2020 (10) TMI 1358 - AT - Income Tax

Deduction u/s 10A - excluding travel, telecommunication expenses etc., for computing total turnover and export turnover and excluding loss earned from non-eligible unit - HELD THAT - DRP by following decision of CIT v. Tata Elxsi Ltd. 2011 (8) TMI 782 - KARNATAKA HIGH COURT held that, if any expenditure is excluded from export turnover, then the same needs to be excluded from total turnover as well, accordingly, directing Ld.AO to exclude expenses deducted from export turnover from total turnover for computing deduction u/s 10A of the Income-tax Act, 1961. Further in respect of exclusion of loss earned from noneligible unit for computing profits of eligible unit under section 10A, DRP relied on decision of Hon ble Karnataka High Court in case of and CIT v. Yokogava India Ltd. 2011 (8) TMI 845 - KARNATAKA HIGH COURT No infirmity in view taken by DRP/AO as it is supported by ratios held by Hon ble jurisdictional High Court. There is nothing on record brought by revenue to establish any distinguishing factors to deviate from ratio of Hon ble jurisdictional High Court.Grounds raised by revenue stands dismissed.

Summary

Issues:
- Transfer Pricing grounds
- Corporate tax grounds
- Other grounds

Transfer Pricing grounds:
The appeal involved transfer pricing issues related to adjustments made by the Transfer Pricing Officer (TPO) on software development services transactions. The appellant contested the addition to total income and the determination of arm's length prices. The appellant argued against the rejection of economic analysis and comparability criteria by the TPO. The TPO was criticized for not considering certain factors in computing operating margins and for computational errors. The issue of risk profile differences and the application of the proviso to section 92D of the Act were raised. The appellant sought corrections and adjustments in the arm's length price calculations.

Corporate tax grounds:
The appeal addressed disallowances of interest, late payment fees, and expenses under sections 14A, 40(a)(i), and 40(a)(ia) of the Act. The appellant challenged the disallowances, arguing that certain payments were compensatory and not penal. Discrepancies in the disallowance calculations and the double disallowance of expenses were highlighted. The appellant sought to establish that no expenditures were incurred in relation to exempt income. The application of Rule 8D of the Rules in determining disallowances under section 14A was contested.

Other grounds:
Various other grounds were raised, including the denial of deductions under Chapter VI-A, restrictions on credit for tax deductions, and the imposition of interest under different sections of the Act. The appellant contested the assessment on these grounds, seeking corrections and adjustments. The Tribunal dismissed some grounds based on the appellant's withdrawal and allowed others to be withdrawn with liberty. The Tribunal upheld the directions of the Dispute Resolution Panel related to exclusion of expenses from turnover calculations for deduction purposes under section 10A, citing relevant case law.

This comprehensive analysis covers the key issues raised in the judgment, detailing the arguments presented and the Tribunal's decisions on each issue.