ITA.No.2183/Hyd/2011 (assessment year 2007-08)

SHRI B. RAMAKOTAIAH AND SMT. ASHA VIJAYARAGHAVAN, JJ.

Mr. Tarun Chaturvedi For the Assessee :
Mr. P. Somasekhar Reddy For the Revenue :

ORDER

The order of the Bench was delivered by

B. Ramakotaiah, Accountant Member – This appeal filed by assessee is directed against the assessment order passed u/s 143(3)read with section 144C of the Income-tax Act on the direction of the Order of the Disputes Resolution Panel (in short "DRP) dated 19.09.2011 for the A.Y. 2007-08.

2. Briefly the facts are, assessee a wholly owned subsidiary of C3i Inc., USA (hereinafter called associated enterprise in short AE) provides business process outsourcing (BPO) services in the field of health care administration to its AE. The assessee is a 100% EOU registered under the software technology park of India (STPI) Scheme. For the impugned assessment year, assessee has filed its return of income claiming deduction u/s.10A of the Act in respect of the profits of the STPI unit. In course of scrutiny assessment proceedings, the Assessing Officer noticing that the assessee has entered into international transaction with its AE made a reference to the Addl. CIT (Transfer Pricing), Hyderabad (hereinafter called the TPO) for determining the Arms Length Price (ALP). The revenue earned by the assessee from the International transaction of providing back office support services to its AE during the assessment year was ? 12.57 crores.

3. In course of the proceeding before the TPO, the assessee submitted a TP study conducted by an independent external consultant after undertaking a detailed analysis for determining the functions performed, risks assumed and asset utilised by the assessee and its AE in respect of the international transactions between them. As per the functional analysis, the assessee was categorised as a risk mitigated contract service provider and selected as a tested party. Transaction Net Margin Method (TNMM) was adopted as most appropriate method in the TP study to determine the ALP. Search was conducted in the data bases to select comparable companies by selecting the operating margin i.e. operating profit/operating cost as the profit level indicator (PLI). The search in the data bases yielded 5 companies which were found to be functionally similar, hence selected as comparables with weighted average arithmetic mean of 6.98%. Since assessee's net margin from the provision of services to its AE during the year at 15.18% was found to be within arms' length, no adjustment was made.

4. The TPO however rejected the TP study of assessee broadly on the following reasons :—
       a. The assessee has used multiple year data and not the current year data.

       b. The companies engaged in IT enabled serves were treated as comparables irrespective of the verticals and horizontals.

      c. Most of the companies have been rejected by applying qualitative filters without furnishing details as to what were the qualities which were compared for selection/rejection of comparables.
       d. There is a complete disconnect between the search for the comparables and the comparability analysis.

       e. Assessee has considered companies as comparables although they have related party transaction of more than 25% of the operating revenue.

       f. The assessee has selected companies which are into domestic operations with marginal and no export earnings.

5. After rejecting the TP study, Assessing Officer undertook a fresh search of the data bases for selecting comparables. While doing so, the TPO applied certain additional filters and also obtained information u/s 133(6) of the Act. In this process, the TPO selected 27 companies as comparables with average margin of 30.21% and further making negative working capital adjustment of (-)2.69% determined the ALP at ? 14,26,28,298/- against the price shown by the assessee for the international transaction at ? 12,57,34,679/- thereby determining the shortfall of ? 1,68,93,619/- as the TP adjustment u/s. 92CA of the Act. The following were selected as comparable companies by the TPO :

6. In pursuance to the order passed by the TPO proposing the aforesaid TP adjustment, the Assessing Officer passed a draft assessment order proposing to add the TP adjustment to the returned income. In the draft assessment order, the Assessing Officer also reduced the communication charges of ? 12,43,604/- from the export turnover for the purpose of computing deduction u/s 10A of the Act.

7. The assessee objected to the draft assessment order before the DRP. The DRP rejected the assessee's contention with regard to almost all the issues except assessee's objection with regard to two comparables selected by TPO i.e. Maple E Solutions Limited and Triton Corp Limited, which were directed to be excluded from the list of comparables. In pursuance to the aforesaid direction of the DRP, final assessment order was passed by the Assessing Officer after confirming the addition in line with the relief provided by the DRP.

8. Being aggrieved, the assessee has filed the present appeal before us and has also submitted a concise ground of appeal which consists of 5 grounds. Grounds 1, 4 and 5 are general in nature. Ground 2 deals with Transfer Pricing adjustment and Ground 3 deals with the addition made under section 10A.

