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2019 (10) TMI 1191 - AT - Income TaxTP Adjustment - Comparable selection - HELD THAT - Referring to Software design and development service segment being technical support services provided by assessee to its AE s companies functionally dissimilar with that of assessee need to be deselected from final list Comparability is to be carried out on broad object of benchmarking international transaction and according to law laid down under section 92B of the Act, read with rule 10 B (2) Income tax Rules, 1963. Comparables must be similar in material aspects and must be compared on basis of products/services characteristics, functions undertaken, assets used and risk assumed. Merely because certain comparables has been upheld for its exclusion/inclusion by various decisions, does not ipso facto lead to exclusion/inclusion in a given set of facts. In our considered opinion, exclusion/inclusion of any comparables must be strictly analysed on basis of FAR, in accordance with rule 10 B (2). We also are of opinion that comparables selected must be for relevant year which is to be compared and unless contemporaneous data as section 92D read with Rule 10 D (4), is not available for a relevant year, multiple year data should not be used. Treatment of royalty paid by assessee to its AE - HELD THAT - It is observed that assessee has placed substantial evidence which was not before the authorities below. We are therefore inclined to set aside this issue back to Ld.TPO/AO, for determination of this issue in the light of these documents vis-a-vis the agreement entered into by assessee with its AE under which the royalty has been paid. - Set aside this issue back to Ld. TPO to verify the issue on basis of documents filed by assessee and to establish true nature of transaction regarding payment of royalty by assessee to its AE. Ld.TPO is directed to verify details and if necessary called for any further documents in order to establish the true nature of the transaction regarding the payment of royalties by assessee to its AE and consider the claim of assessee as per law. Deduction u/s 10 A - export turnover being unbilled revenue, which was yet to be billed - HELD THAT - Before us assessee has not been able to establish that RBI extended time period to receive income arising out of export of services declared during the year under consideration. In decisions relied upon by Ld.AR in case of Tech Mahindra R D Services Ltd 2018 (5) TMI 1081 - ITAT MUMBAI assessee therein received income within 6 months of invoice being raised and therefore this Tribunal held that revenue should be included in export turnover and also the total turnover. In the facts of present case, assessee raised invoice in March 2008 that is end of subsequent financial year, for which assessee do not have any permission from RBI regarding extension of time. We are therefore unable to concur with the argument advanced by Ld.AR. Accordingly this ground raised by assessee stands dismissed. Deduction u/s 10A - Exclusion of telecommunication expenses while computing deduction - HELD THAT - It is observed that, Hon ble Karnataka High Court in case of CIT vs Tata Elxsi Ltd 2011 (8) TMI 782 - KARNATAKA HIGH COURT on identical issue held that telecommunication expenses is to be included while computing deduction under section 10 A of the act as it is directly linked with earning of income. Ld CIT DR has not brought before us any contradictory/distinguishable facts in respect of present case before us - we direct Ld.AO to include telecommunication expenses while computing exempt income u/s10A of the Act.
Issues Involved:
1. Transfer Pricing Adjustments 2. Non-Transfer Pricing Adjustments Detailed Analysis: 1. Transfer Pricing Adjustments: 1.1 Software Development Services: - The TPO and AO determined the ALP for software development services, resulting in an adjustment of ?31,36,792. - The assessee objected to the rejection of its TP documentation and the adoption of a 23.12% arm's length mark-up. - The Tribunal allowed the exclusion of certain comparables such as Avani Cimcon Technologies Ltd., Celestial Labs Ltd., E-Zest Solutions Ltd., Flextronics Software Systems Ltd., Helios & Matheson Information Technology Ltd., Infosys Ltd., Ishir Infotech Ltd., KALS Information Systems Ltd., Lucid Software Ltd., Megasoft Ltd., Persistent Systems Ltd., R Systems International Ltd., and Wipro Ltd. due to functional dissimilarities or other issues. 1.2 Research & Development Services: - The TPO and AO made an adjustment of ?1,78,23,332 towards R&D services. - The Tribunal remanded the issue back to the TPO for fresh consideration, directing the TPO to determine whether the services rendered were akin to software development services or R&D services. 1.3 Royalty Payment: - The TPO and AO adjusted ?9,90,11,636 towards royalty payment, rejecting the CUP method adopted by the assessee. - The Tribunal set aside the issue back to the TPO for verification of additional evidence submitted by the assessee to establish the true nature of the royalty payment. 1.4 Common Grounds: - The Tribunal addressed various common grounds, including the use of multiple-year data, market risk adjustment, and the benefit of a +/- 5% range. 2. Non-Transfer Pricing Adjustments: 2.1 Deduction under Section 10A for Unbilled Revenue: - The AO/DRP recomputed the deduction under Section 10A after reducing the unbilled revenue of ?92,560,000 from Export Turnover. - The Tribunal dismissed the ground, noting that the assessee did not establish that RBI extended the time period to receive income arising from export services declared during the year. 2.2 Disallowance of Royalty Payment Twice: - The AO/DRP disallowed royalty payment twice under Section 40(a) and Section 92CA. - The Tribunal directed the AO to verify the assessee's claim of suo-moto disallowance under Section 40(a)(i) and to consider the claim as per law. 2.3 Deduction under Section 10A for Communication Expenses: - The AO/DRP recomputed the deduction after reducing communication expenses of ?2,791,365 from Export Turnover. - The Tribunal directed the AO to include telecommunication expenses while computing exempt income under Section 10A, following the decision of the Karnataka High Court in CIT vs. Tata Elxsi Ltd. 2.4 Donations for 10A Units: - The AO/DRP disallowed donation expenditure of ?265,000. - The Tribunal directed the AO to verify the details and consider the claim as per law. 2.5 Calculation of Interest under Sections 234B and 234C: - The AO calculated interest on resulting adjustments under Sections 234B and 234C. - These grounds were noted as consequential and did not require adjudication. 2.6 Levy of Penalty under Section 271: - The AO issued a penalty notice consequent to the adjustments. - This ground was not specifically addressed in the summary provided. 2.7 Additional Ground: - The Tribunal allowed the additional ground raised by the assessee regarding the exclusion of Thirdware Solutions Ltd. as a comparable for the technical service segment. Conclusion: The Tribunal provided detailed directions on various issues, including the exclusion of certain comparables, remanding issues back to the TPO for fresh consideration, and directing the AO to verify claims and consider them as per law. The appeal was partly allowed based on the detailed analysis of each issue.
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