Appeal details
Counselvise Citation
[2016] 133 COUNSELVISE.COM (IT) 2482 (ITAT-PUNE)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
3 year(s) 26 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
30-03-2016
Appeal Filed By
Department
Order Result
Partly Allowed
Bench Allotted
A
Next Hearing Date
04-11-2015
Assessment Year
2008-2009
Appeal Filed On
04-03-2013
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A , PUNE , , BEFORE MS. SUSHMA CHOWLA, JM AND SHRI PRADIP KUMAR KEDIA , A M . / ITA NO. 592 /PN/201 3 / ASSESSMENT YEAR : 20 0 8 - 09 THE ASST . COMMISSIONER OF INCOME TAX, CIRCLE 1( 2 ) , PUNE . / APPELLANT VS. DANA INDIA TECHNICAL CENTRE PVT. LTD., 503, 5 TH FLOOR, PRIDE SILICON PLAZA, S.B. R OAD, PUNE - 411016 . / RESPONDENT PAN: AADCA4861B / APPELLANT BY : SHRI DHEERAJ KUMAR JAIN / RESPONDENT BY : S HRI R.D. ONKAR / / / DATE OF HEARING : 09 . 03 .201 6 / DATE OF PRONOUNCEMENT: 30 . 0 3 .201 6 / ORDER PER SUSHMA CHOWLA, J M : TH IS APPEAL FILED BY THE REVENUE IS AGAINST THE ORDER OF CIT (A) - IT/TP , PUNE , DATED 26 . 1 2 .20 1 2 RELATING TO ASSESSMENT YEAR 20 0 8 - 09 AGAINST ORDER PASSED UNDER SECTION 143(3) R. W.S. 144C OF T HE INCOME - TAX ACT , 1961 (IN SHORT THE ACT) . 2 . THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: - 1 . THE ORDER OF THE LEARNED COMMISSIONER OF INCOME - TAX(APPEALS) IS CONTRARY TO LAW AND TO THE FACTS AND CIRCUMSTANCES OF THE CASE. 2 . THE LEARNED COMMISSIONER OF INCOME - TAX(APPEALS) GROSSLY ERRED IN HOLDING THAT FOREIGN CURRENCY FLUCTUATIONS ARE EXCEPTIONAL/NON - OPERATIONAL ITEMS TO BE KEPT OUT OF THE CALCULATION OF THE P LI , AND IN FAILING TO APPRECIATE AND APPLY THE DECISIONS IN THE CAS ES OF SAP LABS ITA NO. 592 /PN/20 1 3 DANA INDIA TECHNICAL CENTRE PVT. LTD. 2 INDIA PVT. LTD., 44 SOT 156 (BANG); M/S. FOUR SOFT LTD., ITA NO.1495/HYD/2010 - ITAT, HYDERABAD; DEUTSCHE BANK A.G. V /S DCIT REPORTED IN 86 ITD 431; KODIAK NETWORK (INDIA) P. LTD. VS. ACIT, ITA NO.970/BANG/2011; AND M/S. CAPITAL I Q INFORMATI ON SYSTEMS ( I ) P. LTD. (HYD.) (ORDER PRONOUNCED IN THE COURT ON 23.11.2012) 3 . THE LEARNED COMMISSIONER OF INCOME - TAX(APPEALS) GROSSLY ERRED IN A LLOWING ADJUSTMENT ON ACCOUNT OF DEPRECIATION IN THE HANDS OF ASSESSEE WHEN ON VERIFICATION IT IS SEEN THAT TH E DEPRECIATION RATES ARE IN FACT BROADLY COMPARABLE WITH THE PEER COMPANIES. 4 . THE LEARNED COMMISSIONER OF INCOME - TAX(APPEALS) GROSSLY ERRED IN HOLDING THAT ROLTA INDIA LTD. HAS TO BE EXCLUDED FROM THE COMPARABLE SET WHEN THE SEGMENT TURNOVER OF THIS COM PARABLE IS ACTUALLY RS.347 CRS. AND NOT RS.599 CRS.; AND ALSO WHEN THE ASSESSEE COMPANY ITSELF HAS CHOSEN A COMPARABLE, NAMELY, INFOTECH ENTERPRISE, WITH A TURNOVER OF RS.423.16 CRS. 5 . THE LEARNED COMMISSIONER OF INCOME - TAX(APPEALS) FURTHER GROSSLY ERRED ON FACT AS THE ASSESSEE COMPANY HAS ITSELF NOT USED THE TURNOVER FILTER IN THE SEARCH MATRIX FOR IDENTIFICATION OF THE UNCONTROLLED COMPARABLES. 