9. At the outset, Ld Counsel submitted that Assessee Company enjoys 10A benefit and hence there should be no adjustment as the ITAT Ahmedabad decided in the case of M/s. Motif India Infotech Pvt. Ltd. vs. ACIT, Ahmedabad in ITA.No.3043/Ahd/2010 dated 25.03.2014 for the proposition that assessee's income was exempt income and therefore, any adjustment made at the exempt income of the assessee were also gets exempted. When it was pointed out to the learned Counsel that this decision of the Coordinate Bench is not in tune with the Special Bench decision in the case of Aztec Software & Technology Services Ltd. v. Asstt. CIT (Bang) (SB), (2007) 107 ITD 141 (Bang.) (SB), learned Counsel immediately consented to the above and withdrew the contention with reference to income being exempt under section 10A to the extent of addition made under section 92CA. Even though learned Counsel withdrew the contention, we intend to make it clear that this issue has been crystallized by the decision of the Special Bench in Aztec Software & Technology Services Ltd., (supra) wherein it was held as follows :

         "20. At one stage of hearing, learned counsel for assessee has also submitted before us that income of the assessee is exempt under s. 10A of the Act and, therefore, the overpricing or underpricing of an international transaction would not affect the computation of income. This argument is without force in view of the specific provisions contained in the first proviso to sub-s. (4) of s. 92C wherein it has been clearly stated that no deduction under s. 10A/10AA or s. 10B or under Chapter VI-A shall be allowed in respect of the amount of income by which the total income of the assessee is enhanced after computation of income under this section.

          21. It is abundantly clear that legislature while introducing the enactment did comprehend a situation requiring investigation and addition on account of computation of ALP in cases of the assessee entitled to benefit under s. 10A/10AA or s. 10B of the Act. In the light of specific provision, it is difficult to contend that arms' length prices cannot be determined under s. 92C or 92CA where assessee is entitled to benefit of above sections.

          22. In the light of above discussion, we hold that although Chapter X has title "Special provision relating to avoidance of tax" and aim of various sections under Chapter X is to check avoidance of taxes, diversion of income and funds by non-residents from India, it is not necessary that AO must demonstrate such avoidance and diversion of tax before invoking provisions of ss. 92C and 92CA. Consequently, question No. 1 is answered in negative i.e. against the assessee and in favour of the Revenue. It is further held that the learned CIT(A) was wrong in attaching importance to the fact that the taxpayer is entitled to benefit under s. 10A/10AA of IT Act".

10. In view of the specific decision of the Special Bench of the ITAT, we are bound to follow the decision of the Special Bench and therefore, Coordinate Bench decision which is not in tune with the ITAT Special Bench decision need not be followed. This contention of the assessee however, as it was withdrawn and not pressed, is rejected as not pressed.

11. The Transfer Pricing Ground. 2 consist of the following two main issues:
(A) Selection of comparables done by the TPO; and
(B) Computation of the margin of the assessee by considering rent for unutilized space as part of cost on which profit has to be earned.

12. We have heard Ld Counsel and Ld. CIT DR in detail and considered their contentions. Most of the arguments are similar to arguments advanced before other benches as TPO selected same comparables and assessees are objecting to inclusion of some comparables. Similarly assessee also objected to about 11 comparables and relied on coordinate benches decisions for exclusion of them. Since contentions are similar we have considered them while analysing the each of the comparable company objected to. The objections with respect to comparables are dealt with below:

12.1 Accurate Data Converter and Nittany Outsourcing

It was the objection that these companies were never a part of the show cause notice but were included in the list of final comparables. There seems to be no discussion by TPO while including the above two companies. Assessee also did not raise any objection before DRP. As seen from other cases relied on by assessee for exclusion of certain comparables, these two companies were not objected and are accepted as comparables. Only principles of natural justice were violated while including them. Therefore TPO/AO is directed to give an opportunity to assessee take their objections and consider whether the above two companies can be included as comparables.

