9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2015 (12) TMI 1759 - AT - Income TaxTPA - comparables selection criteria - functional dissimilarity - Held that - We agree with the proposition of the Tribunal laying down the minimum turnover filter of 100 crores in the case of the assessee because the selection of the comparables has to be seen both on quantitative and qualitative criteria. A turnover of a company most likely has a bearing on its comparability as the size of a transaction in absolute value or in proportion to the activities of the companies might affect the relative competitive positions of the buyer and the seller. Accordingly we direct the TPO/AO to remove the comparables having turnover of 100 crores. Comparable cannot be rejected on the export earning filter of 25% The assessee company is engaged in the business of providing software development IT outsourcing services; and customizes service software development services thus companies functionally dissimilar with that of assessee need to be deselected from final list. Deduction u/s.10A - adjustment of losses - Held that - Losses of section 10A units have to be adjusted against taxable profits of other units after deduction under section 10A has been allowed in respect of each of the profitable unit under section 10A. Reducing the telecommunication expenditure from the export turnover of the eligible units the while computing deduction under section 10A - Held that - As decided in assessee s own case these expenses have been incurred for the purposes of the business of software development at the software units in India. It is that finding which the Assessing Officer was unable to controvert or unable to bring any contrary material to disprove the same. It is in that light that the Tribunal found that the Assessing Officer could not have insisted on the deduction. It is that exercise undertaken by the Assessing Officer which has not been upheld but rather disapproved by the Tribunal. This is a finding purely on the facts and pertaining to the business of the assessee. The facts pertaining to the assessee s business of software development the charges and which are claimed to have incurred are in relation to the business of software development within India. They could not be said to be costs deductible from export turnover for the purposes of Section 10A of the Act. Reducing the expenditure incurred in foreign currency from the export turnover of the units eligible while computing deduction under Section 10A - Held that - Tribunal in assessee s own case for the assessment year 2009-10 wherein it is held it is similar to issue of telecommunication expenses and accordingly decision of Bombay High Court will be followed. Thus respectfully following the order of the Hon ble Bombay High Court and the ITAT decision for AY 2009-10 we set aside the orders of the revenue authorities and direct the AO to delete the disallowance and compute the exemption as per law. Disallowance of interest and expenses u/s 14A as expenditure incurred for earning dividend income - Held that - So far as disallowance of interest the same cannot be made as admittedly the assessee has huge surplus funds which are interest free and therefore no disallowance of interest should be made. As regards the indirect expenses the same has been disallowed under Rule 8D by the AO in a mechanical way without satisfying himself after looking into the nature of accounts of the assessee and the nature of expenses debited in the books of accounts as per mandatory requirement of section 14A(2). If assessee s investments are only in subsidiary companies and mutual funds then it cannot be held that assessee might have incurred huge expenditure. The assessee had suo moto offered a sum of 50, 000/- for disallowance which in our opinion is sufficient for attributing the indirect expenses for earning the exempt income of 2, 83, 000/-. - Decided in favour of assessee.
Issues Involved:
1. Transfer Pricing Adjustments 2. Deduction under Section 10A for Losses of Units 3. Reduction of Telecommunication Expenditure from Export Turnover 4. Reduction of Expenditure Incurred in Foreign Currency from Export Turnover 5. Disallowance under Section 14A for Earning Exempt Income 6. Granting of Foreign Tax Credit Detailed Analysis: 1. Transfer Pricing Adjustments: The primary issue pertains to the transfer pricing adjustment of Rs. 149,22,84,130/-. The assessee, an Indian company, engaged in software development and export services, reported various international transactions with its Associated Enterprises (AEs). The TPO rejected the assessee's transfer pricing documentation and conducted a fresh search of comparables, identifying 17 comparables with an arithmetic mean margin of 23.79%. The DRP excluded one comparable, reducing the margin to 23.59%, and the adjustment to Rs. 149,22,84,130/-. The Tribunal upheld the exclusion of companies with turnovers less than Rs. 100 crores, reducing the comparables to 7, and further excluded Infosys and Wipro based on qualitative differences, resulting in 6 comparables with an arithmetic mean of 16.19%. The Tribunal directed the TPO/AO to make adjustments based on this revised list. 2. Deduction under Section 10A for Losses of Units: The assessee claimed Section 10A deductions for certain units while setting off losses of other 10A units against taxable profits of non-eligible units. The Tribunal, following its previous decisions and the Bombay High Court's ruling, held that losses from 10A units should be adjusted against taxable profits of other units after allowing deductions under Section 10A for profitable units. 3. Reduction of Telecommunication Expenditure from Export Turnover: The assessee argued that telecommunication expenses should not be reduced from export turnover since they were not separately charged to clients. The Tribunal, relying on the Bombay High Court's decision, agreed that such expenses related to the business of software development within India and should not be deducted from export turnover for Section 10A purposes. 4. Reduction of Expenditure Incurred in Foreign Currency from Export Turnover: The assessee contended that expenses incurred in foreign currency should not be reduced from export turnover as they were not for providing technical services outside India. The Tribunal, following its decision on telecommunication expenses and the Bombay High Court's ruling, directed the AO to delete the disallowance and compute the exemption as per law. 5. Disallowance under Section 14A for Earning Exempt Income: The assessee argued that investments were made from surplus funds, and only Rs. 50,000/- should be disallowed. The Tribunal found that the AO mechanically applied Rule 8D without proper analysis. It deleted the disallowance of Rs. 1,86,089/- for interest and accepted the assessee's offered disallowance of Rs. 50,000/- for indirect expenses. 6. Granting of Foreign Tax Credit: The assessee claimed a foreign tax credit of Rs. 4,04,789/-. The Tribunal directed the AO to verify and grant the foreign tax credit accordingly. Conclusion: The appeal was partly allowed, with specific directions for adjustments in transfer pricing, deductions under Section 10A, and disallowances under Section 14A, while directing the AO to verify and grant the foreign tax credit.
|
