2017 (2) TMI 1208 - AT - Income Tax

Exclusion of telecommunication and foreign travel expenditure from export turnover while computing the eligible deduction u/s 10A - Held that - Claim of the assessee that telecommunication expenditure and foreign travel expenditure incurred in foreign currency could not be excluded from export turnover cannot be accepted in view of definition of export turnover given in Explanation 2(iv) to Sec. 10A of the Act. However, viz-a-viz its alternative claim that these expenditure if excluded from export turnover were to be deducted from total turnover also , is acceptable by virtue of judgment of Hon ble Karnataka High Court in the case of CIT vs. Tata Elxsi Limited 2011 (8) TMI 782 - KARNATAKA HIGH COURT . Accordingly, we direct exclusion of these expenditure from total turnover also while computing deduction available to the assessee u/s. 10A Deduction available u/s.10A to be given without setting off losses of its other STPI unit - Held that - Loss incurred by the assessee in its Chennai GFA unit shall not be set off against the profit of its Thiruvanathapuram unit while calculating deduction available to the assessee u/s. 10A of the Act. See Yokogawa India Ltd case 2016 (12) TMI 881 - SUPREME COURT wherein held loss of a STPI unit could not be set off against the profit of the unit on which deduction u/s.10A of the Act was being claimed. Ground of the assessee stands allowed. Disallowance of set off of its loss in its STPI unit against profits of non STPI unit - Lower authorities had denied the set off treating the STPI unit as a stand alone one - Held that - The issue in our opinion is covered in favour of the assessee by virtue of the judgment of Hon ble Bombay High Court in the case of Hindustan Unilever Limited vs. DCIT 2010 (4) TMI 206 - BOMBAY HIGH COURT wherein observed that loss sustained by an unit which was eligible for deduction u/s. 10B of the Act could be set off against normal business income. - Decided in favour of assessee Provision made for expenditure disallowed - Held that - DRP was obliged to give specific findings with regard to the claim of the assessee after going through the records. We are of the opinion that the matter requires a fresh look by the ld. DRP. We therefore set aside the orders of the ld. Assessing Officer and ld. DRP on the issue regarding provision for expenditure and remit it back to the ld. DRP for consideration afresh in accordance with law - Decided in favour of assessee for statistical purpose. Short credit of TDS - Held that - As per the assessee, TDS was correctly claimed by it in its return of income but still credit is not given. We are of the opinion that ld. Assessing Officer has to verify the fact whether tax has been deducted and claimed by the assessee in its return and decide accordingly.- Decided in favour of assessee for statistical purpose. TPA - selection of comparable - Held that - As assessee was providing services to its Associated Enterprise in the form of power point presentations which included preparation of various visual aid communication materials such as graphics, charts, exhibits, overhead transparencies and on-screen animated presentations, companies functionally dissimilar with that of assessee need to de-selected from final list of comparable. We allow the grounds seeking exclusion of Infosys BPO Ltd and M/s. Cosmic Global Ltd from the list of comparables and also direct the ld. Assessing Officer to rework the working capital adjustments considering the advances/deposits recoverable in cash or kind or value to be received from the four companies Sparsh BPO Services Ltd, Aditya Brila Minacs Worldwide Limited, Sundaram Business Services Limited and Professional Management Consultants Private Limited.

Issues Involved:
1. Exclusion of telecommunication and foreign travel expenditure from export turnover for deduction under section 10A.
2. Deduction under section 10A without setting off losses of other STPI units.
3. Set off of loss in STPI unit against profits of non-STPI unit.
4. Disallowance of provisions for expenditure.
5. Claim for enhanced deduction under section 10A if the provision for expenditure is disallowed.
6. Short credit of TDS.
7. Transfer Pricing issues including exclusion of certain comparables and working capital adjustments.

Detailed Analysis:

1. Exclusion of Telecommunication and Foreign Travel Expenditure:
The assessee contested the exclusion of telecommunication and foreign travel expenditure from its export turnover while computing the eligible deduction under section 10A of the Income Tax Act. The tribunal upheld the exclusion based on the definition of "export turnover" in Explanation 2(iv) to Sec. 10A of the Act. However, it accepted the alternative claim that these expenditures should also be excluded from the total turnover, referencing the Karnataka High Court judgment in CIT vs. Tata Elxsi Limited. Thus, ground Nos. 2 & 3 were partly allowed for statistical purposes.

2. Deduction Under Section 10A Without Setting Off Losses of Other STPI Units:
The assessee argued that the deduction under section 10A should be calculated without setting off the losses of its other STPI units. The tribunal referred to the Supreme Court judgment in CIT vs. Yokogawa India Ltd, which clarified that the deduction of profits and gains of an eligible undertaking should be made independently before the application of provisions for set off and carry forward. Consequently, the tribunal ruled that the loss incurred by the Chennai GFA unit should not be set off against the profit of the Thiruvananthapuram unit, allowing ground No. 4.

3. Set Off of Loss in STPI Unit Against Profits of Non-STPI Unit:
The assessee's claim that the loss in its STPI unit should be set off against the profits of its non-STPI unit was supported by the Bombay High Court judgment in Hindustan Unilever Limited vs. DCIT. The tribunal noted that section 10B, which provides for a deduction rather than an exemption, allows for the set off of losses from eligible units against normal business income. Thus, ground No. 5 was allowed.

4. Disallowance of Provisions for Expenditure:
The assessee contested the disallowance of provisions for expenditure totaling ?2,00,24,664/-. The tribunal found that the Dispute Resolution Panel (DRP) had directed the Assessing Officer to verify the relevant facts but had not provided specific findings. The tribunal remitted the matter back to the DRP for reconsideration, allowing ground No. 6 for statistical purposes.

5. Claim for Enhanced Deduction Under Section 10A if the Provision for Expenditure is Disallowed:
This ground was related to the disallowance of provisions for expenditure. Since the tribunal remitted the matter regarding the disallowance of provision back to the DRP, it also directed the DRP to address the issue of enhanced deduction under section 10A if any part of the provisions were disallowed. Thus, ground No. 7 was allowed for statistical purposes.

6. Short Credit of TDS:
The assessee claimed that it had not received credit for TDS of ?2,220/-. The tribunal directed the Assessing Officer to verify whether the tax had been deducted and claimed by the assessee in its return, allowing ground No. 9 for statistical purposes.

7. Transfer Pricing Issues:
The assessee sought the exclusion of M/s. Infosys BPO Ltd and Cosmic Global Limited from the list of comparables used for benchmarking its international transactions. The tribunal agreed, noting that Cosmic Global Limited had a different business model involving outsourcing, which made it unsuitable as a comparable. Similarly, Infosys BPO Ltd had a significantly higher turnover than the assessee, making it incomparable. The tribunal also directed the Assessing Officer to rework the working capital adjustments, considering advances and deposits recoverable in cash or kind from four specified companies. Thus, ground No. 8 of the original grounds and grounds No. 12 & 13 of the additional grounds were partly allowed.

Conclusion:
The appeal was partly allowed for statistical purposes, with specific directions for re-evaluation and adjustments by the DRP and Assessing Officer as outlined in the detailed analysis.

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