2018 (4) TMI 1739 - HC - Income Tax

Computation of deduction u/s 10A - HELD THAT - The assessee had deducted certain expenditure from its export turnover. AO held that it ought to have been deducted from the total turnover and not from the export turnover. ITAT reversed the AO s determination based upon a decision in the case of CIT vs. Genpact India 2011 (11) TMI 119 - DELHI HIGH COURT . In these circumstances, we are of the opinion that no question of law arises on this aspect Quantum of the risk adjustment - Dispute Resolution Panel (DRP) had modified from the initial 1% determined by the Transfer Pricing Officer (TPO) - HELD THAT - ITAT upheld the DRP s determination holding that the AO had to amend the draft assessment order after the DRP s adjustment. This Court is of the opinion that there is no infirmity in the order of the ITAT. The DRP s mechanism is an administrative and corrective process entitling the assessee to insist upon a second look in regard to the issues decided in the TPO s report. Therefore, its decisions are binding and a part of the decision making process of the AO. Prior to the amendment in 2012, no appeal was made against the determinations of the TRP. In these circumstances, the impugned order cannot be faulted with. Exclusion of one comparable i.e. Infosys BPO - HELD THAT - The Court is of the opinion that there is some merits in the Revenue s submissions.

Summary

Issues Involved:
1. Deduction under Section 10A of the Income Tax Act
2. Quantum of risk adjustment by the Dispute Resolution Panel (DRP)
3. Exclusion of Infosys BPO as a comparable

Issue 1: Deduction under Section 10A of the Income Tax Act:
The case involved a dispute regarding the deduction of certain expenditure from the export turnover under Section 10A of the Income Tax Act, 1961. The Assessing Officer (AO) contended that the expenditure should have been deducted from the total turnover, not the export turnover. However, the Income Tax Appellate Tribunal (ITAT) disagreed with the AO's decision based on a precedent. The High Court held that no question of law arose in this aspect and dismissed the appeal related to this issue.

Issue 2: Quantum of Risk Adjustment by the Dispute Resolution Panel (DRP):
The second issue raised was related to the quantum of the risk adjustment modified by the DRP from the initial 1% determined by the Transfer Pricing Officer (TPO). The ITAT upheld the DRP's decision, stating that the AO was required to amend the assessment order post the DRP's adjustment. The High Court affirmed the ITAT's decision, emphasizing that the DRP's role is to provide an administrative and corrective process allowing the assessee to seek a review of the TPO's determinations. The Court noted that the DRP's decisions are binding and form part of the AO's decision-making process. It was highlighted that prior to a 2012 amendment, no appeals were made against the TRP's determinations, and thus, the impugned order was upheld.

Issue 3: Exclusion of Infosys BPO as a Comparable:
The third issue pertained to the exclusion of Infosys BPO as a comparable entity. The High Court acknowledged the merits in the Revenue's submissions regarding this exclusion. Consequently, the appeal related to this matter was admitted for further consideration. The Court framed the question of law for this appeal as whether the ITAT erred in excluding Infosys BPO from the list of comparables, considering the circumstances of the case. Notice of the appeal was issued to the assessee, returnable on a specified date.

This detailed analysis of the judgment addresses the three main issues raised in the case, outlining the arguments, decisions, and reasoning provided by the High Court for each matter.