Total adjusted operating revenue 6,31,98,998 5,34,34,568 Less: Other income excluded Turnover (%) [Segment turnover / Total turnover] 29.22 22.53 48.24 100

11,52,68,853 Operating Expenditure 5,64,27,677 Cost for software segment = Revenue * 100/(100 + 12) (12 being mark-up over cost) 4,82,74,953 Cost for ITES Segment - (entity cost " segment revenue) 5,64,27,677 4,82,74,953 11,52,68,853 21,99,71,482 Total operating Expenditure 53,27,085 Add: Reimbursements made by AE 6,25,090 Less: Reimbursements made by Appellant 5,64,27,677 5,29,76,948 11,52,68,853 22,46,73,477 Total operating Expenditure

Gross Profit Operating Profit / (Loss) 67,71,321 4,57,620 (1,09,33,804) 4,53,435 (32,51,427)

Operating Profit/Operating Cost 12.00% 0.86% . .

30.

In its submission before the DRP, the Assessee pointed out the following mistakes in the computation of profit margins in the ITES segment by the TPO:-

“The Assessee had submitted before the TPO, on 15 September 2009, the summary segmental P&L account of the Company, split

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into inter-cilia IT and ITES segments, arriving at the NCP margins, computed at 7.80 % and 18.61 % from IT and ITES, respectively. The Assessee submits below, the segmental profit and loss account of the Company, as was submitted before the TPO: Particulars Software IT enabled Distri-bution Unallocable Total Services services segment income

Income - Income from associated 63,193,998 48,732 573 243,666 enterprises Income from maintenance - - 41,368,166 453,435 services - - Income from sale of 62,723.218 - licences 63,198,998 48,732.573 104,335,049 453,435 216,720,054

- Personnel cost 31,411,196 20,421,978 41,165,573 92,998,747 Royalty paid to associated - 30,199,854 - 30,199,854 - enterprises - Other operating expenses 22,788,880 17,660,493 40,297,943 80,747,316 Depreciation 4,424,969 3005,202 3,605,483 11,035,654 214,981,571 Total operating expenses 58,625,045 41,087,673 115.268.853

Gross profit 32,523,364 Operating profit/ (loss) 4,573,953 7,644 900 (10,933.804) 453.435 1,738,483

Gross profit margin (%) 51.85 Net cost plus margin (%) 7.80 18.61

The Assessee reiterates that the computation of NCP margins worked out by the TPO is erroneous. The Assessee submits that the summary of segmental P&L account of the Company, furnished to

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the TPO on 15 September 2009 was based on the workings done for the purpose of claiming deduction under section 10A of the Act.

The Assessee provides below, a split of the ITES segment into `STPI' and `non-STPI' operations. The Assessee also submits that the summation of (i) the profit from the IT segment and, (ii) the profit from the STPI operations of the ITES segment is Rs. 8,712,868. This amount reconciles with the net profit on which the company has claimed deduction under section 10A of the Act.

Software Particulars development IT enabled services services ' STPI STPI Non STPI Income 63,198,998 37,994,463 10,738,109 Income from associated enterprises 37,994,463 Total Income 63,198,998 10,738,109

Personnel cost 31,411,197 15,689,252 4,732,726 22,788,880 15,390,892 2,269,601 Other operating expenses 4,424,969 2,937,701 67,501 Depreciation 58,625,046 34,017,845 7,069,828 Total operating expenses

4,573,952 3,976,618 3,668,281 Operating profit 92,656 69,642 Add: Other income 4,666,608 4,046,260 Total operating income

Operating profit from STPI and non- 8,712,868 3,668,281 STPI operations A copy of the computation of total income of the Assessee (filed with the return of income) is enclosed as Exhibit I. A copy of Form No. 56F obtained by the Company from an accountant is enclosed as Exhibit 17).

The Assessee humbly requests your goodself to rectify the captioned transfer pricing order under section 154 read with section 92CA(5) of the Act.

The TPO in his order dated 30 October 2009 disregarded that the recovery of expenses by Telelogic India from its AEs are on a cost- to-cost basis.

