2018 (10) TMI 1835 - HC - Income Tax

Deduction u/s 10A computation - HELD THAT - As decided in HCL TECHNOLOGIES LTD. 2018 (5) TMI 357 - SUPREME COURT what is excluded from export turnover must also be excluded from total turnover , since one of the components of total turnover is export turnover. Hence, the substantial question of law as suggested at (1) would no more survives for consideration. TP Adjustment - comparable selection - tribunal holding that certain comparables are functionally different and liable to be excluded from the list of comparables - grant Market Risk Adjustment - HELD THAT - As decided in M/S. SOFTBRANDS INDIA P. LTD. 2018 (6) TMI 1327 - KARNATAKA HIGH COURT This court cannot be expected to undertake the exercise of comparison of the comparables itself which is essentially a fact-finding exercise. Neither the sufficient Data nor factual information s nor any technical expertise is available with this Court to undertake any such fact-finding exercise in the said appeals under Section 260-A of the Act. This Courtis only concerned with the question of law and that too a substantial one, which has a well-defined connotations as explained above and findings of facts arrived at by the Tribunal in these type of assessments like any other type of assessments in other regular assessment provisions of the Act, viz. Sections 143, 147 etc. are final and are binding on this Court. While dealing with these appeals undersection 260-A of the Act, we cannot disturb those findings of fact under Section 260-A of the Act, we cannot disturb those findings of the fact under Section 260-A of the Act, unless such findings are ex-facie perverse and unsustainable and exhibit a total non-application of mind by the Tribunal to the relevant facts of the case and evidence before the Tribunal. Advance for occupying additional space - Disallowance u/s 37(1) - AO had held that the rental deposit is in the nature of capital investment and it is not adjustable out of future rental expenditure - HELD THAT - Tribunal found that the amount is towards advance for lease of additional space and the loss of money is in the course of business which amount has been written off as workable capital. It is not in dispute that the assessee had paid a sum of ₹ 20,00,000/- towards advance for lease of additional space for its business expansion. Due to breach of contract the assessee has suffered loss of ₹ 20,00,000/- as the assessee could not recover the same, which amount is written off as irrecoverable. The finding arrived at by the Tribunal as well as the Commissioner is a finding of fact which would not give rise to any substantial question of law.

Summary

Issues Involved:

1. Re-computation of 10A deduction.
2. Write off of rental deposits as business loss.
3. Exclusion of certain comparables in Transfer Pricing.
4. Grant of Market Risk Adjustment by the Transfer Pricing Officer.

Analysis:

Issue 1: Re-computation of 10A Deduction

The Tribunal set aside the re-computation of 10A deduction by the assessing authority, following the decision in CIT v. M/s. Tata Elxsi (349 ITR 98). The High Court referenced the Supreme Court decision in Commissioner of Income-tax, Central-III v. HCL Technologies Ltd. (2018) 93 taxmann.com 33 (SC), which affirmed that what is excluded from 'export turnover' must also be excluded from 'total turnover'. The Court held that the substantial question of law regarding the re-computation of 10A deduction does not survive for consideration as it has been settled by the Supreme Court.

Issue 2: Write Off of Rental Deposits as Business Loss

The assessee claimed a deduction for a ?20,00,000/- advance paid for additional space, which was written off as irrecoverable due to contract termination. The Assessing Officer initially considered this a capital investment, not deductible. However, the Dispute Resolution Panel (DRP) and the Tribunal concluded that the loss was incurred in the course of business and allowed the deduction. The High Court upheld this finding, noting it as a factual determination that does not raise a substantial question of law.

Issue 3: Exclusion of Certain Comparables in Transfer Pricing

The Tribunal excluded certain comparables for being functionally different, following its earlier orders. The High Court referenced its decision in Principal Commissioner of Income Tax, Bangalore v. Soft brands India (P) Ltd. (2018) 94 taxmann.com 426 (Karnataka), stating that the High Court cannot undertake the fact-finding exercise of comparing comparables. It emphasized that findings of fact by the Tribunal are binding unless ex-facie perverse or unsustainable. Consequently, the Court held that this issue does not present a substantial question of law.

Issue 4: Grant of Market Risk Adjustment by the Transfer Pricing Officer

The Tribunal directed the Transfer Pricing Officer (TPO) to grant Market Risk Adjustment. The High Court reiterated its stance from the Soft brands India case, emphasizing that the High Court's role is not to engage in fact-finding or data analysis regarding comparables and risk adjustments. The Court found no substantial question of law in this issue, as the Tribunal's findings were not ex-facie perverse or unsustainable.

Conclusion:

The High Court dismissed the appeal, concluding that none of the proposed substantial questions of law merited consideration. The Tribunal's findings on re-computation of 10A deduction, write-off of rental deposits, exclusion of comparables, and market risk adjustment were upheld as factual determinations not giving rise to substantial questions of law.