2018 (7) TMI 2331 - HC - Income Tax

Computation of deduction u/s 10A - treatment to lease line and interest expenses from both the export turnover or/and total turnover for the purpose of deduction - HELD THAT - The issue is covered by the decision of the Hon ble Supreme Court in the case of Commissioner of Income-tax, Central III vs. HCL Technologies Ltd 2018 (5) TMI 357 - SUPREME COURT as held if the deductions on freight, telecommunication and insurance attributable to the delivery of computer software u/s 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. Allocation of recruitment cost for Section 10A units deriving STPI and Non STPI units of the same Assessee is just and fair. We do not find any substantial question of law to be arising out of the said Order of the learned Tribunal. TP Adjustment - comparable selection - HELD THAT - The controversy involved herein is no more res integra in view of the decision of this Court in M/s Softbrands India Pvt. Ltd. 2018 (6) TMI 1327 - KARNATAKA HIGH COURT as held that the present appeals filed by the Revenue do not give rise to any substantial question of law and the suggested substantial questions of law do not meet the requirements of Section 260-A of the Act and thus the appeals filed by the Revenue are found to be devoid of merit and the same are liable to be dismissed. 57. We make it clear that the same yardsticks and parameters will have to be applied, even if such appeals are filed by the Assessees, because, there may be cases where the Tribunal giving its own reasons and findings has found certain comparables to be good comparables to arrive at an Arm s Length Price in the case of the assessees with which the assessees may not be satisfied and have filed such appeals before this Court. Therefore we clarify that mere dissatisfaction with the findings of facts arrived at by the learned Tribunal is not at all a sufficient reason to invoke Section 260-A of the Act before this Court.

Summary

Issues Involved:
1. Applicability of Resale Price Method vs. Transactional Net Margin Method (TNMM)
2. Exclusion of Tata Elxsi Ltd. from the list of comparables
3. Applicability of amended proviso to section 92C for the assessment year 2008-09
4. Allocation of common expenses based on head-count method
5. Exclusion of lease line and interest expenses from both export turnover and total turnover for deduction under section 10A

Detailed Analysis:

1. Applicability of Resale Price Method vs. Transactional Net Margin Method (TNMM):
The Tribunal held that the Resale Price Method adopted by the Transfer Pricing Officer (TPO) is not applicable and directed the TPO/Assessing Officer (AO) to recompute the Arm's Length Price (ALP) using the TNMM. The Tribunal found that the services provided by the assessee are akin to that of S&F Agents and not that of a trader. The Tribunal remitted the matter to the TPO for re-computation of the ALP in line with the directions given for the assessment year 2006-07, also considering the voluntary TP adjustment of Rs.5 crore made by the assessee.

2. Exclusion of Tata Elxsi Ltd. from the list of comparables:
The Tribunal directed the AO to delete Tata Elxsi Ltd. from the list of comparables if it is found that the segmental data of the comparable are not available. The Tribunal emphasized that unless the financial results of each division are available, the companies shall not be accepted or adopted as comparables. The AO was instructed to verify the assessee's contention that Tata Elxsi Ltd. is into software product segment and if found correct, to exclude it from the list of comparables.

3. Applicability of amended proviso to section 92C for the assessment year 2008-09:
The Tribunal held that the assessee is covered by the amendment of the proviso to section 92C of the Act for the assessment year 2008-09. The AO was directed to give the benefit of the amended provision and not the standard deduction as claimed by the assessee.

4. Allocation of common expenses based on head-count method:
The Tribunal upheld the head-count method adopted by the assessee for the allocation of common expenses. The Tribunal noted that the assessee had consistently followed this method in previous years and it had been accepted by the Revenue. The Tribunal remanded the issue to the AO for verification of the number of employees and the expenditure allocated to such employees, emphasizing that the method should be consistent and scientifically justifiable.

5. Exclusion of lease line and interest expenses from both export turnover and total turnover for deduction under section 10A:
The Tribunal's decision was guided by the Supreme Court's ruling in the case of HCL Technologies Ltd., which held that expenses excluded from export turnover must also be excluded from total turnover. The Tribunal directed the AO to exclude lease line and interest expenses from both export turnover and total turnover for the purpose of deduction under section 10A, as any other interpretation would lead to an illogical and unjust result.

Conclusion:
The High Court concluded that no substantial question of law arises for consideration in the present case. The Tribunal's findings were based on established legal principles and consistent with previous judicial decisions. Consequently, the appeal filed by the Revenue was dismissed with no order as to costs.