9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2017 (4) TMI 1483 - AT - Income TaxDeduction allowable u/s. 10A - CIT(Appeals) directing the AO to recompute the deduction allowable u/s. 10A after reducing the telecommunication expenses amounting to ₹ 8,59,000-00 both from the export turnover and the total turnover - HELD THAT - In the present appeal of the revenue, the issues involved (1 to 3) pertains to the quantum of deduction allowable u/s. 10A which has been reduced by the AO by reducing the telecommunication expenses incurred in foreign currency by the Assessee on telecommunication charges. The CIT(A) has held that the action of the AO in re-computing the deduction u/s. 10A by reducing the telecommunication expenses has been in foreign currency only from export turnover and not from the total turnover is not sustainable. We find this issue is no more res integra and is settled by the jurisdictional High Court in Tata Elxsi Ltd. 2011 (8) TMI 782 - KARNATAKA HIGH COURT thereby it is held Even in the case of business of an undertaking, it may include export business and domestic business, in other words, export turnover and domestic turnover. Therefore if the amount is reduced from the Export turnover it is bound to be reduced from the total turnover of the undertaking. As the order of the CIT(A) is in conformity with the order of jurisdictional High Court therefore this ground of the revenue is dismissed. TP Adjustment - ALP computation - standard deduction of 5% from the arithmetical mean of the profit margin of the comparables under the proviso to section 92C(2) - HELD THAT - After following the SAP Labs Ltd. judgment 2010 (8) TMI 676 - ITAT, BANGALORE in our view these issues are required to be allowed as the amendment was brought into force in the Act with retrospective effect in section 92C(A)(2) of the Act. Further this issue is also covered by the judgment of coordinate bench in the matter of Acusis Software India (P.) Ltd. 2016 (11) TMI 1566 - ITAT BANGALORE - Even the special bench in the case of IHG IT Services (India) (P.) Ltd. v. ITO 2013 (5) TMI 309 - ITAT DELHI held that after the amendment by the Finance (No. 2) Act, 2009 with effect from 1.10.2009, such benefit of 5% tolerance margin was restricted to the cases where variation between the arm's length price and the price at which the international transaction has actually taken place does not exceed 5%. In other words the benefit under the proviso cannot be given as a standard deduction. In the results, the grounds of appeal raised by the revenue on this issue are allowed. Comparable selection - HELD THAT - Assessee as well as the TPO had applied the TNMM being the most appropriate method for the purposes of determining the ALP. The TPO for the purposes of determining the ALP had applied various filter namely functional comparability, related party transaction (RPT) etc . Further TPO had also compared the financials of the selected companies based on their profile. TPO had also examined the PLI of those companies on the basis of the operating profit / operating cost. Assessee Company is into software development and therefore the TPO has used the functional similarity / comparable filter to find out the comparables. We found that the ld. CIT(A) has rejected the 7 companies selected by the TPO on the basis of margins being wider from the range determined by the TPO. In our view, the inclusion / exclusion of the comparables is required to be based on the basis of parameters laid down under rule 10B(2) of the Income-tax rules for the purposes of determining the functional comparability. If we examine the order passed by the CIT(A) , we will reach to the inescapable conclusion that the order of ld CIT is a cryptic / non-speaking order and the ld. CIT(A) has not examined profile of each company on the touch stone of functional similarity, relating party filters, turn over filter etc. In our view these aspects of the comparable companies are required to be considered in view of rule 10B(2) of the IT rules. Remand the matter to the file of the ld. CIT(A) for the purposes of exercising his jurisdiction and to determine fresh about the inclusion and exclusion of the comparables based on the rules and regulations framed for that purposes and also on the basis of judgment of the Tribunal. Whole purposes of undertaking the exercises of TP study is to determine the ALP of the assessee on the basis of the profit margin of unrelated party in an uncontrolled transaction, therefore ld. CIT(A) while re-examining the TP issue. Interest income as income from other sources - HELD THAT - We found that in the present case neither the temporarily availability of fund was proved nor temporarily non requirement of funds was proved nor it was set up by the assessee when the funds were temporarily available and when the FDRs were made on temporary basis. We deem it appropriate to remand the matter to the file of the CIT(A) to decide this issue fresh after giving opportunity to the assessee. The assessee shall be at liberty to file all relevant documents in support of its claim to prove that the funds were temporarily available and the FDRs were temporarily made with the view to optimize the profit of the business.
Issues Involved:
1. Deduction under Section 10A of the Income Tax Act. 2. Standard deduction of 5% under Section 92C(2) of the Income Tax Act. 3. Transfer Pricing (TP) issues related to the exclusion of comparable companies. 4. Classification of interest income as business income for deduction under Section 10A. Detailed Analysis: 1. Deduction under Section 10A of the Income Tax Act: The revenue challenged the CIT(A)'s decision to recompute the deduction allowable under Section 10A by reducing telecommunication expenses from both export turnover and total turnover. The CIT(A) held that the action of the AO in reducing telecommunication expenses only from export turnover and not from total turnover was unsustainable. This issue was settled by the jurisdictional High Court in Tata Elxsi Ltd., which held that if an amount is reduced from export turnover, it must also be reduced from total turnover. Therefore, the Tribunal dismissed the revenue's ground on this issue, affirming the CIT(A)'s order. 2. Standard deduction of 5% under Section 92C(2) of the Income Tax Act: The revenue contested the CIT(A)'s decision to allow a standard deduction of 5% from the arithmetical mean of the profit margin of comparables while computing the arm's length price (ALP). The Tribunal referred to the judgment of the Bombay Bench in Bayer Crop Science Ltd. and the special bench decision in IHG IT Services (India) (P.) Ltd., which clarified that the benefit of the 5% tolerance margin was restricted to cases where the variation between the ALP and the transaction price does not exceed 5%. Consequently, the Tribunal allowed the revenue's grounds on this issue, reversing the CIT(A)'s decision. 3. Transfer Pricing (TP) issues related to the exclusion of comparable companies: The revenue challenged the CIT(A)'s exclusion of seven comparables selected by the TPO on the grounds of being super-profit companies. The Tribunal found the CIT(A)'s order to be cryptic and lacking in detailed reasoning. The Tribunal emphasized the need to examine the comparables based on functional similarity, related party transactions, and turnover filters as per Rule 10B(2) of the Income Tax Rules. The Tribunal remanded the matter back to the CIT(A) for a fresh determination, instructing a detailed examination of each company's profile. 4. Classification of interest income as business income for deduction under Section 10A: The assessee argued that interest income from temporary deposits of surplus business funds should be considered as business income eligible for deduction under Section 10A. The Tribunal noted that the CIT(A) and TPO had not provided substantial reasoning for rejecting this claim. The Tribunal referred to its earlier decision in the assessee's case, which held that temporarily parked funds in FDs could be considered business income. However, the Tribunal found that the assessee had not sufficiently demonstrated the temporary nature of the funds and deposits. Therefore, the Tribunal remanded the issue back to the CIT(A) for a fresh examination, allowing the assessee to provide relevant documents to support its claim. Conclusion: The Tribunal dismissed the revenue's grounds related to the deduction under Section 10A but allowed the revenue's grounds concerning the standard deduction under Section 92C(2). The Tribunal remanded the TP issues and the classification of interest income back to the CIT(A) for fresh consideration, instructing a detailed and reasoned examination of the matters. Both appeals were allowed for statistical purposes.
|