6 . THE LEARNED COMMISSIONER OF INCOME - TAX(APPEALS) GROSSLY ERRED IN HOLDING THAT KLG SYSTEL LTD. IS NOT FUNCT IONALLY COMPARABLE TO THE ACTIVITIES OF THE ASSESSEE COMPANY WHEN ITS INCOME FROM THE PROFESSIONAL FEES AND SERVICE CHARGES, CLOSING STOCK AND WIP WERE INSIGNIFICANT AS COMPARED TO THE TURNOVER OF THE ASSESSEE COMPANY; AND, MOREOVER, THIS COMPANY HAS TWO S EGMENTS VIZ. POWER SYSTEMS SOL U TION AND LIFE CYCLE SOLUTIONS, BOTH HAVING ENGINEERING DESIGN SOLUTIONS BASE, HENCE COMPARABLE WITH THE ASSESSEE AS AN UNCONTROLLED PEER. 7 . FOR THESE AND SUCH OTHER GROUNDS AS MAY BE URGED AT THE TIME OF 7 . FOR THESE AND SUCH OTHER GROUNDS AS MAY BE URGED AT THE TIME OF HEARING, THE ORDER OF THE LEARNED CIT (APPEALS) MAY BE VACATED AND THAT OF THE ASSESSING OFFICER BE RESTORED. 8 . THE APPELLANT CRAVES LEAVE TO ADD, ALTER OR AMEND ANY OR ALL THE GROUNDS OF APPEAL. 3. THE GROUND OF APPEAL NO.1 RAISED BY THE REVENUE IS GENERAL AND HENCE, THE SAME IS DISMISSED AS GENERAL. 4. THE GROUNDS OF APPEAL NO.2 TO 6 RAISED BY THE REVENUE IS IN RELATION TO TRANSFER PRICING ADJUSTMENT PROPOSED BY THE TPO / ASSESSING OFFICER, WHICH IN TURN HAS BEEN DELETED BY THE CIT(A). 5. BRIEFLY, IN THE FACTS OF THE P RESENT CASE, THE ASSESSEE COMPANY WAS ENGAGED IN THE BUSINESS OF TECHNICAL AND ENGINEERING SERVICES, DESIGN AND DRAWING, PROJECT IMPLEMENTATION , INCLUDING COMPUTER AIDED DESIGN, COMPUTER AIDED ENGINEERING, SOFTWARE MANAGEMENT SERVICES AND FINITE ELEMENT AN ALYSIS. IN OTHER WORDS , THE ASSESSEE WAS ENGAGED IN ITES SERVICES. THE ASSESSING ITA NO. 592 /PN/20 1 3 DANA INDIA TECHNICAL CENTRE PVT. LTD. 3 OFFICER MADE A REFERENCE UNDER SECTION 92CA(1) OF THE ACT TO THE TRANSFER PRICING OFFICER (IN SHORT THE TPO) FOR COMPUTATION OF ARM'S LENGTH PRICE IN RELATION TO THE INTER NATIONAL TRANSACTIONS ENTERED UPON BY THE ASSESSEE. THE TPO NOTED THAT THE ASSESSEE WAS AN UNDERTAKING REGISTERED AS 100% EXPORT ORIENTED UNIT UNDER THE SOFTWARE TECHNOLOGY PARKS SCHEME AND WAS ENGAGED IN THE PROVISION OF ENGINEERING DESIGN SERVICES TO DA NA GROUP. THE ASSESSEE HAD UNDERTAKEN INTERNATIONAL TRANSACTIONS OF PROVIDING ENGINEERING DESIGN SERVICES TO THE EXTENT OF RS.13,27,02,913/ - TO ITS ASSOCIATE ENTERPRISES AND FURTHER, INTERNATIONAL TRANSACTION WAS ON ACCOUNT OF REIMBURSEMENT OF EXPENSES TO THE TUNE OF RS.53,36,594/ - . THE ASSESSEE HAD SELECTED TNMM METHOD AS MOST APPROPRIATE METHOD TO BENCH MARK THE INTERNATIONAL TRANSACTIONS RELATING TO RENDERING OF DESIGN ENGINEERING SERVICES AND IN RESPECT OF REIMBURSEMENT OF EXPENSES, THE METHOD ADOPTED WAS AT ACTUAL. THE PROFIT LEVEL INDICATOR (PLI) OF THE SAID TRANSACTIONS WAS COMPUTED AT 42.82% AS AGAINST THE ARITHMETIC MEAN OF MARGINS OF COMPARABLES SELECTED BY THE ASSESSEE WHICH WAS 28.32%. THE ASSESSEE HAD SELECTED SEVEN CONCERNS AS FUNCTIONALLY C OMPARABLE. THE TPO AT THE FIRST INSTANCE WAS OF THE VIEW THAT THE PLI WAS TO BE COMPUTED WITH AVERAGE MARGINS OF COMPARABLES FOR ASSESSMENT YEAR 2008 - 09 . FURTHER, THE TPO WAS OF THE VIEW THAT THE CONCERNS SELECTED BY THE ASSESSEE I.E. ONWARD TECHNOLOGIES LTD. WAS NOT FUNCTIONALLY COMPARABLE TO THE ASSESSEE AND HENCE, THE SAME WAS PROPOSED TO BE REJECTED BEING FUNCTIONALLY DIFFERENT. FURTHER, THE TPO SELECTED TWO OTHER CONCERNS I.E. KLG SYSTEL LTD. AND ROLTA INDIA LTD. AS BEING FUNCTIONALLY COMPARABLE AND THE ARITHMETIC MEAN OF THE MARGINS OF SAID COMPANIES WAS WORKED OUT AT 33.30%. FURTHER, THE TPO WAS OF THE VIEW THAT THE OP/TC WAS TO BE USED AS PLI, WHICH WORKS OUT TO 14.44% IN THE HANDS OF ASSESSEE AND HENCE, THE ASSESSEE WAS SHOW CAUSED TO EXPLAIN AS TO WHY THE ADJUSTMENT SHOULD NOT BE MADE TO THE INTERNATIONAL TRANSACTIONS