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Income Tax Appellate Tribunal, BANGALORE ‘B’ BENCH, BANGALORE
Before: SHRI A.K.GARODIA & SHRI VIJAY PAL RAO
This appeal is by the revenue and the C.O. is by the assessee which are directed against the order of the CIT(A)-IV, Bangalore dated 30-11-2012 for the assessment year : 2008-09.
IT(T)PA No.111(B)/13 & CO No.143(B)/15
The grounds raised by the revenue in its appeal are as under:
“1. The order of the learned CIT(A) is opposed to law and facts of the case.
2. On the facts and in the circumstances of the case 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 accordingly erred in excluding MIs Flextronics Ltd., MIs iGate Global Solutions Ltd., MIs Infosys Technologies Ltd., MIs Mindtree Ltd., MIs Persistent Systems Ltd., MIs Sasken Communications Technologies Ltd., MIs Tata Elxsi Ltd. and MIs Wipro Ltd. as comparables.
3. On the facts and in the circumstances of the case the learned CIT(A) has erred in rejecting the diminishing revenue filter used by the TPO to exclude companies that do not reflect the normal industry trend.
On the facts and in the circumstances of the case the learned CIT(A) failed 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.
5. On the facts and in the circumstances of the case the learned CIT(A) has erred in directing the TPO to include MIs Maars Software International Ltd. in the final set of comparables which was rejected by the TPO on application of Employee Cost filter.
6. On the facts and in the circumstances of the case the learned CIT(A)has erred in holding that MIs Bodhtree Consulting Ltd. being functionally different, cannot be taken as a comparable.
On the facts and circumstance of the case the ld.CIT(A)
IT(T)PA No.111(B)/13 & CO No.143(B)/15 has erred in excluding M/s Celestial Biolabs Ltd., from the final set of comparables.
On the facts and circumstances of the cased the ld. CIT(A) has erred in holding that M/s Lucid Software Ltd., being functionally different cannot be taken as a comparables.
9. On the facts and in the circumstances of the case ld. CIT(A) has erred in including M/s VMF Soft Tech Ltd., in the final set of comparables without appreciating the fact that this company is under persistent loss and hence cannot be taken as a comparable.
On the facts and circumstances of the case ld. CIT(A) erred in directing the AO to reduce an amount of Rs.1,10,13,881/- towards telecommunication charges of Rs.14,10,201/- towards insurance expenses of Rs.6.575/- towards freight expenses incurred in foreign currency both from the export turnover as well as total turnover for computation of deduction u/s 10A of the Act whereas such exclusion is permitted to arrive at the export turnover only as per the definition given in section 10A of the IT Act and total turnover has not been defined in sec.10A of the Act.
The CIT(A) ought to have appreciated that the decision of the Hon’ble High Court of Karnataka in the case of Ms/s Tata Elxsi Ltd., on the issue of computing deduction u/s 10A by excluding the above expenses from the export turnover and the total turnover as well, has not reached finality I view of the ending department’s SLP before the Hon’ble Supreme Court.
For these and other grounds that may be urged at the time of hearing, it is prayed that the order of the CIT(A) in so far as it relates to the above grounds may be reversed and that of the AO may be restored.
The appellant craves leave to add, alter, amend and/or delete any of the grounds mentioned above”.
IT(T)PA No.111(B)/13 & CO No.143(B)/15
Similarly, the grounds raised by the assessee are as under;
“On the facts and circumstances of the case and in law:
1.
The learned CIT(A) erred, in law and on facts, in upholding the action of the learned Assessing Officer CAO")/ Transfer Pricing Officer (UTPO"), by not accepting the economic analysis undertaken by the Respondent in accordance with the provisions of the Act read with the Income Tax Rules, 1962 and in conducting a fresh economic analysis for the determination of the arm's length price in connection with the impugned international transaction and holding that the Respondent's international transaction is not at arm's length.
2. The learned CIT(A) erred, in law and on facts, in upholding the action of AOITPO in determining the arm's length margin/ price using data only for financial year 2007-08 which was not available to the Respondent at the time of complying with the transfer pricing documentation requirements.
3. The learned CIT(A) erred, in law and on facts, by upholding the action of AOITPO in his exercise of powers u/s 133(6) of the Act to obtain information and relying on the same for comparability analysis.
4. The learned CIT(A) has erred, in law and on facts, by upholding the action of AOITPO in rejecting comparable companies having onsite revenue greater than 75% of the export revenue as a comparability criterion.
5. The learned CIT(A) has erred, in law and on facts, by upholding the action of AOITPO in accepting/rejecting certain comparable companies based on unreasonable comparability criteria.
The learned TPO failed to appreciate the fact that the following companies are not functionally comparable to the Respondent and therefore erred in law and facts in considering
IT(T)PA No.111(B)/13 & CO No.143(B)/15 them as comparable companies; a)Avani Cimcon Technologies Limited b)E-Zest Solutions Limited c)Persistent Systems Limited d)Quintegra Solutions Limited 7. The learned CIT(A) has erred, in law and on facts, by not adjudicating the ground regarding the treatment of foreign exchange gain/loss in computing the operating margins of the Respondent as well as the comparable companies; 8. The ld. CIT(A) has erred in law and on facts, in not making suitable adjustments to reflect the differences in the risk profile of the respondent vis-à-vis the comparables.
The ld. CIT(A) gas erred in law and on facts, in not adjudicating the ground that the respondent is availing tax holiday under section 10A of the Act and therefore, there is no motive/reason to shift the profits out of India which is one of the pre-requisite of invoking the transfer pricing provisions. The respondent submits that each of the above grounds is independent and without prejudice to one another. The respondent craves leave to add, alter,vary,omit, amend or delete one or more of the above grounds of cross objections at any time before or at the time of hearing of the appeal, so as to enable the appellate Tribunal to decide this according to law”.
4. At the very outset, it was submitted by the ld.AR of the assessee that as per the impugned order, the ld. CIT(A) has mainly decided the issue about TP Adjustment on the basis of turnover filter and in many of the cases, the objection of the assessee regarding the functional dissimilarity was not decided by him. At this juncture, it was observed by the bench that under these facts, it will be fit and proper that the entire matter is restored back to the file of the Ld. CIT(A) for fresh decision on all aspects in respect of all comparables. In reply, both sides agreed to IT(T)PA No.111(B)/13 & CO No.143(B)/15 this proposition and therefore, we set aside the order of the ld. CIT(A) and restore the entire matter back to his file for a fresh decision with a direction that in respect of all comparables, ld. CVIT(A) should decide all aspects of the matter including all filters and functional dissimilarities etc., for which objection is being raised by the assessee before him and he should pass necessary order as per law and as per the above discussion, after providing adequate opportunity of being heard to both sides.
Needless to say that his order should be a speaking and reasoned order.
In the result, the appeal filed by the revenue as well as the cross objection by the assessee are allowed for statistical purposes.
Order pronounced in the open court on the date mentioned on the caption page.