2011 (6) TMI 1035 - AT - Income Tax

Summary

Issues Involved:
1. Adjustment in arm's length price (ALP) on international transactions.
2. Exemption u/s 10A of the Income Tax Act.
3. Addition of prior period expenses.

Summary:

1. Adjustment in ALP on International Transactions:
The revenue appealed against the deletion of additions made by the Assessing Officer (AO) based on the Transfer Pricing Officer's (TPO) recommendations for adjustments in ALP on international transactions. The assessee, a subsidiary of Birla Soft Enterprises, engaged in software development, had transactions with associated enterprises (AEs). The TPO recommended an adjustment of Rs. 4,95,51,723, which the CIT(A) deleted, noting that the assessee's disclosed profit margin was within the tolerable band provided in the proviso to sec. 92C(2). The Tribunal upheld the CIT(A)'s decision, agreeing that the current year data should be used as per Rule 10B(4) and rejecting the TPO's approach of segregating each STP unit for ALP determination.

2. Exemption u/s 10A:
The revenue contested the CIT(A)'s decision to allow exemption u/s 10A for the STP unit on the third floor at STP Complex, Noida, which the AO had denied, considering it an extension of an existing unit. The CIT(A) referenced an ITAT order from the assessment year 2003-04, which had allowed the exemption, concluding that the unit was not an extension. The Tribunal upheld the CIT(A)'s decision, finding no reason to interfere.

3. Addition of Prior Period Expenses:
The revenue challenged the deletion of an addition of Rs. 19,26,120, which the AO had added back as prior period expenses. The assessee explained that the amount related to payroll taxes reconciled and paid in July 2003, following the Australian tax year. The CIT(A) deleted the addition, citing the Gujarat High Court decision in Sourasthra Cement & Chemical Ind. Vs. CIT. The Tribunal upheld the CIT(A)'s decision, agreeing that the liability had accrued and crystallized within the permissible period.

Decision:
The appeal by the revenue was dismissed, and the CIT(A)'s order was upheld in all respects. Decision pronounced in the open court on 17.06.2011.