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2018 (10) TMI 1697 - AT - Income TaxTP Adjustment - Determination of the arm s length price (ALP) in respect of an international transaction of rendering IT enabled services (ITes) by the assessee to its Associated Enterprise (AE) - comparable selection - HELD THAT - The functions performed by the assessee, as we have already seen is back office services relating to finance and human resource functions, including accounts payable to assessee, remote server access, maintenance and management services, payroll processing, credit analysis, ledger maintenance, etc. for its affiliates worldwide. It is thus clear that the information technology services provided by the assessee cannot be compared with Engineering Design Services provided by Acropetal Technologies Ltd. Therefore, the conclusion that this company is not functionally comparable is found to be correct. We also find that this Tribunal in the case of Novo Nordisk (I) P. Ltd. 2017 (8) TMI 1560 - ITAT BANGALORE has held that in the case of a company which was rendering similar ITeS as that of assessee it was held that Acropetal Technologies Ltd. cannot be considered as a comparable in ITeS segment. Deduction u/s 10A - HELD THAT - The provision of set off and carry forward as contemplated under Chapter-VI of the Act would not be attracted and therefore intra head set off sought by seeking to rely on the provision of section 70(1) of the Act and seeking to restrict the deduction u/s 10A and 10AA of the Act to the extent of gross total income as contemplated u/s 80A(2) of the Act, cannot be sustained. We therefore hold that deduction u/s.10A of the Act has to be allowed without setting off the brought forward business losses and unabsorbed depreciation of non Sec. 10A units before allowing the deduction under section 10A of the Act. In view of the aforesaid decision of the Hon ble Supreme Court, YOKOGAWA INDIA LTD. 2016 (12) TMI 881 - SUPREME COURT we find no merit in ground No.12 raised by the revenue. In the result, the revenue s appeal is dismissed.
Issues Involved:
1. Determination of the arm’s length price (ALP) in respect of an international transaction of rendering IT enabled services (ITes) by the assessee to its Associated Enterprise (AE). 2. Exclusion of Acropetal Technologies Ltd. from the list of comparable companies. 3. Deduction under section 10B of the Income-Tax Act, 1961 before computing the gross total income. Issue-wise Detailed Analysis: 1. Determination of the Arm's Length Price (ALP): The primary issue raised by the revenue (Ground Nos. 1 to 10) pertains to the determination of the ALP for the international transaction of rendering IT enabled services (ITes) by the assessee to its Associated Enterprise (AE). The assessee, a subsidiary of Flextronics International Asia Pacific Ltd., Mauritius, provided various back-office services to its affiliates worldwide. The price received for these services was ?12,32,60,290. To support its claim that the price was at arm’s length, the assessee adopted the Transactional Net Margin Method (TNMM) and selected a set of 10 comparable companies. However, the Transfer Pricing Officer (TPO) rejected all but one comparable company chosen by the assessee and selected 9 additional companies. The TPO computed the ALP based on these comparables and made an addition to the total income. The Dispute Resolution Panel (DRP) excluded 8 out of the 10 comparables chosen by the TPO, leaving only ICRA Online Ltd. and Jindal Telecom, whose profit margins were at arm’s length when compared with the assessee's margins after providing for working capital adjustment. 2. Exclusion of Acropetal Technologies Ltd.: The revenue challenged the exclusion of Acropetal Technologies Ltd. by the DRP. The DRP excluded this company on the grounds that its major source of income was from providing engineering design services, which are considered high-end services requiring high skill, unlike the low-end ITES functions performed by the assessee. The Tribunal upheld the DRP's exclusion of Acropetal Technologies Ltd., noting that the engineering design services provided by Acropetal were not comparable to the ITES provided by the assessee. The Tribunal cited previous decisions where Acropetal Technologies Ltd. was excluded as a comparable for similar reasons. 3. Deduction under Section 10B: The revenue also challenged the DRP's decision regarding the deduction under section 10B of the Income-Tax Act, 1961. The issue was whether the deduction under section 10B should be deducted from the income of the eligible unit before computing the gross total income. The Tribunal referred to the Hon’ble Supreme Court's decision in the case of Yokogawa India Ltd., which held that the deduction under section 10A (similar to section 10B) should be made independently and immediately after determining the profits and gains of the eligible undertaking, without reference to the other eligible or non-eligible units of the assessee. Consequently, the Tribunal found no merit in the revenue's ground and upheld the DRP's decision. Conclusion: In conclusion, the Tribunal dismissed the revenue's appeal and the assessee's cross-objection. The Tribunal upheld the DRP's exclusion of Acropetal Technologies Ltd. from the list of comparables and affirmed the DRP's decision regarding the deduction under section 10B. The Tribunal's decision was pronounced in the open court on October 31, 2018.
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