12.2 Accentia Technologies Limited

The assessee is objecting to the aforesaid company being treated as comparable since the aforesaid company is functionally different from the assessee as more than 64% of the operating cost of the company is towards overseas business expenses. Further the company has substantial marketing expenses which was almost 29% of its sales as compared to almost nil of the assessee. It is also submitted that due to multiple acquisitions by the company during the year under dispute, it was an exceptional year impacting the profitability of the company. In this connection assessee relied on the decision of Income-tax Appellate Tribunal, Hyderabad Bench in case of Capital IQ Information Systems India Pvt. Ltd. (ITA No. 1961/Hyd/2011), Zavata India Pvt. Ltd, Hyderabad vs. Assessee, ITA. No. 1781/Hyd/2011 and [2014] 41 taxmann.com 334 ,Avineon India (P.) Ltd. v. Deputy Commissioner of Income-tax, Circle-I (1).

12.2.1 In case of Capital IQ Information Systems (India) (P.) Ltd. (supra) the co-ordinate bench of the Hyd. IT AT while considering the assessee's objection with regard to the aforesaid company held in the following manner:—

           “10. It is the submission of the assessee that this company cannot be treated as a comparable because of un-comparable financial results arising out of amalgamation ill the company. In this regard, the assessee has relied upon the order of the DRP for the assessment year 2008-09 in assessee's own case. It is seen that the DRP while considering similar objection placed by the assessee in the case of another company, viz. Mold Tek Technologies Ltd., in the proceedings relating to the assessment year 2008-09, has observed in the following manner -

            "17.5. In addition to the above, the Director's Report of the company for the FY 2007-08 revealed the merger and the demerger. A company known as Techmen Tools Pvt. Ltd. had amalgamated with Mold-tek Technologies Ltd. with effect from 1st October, 2006. There was a de-merger of Plastic Division of the company and the resulting company is known as Moldtek Plastics Limited. The de-merger from the Moldtek Technologies took place with effect from 1st April, 2007. The merger and the de-merger needed the approval of the Hon'ble High Court of Andhra Pradesh and also the approval of the shareholders. The shareholders of the company gave approval for the merger and the de-merger on 25.01.2008 and the Hon'ble High Court of Andhra Pradesh had approved the merger and de-merger on 25th July, 2008. Subsequently, the accounts of Moldtek Technologies for FY 2007-08 were revised. On a perusal of the annual report it is noticed that Teckmen Tools Pvt. Ltd. and the Plastic Division (if the company were demerged and the resulting company was named as Moldtek Plastics Ltd. The KPO business remained with the company. A perusal of the Annual report revealed that to give effect to the merger and demerger, the financial statements were revised and restated after six months form the end of the financial year 31.3.2008 The assessee filed Form No.21 under the Companies Act with the Registrar of Companies on 26th August, 2008. Thus the effective date of the scheme of merger and demerger was 26th August, 2008. The Annual Report supported the argument of the assessee that there were merger and demerger in the financial year and it was all exceptional year of performance as financial statements were revised by this company much after the closure of the previous year. The Panel agrees with the contention of the assessee that it is an exceptional year having significant impact on the profitability arising out of merger and demerger."

On careful consideration of the matter, we also agree with the aforesaid view of the DRP that extra-ordinary event like merger and de-merger will have an effect on the profitability of the company in the financial year in which such event takes place. It is the contention of the assessee that in case of the aforesaid company, there is amalgamation in December, 2006, which has impacted the financial result. This fact has to be verified by the TPQ. If it is found upon such verification that the amalgamation in fact has taken place, then the aforesaid comparable has to be excluded.'

As can be seen from the order of the co-ordinate bench, the aforesaid company was directed to be excluded since ex-ordinary events like merger and demerger had taken during the relevant financial year which must have impacted the financial results of the company. That besides the high volume of on-site operation of Accentia Technologies Limited also makes it functionally dissimilar to the assessee. AO is directed to exclude the same.

12.3 Asit C Mehta Financial Services Ltd.

The submission was that the aforesaid company being selected as comparable is not correct since it belongs to a different vertical and hence has a different cost structure. In this connection assessee relied on the decision of Zavata India (P.) Ltd. (supra) where in under similar circumstances this company has been rejected on the grounds that the employee cost of the company is only 24.78% of its revenue compared to assessee's 44%. Considering the coordinate bench decisions we direct the TPO/AO to exclude the same.

12.4 Vishal Information Technologies

The aforesaid company has been removed by the DRP as a comparable in the case of the assessee for the AY 2008-09. Further, the aforesaid company is not only functionally different on account of employee cost filter as the employee cost of the company is only 2% of its revenue, but it also has huge vendor payment for data entry which is indicative of the fact that it does not provide IT enabled services by itself but out sources the work with third party vendor. In this connection assessee relied on the decision of Income-tax Appellate Tribunal, Hyderabad Bench in case of Capital IQ Information Systems (India) (P.) Ltd. (supra), Zavata India (P.) Ltd. (supra), Avineon India (P.) Ltd. (supra).

