2013 (1) TMI 827 - AT - Income Tax

Summary

Issues involved:
The judgment involves issues related to adjustment of internet expenses in export turnover, denial of deduction under section 10A, setting off brought forward losses before deduction under section 10A, and upward adjustment of prices by the Transfer Pricing Officer (TPO).

Adjustment of Internet Expenses:
The first issue pertains to the adjustment of internet expenses in the export turnover. The Tribunal directed the Assessing Officer to exclude an equal amount from the total turnover as well, based on the judgment of the Hon'ble Karnataka High Court in a similar case. The decision was made in favor of the assessee, emphasizing that components of export turnover in the numerator and denominator cannot differ.

Denial of Deduction under Section 10A:
The next issue concerns the denial of deduction under section 10A by the Assessing Officer, alleging the formation of the business through splitting up or reconstruction. Referring to a previous decision in the assessee's case, the Tribunal held that shifting an existing business to a new location does not constitute forming a new business. Relying on relevant legal precedents, the Tribunal directed the assessing authority to grant the deduction under section 10A to the assessee.

Setting off Brought Forward Losses:
Another issue raised was the sequence of setting off brought forward losses before allowing the deduction under section 10A. The Tribunal, citing previous decisions and the Hon'ble Karnataka High Court, ruled in favor of the assessee. It directed the Assessing Officer to allow the deduction under section 10A before setting off the brought forward losses.

Upward Adjustment of Prices by TPO:
The final issue involved an upward adjustment of prices by the Transfer Pricing Officer (TPO) based on comparables with higher turnovers and different business lines. The Tribunal found the TPO's adjustment arbitrary and determined the Profit Level Indicator (PLI) at 7% for the assessment year 2007-08, significantly lower than the TPO's 25.44%. The Tribunal modified the ALP adjustment accordingly, partially allowing the assessee's appeal.