2018 (1) TMI 1545 - AT - Income Tax

Deduction u/s 10A - reduction of the expenses incurred in foreign currency from Total turnover for the purpose of computing the deduction to be allowed u/s 10A because such expenses were reduced by the AO from Export Turnover - HELD THAT - As per the judgment of Hon ble Karnataka High Court rendered in the case of Tata Elxsi Ltd. 2011 (8) TMI 782 - KARNATAKA HIGH COURT it was held that total turnover is sum total of Domestic Turnover and export Turnover and therefore if any amount is reduced from Export Turnover than Total turnover also goes down by the same amount automatically. Respectfully following this judgment this issue is decided in favour of the assessee Exclusion of various comparables - HELD THAT - Assessee company undertakes Software Development services under a Research Development Agreement with its parent company thus companies thus companies functionally dissimilar with that of assessee need to be deselected from final list. Deduction u/s 80G in respect of contribution made towards Calamity Relief Fund of Karnataka - HELD THAT - The bench pointed out that there is no discussion on this aspect in the draft assessment order order of DRP and in Final assessment order and therefore it is not clear as to whether any such deduction was claimed or not. The bench observed that if such deduction is claimed in the return of income and it is not allowed without any discussion/objection this claim can be raised u/s 154 because in that situation it is an apparent mistake. Assessee had nothing to say. We dismiss this ground with the observation that the assessee can raise before the AO this issue u/s 154 as per law. Interest u/s 234D - assessee submitted that in the present case refund was not granted but adjusted against old demand and therefore section 234D is not applicable - HELD THAT - As per section 234D where any refund is granted to the assessee under section 143 (1) and no refund is due on regular assessment or refund so granted u/s 143 91) exceeds the refund as per regular assessment the assessee is liable for interest u/s 234D. In our considered opinion for applicability of section 234D issue of refund voucher is not a prerequirement and adjustment of refund against old demand is also granting of refund and section 234D is applicable if such refund is more than the refund allowable on regular assessment. In this view of the matter Ground is rejected. Appeal filed by the assessee is partly allowed.

Summary

Issues:
- Appeal filed by Revenue and Assessee against order of ITO, Ward -2(1)(1), Bengaluru for A.Y. 2010-11
- TP analysis comparability based on precedent case
- Reduction of foreign currency expenses from Total turnover for deduction u/s 10A
- Exclusion of comparables like Infosys Ltd., Tata Elxsi Ltd., Kals Information Systems Ltd., etc.
- Working Capital Adjustment
- Claim for exclusion of L & T Infotech Ltd.
- Inclusion of R S Software (India) Limited
- Deduction u/s 80G for contribution to Calamity Relief Fund of Karnataka
- Interest u/s 234D

Analysis:
1. The first issue concerns the TP analysis comparability based on precedent cases. The Tribunal held that each case's facts need to be addressed for comparability, rejecting the Revenue's appeal and supporting the Assessee's position based on the judgment of the Hon'ble Karnataka High Court in the case of Tata Elxsi Ltd.

2. The second issue relates to the reduction of foreign currency expenses from Total turnover for deduction u/s 10A. The Tribunal followed the judgment in the Tata Elxsi Ltd. case, holding that if expenses are reduced from Export Turnover, Total turnover automatically decreases by the same amount. Consequently, the Tribunal decided in favor of the Assessee regarding this issue.

3. The third issue revolves around the exclusion of comparables like Infosys Ltd., Tata Elxsi Ltd., Kals Information Systems Ltd., etc. The Tribunal upheld the exclusion of these comparables, citing a tribunal order supporting the Assessee's case due to the similarity in business profiles, rejecting the Revenue's arguments against following precedents in TP cases.

4. The next issue concerns the Working Capital Adjustment, where the Tribunal rejected the ground raised by the Assessee as no objection was raised before the DRP, and relevant documentation was not provided.

5. The issue of the claim for exclusion of L & T Infotech Ltd. was considered, and the Tribunal directed the AO/TPO to exclude it from the final list of comparables based on the applicable tribunal order.

6. Regarding the inclusion of R S Software (India) Limited, the Tribunal allowed its inclusion as both parties desired it, leading to the allowance of the Assessee's appeal on this ground.

7. The issue of deduction u/s 80G for contribution to the Calamity Relief Fund of Karnataka was dismissed due to lack of discussion in the assessment orders, with the Tribunal advising the Assessee to raise the claim under section 154 before the AO.

8. Lastly, the issue of interest u/s 234D was discussed, with the Tribunal rejecting the Assessee's claim as section 234D applies even if a refund is adjusted against an old demand, emphasizing that the adjustment constitutes granting a refund. The appeal filed by the Assessee was partly allowed in the combined result.