12.4.1 In case of Capital IQ Information Systems (India) (P.) Ltd., (supra) the co-ordinate bench after considering the objections of the assessee in respect of the aforesaid company held in the following manner :—

           "17. After considering the submissions of the learned authorised Representative for the assessee, we find that the DRP, in the proceedings for the assessment year 2008-09 in assessee's own case, after taking note of the composition of the vendor payments (if Coral Hub for the last three years, and the fact that it has also commenced a new line of business of Printing on Demand (POD), wherein it prints upon clients request, concluded as follows —

18.4. In view of this major difference in functionality and the business model, this Panel is of the view that 'Coral Hub' is not a suitable comparable to the taxpayer and hence needs to be dropped form the final list of comparables."

In case of Asstt. CIT v. Maersk Global service Centre (India) (P.) Ltd. (Supra) the ITAT Mumbai Bench has also directed for exclusion of the aforesaid company, by observing in the following manner —

          "Insofar as the cases (Tulsyan Technologies Limited and Vishal Information Technologies Limited are concerned, it is noticed from their annual accounts that these companies outsourced a considerable portion of their business. As the assessee carried out entire operations by itself, in our considered opinion, these two cases were rightly excluded."

In view of the observations made by the DRP as well as the decisions of the ITAT, we accept that this company cannot be taken as a comparable.

12.5 Eclerx Services Limited

Assessee submitted that this company is engaged in providing knowledge process outsourcing (KPO). It was submitted that the assessee is providing data analytics, operations management and audit reconciliation. It was further submitted that besides being functionally different from the assessee, the aforesaid company has shown extraordinarily high profit at 88.11 % hence cannot be treated as comparable. In this connection assessee relied on the decision of Income-tax Appellate Tribunal, Hyderabad Bench in case of Capital IQ Information Systems (India) (P.) Ltd. (supra), Zavata India (P.) Ltd. (supra) and Avineon India (P.) Ltd. (supra). Considering the decision of coordinate benches in the above cases, we hold that this company cannot be taken as comparable.
12.6 Mold-Tek Technologies Limited

During the year, the company has shown super normal profit of 117.29% compared to the assessee as well as other comparable companies. Apart from having extraordinarily high profit, Mold-Tek is also functionally different as it is engaged in providing structural engineering consulting services under the KPO division. M/s Mold Tek is providing highly technical and specialised engineering services and use of information technology is only incidental. In this connection assessee relied on the decision of Income-tax Appellate Tribunal, Hyderabad Bench in case of Capital IQ Information Systems (India) (P.) Ltd. (supra), Zavata India (P.) Ltd. (supra), Avineon India (P.) Ltd. (supra). Even in assessee's own case for asst. year 2008-09, the DRP has directed for exclusion of M/s. Mold-Tek from list of comparables.

12.6.1 In case of Capital IQ Information Systems (India) (P.) Ltd. (supra) the co-ordinate bench of the Tribunal held as under:—

"13. On careful consideration of the submissions of the assessee we find that the DRP, as already stated earlier, in the proceedings for the assessment year 2008-09 has accepted the assessee's contention that this company cannot be treated as comparable because of exceptional financial result due to merger/de-merger. In view of the aforesaid, we accept the assessee's contention that this company cannot he treated as comparable. That apart, it is also a fact that this company has shown super normal profit working out to 1I3%. The Income-tax Appellate Tribunal, Mumbai Bench ill the case of Teva India Pvt. Ltd. (supra) has observed that companies showing supernormal profit cannot be treated as comparable. The relevant observations of the Tribunal in that case are extracted hereunder for convenience—

32. We have heard the arguments of both the sides and also perused the relevant material on record It is observed that although a detail submission was made on behalf of the assessee before the learned CIT(A) on the basis of FAR analysis to show that the selection of Ms. Vimta Labs as comparable is not Justified, the learned CIT(A) has not accepted the stand of the assessee on the issue without giving any cogent or convincing reasons. In its recent decision rendered in the case of Adobe Systems India Pvt. Ltd., (ITA.NO.5043/Del/2000 dtd 21.01.2011) + (2011-TII-13-ITAT-DEL-TP), Delhi Bench of ITAT has held that exclusion of comparables showing supernormal profits as compared to other comparable is fully justified. We, therefore set aside the impugned order of the ld. CIT(A) on this issue and restore the matter to the file of the A.O. with a direction to decide the same afresh after taking into consideration the submissions made by the assessee before the learned CIT(A) and keeping in view the Delhi Bench of ITAT in the case of Abode Systems India Pvt. Ltd. (supra)."

