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2017 (11) TMI 1758 - AT - Income TaxTPA - Comparable selection - functinal similarity - Held that - The assessee is engaged in the business of range of software services and also business process/out sourcing services thus companies functionally dissimilar with that of assessee need to be deselected from final list. The related party transactions filter applied by Revenue for all over comparables at the rated of 25% for selecting comparables will not matter Only the companies incurring persistent losses ought to be rejected as comparable. Consider the employ cost to sales ratio at the Rate of 25% as filter for selective comparables Deduction u/s 10A - Held that - We find that the ITAT for AY 2003-04 has remanded the matter back to the learned AO for verification of quantum of expenditure incurred in respect of reimbursement on account of telecommunication charges (with needs to be adjusted from the export turnover). However for the subject year under consideration. Accenture while calculating its export turnover has suo-moto excluded the reimbursement on account of telecommunication charges. Deduction on the amounts payable under ISA under Section 37(1) - Held that - Under the present circumstances of the business such global arrangement is necessary for the purpose of business. The expenditure incurred for such global arrangement is allowable expenses u/s 37(1) of the Act. In addition to that we find that the payment of expenditure is at arm s length determined by the TPO u/s 92CA(3) of the Act. We do not find any substance in the case of the revenue because when an international transaction at arms length as determined by the TPO in the said transaction it cannot be said that the assessee has paid the prices under the said transaction without obtaining any services. The contention of the revenue is baseless and under the facts and circumstances of the case the expenditure is incurred for the purpose of business. Therefore we are of the view that the CIT(A) has rightly allowed the claim of the assessee. Upward adjustment in respect of international transaction related to employees share purchase plan (ESPP) expenses - Held that - CIT(A) has given a categorical finding after examining the relevant material and submission of the assessee that shares were allotted to its employees and not to the employees of the parent company. The expenses incurred by the assessee to motivate and award its employees for their hard work which amounts salary cost of the assessee company. The expenditure incurred by the assessee for the purpose of business on employees is allowable expenses. The CIT(A) has examined the entire scheme and found that such expenses are business expenses and should be allowable as deduction. Since there is no contrary material to the findings of the CIT(A) in the light of that we confirm the order of CIT(A) on this issue
Issues Involved:
1. Transfer Pricing Adjustments 2. Working Capital Adjustment and Risk Adjustments 3. Deduction under Section 10A of the Income Tax Act 4. Allowability of Deduction for Expenses under Accenture Organization International Services Agreement (ISA) 5. Upward Adjustment in Respect of Employee Share Purchase Plan (ESPP) Expenses Detailed Analysis: 1. Transfer Pricing Adjustments: - Revenue's Appeal: The CIT(A) erred in deleting the addition made by the TPO on account of transfer pricing adjustment to the value of international transactions in respect of IT enabled services and software development services. - Assessee's Cross Objection: The CIT(A) erred in not adjudicating on the contention that the benefit of working capital adjustment and risk adjustments should be allowed. - Facts: The assessee is engaged in providing software services and IT enabled services to its group entities. The TPO made adjustments by rejecting some comparables and introducing new ones, resulting in an upward adjustment. - CIT(A)'s Decision: The CIT(A) accepted some comparables and rejected others based on specific criteria. - Tribunal's Decision: The Tribunal adjudicated on each comparable, accepting or rejecting them based on detailed analysis. For example, CS Software Enterprise Limited was accepted as comparable, while Genesys International Corporation Limited and Nucleus Netsoft were excluded. 2. Working Capital Adjustment and Risk Adjustments: - Assessee's Contention: The CIT(A) did not adjudicate on the contention that working capital adjustment and risk adjustments should be allowed. - Tribunal's Decision: The issue was remitted back to the AO/TPO for examination in line with the Tribunal's decision in Qualcomm India Pvt. Ltd. The AO/TPO was directed to allow the assessee to present its case and make necessary adjustments. 3. Deduction under Section 10A of the Income Tax Act: - Revenue's Appeal: The CIT(A) erred in allowing deduction under Section 10A on receipts from reimbursable expenses and in holding that these should not be excluded from export turnover. - Facts: The AO held that gross receipts from reimbursable expenses are not eligible for deduction under Section 10A. The CIT(A) allowed the claim, stating that the receipts relate to the business of STPI units and should be included in profits. - Tribunal's Decision: Following its decision in earlier years, the Tribunal allowed the deduction under Section 10A, remanding the matter back to the AO for verification of quantum of expenditure incurred. 4. Allowability of Deduction for Expenses under Accenture Organization International Services Agreement (ISA): - Revenue's Appeal: The CIT(A) erred in allowing deduction for amounts payable under ISA. - Facts: The AO disallowed the deduction, questioning the relevance and quantification of services obtained under ISA. The CIT(A) allowed the deduction, stating that the arm's length price was reviewed by the TPO and the income was offered to tax in India. - Tribunal's Decision: The Tribunal upheld the CIT(A)'s decision, following its earlier rulings for AY 2002-03 and 2003-04, and dismissed the Revenue's appeal. 5. Upward Adjustment in Respect of Employee Share Purchase Plan (ESPP) Expenses: - Revenue's Appeal: The CIT(A) erred in deleting the upward adjustment made by the TPO in respect of ESPP expenses. - Facts: The AO and TPO disallowed the deduction, arguing that the ESPP was for the benefit of the parent company. The CIT(A) allowed the deduction, stating that the shares were allotted to the employees of the assessee and the expense was akin to salary costs. - Tribunal's Decision: The Tribunal confirmed the CIT(A)'s decision, following its earlier rulings for AY 2002-03 and 2003-04, and dismissed the Revenue's appeal. Conclusion: The Tribunal's detailed analysis upheld the CIT(A)'s decisions on various issues, including transfer pricing adjustments, working capital and risk adjustments, deductions under Section 10A, and expenses under ISA and ESPP. The Tribunal remanded certain issues back to the AO/TPO for further examination and verification.
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