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2016 (3) TMI 1270 - AT - Income TaxDenial of deduction u/s. 10A - non-production of export invoices - Held that - AO has wrongly disallowed the claim. Initially the claim was disallowed on non-production of FIRC s. In the post DRP proceedings the disallowance was made on non-production of invoices. We are not convinced with reasons stated by the AO. In fact his order states that assessee has shown invoice value to the extent of 17, 11, 75, 098/- as against 17, 33, 92, 390/- and balance was reconciled. Be that as it may now assessee undertakes to produce the copies of invoices to the AO. Therefore without going into the merits of action of AO we direct the AO to examine the same and allow the claim. The issue of claim of 10A is accordingly set aside to the AO for that limited purpose. Claim of deduction u/s. 10A. - AO excluded leased line charges and travelling expenses from the export turnover but has not reduced from the total turnover - Held that - This issue was already decided by the jurisdictional Hon ble High Court in the case of Tata Elxsi Ltd. Vs. CIT (2011 (8) TMI 782 - KARNATAKA HIGH COURT) wherein it was held that whatever expenses reduced from export turnover should also be reduced from total turnover while computing the deduction u/s. 10A of the Act. We direct the AO accordingly. TPA - comparable selection criteria - Held that - Assessee has rendered software development services thus companies functionally dissimilar with that of assessee need to be deselected from final list of comparable.
Issues Involved:
1. Condonation of delay in filing the appeal. 2. Denial of deduction under Section 10A on the grounds of non-production of export invoices. 3. Exclusion of leased line charges and traveling expenses from export turnover but not from total turnover. 4. Transfer Pricing adjustment and comparability of certain companies selected by the TPO. Detailed Analysis: 1. Condonation of Delay: The appeal was filed with a delay of 335 days. The assessee company ceased operations in 2009 and faced representation issues with the appointed AR withdrawing suddenly. The company only became aware of the situation after recovery proceedings began. Upon realizing, the company promptly appointed a new AR, obtained necessary documents, and filed the appeal. The tribunal found the reasons satisfactory and condoned the delay, admitting the appeal. 2. Denial of Deduction under Section 10A: The AO initially denied the deduction under Section 10A due to non-production of Foreign Inward Remittance Certificates (FIRC). Upon the assessee’s objection and submission of FIRCs, the DRP directed the AO to allow the deduction after examination. However, the AO then denied the deduction on the grounds of non-production of invoices despite the submission of FIRCs and reconciliation statements. The tribunal found the AO’s reasons unconvincing and directed the AO to examine the invoices and allow the claim. The issue was set aside to the AO for verification, and the ground was allowed for statistical purposes. 3. Exclusion of Expenses from Export Turnover: The AO excluded leased line charges and traveling expenses from the export turnover but did not reduce them from the total turnover, affecting the Section 10A deduction. The tribunal referenced the jurisdictional High Court decision in Tata Elxsi Ltd. vs. CIT, which held that expenses reduced from export turnover should also be reduced from total turnover. The tribunal directed the AO to follow this ruling, and the ground was allowed. 4. Transfer Pricing Adjustment: The TPO selected 26 comparables, resulting in a proposed TP adjustment of ?1,11,77,183, which the DRP confirmed. The assessee contested the comparability of certain companies. The tribunal reviewed the objections and previous coordinate bench decisions, excluding several companies due to functional dissimilarities, such as product-based operations and high turnover. The tribunal directed the TPO to exclude these companies and rework the Arithmetic Mean of accepted comparables. The tribunal also instructed the TPO to consider segmental details for Megasoft Ltd. If unavailable, it should be excluded. The ground was allowed with these directions. Conclusion: The appeal was allowed for statistical purposes, with specific directions to the AO and TPO to re-examine and adjust the claims and comparables as per the tribunal’s findings. The judgment emphasized the necessity of adhering to established legal precedents and ensuring fair assessment practices.
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