Deputy Commissioner of Income TAx Circle-7(1)(2), Bangalore V. M/s Xchanging Limited , Bangalore

ITA 837/BANG/2018

• Counselvise Citation: [2022] 105 COUNSELVISE.COM (IT) 8292 (ITAT-BANGALORE)
• Duration Of Justice: 3 year(s) 11 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-02-2022
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2005-2006
• Appeal Filed On: 15-03-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: NIRMAL MATHEW

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, VICE PRESIDENT AND SHRI B. R. BASKARAN, ACCOUNTANT MEMBER ITA No.837/Bang/2018 Assessment Year :2005-06 Deputy Commissioner of Income Tax, Circle – 7(1)(2), Bengaluru. Vs. M/s. Xchanging Solutions Ltd., (formerly Cambridge Solutions Ltd.,) SJR iPark (Opp. Satya Sai Hospital), 13, 14, 15 EPIP Park, Whitefield, Bengaluru – 560 066. PAN : AAFCS 9303 L APPELLANT RESPONDENT Assessee by :Shri.Nirmal Mathew, CA Revenue by:Shri.Sumer Singh Meena, CIT(DR)(ITAT), Bengaluru. Date of hearing:16.02.2022 Date of Pronouncement:23.02.2022 O R D E R Per N. V. Vasudevan, Vice President : This is an appeal by the Revenue against the order dated 03.01.2018of CIT(A)-7, Bengaluru, relating to Assessment Year 2005-06. The grounds of appeal raised by the Revenue reads as follows: 1.The order of the learned CIT(A) is opposed to law and facts of the case. 2.The C1T(Appeals) ought to have considered that that the expenditure incurred in foreign currency, towards telecommunication expenses in connection with rendering technical services outside India, to be excluded only from export turnover and not from total turnover for the purpose of computation of deduction u/ s 10A of the Act, since such exclusion is permitted to ITA No.837/Bang/2018 Page 2 of 5 arrive at the export turnover only as per the definitions given in Sec. 10A and total turnover has not been defined in the same. 3."Whether the C17'(A) is correct in law in following the judgements of jurisdictional High Court in the case of CIT vs. Tata Elxsi Ltd., which has not become final since the same has not been accepted by the Department and SLPs are pending before the Hon'ble Apex Court"? 4."Whether the CIT(A) was right in fact and law in removing 3 companies in software development segment."? 5."Whether the CTT(A) is right in not appreciating in fact that transfer pricing is not an exact science and no two entities can be exact replicas"? 6."Whether the CTI(A) is right in trying to find out exact replica of the assessee for determining the ALP based on such replicas, even when the law and the international jurisprudence itself recognise that there cannot be an exact comparable to a given situation, especially with TNMM as the most appropriate method"? 7."Whether the CIT(A) is right in law in demanding comparability standards that may itself defeat the purpose of law relating to determination of ALP under the IT Act"? 8."Whether the order of the CIT(A) in imposing conditions is beyond the scope of law and business reality by rejecting all close comparables on the other ground, without appreciating that not two companies can ever be the same"? 9.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 andthat of the Assessing Officer may be restored. 10.The appellant craves leave to add, alter, amend and/or delete any of the grounds mentioned above. 2. Ground Nos.1, 9 and 10 are general and does not call for any specific adjudication. As far as ground Nos.2 and 3 are concerned, the issue is with regard to the computation of deduction under section 10A of the Income Tax Act, 1961 (hereinafter called ‘the Act’). While computing deduction under section 10A of the Act, the AO excluded telecommunication expenses from the total turnover but did not reduce the same from the export turnover. Consequently, the deduction under section 10A of the Act was allowed at a ITA No.837/Bang/2018 Page 3 of 5 sum lesser than what was claimed by the assessee. On appeal by the assessee, the CIT(A), following the decision of the Hon’ble Karnataka High Court rendered in the case of CIT Vs. Tata Elxsi Ltd., 349 ITR 98, directed the AO to exclude telecommunication expenses both from the export turnover and the total turnover. Since the CIT(A) has adjudicated the issue following the judgment of the jurisdictional High Court, no interference in his order is called for and accordingly we confirm the order of the CIT(A). 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. Consequently, ground Nos.2 and 3 raised by the Revenue is dismissed. 3. As far as ground No.4 is concerned, the Revenue in the revised grounds of appeal has pointed out that the CIT(A) was not correct in holding that Infosys Technologies Ltd., Flextronics Software Ltd., and Thirdware Solutions Ltd., cannot be regarded as comparables being functionally different. The further plea of the Revenue in the remaining grounds of appeal 3 to 8 are that in the matter of determination of ALP under the TNMM method, exact comparability should not be insisted upon. As far as the aforesaid ground of appeal of the Revenue is concerned, we find that the CIT(A) in excluding the aforesaid companies from the list of comparable companies chosen by the TPO has placed reliance on previous decisions of the Tribunal taking the view on comparability of these three companies in cases where assessees were carrying on software development services which are identical to the services rendered by the assessee in this appeal. As far as Infosys Technologies Ltd., and Thirdware Solutions Ltd., are concerned, the CIT(A) followed the decision of the ITAT, Bengaluru Bench, in the case of Curam Software International (P.) Ltd., Vs. ITO [2013] 37 taxmannn.com 141 (Bangalore – Trib.) wherein Infosys Technologies Ltd., was held to be not comparable ITA No.837/Bang/2018 Page 4 of 5 functionally as it owns significant intangibles and earns huge revenue from software products. Similarly, Thirdware Solutions Ltd., was held to be not comparable on the ground that they were functionally not comparable by following the very same decision rendered in the case of Curam Software International (P.) Ltd., (supra). As far as Flextronics Software Ltd., is concerned, the CIT(A) followed the decision of the ITAT, Hyderabad Bench, rendered in the case of Intoto Software India Pvt. Ltd., wherein it was held that this company was into IT products and R & D for development of products and cannot be compared with a software developer such as the assessee. In the light of the aforesaid decisions of the Tribunal which was followed by the CIT(A), we are of the view that there is no merit in this appeal by the Revenue. Even in the proceedings before the Tribunal, the learned DR was not able to point out any distinguishing facts warranting interference with the order of the CIT(A). We, therefore, dismiss this appeal of the Revenue. 4. In the result, the appeal of the Revenue is dismissed. Pronounced in the open court on the date mentioned on the caption page. Sd/- Sd/- Bangalore. Dated: 23.02.2022. /NS/* (B. R. BASKARAN) (N. V. VASUDEVAN) Accountant Member Vice President ITA No.837/Bang/2018 Page 5 of 5 Copy to: 1.Appellants2.Respondent 3.CIT4.CIT(A) 5.DR6.Guard file By order Assistant Registrar, ITAT, Bangalore.