UNDERTAKEN BY THE ASSESSEE. IN REPLY, THE ASSESSEE EXPLAINED THAT BOTH THE TWO CONCERNS ITA NO. 592 /PN/20 1 3 DANA INDIA TECHNICAL CENTRE PVT. LTD. 4 SELECTED BY THE TPO I.E. KLG SYSTEL LTD. AND ROLTA INDIA LTD. WERE FUNCTIONALLY NOT SIMILAR AND HENCE, COULD NOT BE ADOPTED. ANOTHER POINT RAISED BY THE ASSESSEE WAS THAT THE PLI OF OP / TC WAS PROPOSED TO BE TAKEN BY THE TPO IN PLACE OF OP / SALES ADOPTED BY THE ASSESSEE IN THE TRANSFER PRICING ANALYSIS. THE CASE OF THE ASSESSEE WAS THAT THE PLI OF OP / SALES HAD BEEN ADOPTED CONSISTENTLY BY THE ASSESSEE ON THE BASIS OF NATURE OF ACTIVITIES AND THE RELIABILITY OF AVAILABLE DATA. WITH RESPECT TO UN - CONTROLLED COMPARABLES, THE ASSESSEE FURTHER SUBMITTED THAT OP / TC WAS NOT APPROPRIATE AS THE C APITAL EMPLOYED PER YEAR OF TOTAL EXPENSES INCURRED BY THE ASSESSEE WAS NOT COMPARABLE AT ALL VIS - - VIS ROLTA INDIA LTD. AND KLG SYSTEL LTD. ANOTHER ASPECT RAISED BY THE ASSESSEE BEFORE THE TPO WAS THAT FOR THE YEAR UNDER CONSIDERATION , THE ASSESSEE COMPA NY HAD TAKEN THE HIT OF FOREIGN CURRENCY LOSS OF RS.62.04 LAKHS AND EMPLOYEE RETIREMENT BENEFITS OF RS.24 LAKHS IN ITS PROFIT & LOSS ACCOUNT. THE FOREIGN CURRENCY LOSS HAD ARISEN DUE TO EXTRA - ORDINARY FLUCTUATION S IN THE RATE OF US DOLLAR S VIS - - VIS INDIA N RUPEE AND WAS OF EXCEPTIONAL NATURE DUE TO EXT RANEOUS FACTORS BEYOND THE CONTROL OF ASSESSEE AND OF NON - OPERATIONAL NATURE. THE PLEA OF THE ASSESSEE BEFORE THE TPO WAS THAT THE SAME SHOULD BE RE MOVED FROM THE PROFIT OF YEAR TO ARRIVE A T PLI ON A CONSIST ENT AND RATIONAL BASIS. FURTHER, SIMILAR PLEA WAS RAISED IN RESPECT OF CHARGE OF RS.24 LAKHS DUE TO ADOPTION OF ACCOUNTING STANDARD - 15 REGARDING ACCOUNTING OF RETIREMENT BENEFIT S AND IT WAS CLAIMED THAT THE SAID DEBIT OF EXPENSES WAS OF NON - OPERATIONAL NA TURE AND THE REFORE SHOULD BE ADDED BACK TO THE PROFIT OF THE YEAR. FURTHER, PLEAS WERE ALSO RAISED IN RESPECT OF OTHER ENTRIES, ONE SUCH PLEA WAS WITH REGARD TO DEPRECIATION AND IT WAS CLAIMED THAT THE DEPRECIATION WAS CHARGED BY THE ASSESSEE AT THE RATES HIGHER THAN RATES OF DEPRECIATION PRESCRIBED IN SCHEDULE XIV OF THE COMPANIES ACT, 1956. IT WAS POINTED OUT THAT SINCE THE COMPANIES INCLUDING ROLTA INDIA LTD. AND KLG SYSTEL LTD. HAD ADOPTED LOWER RATE OF DEPRECIATION ON FIXED ASSETS, THEN ADJUSTMENT ITA NO. 592 /PN/20 1 3 DANA INDIA TECHNICAL CENTRE PVT. LTD. 5 WA S REQUIRED TO BE MADE IN THE CASE OF ASSESSEE COMPANY TO BRING THE DEPRECIATION IN LINE WITH THE DEPRECIATION CHARGED ON LOWER SIDE BY THE PEER COMPANIES FOR COMPARISON OF PLI. IN THIS REGARD, SIMILAR PLEA WAS RAISED IN RESPECT OF MAHINDRA ENGINEERING DES IGN AND DEVELOPMENT CO. AND HDO TECHNOLOGIES LTD. THE TPO WAS OF THE VIEW THAT BOTH THE CONCERNS ROLTA INDIA LTD. AND KLG SYSTEL LTD. WERE FUNCTIONALLY COMPARABLE TO THE ASSESSEE AND HENCE, THE SAME HAVE TO BE INCLUDED IN THE FINAL SET OF COMPARABLES. WI TH REGARD TO THE SECOND PLEA OF THE ASSESSEE THAT THE PLI OF OP / SALES BE NOT REPLACED BY OP / TC AND OPERATING PROFIT BE TAKEN AS PER THE ADJUSTMENT MADE FOR EXCEPTIONAL AND NON - OPERATIONAL ITEMS OF EXPENSES I.E. EMPLOYEE RETIREMENT BENEFITS AND FOREIGN CURRENCY LOSS BY ADDING TO THE OPERATING PROFIT AND ALSO ADDITION OF INCOME OF OPERATIONAL NATURE I.E. REVERSAL OF PROVISION FOR DOUBTFUL DEBTS. IN REPLY, THE ASSESSEE FURNISHED A LETTER, WHEREIN IT WAS ACCEPTED THAT THE OP/TC NEEDS TO BE TAKEN AS PLI INS TEAD OF OP/SALES. WITH REGARD TO THE ADJUSTMENT TO BE MADE ON ACCOUNT OF VARIOUS FACTORS, THE SAME WERE REJECTED AND ARITHMETIC MEAN OF MARGINS WAS COMPUTED AT 28.01% AS AGAINST OP/TC SHOWN BY THE ASSESSEE AT 14.44%. THE TPO PROPOSED AN ADDITION OF RS.1. 