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Further, the TPO included such expenses in the operating revenue and cost of the Assessee for the purpose of computing the transfer pricing adjustment under section 92CA for the ITES segment of the Assessee. The operating expenses of the Assessee in relation to the ITES segment was computed by the TPO at Rs. 56,427,676 vis-a-vis Rs. 41,087,673 as submitted on 15 September 2009 by the Assessee.” 31. The DRP has however not considered the issue in proper perspective and has decided the issue as follows:-

“7. Ground no. 8 — Erroneous computation of net cost plus margin of the assessee The ground of objection no.8 is as under The TPO has erred on facts in computing the operating cost of the assessee, at Rs.5,29,76,947 instead of Rs.4,10,87,673 in relation to the ITES segment. In this connection the assessee has submitted that all expenses were recovered by the assessee based on the agreement between the assessee and its AE. The assessee had also submitted that expenses were recovered on actual basis. The assessee has further submitted that in view of these facts, the addition of recovery of expenses to the operating revenue and cost of the assessee for the purpose of computing the transfer pricing adjustment u/s 92CA, by the TPO for the ITES segments was erroneous. We have considered the submissions made by the assessee. This issue has been discussed by the TPO in para 2.8 of his order. In this case the TPO had asked the assessee to submit the details and nature of recovery of expenses received. The TPO has specifically asked the assessee to provide as to how these were accounted for. The taxpayer had not furnished the required details and explanation. The TPO observed that the reimbursement of expenses was for the purposes of business and hence the same should be considered part of the cost and revenue. The assessee has not produced any evidence either before the AO or before the panel to show that these expenses

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had been routed through the profit and loss account of the assessee. There is no reason for segregating the amount received in to different components. Each and every receipt is a part of revenue and an integral component of the international transaction. We find no justifiable reasons for interfering with the approach of the TPO.” 32. It is clear from the order of the TPO/DRP and the submission of the Assessee before DRP that the DRP has not considered the main contention of the Assessee regarding improper allocation of operating expenditure to ITES segment. The TPO has increased the Operative revenue of the Assessee in ITES by adding reimbursements made by AE, which cannot be regarded as part of the operating revenue. The TPO has also tampered with the operating expenditure by allocating the total cost of the entity on the basis of proportionate segment revenue of the ITES segment. While allowing deduction u/s.10A of the Act, the AO has accepted the segmental details as given by the Assessee for the SWD segment and the ITES segment. The question is, can the treatment be different when it comes to determining ALP. The issue requires reexamination by the TPO. The parties therefore agreed that the issue requires to be examined afresh by the TPO in the light of the submissions made by the Assessee before DRP extracted in paragraph-29 of this order.

33.

All other grounds regarding determination of ALP in the SWD segment and ITES segment were not pressed for adjudication by the Assessee.

Corporate Tax Issues:

34.

Ground No.9 raised by the Assessee reads as follows:

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“Set off of losses prior to relief under section 10A of the Act The AO has erred and the Honorable Dispute Resolution Panel [‘DRP’] has further erred in confirming the computation of deduction under section 10A of the Act after set off of the losses of the domestic unit of Rs.3,617,542.” 35. As far as this ground is concerned, the issue is with regard to the set off of losses of the non-10A unit against the eligible profits of the 10A unit while allowing deduction u/s.10A of the Income Tax Act, 1961 (Act). The assessee had claimed deduction u/s 10A of the Act before setting of losses of the non-10A unit. 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.

36.

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.

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• 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 department (No.794 dated 9-8-2000) understood the situation, it is only logical and natural that the stage of deduction of the profits and gains of the business of an eligible undertaking has to be made independently and, therefore, "immediately after the stage of determination of its profits and gains. • At that stage the aggregate of the incomes under other heads and the provisions for set off and carry forward contained in sections 70, 72 and 74 would be premature for application. The deductions under section 10A therefore would be prior to the commencement of the exercise to be undertaken under Chapter VI for arriving at the total income of the assessee from the gross total income. The somewhat discordant use of the expression 'total income of the assessee' in section 10A has already been dealt with earlier and in the overall scenario unfolded by the provisions of section 10A the aforesaid discord can be reconciled by understanding the expression "total income of the assessee" in section 10A as 'total income of the undertaking'. • For the aforesaid reasons it is held that though section 10A, as amended, is a provision for deduction, the stage of deduction would be while computing the gross total income of the eligible undertaking under Chapter IV and' not at the stage of computation of the total income under Chapter VI. ” 37. The effect of the aforesaid decision would be that the provision of set off and carry forward as contemplated under Chapter-VI of the Act would not be attracted and therefore intra head set off sought by seeking to rely on the provision of section 70(1) of the Act and seeking to restrict the deduction u/s 10A and 10AA of the Act to the extent of gross total income as contemplated u/s 80A(2) of the Act, cannot be sustained. We therefore hold that deduction u/s.10A of the Act has to be allowed without setting off losses of non-10A unit before allowing the deduction under section 10A of

