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2012 (5) TMI 3 - AT - Income TaxDeduction u/s 10A - Transfer pricing adjustment - It is relating to the reduction of export turnover by communication expenses i.e internet charges attributable to the delivery of computer software outside India and not reducing the same from total turnover also for the purpose of computing deduction u/s 10A of the Act - learned counsel for the assessee submitted that this issue is now covered by the decision in the case of CIT v. Tata Elxsi Ltd. 2011 (8) TMI 782 - KARNATAKA HIGH COURT - wherein it has been held that if certain expenditure is reduced from the export turnover, the same has to be reduced from the total turnover also - Decided in favor of the assessee Regarding Transfer Pricing adjustments - DRP decided the ALP to be @ 119.45% of the operating cost and reduced the same by the price shown in the international transaction and arrived at the short fall of ₹ 3,55,93,801 - TPO did not accept the analysis conducted by the assessee and he conducted a fresh economic analysis and failed to appreciate that such data was not available in the public domain to the assessee at the time of complying with the mandatory TP documentation by the prescribed due date - the basic objection of the assessee is that the TPO has rejected the filters adopted by the assessee and has adopted untenable filters for arriving at the comparables and in his detailed submission before the TPO as well as the Tribunal, the assessee has brought out the various factors that would justify the adoption of comparables by the assessee - The information acquired by the TPO u/s 133(6) was no doubt provided to the assessee. However, the assessee was not allowed to rebut the said information by way of any evidences - In the case of Genesis Integrating System India Pvt. Ltd., Bangalore and this Tribunal vide orders dated 5.8.2011 had answered the various issues raised by the assessee therein and has also issued guidelines for adoption of comparables and has also directed the TPO to allow the assessee to cross examine the comparables whose replies were sought to be used against the assessee if the assessee so desires - Decided in favor of the assessee by way of remand to AO
Issues Involved:
1. Denial of benefit under Section 10A of the Income-tax Act. 2. Transfer Pricing (TP) adjustments. 3. Reduction of export turnover by communication expenses. 4. Rejection of comparables in Transfer Pricing analysis. 5. Adjustment of Arm's Length Price (ALP). 6. Levy of interest under Sections 234B and 234C. 7. Initiation of penalty proceedings under Section 271(1)(c). Detailed Analysis: 1. Denial of Benefit under Section 10A: The assessee was denied the benefit under Section 10A of Rs. 1,65,904/- on the grounds of not satisfying stipulated conditions. The Tribunal directed the Assessing Officer (AO) to reduce the total turnover by communication expenses for computing the deduction under Section 10A, following the jurisdictional High Court's decision in CIT v. Tata Elxsi Ltd. 2. Transfer Pricing (TP) Adjustments: The AO made a TP adjustment of Rs. 3,54,18,922/-. The assessee objected to the TP adjustments made by the TPO and confirmed by the Dispute Resolution Panel (DRP). The Tribunal remitted the issue back to the AO for reconsideration, directing the AO to follow guidelines issued in a similar case (Genesis Integrating System India Pvt. Ltd.) and allow the assessee to cross-examine the comparables. 3. Reduction of Export Turnover: The AO reduced export turnover by communication expenses (internet charges) attributable to the delivery of computer software outside India but did not reduce the same from total turnover. The Tribunal directed the AO to reduce the total turnover by communication expenses for computing the deduction under Section 10A, in line with decisions in ITO v. Sak Soft Ltd. and CIT v. Tata Elxsi Ltd. 4. Rejection of Comparables in TP Analysis: The TPO rejected certain comparables identified by the assessee and adopted new ones using different criteria. The Tribunal found that the TPO's approach was not justified and remitted the issue back to the AO to follow the guidelines from the Genesis Integrating System case and allow the assessee to cross-examine the comparables. 5. Adjustment of Arm's Length Price (ALP): The TPO determined the ALP using financial year 2005-06 data, which was not available to the assessee during TP documentation. The Tribunal directed the AO to reconsider the ALP adjustment, taking into account the guidelines from the Genesis Integrating System case. 6. Levy of Interest under Sections 234B and 234C: The AO levied interest of Rs. 65,26,005/- and Rs. 10,536/- under Sections 234B and 234C respectively. The Tribunal remitted these issues back to the AO for adjudication in accordance with the law. 7. Initiation of Penalty Proceedings under Section 271(1)(c): The AO initiated penalty proceedings under Section 271(1)(c). The Tribunal remitted this issue back to the AO for adjudication in accordance with the law. Conclusion: The appeal filed by the assessee was allowed for statistical purposes, with directions to the AO to reconsider various issues, particularly the TP adjustments, following the guidelines from the Genesis Integrating System case and to provide the benefit of a +/-5% range while making the ALP adjustment. The Tribunal also directed the AO to reduce the total turnover by communication expenses for computing the deduction under Section 10A.
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