In this view of the above, we accept the contentions of the assessee that this company cannot be treated as a comparable.

12.7 HCL Comnet Systems & Services Limited, Infosys BPO Limited and Wipro Limited. -
While the assessee's turnover during the year was about 12.5 crores, these companies have huge turnovers compared to the assessee. The turnover of these companies are as under:

In this connection assessee relied on the decision of Income-tax Appellate Tribunal, Hyderabad Bench in case of Capital IQ Information Systems (India) (P.) Ltd. (supra), Zavata India (P.) Ltd. (supra) and Avineon India (P.) Ltd. (supra).

12.7.1 The Coordinate Bench of the Tribunal in case of Capital IQ information Systems (India) P. Ltd. (supra) while considering the issue of selection of comparable companies by applying turnover filter has held as under :—

            “21. On considering the submissions of the assessee in relation to these three companies, we find that the TPO has excluded the companies whose turnover is less than Rs. One Crore, on the ground that they may not be representing the industry trend. That very logic also applies to the companies having high turnover of over ? 200 crores as against the assessee's turnover of only ? 60 crores, and therefore, it would be fair enough to exclude those companies also. In the case of Agnity India Technologies P. Ltd. (supra), the Delhi Bench of the Tribunal, while considering the comparability with companies which are market leaders in their .field, and having substantially high turnover, observed as follows -

            "5.2 Various arguments, as stated earlier, were taken before the DRP which inter-alia included rejection of comparable cases; application of arbitrary filter of wage to sales ratio; ignoring that the assessee is a limited risk company; inclusion of Infosys Technologies ltd.; and inclusion of Sat yam Computers Services Ltd. in spite of the fact that its data is not reliable as publicly known. On the basis of these arguments, the DRP excluded the case of Satyam Computers Services Ltd., thereby reducing the arm's length margin to 25.6%. It is argued that the case of the assessee is not comparable with Infosys Technologies Ltd., the reason being that the later is giant in the area of development of software and it assumes all risks, leading to higher profit. On the other hand, the assessee is a captive unit of its parent company in the USA and it assumes only limited currency risk. Having considered these points, we are of the view that the case of the aforesaid Infosys and the assessee are not comparable at all as seen from the financial data etc. of the two companies mentioned earlier in the order. Therefore, we are of the view that this case is required to be excluded."

Similar view has also been expressed by the Hyderabad Bench of the Tribunal in the case of Trinity Advanced Labs P. Ltd. (supra). In the case of M/s. Genesys Integrating India P. Ltd. (supra), the Bangalore Bench of the Tribunal has observed in the following manner —

            "9. Having heard both the parties and having considered the rival contentions and also the juridical precedents on the issue, we find that the TPO himself has rejected the companies which are making losses as comparables. This shows that there is a limit for the lower end for identifying the comparables. In such a situation, we are liable to understand as to why there should not be an upper limit also. What should be upper limit is another factor to be considered. We agree with the contention of the learned counsel for the assessee that the size matters in business. A big company would be in a position to bargain for the price and also attract more customers. It would also have a broad base of skilled employees who are able to give better output. A small company may not have these benefits and therefore, the turnover also would come down reducing profit margin. Thus, as held by the various benches if the Tribunal when companies which are loss making are excluded from comparables, then the super profit making companies should also be excluded. For the purpose of classification of companies on the basis of net sales or turnover, we find that a reasonable classification has to be made. Dun & Bradstreet and NASSCOM has given different ranges. Taking the Indian scenario into consideration, we feel that the classification made by Dun & Bradstreet is more suitable and reasonable. In view of the same, we hold that the turnover filter is very important and the companies having a turnover of ? 1.00 crore to 200 crores have to be taken as a particular range and the assessee being in the range having turnover of 8.15 crores, the companies which also have turnover of 1.00 to 200.00 crores only should be taken into consideration for the purpose of making TP study."'

Having considered these decisions, we are of the view that the aforesaid companies are not comparable at all. Therefore, we are of the view that these cases are required to be excluded.

12.8 Genesys Corporation
As far as this company is concerned, the stand of the assessee is as follows:
? functionally not comparable;
? it has a different employee skill set;
? this F1 company performs R&D services; and
? owns intangibles.