59 CRORES TO BE MADE ON ACCOUNT OF ADJUSTMENT TO THE INTERNATIONAL TRANSACTIONS UNDERTAKEN BY THE ASSESSEE. THE ASSESSING OFFICER THUS, IN ORDER PASSED UNDER SECTION 143(3) R.W.S. 144C(4) OF THE ACT, MADE AN ADDITION OF RS.1.59 CRORES TO THE RETURN INCOME OF THE ASSESSEE. 6. THE FIRST OBJECTION OF THE ASSESSEE OF ADOPTION OF OP/TC AS PLI WAS DISMISSED BY THE CIT(A) IN VIEW OF THE ADMISSION OF THE ASSESSEE BEFORE THE TPO, WHICH IS RECORDED UNDER PARA 10 OF THE ORDER. WITH REGARD TO THE SECOND CLAIM OF T HE ASSESSEE OF ALLOWING ADJUSTMENT ON ACCOUNT OF RETIREMENT BENEFIT S , FOREIGN CURRENCY LOSS TO THE PROFIT MARGINS, THE CIT(A) WAS OF THE VIEW THAT THE RETIREMENT BENEFITS COULD NOT BE CONSIDERED AS AN EXCEPTIONAL ITEM OF ITA NO. 592 /PN/20 1 3 DANA INDIA TECHNICAL CENTRE PVT. LTD. 6 EXPENDITURE AS THE SAME WAS A CONTI NUING EVENT IN ANY ORGANIZATION. IN VIEW THEREOF, THE SAID ADJUSTMENT ON ACCOUNT OF RETIREMENT BENEFITS WAS DENIED TO THE ASSESSEE. HOWEVER, WITH REGARD TO LOSS ARISING ON FOREIGN FLUCTUATION, THE CIT(A) HELD THAT THE SAME DEFINITELY WOULD BE INCLUDED IN THE COST FOR COMPUTING THE BUSINESS PROFIT. HOWEVER, THE SAME COULD NOT BE INCLUDED IN COMPUTING THE PLI AS THE INCLUSION WOULD MEAN THAT THE TRANSACTION UNDERTAKEN OTHERWISE AT ARMS LENGTH WOULD BE CONSTRUED AS NOT AT ARM'S LENGTH PRICE, MERELY BECAUSE FOREIGN EXCHANGE REALIZATION, SUBSEQUENT TO THE TRANSACTION WAS EITHER MORE OR LESS THAN THE ARM'S LENGTH PRICE. FURTHER, THE CIT(A) ALSO ACCEPTED THE CLAIM OF THE ASSESSEE THAT THE ADJUSTMENT HAD TO BE MADE ON ACCOUNT OF DEPRECIATION SINCE THE ASSESSEE HAD CHARGED DEPRECIATION AT THE HIGHER RATES THAN THE RATES PRESCRIBED UNDER THE COMPANIES ACT, WHEREAS THE COMPARABLE COMPANIES HAD ADOPTED LOWER RATES OF DEPRECIATION. FURTHER, WITH REGARD TO SELECTION OF THE COMPANIES ROLTA INDIA LTD. AND KLG SYSTEL LT D., THE CIT(A) NOTED FROM THE ANNUAL REPORTS OF THE COMPANIES THAT THE SAME WERE NOT FUNCTIONALLY COMPARABLE TO THE ASSESSEE SINCE THE TURNOVER OF ROLTA INDIA LTD. WAS RS.599 CRORES AS AGAINST THE VALUE OF INTERNATIONAL TRANSACTIONS OF ENGINEERING DESIGN S ERVICES OF THE ASSESSEE OF RS.13.31 CRORES. FURTHER, KLG SYSTEL LTD. WAS FOUND TO HAVE DISCLOSED SUBSTANTIAL INCOME FROM PROFESSIONAL FEES AND SERVICE CHARGES AND HAD ALSO DISCLOSED CLOSING STOCK AND WORK - IN - PROGRESS AND HENCE, WAS HELD TO BE NOT FUNCTION ALLY COMPARABLE WITH THE ASSESSEE, WHICH WAS A SERVICE PROVIDER. 7. THE REVENUE IS IN APPEAL AGAINST THE ORDER OF CIT(A). 8. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE POINTED OUT THAT THE GROUND OF APPEAL NO.1 RAISED BY THE REVENUE IS GENER AL IN NATURE. IN RESPECT OF GROUND OF APPEAL NO.2, THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE POINTED OUT THAT THE CIT(A) HAS ERRED IN HOLDING THAT FOREIGN ITA NO. 592 /PN/20 1 3 DANA INDIA TECHNICAL CENTRE PVT. LTD. 7 CURRENCY FLUCTUATION WAS NON - OPERATIONAL ITEM AND HAS TO BE DEBITED FROM THE PROFITS M ARGIN WHILE CALCULATING PLI. RELIANCE IN THIS REGARD WAS PLACED ON VARIOUS DECISIONS AS MENTIONED IN GROUNDS OF APPEAL ITSELF. 9. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE IN REPLY, POINTED OUT THAT THE AFORESAID FOREIGN CURRENCY FLUCTUATION DID NOT RELATE TO THE EXPORT PROCEEDS TO BE RECEIVED DURING THE YEAR. IT RELATED TO THE SALE PROCEEDS OF EARLIER YEARS, WHICH WERE RECEIVED LATE AND HENCE, THE LOSS SHOULD BE EXCLUDED. HE FAIRLY POINTED OUT THAT OUT OF TOTAL LOSS ON ACCOUNT OF FOREIGN C URRENCY FLUCTUATION OF RS.62 LAKHS, LOSS RELATING TO THE EARLIER YEARS WERE TO THE TUNE OF RS.35 LAKHS AND THE BALANCE LOSS RELATED TO THE CURRENT YEAR AND THAT HAD TO BE CONSIDERED WHILE COMPUTING PLI OF THE ASSESSEE COMPANY. 10. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE GROUND OF APPEAL NO.1 RAISED BY THE REVENUE IS GENERAL IN NATURE AND HENCE, GROUND OF APPEAL NO.1 RAISED BY THE REVENUE IS GENERAL IN NATURE AND HENCE, THE SAME IS DISMISSED. 11. NOW, COMING TO THE ISSUE IN GROUND OF APPEAL NO.2 I.E. WITH REGARD TO TREATMENT OF FOREIGN CURRENCY FLUCTUATIO N LOSS AND ITS TREATMENT WHILE COMPUTING PLI OF THE ASSESSEE COMPANY. BEFORE THE AUTHORITIES BELOW, THERE WAS A DISPUTE AS TO THE COMPUTATION OF PLI WHETHER THE SAME HAS TO BE COMPUTED BY ADOPTING OP/TC AS PROFIT LEVEL INDICATOR OR OP/SALES. THE ASSESSEE BEFORE THE ASSESSING OFFICER / TPO HAD STRESSED THAT OP/SALES SHOULD BE ADOPTED. HOWEVER, ON A LATER DATE, THE ASSESSEE ADMITTED TO ADOPTION OF OP/TC AS PLI, WHICH HAS BEEN CONFIRMED BY THE CIT(A). THE ASSESSEE IS NOT IN APPEAL AGAINST THE SAID ORDER OF CIT(A). 12. NOW, THE SECOND ISSUE RAISED BY THE ASSESSEE IS ALLOWING ADJUSTMENT ON ACCOUNT OF FOREIGN CURRENCY LOSS TO THE PROFIT MARGINS WHICH ARE ADOPTED FOR ITA NO. 592 /PN/20 1 3 DANA INDIA TECHNICAL CENTRE PVT. LTD. 8 WORKING OUT THE PLI. FURTHER, THE ASSESSEE HAD ALSO CLAIMED ADJUSTMENT ON ACCOUNT OF RETIREME NT BENEFITS. THE CIT(A) HAS NOT ALLOWED THE ADJUSTMENT ON ACCOUNT OF RETIREMENT BENEFITS SINCE IT WAS CONTINUING EVENT IN ANY ORGANIZATION. THE ASSESSEE HAS NOT FILED ANY APPEAL AGAINST THE SAME. HOWEVER, THE CIT(A) ALLOWED THE CLAIM VIS - - VIS FOREIGN E XCHANGE FLUCTUATION AND HELD THAT THE SAME IS TO BE EXCLU DED WHILE COMPUTING PLI OF THE ASSESSEE. THE REASON FOR SUFFERING FOREIGN CURRENCY FLUCTUATION LOSS WAS THAT THE EXPORT PROCEEDS RELATING TO FINANCIAL YEAR 2005 - 06 COULD BE COLLECTED BY THE ASSESSEE IN 2008 ONLY , SINCE DANA CORPORATION HAD GONE INTO BANKRUPTCY PROCEEDINGS UNDER CHAPTER XI IN USA. IT WAS ONLY WHEN THE PLAN OF RESTRUCTURING WAS SUBMITTED BY DANA, USA TO THE COURT AND THE SAME WAS APPROVED AND PAYMENTS WERE ALLOWED TO BE REALIZED TO TH E ASSESSEE. HENCE, IN THE IMPUGNED ASSESSMENT YEAR WHEN THE EXPORT PROCEEDS WERE RECEIVED BY THE ASSESSEE, THE RUPEE HAD BECOME STRONGER AGAINST THE DOLLAR AND THE LOSS WAS SUFFERED DUE TO SUCH LOWER REALIZATION OF RUPEE. THE LOSS ON ACCOUNT OF LATE RECE IPT OF EXPORT PROCEEDS RELATING TO FINANCIAL YEAR 2005 - 06 TOTALED TO RS.35,31,729/ - OUT OF TOTAL LOSS OF RS.62,04,360/ - . THE NATURE OF FOREIGN EXCHANGE FLUCTUATION LOSS IS ON ACCOUNT OF TWO FACTORS I.E. ONE ON ACCOUNT OF SALE PROCEEDS OF EXPORTS MADE IN T HE EARLIER YEARS RECEIVED LATE, SUCH SALE PROCEEDS WHICH ARE RECEIVED LATE BY THE ASSESSEE ARE NOT RELATABLE TO THE EXPORT SALES OF THE YEAR UNDER CONSIDERATION, HENCE THE SAME ARE TO BE EXCLUDED FROM THE PROFIT MARGINS. HOWEVER, THE FOREIGN EXCHANGE LOSS ES R ELATING TO SALES OF THE CURRENT YEAR ARE TO BE ADOPTED FOR COMPUTING BUSINESS PROFITS IN THE HANDS OF ASSESSEE AND THEREAFTER, WORK OUT THE PLI OF THE ASSESSEE. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE FAIRLY CONCEDED BEFORE US THAT OUT OF TOTAL LOSSES OF APPROXIMATELY RS.62 LAKHS, LOSSES TO THE TUNE OF ABOUT RS.35 LAKHS RELATE TO EARLIER YEAR A ND THE BALANCE LOSSES RELATE TO THIS YEAR. THE MUMBAI SPECIAL BENCH OF TRIBUNAL IN THE CASE OF PRAKASH L. SHAH REPORTED IN 115 ITD 167 (SB) HAD H ELD THAT GAIN ITA NO. 592 /PN/20 1 3 DANA INDIA TECHNICAL CENTRE PVT. LTD. 9 DUE TO EXCHANGE RATE DIFFERENCE IN THE YEAR OF RECEIPT ON ACCOUNT OF EARLIER EXPORTS AND ALLOWANCE OF DEDUCTION UNDER SECTION 80HHC OF THE ACT IN SUCH LATER YEAR WAS NOT SUSTAINABLE. FOLLOWING THE SIMILE, WE HOLD THAT WHILE COMPUTING PLI FOR THE YEAR UNDER CONSIDERATION, THE LOSS ARISING ON ACCOUNT OF FOREIGN EXCHANGE FLUCTUATION TO THE TUNE OF RS.35,31,729/ - IS TO BE EXCLUDED. HOWEVER, THE LOSS ARISING ON ACCOUNT OF EXPORT PROCEEDS REALIZED FROM EXPORTS OF RELEVANT YEAR ARE TO BE CONSIDERED WHILE COMPUTING PLI OF THE ASSESSEE. IN VIEW THEREOF, WE MODIFY THE ORDER OF CIT(A) AND DIRECT THE ASSESSING OFFICER TO RE - COMPUTE THE PLI IN THE HANDS OF ASSESSEE AND FOREIGN EXCHANGE FLUCTUATION LOSSES OF THE EARLIER YEARS ARE TO BE KEPT OUT OF CALCULA TION OF PLI FOR THE YEAR UNDER CONSIDERATION. THE GROUND OF APPEAL NO.2 IS PARTLY ALLOWED. 13. THE ISSUE VIDE GROUND OF APPEAL NO.3 RAISED BY THE REVENUE IS AGAINST THE ORDER OF CIT(A) IN ALLOWING ADJUSTMENT ON ACCOUNT OF DEPRECIATION IN THE HANDS OF ASSESSEE. HANDS OF ASSESSEE. 14. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE IN THIS REGARD FAIRLY CONCEDED THAT THIS ISSUE NEEDS TO BE DECIDED AGAINST THE ASSESSEE AND IN FAVOUR OF THE DEPARTMENT. ACCORDINGLY, WE REVERSE THE DIRECTIONS OF CIT(A) IN THIS REGA RD AND NO ADJUSTMENT IS TO BE MADE ON ACCOUNT OF DEPRECIATION IN THE HANDS OF ASSESSEE WHILE COMPUTING PLI OF THE ASSESSEE. 15. THE ISSUE VIDE GROUND S OF APPEAL NO.4 AND 5 RAISED BY THE REVENUE IS AGAINST THE ORDER OF CIT(A) IN EXCLUDING ROLTA INDIA LTD. FROM THE SET OF COMPARABLES AND VIDE GROUND OF APPEAL NO.6, THE REVENUE IS AGGRIEVED BY THE ORDER OF CIT(A) IN HOLDING THAT KLG SYSTEL LTD. WAS NOT FUNCTIONALLY COMPARABLE TO THE ACTIVITIES OF ASSESSEE COMPANY. ITA NO. 592 /PN/20 1 3 DANA INDIA TECHNICAL CENTRE PVT. LTD. 10 16. AS NOTED EARLIER, THE ASSESSEE WAS ENGAG ED IN THE PROVISION OF ENGINEERING DESIGN SERVICES TO DANA GROUP . THE ASSESSEE WAS REGISTERED AS 100% EOU UNIT UNDER STPI SCHEME . W HILE BENCHMARKING INTERNATIONAL TRANSACTION OF THE PROVISION OF ENGINEERING DESIGN SERVICES TO ITS ASSOCIATE ENTERPRISES, T HE ASSESSEE HAD PICKED UP CERTAIN COMPARABLES NUMBERING FIVE, OUT OF WHICH THE TPO WAS OF THE VIEW THAT ONWARD TECHNOLOGIES LTD. HAD TO BE REJECTED BEING FUNCTIONALLY DIFFERENT. THE TPO HOWEVER, ACCEPTED BALANCE FOUR CONCERNS AS COMPARABLE AND PICKED UP T WO MORE CONCERNS I.E. KLG SYSTEL LTD. AND ROLTA INDIA LTD. THE ARITHMETIC MEAN OF MARGINS OF THE SAID CONCERNS WORKED OUT AT 33.30% AS AGAINST PLI OF THE