2018 (7) TMI 2166 - HC - Income Tax

Computation of Deduction u/s 10A - deduction of expenditure incurred for Export Turn Over is also required to be deducted from Total Turn Over for the purpose of computing the deduction u/s.10A - HELD THAT - Deduction of expenditure incurred for Export Turn Over is also required to be deducted from Total Turn Over for the purpose of computing the deduction u/s.10A of the Act, the controversy is no longer res integra and is covered by the decision of the Division Bench of this Court in the case of M/s.Tata Elxsi Ltd., vs. Asst. Commissioner of Income Tax, decided on 20.10.2015 since reported in 2015 (10) TMI 634 - KARNATAKA HIGH COURT , which has been affirmed in the case of Commissioner of Income-tax, Central III vs. HCL Technologies Ltd.,. 2018 (5) TMI 357 - SUPREME COURT . If the deductions on freight, telecommunication and insurance attributable to the delivery of computer software under Section 10A of the IT Act are allowed only in Export Turnover but not from the Total Turnover then, it would give rise to inadvertent, unlawful, meaningless and illogical result which would cause grave injustice to the Respondent which could have never been the intention of the legislature. Even in common parlance, when the object of the formula is to arrive at the profit from export business, expenses excluded from export turnover have to be excluded from total turnover also. Otherwise, any other interpretation makes the formula unworkable and absurd. Hence, we are satisfied that such deduction shall be allowed from the total turnover in same proportion as well/ TP Adjustment - comparability - HELD THAT - The controversy involved herein is no more res integra in view of the decision of M/s.Softbrands India Pvt. Ltd 2018 (6) TMI 1327 - KARNATAKA HIGH COURT wherein held appeals of the present tenor as to whether the comparables have been rightly picked up or not, Filters for arriving at the correct list of comparables have been rightly applied or not, do not in our considered opinion, give rise to any substantial question of law.

Summary

Issues:
1. Interpretation of deduction under section 10A of the Income Tax Act.
2. Exclusion of certain comparables by the Transfer Pricing Officer.
3. Adjustment of interest charged on outstanding debtors.

Analysis:

Issue 1: Interpretation of deduction under section 10A of the Income Tax Act:
The appeal involved a dispute regarding the computation of deduction under section 10A of the Act. The Appellants argued that expenses incurred for 'Export Turn Over' should be deducted from 'Total Turn Over' for computing the deduction. The Court referred to previous judgments, including one by the Supreme Court, to support the interpretation that deductions from export turnover should also be allowed from total turnover to avoid illogical results. The Court upheld this interpretation, emphasizing the need for consistency in deductions for export business profitability.

Issue 2 & 3: Exclusion of certain comparables and adjustment of interest on outstanding debtors:
The Tribunal considered the Appellants' arguments regarding the exclusion of certain comparables and the adjustment of interest charged on outstanding debtors. The Tribunal upheld the deletion of specific comparables based on functional dissimilarity, citing previous decisions. Additionally, the Tribunal dismissed the appeal concerning the adjustment of interest on outstanding debtors, referring to a co-ordinate bench decision. The Court highlighted that unless the Tribunal's finding is evidently perverse, an appeal under Section 260-A of the Act is not maintainable. The Court emphasized that issues related to comparables selection and filters application do not give rise to substantial questions of law. Therefore, the Court found no merit in the appeals filed by the Revenue and dismissed them, clarifying the criteria for invoking Section 260-A of the Act.

In conclusion, the High Court dismissed the appeal filed by the Revenue, stating that no substantial question of law arose for consideration in the case. The Court emphasized the importance of fair and quick judicial dispensation in international trade cases and clarified the criteria for invoking Section 260-A of the Act.