This company is a geospatial services content provider specialising in land based technologies. From the notes to accounts of this company, it is seen that this company is engaged in providing geographical information services comprising of photo geometry, remote sensing cartography, data conversion related computed based services and other related services. Further the business of this company requires skilled manpower and scientists, civil engineers, etc. Assessee is a routine ITES provider who does not require such highly skilled employees. Besides the above, this company also carries out R & D services and own intangibles. Therefore said facts, in our view, will take this company out of the list of comparables. In this regard, we may refer to the decision of the ITAT Bangalore Bench in the case of First Advantage Offshore Services (P.) Ltd. v. Dy. CIT [2012] 53 SOT 89, wherein it was observed as under:-

            "39. Having heard both the parties and having considered their rival contentions, we find that the assessee had raised elaborate objections to each of the comparables in group 3 before the TPO. The TPO has also reproduced the said objection in his order para 6.5.1. of page 178 of his order. He has rejected the contention of the assessee by holding that every function within BPO sector can be from low end to high end and the activities of the assessee such as accounting, web management, network management are BPO services using technology but these services are not categorized as KPO. He held that a call centre may offer support services like telemarketing to high end services like technical support services, where not only the level of knowledge, skill required would be high, hut the technical knowledge as well would he high. According to him, hack office transaction process services may he as remarkable and as complicated as insurance market transaction processing services. i.e., therefore, rejected the contention of the assessee and treated the BPO as equivalent to KPO services.

        40. We have to now consider whether a BPO and KPO are functionally similar and are comparable to each other. BPO is a sub-set of outscoring and involves the contracting of the operations and responsibilities (if specific business functions or process to a third party services provider. Often business processes outsourcing are information technology based and referred to as ITES-BPO. KPO is one of the sub-segment of the BPO industry. It involves outsourcing of core information related business activities which are competitively important or form an integral part of a company's value chain. It thus requires advanced analytical and technical skills as well as a high degree of specialist expertise. The KPO services include all kinds of research and information gathering. Thus it can be seen that even though both RPO and KPO are offering information Technology based services, the skill and expertise and may be even the tools required are different which may result in different economic results of both the segments. Thus, in such circumstances, we are of the opinion that they cannot be compared with each other and have to be excluded from the list of comparables."

It is thus clear from the aforesaid decision of the Tribunal that among the ITES companies there is a hierarchy in terms of skill required to provide services. It ranges from providing routine services where no skills are required to providing services where highly professionalized skills are required. Depending on the skills required to perform ITES the comparability has to be done. In view of the above, we are of the view that this company cannot be regarded as a comparable and deserves to be excluded from the list of comparables.

13. Ground relating to the margin computation of the assessee

It appears that the operating margin of 12.42% on cost as calculated by Ld. TPO is not in line with the operating margin of 15.18% as calculated and submitted by the assessee. It appears that while calculating operational margin no adjustment for expenses of rent relatable to substantial portion of unused floor space has been carried out. The assessee has adjusted a sum of ? 33 lacs towards the unutilized floor space including 10893 square feet acquired in new block for future expansion. This issue was explained to the DRP in writing but the DRP and the TPO have not dealt with is in an appropriate manner and have merely rejected the claim without verifying it. We therefore direct the TPO/AO to give opportunity to assessee and consider the objections on the issue.

14. TPO/AO is directed to re-workout the TP adjustment as per the provisions after excluding the comparables rejected above and considering the comparables which require reconsideration after giving opportunity to assessee. AO/TPO is also directed to consider the cost issue as directed in para 12 above. With these directions the ground 2 is considered partly allowed for statistical purposes.

15. Ground no .3 Relating to Section 10A

In this ground, assessee has challenged the reduction of communication charges from the export turnover without reducing it from the total turnover while computing deduction u/s 10A of the Act. This issue is squarely covered in favour of the assessee by the judgment of Hon'ble Bombay High Court in case of CIT v. Gem Plus Jewellery Ltd. [2011] 330 ITR 175 and the decision of Income-tax Appellate Tribunal, Chennai Special Bench in case of ITO v. Sak Soft Ltd. [2009] 30 SOT 55. In fact, the DRP though accepts such position but has decided the issue against the assessee only to give an opportunity to the department to pursue the same in higher forums. AO is directed to exclude the same from total turnover also. Ground is allowed.

The order pronounced in the open court on May 30, 2014.