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Income Tax Appellate Tribunal, ‘A’ BENCH : BANGALORE
Before: SMT. P. MADHAVI DEVI & SHRI JASON P BOAZ
Per Smt. P. MADHAVI DEVI, JM:
This appeal by the revenue is against the order of the CIT(A)-IV, Bangalore, dated 20/01/2012 for the assessment year 2005-06.
IT(TP)A No.445/Bang/2012 M/s.Iron Mountain Information Management India P.Ltd. Page 2 of 7 2. The revenue has raised as many as 11 grounds of appeal. Grounds of appeal No.1, 2 , 10 & 11 are general in nature and need no adjudication.
3. As regards grounds No.7 to 9 are concerned, we find that they are against the computation of deduction u/s 10B of the Income-tax Act, 1961 [‘the Act’] after reducing the telecommunication expenses and expenditure incurred in foreign currency, both from the export turnover as well as total turnover by following the Hon’ble High Court’s decision even though it has not reached finality and SLP has been filed before the Hon’ble Supreme Court. We find that the jurisdictional High Court in the case of CIT v. Tata Elxsi Ltd. reported in [2012] 349 ITR 98 has held that if any expenditure is to be excluded from the export turnover for the purposes of computation of deduction u/s 10A/10B, then the same is also to be excluded from the total turnover. We find that the CIT(A) has followed the decision of the jurisdictional High Court in granting relief to the assessee and since the order of the Hon’ble High Court has not been stayed or set aside by the Hon’ble Supreme Court nor has any contrary view expressed in any other case, the decision of the Hon’ble High Court does not lose its precedential value. In view of the same, these grounds of the revenue are rejected.
IT(TP)A No.445/Bang/2012 M/s.Iron Mountain Information Management India P.Ltd. Page 3 of 7 4. Coming to grounds No.3 to 6, we find that they are against the Transfer Pricing (TP) adjustment as confirmed by the CIT(A).
Ground No.3 is against the order of the CIT(A) in directing the Assessing Officer (AO) to exclude all the comparable companies which have any Related Party Transactions (RPT) as against the filter of RPT of more than 25% adopted by the TPO. The learned departmental representative submitted that this Tribunal, in a number of cases, has been holding that it is only the companies which have RPT of more than 15% are to be excluded from the final list of comparables and, therefore, the CIT(A)’s order is liable to be set aside. The learned counsel for the assessee, in support of his contention, also relied upon the decision of this Tribunal in similar set of facts in the case of M/s.Sunquest Information Systems (India) Pvt. Ltd., in dated 22/06/2015.
5.1 Having regard to the rival contentions and the material on record, we find that for coming to the above conclusion, the CIT(A) has followed the decision of the Tribunal in the case of Philips Software Centre (P) Ltd. vs. ACIT reported in 26 SOT 226, which has been stayed by the Hon’ble Karnataka High Court. In the case of M/s Sunquest Information Systems (India) Pvt. Ltd (cited supra) and various other cases to which both of us are signatories, this Tribunal has been holding that the companies with RPT of more than 15% alone should be excluded from the final list of IT(TP)A No.445/Bang/2012 M/s.Iron Mountain Information Management India P.Ltd. Page 4 of 7 comparables. We, therefore, direct exclusion of all the comparable companies which are having Related Party Transactions of more than 15%.
5.2 Further, during the course of hearing, the learned counsel for the assessee has drawn our attention to page 18 of the order of the CIT(A) wherein 12 companies having RPT of more than 01% have been directed to be excluded. He submitted that amongst these 12 companies, the assessee had challenged two companies i.e. Tata Elxsi and Geometric Software Solutions on the ground of functional dissimilarity but since the CIT(A) has directed these companies to be excluded by applying 0% of RPT filter, the CIT(A) did not deal with the merits of the assessee’s arguments on functional dissimilarity. He submitted that this issue may therefore be remitted to the file of the CIT(A) for re-consideration in the light of various judicial precedents on the issue. We have gone through the order of the CIT(A) and we find that though the assessee had raised grounds on functional dissimilarity of these companies, the CIT(A) has abstained from considering the merit of comparability of these companies to assessee as they were directed to be excluded by applying RPT filter of more than 0%. Therefore, we set aside the issue to the file of the CIT(A) with a direction to consider the comparability of only Tata Elxsi & Geometric Software Solutions on account of functional similarity/dissimilarity. This ground of appeal is accordingly disposed of.
IT(TP)A No.445/Bang/2012 M/s.Iron Mountain Information Management India P.Ltd. Page 5 of 7 6. As regards grounds of appeal
No.4 is concerned, we find that the CIT(A) has followed the turnover filter of more than Rs.200/- crore to exclude certain companies and more particularly M/s.Infosys Technology Ltd., from the final list of comparables. We find that this issue is also covered in favour of the assessee by the decision of this Tribunal in dated 05/08/2011 in the case of M/s Genisys Integrating Systems (India) Pvt. Ltd, which has been followed by the CIT(A) in granting relief to the assessee. Further, the Hon’ble Delhi High Court, in the case of CIT Vs. Agnity India Technologies Pvt.Ltd.[2013] 219 Taxman
26. (Delhi) has held that because of its size in the area of software development, M/s.Infosys Technologies is not comparable to the assessee therein. Since the order of the CIT(A) is in consonance with the judicial precedents on the issue, we do not see any reason to interfere with the same. This ground of appeal is accordingly rejected.
7. As regards the ground No.5, it is seen that the CIT(A) has directed that the gain or loss on foreign exchange is to be considered as part of the operative margin of both the assessee as well as the comparable companies for the purpose of computation of the arm’s length price. The revenue is in appeal against the same. We find that the CIT(A) has only followed the precedents on the issue particularly the decisions of this Tribunal in the cases
IT(TP)A No.445/Bang/2012 M/s.Iron Mountain Information Management India P.Ltd. Page 6 of 7 of Sujatha Grover (74 TTJ 347) and SAP Lab India Ltd.,vs. ACIT (2011) 044 SOT 0156. We find that this issue is squarely covered in favour of the assessee by the above decision and therefore, we see no reason to interfere with the order of the CIT(A) on this issue. The revenue’s ground of appeal is accordingly rejected.
8. As regards ground No.6, we find that the CIT(A) has directed the AO to allow 5% as a standard deduction from the ALP u/s 92C(2) of the Act. However, the second proviso to section 92C(2) has been inserted by the Finance Act of 2009 and that the said provision has been amended with retrospective effect and therefore the CIT(A) is directed to give effect to the amended provision. This finding of the CIT(A) is therefore set aside and the matter is remanded to the file of the CIT(A) for re-consideration in accordance with amended provision. This ground is treated as allowed for statistical purposes.
The revenue’s appeal is therefore partly allowed for statistical purposes.