HIGH COURT OF JUDICATURE AT HYDERABAD FOR THE STATE OF TELANGANA AND THE STATE OF ANDHRA PRADESH PRESENT THE HON’BLE THE CHIEF JUSTICE SRI KALYAN JYOTI SENGUPTA AND THE HON’BLE SRI JUSTICE SANJAY KUMAR
I.T.T.A.No.442 OF 2014
DATED: 16.07.2014 Between:
The Commissioner of Income-tax-1, Hyderabad … Appellant And M/s.CES Pvt Ltd … Respondent THE HON’BLE THE CHIEF JUSTICE SRI KALYAN JYOTI SENGUPTA AND THE HON’BLE SRI JUSTICE SANJAY KUMAR I.T.T.A.No.442 of 2014 JUDGMENT: (per the Hon’ble The Chief Justice Sri Kalyan Jyoti Sengupta) This appeal is sought to be preferred and admitted against the judgment and order of the learned Tribunal dated 29.11.2003 passed in I.T.A.No.1445/Hyderabad/2010 in relation to the assessment year 2006-07 on the following suggested questions of law.
1. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in rejecting comparable companies on the ground of exceptionally large scale of operations without appreciating the fact that high or low turnover does not influence the profit margins?
2. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in rejecting comparable companies on the ground of functional difference when the tax payer itself did not consider the verticals and horizontals of the Software/ITES Sector?
3. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in rejecting comparable companies on the ground of supernormal profits without appreciating the fact that the profit level indicator is arithmetic mean of the comparables?
4. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in rejecting the comparable companies merely on the grounds of extraordinary events like merger/demerger change in controlling stake, when the tax payer did not demonstrate effect of such events on the profitability of the comparable?
5. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in accepting the contentions of the tax payer and rejecting the comparables without appreciating the fact that the assessee never objected to inclusion of such comparables either before the TPO or before the DRP?
6. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in admitting the additional grounds and thereby allowing the tax payer to raise contentions on the comparables selected by itself in the TP study?
7. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that communication expenses should be excluded from both export turnover as well as total turnover for the purpose of computing deduction under Section 10A of the Income-tax Act, 1961, without appreciating that there is no provision in the Act to reduce the same from total turnover?
We have heard Mr. Prasad, learned Senior Standing Counsel for the Revenue, and gone through the impugned judgment and order of the learned Tribunal.
In paragraph 11 of the impugned judgment and order, on the question of exclusion of communication expenses, the learned Tribunal has relied on the Special Bench Judgment of the Tribunal in the case of Saksoft and also the decisions of other Coordinate Benches in the case of Prithvi Information Solutions Ltd in I.T.A.No.225/Hyderabad/2005, dated 12.10.2007 and Income Tax Officer v. D.E. Block India Software (Pvt.) Ltd. in ITA.No.983 & 984/Hyderabad/2006, dated 31.12.2007. Therefore, we find that the Tribunal has followed the consistent decisions of not only the Coordinate Benches of the Tribunal but that of the Special Bench also. It is not the case of the appellant that the aforesaid decisions are subject matter of challenge before any forum or are upset.
On the question of comparable cases, the learned Tribunal in paragraph 15 of the judgment and order has held that the Coordinate Benches have already decided that these companies are not to be selected for comparable cases for various reasons. Similarly, on the question of software segmentation, the learned Tribunal in paragraph 17 has followed various judgments of the Coordinate Benches.
We therefore do not find anything wrong to interfere with the impugned judgment and order of the learned Tribunal.
The appeal is accordingly dismissed. No order as to costs.
16th JULY, 2014.
K.J. SENGUPTA, CJ SANJAY KUMAR, J
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