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2015 (11) TMI 1545 - AT - Income TaxDetermination of Arm s Length Price (ALP) under Sec.92CA - MAM - comparable selection - Held that - TPO had erred in choosing an external comparable when there was an internal comparable uncontrolled transaction which the assessee had taken in its TP study section 10A computation - Held that - Following the Patni Telecom Pvt. Ltd. 2008 (1) TMI 452 - ITAT HYDERABAD-A e4e is not involved in rendering technical services outside India but it in the business of export of BPO services as contemplated under the provisions of section 10A of the Act from its offshore centre in India. It is not engaged in rendering onsite services and therefore telecommunication expenses and travel expenses incurred in foreign currency should not be excluded from the ET and TT in computing the eligible relief under section 10A of the Act. Further BPO services undertaken for the purposes of export cannot be equated to providing technical services outside India solely for the purpose of excluding travel expenses incurred in foreign currency from the ET as envisaged in the definition of export turnover as provided in section 10A of the IT Act. Accordingly the adjustment made by the AO is to be quashed in entirety. We direct the AO to re-work the same.
Issues Involved:
1. Transfer Pricing Adjustment 2. Adjustments under Section 10A of the Act Detailed Analysis: Transfer Pricing Adjustment: The assessee, M/s E4e Business Solutions India Pvt. Ltd., filed its return of income for AY 2010-11, declaring a taxable income of Rs. 23,945,375/-. The case was selected for scrutiny, and the international transactions were referred to the TPO for determination of Arm's Length Price (ALP). The assessee had adopted the Transactional Net Margin Method (TNMM) and computed its Profit Level Indicator (PLI) at 17.61%. The TPO rejected the TP documentation and re-determined the ALP, selecting 10 comparable companies and making adjustments, resulting in an ALP of 27.70%. Consequently, an adjustment of Rs. 61,981,771/- was made. The AO, considering the TPO's findings, proposed adjustments in the draft assessment order, including a TP adjustment of Rs. 61,981,771/- and an excess claim under section 10A amounting to Rs. 1,846,246/-. The total additions/disallowances amounted to Rs. 63,828,017/-, leading to a computed total income of Rs. 87,773,397/- and a tax payable of Rs. 33,530,390/-. The assessee filed objections with the DRP, which upheld the rejection of the TP documentation and modified the export filter. The DRP directed the rejection of certain companies as comparables and made adjustments, resulting in a final assessment order with a total income of Rs. 100,873,056/- and a tax demand of Rs. 42,605,150/-. The assessee appealed to the ITAT, raising several grounds, including the rejection of TP documentation, the use of single-year data, and the selection of comparables. The ITAT considered the additional grounds and directed the TPO to choose internal comparables over external ones, following the decision in Mylan Labs Ltd. The appeal was allowed, and the TPO was directed to re-work the ALP using internal comparables. Adjustments under Section 10A of the Act: The AO had reduced telecommunication and travel expenses from the export turnover (ET) but not from the total turnover (TT), resulting in an upward adjustment of Rs. 1,846,246/-. The DRP directed the AO to reduce these expenses from both ET and TT, following the Karnataka High Court's decision in Tata Elxsi Ltd. This reduced the adjustment to Rs. 585,520/-. The ITAT considered the assessee's submission that telecommunication and travel expenses should not be reduced from both ET and TT as they were not incurred for rendering technical services outside India. The ITAT upheld this view, referencing decisions from various ITAT benches, and directed the AO to re-work the relief under section 10A without excluding these expenses from ET and TT. Conclusion: The ITAT allowed the assessee's appeal for statistical purposes and dismissed the revenue's appeal. The ITAT directed the AO to re-work the adjustments under section 10A and to use internal comparables for determining the ALP, thereby quashing the adjustments made by the AO and TPO. The order was pronounced in the open court on November 4, 2015.
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