2014 (3) TMI 357 - AT - Income Tax

Exclusion of the amount of internet expenses from export turnover as well as total turnover Held that - The Assessing Officer has excluded an amount of Rs. 11,23,288/- being internet expenses for export of software from export turnover without excluding the same from total turnover - The Decision in ITO Vs. M/s. Saksoft Ltd 2009 (3) TMI 243 - ITAT MADRAS-D followed - the eligible expenditure has to be excluded from export turnover as well as total turnover thus, the expenditure incurred on account of the internet expenses for export of software is to be excluded from export turnover as well as total turnover Decided in favour of Assessee. Dis-allowance u/s.10A of the Act splitting up or/and re-construction of the business activities already in existence Held that - The assessee has not been formed by splitting up of the existing business or re-construction of the business at a new place by splitting up of existing business - Decided in favour of the assessee. Method of computation of deduction u/s.10A of the Act Deduction claimed before setting off of unabsorbed depreciation and brought forward losses Held that - For un-absorbed depreciation,the decision in M/s.Himatsingka Seide Ltd., Vs. CIT 2013 (10) TMI 823 - SUPREME COURT followed - un-absorbed depreciation has to be set-off before computing the exemption allowable u/s.10A for setting-off of the brought forward losses, the decision in CIT Vs. Yokogawa India Ltd. 2011 (8) TMI 845 - Karnataka High Court followed thus, the assessee can claim deduction u/s.10A before setting off of brought forward losses Decided partly in favour of Assessee. Upward adjustment made by DRP - Difference in PLI of the assessee viz-a-viz PLI of comparables Held that - The decision in Assistant Commissioner of Income-tax Versus SRA Systems Ltd. 2013 (9) TMI 334 - ITAT CHENNAI followed - the PLI of the assessee is determined at 7% - While determining the PLI for the AY.2007-08, the Tribunal had also taken into consideration the directions of the DRP for the AY.2008-09 thus, it would be appropriate to adopt the PLI at 7% as against 13.35% determined by the DRP - the quantum of ALP has to be re-calculated in accordance with the PLI Decided partly in favour of Assessee. Value of operating cost Held that - There is a factual error which is to be rectified after referring to the books of accounts of the assessee thus, the matter remitted back to the Ao foe adoption of the correct value of operating cost Decided in favour of Assessee.

Summary

Issues Involved:
1. Exclusion of internet expenses from export turnover and total turnover.
2. Disallowance of deduction u/s.10A.
3. Method of computation of deduction u/s.10A.
4. Upward adjustment made by DRP.
5. Adoption of operating cost.

I.T.A. No. 1547/Mds/2012:

Issue 1 - Exclusion of Internet Expenses:
The assessee challenged the exclusion of internet expenses from export turnover and total turnover. The Special Bench of the Tribunal in the case of ITO Vs. M/s. Saksoft Ltd held that eligible expenditure must be excluded from both turnovers. The Tribunal allowed the appeal, directing the exclusion of internet expenses from both turnovers.

Issue 2 - Disallowance of Deduction u/s.10A:
The Tribunal considered the disallowance of deduction u/s.10A due to the formation of the assessee by splitting up or reconstruction of an existing business. Relying on past decisions, the Tribunal ruled in favor of the assessee, stating that the company was not formed through such means.

Issue 3 - Method of Computation of Deduction u/s.10A:
The dispute revolved around the computation of deduction u/s.10A before setting off unabsorbed depreciation and brought forward losses. The Tribunal referred to relevant judgments, including the Hon'ble Supreme Court's decision, and concluded that unabsorbed depreciation must be set off before computing the exemption under u/s.10A. The assessee was allowed to claim the deduction before setting off brought forward losses partially.

Issue 4 - Upward Adjustment by DRP:
The DRP made an upward adjustment based on the difference in Profit Level Indicator (PLI) between the assessee and comparables. The Tribunal found discrepancies in the comparables selected by the TPO and DRP, leading to a partial allowance of the appeal. The PLI was recalculated at 7% instead of 13.35%, requiring a re-calculation of the Arms' Length Price.

Issue 5 - Adoption of Operating Cost:
A factual error in adopting the operating cost led to the remittance of the issue back to the Assessing Officer for rectification based on the audited accounts of the assessee for the relevant financial year.

I.T.A. No. 262/Mds/2013:
This appeal challenged the DRP's order arising from a rectification petition. Since all issues were already addressed in a prior appeal (I.T.A. No. 1547/Mds/2012) and adjudicated on merits, rendering this appeal redundant, the Tribunal dismissed the appeal.

In conclusion, the judgment addressed various critical issues related to the assessment order, including the exclusion of expenses, disallowance of deductions, computation methods, upward adjustments, and factual discrepancies. The Tribunal's decisions were based on legal precedents and interpretations of relevant tax laws, resulting in partial allowances and remittances for rectification.