ASSESSEE ON THE BASIS OF OP / TC AT 14.44% . THE SAID OP/TC WAS WORKED OUT ON THE BASIS OF SEGMENTAL DETAILS AVAILABLE VIS - - VIS IT DESIGN ENGINEERING AND RELATED SERVICES. THE SUBMISSIONS OF THE ASSESSEE BEFORE THE TPO WAS THAT ROLTA INDIA LTD. WAS ENGAGED IN PROVIDING INTEGRATIVE ENGINEERING DESIGN, PROCUREMENT AND CONSTRUCTION MANAGEMENT SERVICES FOR POWER PROCESS, INFRASTRUCTURE AND MARINE BUSINESS LINE AND WAS NOT FUNCTIONALLY SIMILAR. IT WAS FURTHER POINTED OUT THAT THE TURNOVER OF THE SAID COMPANY WAS HUGE AS COMPARED TO THE TURNOVER OF ASSESSEE AT 13.31 CRORES . 17. WITH REGARD TO KLG SYSTEL LT D., IT WAS POINTED OUT THAT THE SAID CONCERN WAS ENGAGED IN TRADING OF SOFTWARE PACKAGES AND THE SAID FACT IS BORNE OUT BY THE INFORMATION DISCLOSED IN THE PROFIT & LOSS ACCOUNT. IT WAS STRESSED BY THE ASSESSEE BEFORE THE TPO THAT KLG SYSTEL LTD. WAS NOT IN DEVELOPMENT OF SOFTWARE AND / OR IT ENABLED ENGINEERING SOFTWARE DEVELOPMENT SERVICES . THE SAID CONCERN WAS ENGAGED IN SELLING BOUGHT OUT SOFTWARE AND HENCE NOT FUNCTIONALLY COMPARABLE. THE TOTAL SALES OF KLG SYSTEL LTD. WERE RS.144 CROES AND HENCE, A GAIN NOT FUNCTIONALLY SIMILAR. THE TPO REJECTING THE PLEA OF ITA NO. 592 /PN/20 1 3 DANA INDIA TECHNICAL CENTRE PVT. LTD. 11 ASSESSEE HELD THAT BOTH ROLTA INDIA LTD. AND KLG SYSTEL LTD. WE RE TO BE INCLUDED IN THE FINAL SET OF COMPARABLES. 18. THE CIT(A) VIDE PARA 2.6.3 AT PAGE 8 AFTER GOING THROUGH THE ANNUAL REPORT OF ROLTA INDIA LTD. NOTED THAT THE ENGINEERING DESIGN AUTOMATION DOMAIN ENJOYS MARKET SHARE OF 90% AND ITS OTHER ACTIVITIES ALSO SHOW THAT IT WAS INTO DEVELOPMENT OF SOFTWARE, HENCE, THE CIT(A) DID NOT AGREE WITH THE OBJECTION OF ASSESSEE THAT THE SAID COM PANY WAS NOT FUNCTIONALLY COMPARABLE. HOWEVER, THE TURNOVER OF ROLTA INDIA LTD. WAS RS.599 CRORES AS AGAINST THE VALUE OF INTERNATIONAL TRANSACTION OF ENGINEERING DESIGN SERVICES OF THE ASSESSEE OF RS.13.31 CRORES AND IN VIEW THEREOF, IT WAS HELD THAT THE SAID COMPANY IS TO BE EXCLUDED FROM THE LIST OF COMPARABLES. IN RESPECT OF KLG SYSTEL LTD., THE CIT(A) FROM THE PERUSAL OF ANNUAL REPORT OF THE COMPANY NOTED THAT THE SAID COMPANY HAD DISCLOSED SUBSTANTIAL INCOME FROM PROFESSIONAL FEES AND SERVICE CHARGE S AND HAD ALSO DISCLOSED CLOSING STOCK AND WORK - IN - PROGRESS , HENCE, IT CHARGE S AND HAD ALSO DISCLOSED CLOSING STOCK AND WORK - IN - PROGRESS , HENCE, IT WAS HELD THAT THE SAID CONCERN WAS NOT FUNCTIONALLY COMPARABLE WITH THE ASSESSEE, WHO WAS A SERVICE PROVIDER AND HENCE, THE ASSESSING OFFICER / TPO WAS DIRECTED TO EXCLUDE THE SAME. 19. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT SIMILAR ISSUE OF EXCLUSION OF ROLTA INDIA LTD. AND KLG SYSTEL LTD. BEING FUNCTIONALLY DIFFERENT THAN A CONCERN PROVIDING IT ENABLED DESIGN ENGINEERING SERVICES AROSE BEFORE THE TRI BUNAL IN THE CASE OF BEHR INDIA LTD. VS. ADDL.CIT , WHEREIN THE TRIBUNAL IN ITA NO.1376/PN/2010, RELATING TO ASSESSMENT YEAR 2006 - 07 AND ALSO IN ITA NO.568/PN/2013 , RELATING TO ASSESSMENT YEAR 2008 - 09 , VIDE ORDER DATED 30.09.2014 HELD THAT BOTH ROLTA INDIA LTD. AND KLG SYSTEL LTD. WERE FUNCTIONALLY DISSIMILAR AND SAME HAD TO BE EXCLUDED FROM THE FINAL SET OF COMPARABLES. RELIANCE IN THIS REGARD WAS PLACED ON SEVERAL DECISIONS OF VARIOUS BENCHES OF TRIBUNAL. SINCE THERE ARE DISSIMILARITIES IN FUNCTIONS, ASS ETS ITA NO. 592 /PN/20 1 3 DANA INDIA TECHNICAL CENTRE PVT. LTD. 12 AND RISKS, WE HOLD THAT IN VIEW OF THE AFORESAID FAR ANALYSIS, BOTH THE COMPANIES ROLTA INDIA LTD. AND KLG SYSTEL LTD. ARE NOT COMPARABLE ON ACCOUNT OF DISTINCT NATURE OF BUSINESS, ITS FUNCTIONAL DISSIMILARITY, SIZE AND DIVERSIFIED PRODUCTS. 