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the Act. In view of the aforesaid decision of the Hon’ble Supreme Court, the AO is directed not to set off the losses of non-10A units against profits of 10A units before allowing deduction u/s. 10A of the Act.

38.

Gr.No.10 raised by the Assessee reads as follows:

10 Grant of lower deduction under section 10A of the Income-tax Act, 1961 The learned AO has erred and the Honorable DRP has further erred in confirming the computation of deduction under section 10A of the Act. Without prejudice to the generality of the above, the AO has erred, inter alia, in: a) Reducing foreign currency expenditure of Rs 3,245,683 from the export turnover; b) Reducing insurance charges of Rs 421,997 from the export turnover; c) Reducing communication charges of Rs 4,214,060 from the export turnover; and d) Not making any corresponding reduction in the total turnover after having reduced the items mentioned in (a), (b) and (c) above from the export turnover.” 39. The Assessee in the grounds of appeal No.10 projected its grievance regarding the action of the learned Assessing Officer and Honorable Dispute Resolution Panel in excluding, while computing deduction u/s.10A of the Act, the items of expenditure set out in the grounds of appeal from the export turnover on the ground that these expenses are attributable to delivery of software outside India from the export turnover. It is the plea of the Assessee that at all times during the relevant previous year, it was engaged in development of computer software and not in rendering any technical services. Without prejudice to

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its contention that the aforesaid sums should not be excluded from the export turnover while computing deduction u/s.10A of the Act, the Assessee has also made an alternate prayer that expenses that are reduced from the export turnover should also be reduced from the total turnover and in this regard has placed reliance on the decision of the Hon’ble Karnataka High Court in the case of CIT v. Tata Elxsi Ltd [2012] 349 ITR 98 (Karn),

40.

We have heard the ld. counsel for the assessee and the ld. DR on the issues raised in this regard. Taking into consideration the decision rendered by the Hon’ble High Court of Karnataka in the case of CIT v. Tata Elxsi Ltd [2012] 349 ITR 98 (Karn), we are of the view that it would be just and appropriate to direct the Assessing Officer to exclude the charges referred to in Gr.No.10 referred to above both from export turnover and total turnover, as has been prayed for by the assessee in the alternative. In view of the acceptance of the alternative prayer, we are of the view that no adjudication is required on the ground whether the aforesaid sums are required to be excluded from the export turnover. Moreover, the order of the Hon’ble Karnataka High Court has been upheld by the Hon’ble Supreme Court in the case of CIT v. HCL Technologies Ltd. in Civil Appeal No.8489-98490 of 2013 & Ors. dated 24.04.2018.

41.

Ground No.11 raised by the Assessee is with regard to credit for tax deducted at source not having been allowed. We direct the AO to verify the certificates filed by the Assessee for TDS and allow credit after due verification and in accordance with law. The other grounds of appeal regarding interest u/s.234B and 234D are purely consequential and the AO is directed to give consequential relief.

42.

The other grounds are either general or not appealable.

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43.

In the result the appeal by the Assessee is partly allowed.

Pronounced in the open court on this 28th day of June, 2019.

Sd/- Sd/-

( B.R. BASKARAN ) ( N.V. VASUDEVAN) Accountant Member VICE PRESIDENT

Bangalore, Dated, the 28th June, 2019.

/ Desai Smurthy /

Copy to:

Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR, ITAT, Bangalore. 6. Guard file

By order

Assistant Registrar, ITAT, Bangalore.

STERLING COMMERCE PRIVATE LIMITED,BANGALORE vs. DCIT, BANGALORE