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2016 (6) TMI 1271 - AT - Income TaxTPA - comparable selection criteria - Held that - Tthe assessee company is engaged in rendering services to the AE relating to designing of integrated circuits and the testing of integrated circuits along with customer support. It is also noted by the TPO that the international transactions are mainly for software services apart from re-imbursement of expenses, thus companies functionally dissimilar with that of assessee need to be deselected from final list of comparability. Computing deduction allowable to the assessee u/s 10A - Held that - As held by the Hon ble jurisdictional High Court in the case of M/s Tata Elxsi ltd. (2011 (8) TMI 782 - KARNATAKA HIGH COURT) that total turnover is sum total of domestic turnover and export turnover and therefore, if an amount is excluded from the export turnover, the same gets automatically reduced from the total turnover. Respectfully following this judgment of the Hon ble jurisdictional High Court, we direct the AO/TPO to reduce this amount which was reduced from the export turnover from the total turnover also for the purpose of computing deduction allowable to the assessee u/s 10A Rectification of mistake - A.O. has neither included any comparable nor excluded any comparable as had been directed by DRP - Held that - There is no dispute that as per the directions of DRP, some comparables were to be excluded and some were to be included but as per the final assessment order, the A.O. has neither included any comparable nor excluded any comparable as had been directed by DRP and therefore, his order is in violation of sub section 13 of sec.144C. But this is also true that there is wrong observation in this final assessment order that DRP has confirmed the proposed assessment order. Under these facts, we find force in the submissions of the learned DR of the revenue that this is an apparent mistake in the assessment order rectifiable u/s 154 of the I T Act. Thus since the time limit of 4 years prescribed in section 154 has not elapsed, we feel it proper to restore the entire matter in this year to the AO to pass fresh assessment order as per the directions of DRP and thereafter, both sides are at liberty to file appeal before the tribunal if not satisfied with that order.
Issues Involved:
1. Transfer Pricing Adjustments 2. Computation of Deduction under Section 10A 3. Validity of Final Assessment Order 4. Interest under Sections 234B and 234C 5. Penalty Proceedings under Section 271(1)(c) Detailed Analysis: 1. Transfer Pricing Adjustments Issue: The assessee contested the adjustments made by the AO/DRP/TPO to the transfer price, arguing that the transactions with its associated enterprise were at arm's length and that the AO/DRP/TPO erred in rejecting the assessee's comparables and documentation. Judgment: The Tribunal noted that the TPO considered 28 comparables and found that the assessee’s operating profit margin was 14.64%, while the mean margin of 26 comparables was 25.14% before working capital adjustment and 22.74% after adjustment. The Tribunal directed the exclusion of 14 comparables, including those identified in the cases of Hewlett Packard (Ind.) Software Operation Ltd. and Meritor LVS India (P) Ltd. The Tribunal also instructed the AO/TPO to consider the inclusion of Megasoft Ltd. based on its segmental results. The AO/TPO was directed to pass a necessary order after providing an opportunity of being heard to the assessee. 2. Computation of Deduction under Section 10A Issue: The assessee challenged the reduction of telecommunication expenses from the export turnover but not from the total turnover for computing the deduction under Section 10A. Judgment: The Tribunal referred to the judgment of the Hon’ble Karnataka High Court in Tata Elxsi Ltd., which held that if an amount is excluded from the export turnover, it should also be excluded from the total turnover. The AO/TPO was directed to reduce the telecommunication expenses from both the export turnover and the total turnover for computing the deduction under Section 10A. 3. Validity of Final Assessment Order Issue: The assessee argued that the final assessment order was not in conformity with the DRP's directions, rendering it invalid. Judgment: The Tribunal found that the AO did not include or exclude comparables as directed by the DRP, which was a violation of Section 144C(13). However, the Tribunal noted that this appeared to be an apparent mistake rectifiable under Section 154. The Tribunal restored the matter to the AO to pass a fresh assessment order in accordance with the DRP's directions. 4. Interest under Sections 234B and 234C Issue: The assessee contested the interest charged under Sections 234B and 234C. Judgment: The Tribunal noted that this issue was consequential and dependent on the final assessment order. Therefore, it did not require separate adjudication at this stage. 5. Penalty Proceedings under Section 271(1)(c) Issue: The assessee challenged the initiation of penalty proceedings under Section 271(1)(c). Judgment: The Tribunal noted that this issue was also consequential and did not require separate adjudication at this stage. Conclusion: - The appeal for the assessment year 2007-08 was partly allowed. - The cross appeals for the assessment year 2010-11 were allowed for statistical purposes, with directions to the AO to pass a fresh assessment order in conformity with the DRP's directions.
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