20. ANO THER ASPECT POINTED OUT BY THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE BEFORE THE AUTHORITIES BELOW AND EVEN BEFORE US IS THE DIFFERENCE IN TURNOVER OF THE SAID CONCERNS VIS - - VIS THE ASSESSEE. FOR THE YEAR UNDER CONSIDERATION , THE ASSESSEE HAD DECLARED TURNOVER OF RS.13.31 CRORES ON ACCOUNT OF PROVIDING SOFTWARE SERVICES TO ITS ASSOCIATE ENTERPRISES, WHEREAS THE TURNOVER OF BOTH THE CONCERNS WAS MUCH HIGHER. 21. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE POINTED OUT THAT THE CIT( A) HAD ERRED IN EXCLUDING ROLTA INDIA LTD. ON THE PREMISE THAT ITS TURNOVER WAS RS.599 CRORES. HOWEVER, AS PER SEGMENTAL DETAILS, TURNOVER OF THIS CONCERN WAS RS.347 CRORES AND ON THE OTHER HAND, THE ASSESSEE HAD CHOSEN A CONCERN I.E. INFOTECH AND ITS TUR NOVER WAS RS.423.16 CRORES. 22. THOUGH THE REVENUE HAS RAISED GROUND OF APPEAL IN THIS REGARD, HOWEVER, NO FINANCIAL STATEMENTS OF INFOTECH HAS BEEN PROVIDED. WITH REGARD TO COMPARABILITY OF TURNOVER, WE FIND MERIT IN THE RELIANCE PLACED UPON BY THE LEAR NED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE ON THE RATIO LAID DOWN BY THE HONBLE BOMBAY HIGH COURT AT GOA IN CIT VS. M/S. PENTAIR WATER INDIA PVT. LTD. , REPORTED IN 282 CTR 160 (BOM) , WHEREIN IT HAS BEEN LAID DOWN THAT WHERE THE CONCERNS PICKED UP ARE LARGE AND DISTINCT COMPANIES AND WHERE THE AREA OF DEVELOPMENT OF SUBJECT SERVICES ARE DIFFERENT AND AS SUCH THE PROFIT EARNED THEREFROM COULD NOT BE BENCHMARKED OR EQUATED WITH THE TESTED PARTY. RELIANCE IN THIS REGARD WAS PLACED ON THE RATIO LAID DOWN B Y THE HONBLE DELHI HIGH COURT IN CIT VS. AGNITY INDIA TECHNOLOGIES (P.) LTD. (2013) 36 ITA NO. 592 /PN/20 1 3 DANA INDIA TECHNICAL CENTRE PVT. LTD. 13 TAXMANN.COM 289 (DEL) , WHEREIN IT WAS HELD THAT TURNOVER IS OBVIOUSLY A RELEVANT FACTOR TO CONSIDER THE COMPARABILITY. 23. IN THE FACTS OF THE PRESENT CASE BEFORE US , THE TURNOVER OF ROLTA INDIA LTD. WAS RS.599 CRORES OR AT BEST RS.347 CRORES AND THE TURNOVER OF KLG SYSTEL LTD. WAS RS.112.53 CRORES , WHICH WAS MUCH HIGHER THAN THE TURNOVER SHOWN BY THE ASSESSEE AT RS.13.31 CRORES . H ENCE FOR ALL THE ABOVE SAID REASONS BEING FUNCTIONALLY DISSIMILAR AND BECAUSE OF HUGE TURNOVER, THE SAID TWO CONCERNS ARE TO BE EXCLUDED FROM THE FINAL SET OF COMPARABLES. WE UPHOLD THE ORDER OF CIT(A) IN THIS REGARD AND DISMISS THE GROUNDS OF APPEAL NO.4 TO 6 RAISED BY THE REVENUE. 24 . IN THE RESULT, THE APPEAL OF THE REVENUE IS PARTLY ALLOWED. ORDER PRONOUNCED ON THIS 30 TH DAY OF MARCH , 201 6 . SD/ - SD/ - (PRADIP KUMAR KEDIA) (SUSHMA CHOWLA) / ACCOUNTANT MEMBER / JUDICIAL MEMBER / PUNE ; DATED : 30 TH MARCH , 201 6 . GCVSR / COPY OF THE ORDER IS FORWARDED TO : 1. / THE APPELLANT ; 2. / THE RESPO NDENT; 3. ( ) / THE CIT (A) - IT/TP , PUNE ; 4. / THE CIT - I, PUNE / DIT (TP/IT), PUNE ; 5. , , / DR A , ITAT, PUNE; 6. / GUARD FILE . / BY ORDER , // TR UE COPY // / SR. PRIVATE SECRETARY , / ITAT, PUNE
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