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2017 (5) TMI 1366 - AT - Income TaxTPA - selection of comparable - Held that - The assessee is engaged in rendering IT enabled support services to Credit Pointe US. Thus the assessee is a captive service provider. Companies functionally dissimilar with that of assessee need to be deselected from final list of comparable. Allowability of claim of deduction u/s. 10B - Held that - A perusal of the definition shows that 100% export oriented undertaking has to be approved by Board appointed by the Central Government in exercise of the powers conferred by section 14 of the Industries Development Regulation Act 1941. Admittedly the assessee has not been approved by the Board as specified under the provisions of section 10B of the Act. The language of the section is unambiguous and hence requires no further interpretation. Therefore the assessee is not eligible for claiming deduction u/s. 10B of the Act. Alternate prayer that if the assessee cannot be granted benefit of deduction u/s. 10B the same may be granted under the provisions of section 10A - Held that - The Co-ordinate Bench of the Tribunal in the case of Clarion Technologies Pvt. Ltd. Vs. Dy. Commissioner of Income Tax (2014 (11) TMI 141 - ITAT PUNE ) has held that where the assessee is not eligible to claim deduction u/s. 10B for want of approval from the competent authority as specified under the said section and if the assessee is eligible to claim deduction u/s. 10A subject to fulfillment of all mandatory conditions as set out in the section the alternate claim of assessee can be considered. We deem it appropriate to remit this issue back to the file of Assessing Officer to consider assessee s claim of deduction u/s. 10A of the Act. The Assessing Officer shall verify assessee s eligibility for claiming deduction u/s. 10A. While considering assessee s alternate claim u/s. 10A the Assessing Officer shall afford due opportunity of hearing to the assessee in accordance with law.
Issues Involved:
1. Transfer Pricing Adjustment 2. Deduction under Section 10B of the Income Tax Act 3. Alternate Claim for Deduction under Section 10A of the Income Tax Act Issue-wise Detailed Analysis: 1. Transfer Pricing Adjustment: The primary issue in the appeal relates to the transfer pricing (TP) adjustment. The assessee, a wholly-owned subsidiary of Credit Pointe Inc., USA, engaged in IT-enabled support services, applied the Transactional Net Margin Method (TNMM) to benchmark its international transactions. The Assessing Officer (AO) rejected six out of twelve comparable companies selected by the assessee and included three new companies, resulting in a transfer pricing adjustment of ?1,04,61,139/-. The Commissioner of Income Tax (Appeals) [CIT(A)] directed the AO to exclude Infosys BPO Ltd. and eClerx Services from the list of comparables and recompute the Arm's Length Price (ALP). The Tribunal noted that the assessee confined its arguments to the exclusion of Coral Hubs Ltd. from the list of comparables due to functional differences, as Coral Hubs Ltd. outsourced its work, unlike the assessee, which rendered services through in-house employees. The Tribunal referred to the Delhi High Court's decision in Rampgreen Solutions Pvt. Ltd. Vs. Commissioner of Income Tax, which held that Coral Hubs Ltd. was not comparable to companies engaged in IT-enabled services (ITES) due to its different business model. The Tribunal remitted the issue back to the AO to reconsider the inclusion/exclusion of Coral Hubs Ltd. in the list of comparables in light of the Rampgreen Solutions decision, allowing ground No. 4 for statistical purposes. 2. Deduction under Section 10B of the Income Tax Act: The second issue pertains to the disallowance of the deduction claimed by the assessee under Section 10B of the Income Tax Act. The AO disallowed the deduction on the grounds that the assessee was not a 100% Export Oriented Unit (EOU) approved by the Board appointed by the Central Government, as required by Explanation 2(iv) to Section 10B. The CIT(A) upheld this disallowance. The Tribunal observed that the language of Section 10B is clear and unambiguous, requiring approval from the Board appointed by the Central Government. Since the assessee was approved by the Software Technology Parks of India (STPI) and not the specified Board, it was not eligible for the deduction under Section 10B. Consequently, ground No. 6 raised by the assessee was dismissed. 3. Alternate Claim for Deduction under Section 10A of the Income Tax Act: The assessee made an alternate claim for deduction under Section 10A if the deduction under Section 10B was disallowed. The AO rejected this alternate claim, stating that it was not made in the return of income. The CIT(A) also rejected the claim, arguing that Sections 10A and 10B serve different purposes and are not interchangeable. The Tribunal noted that the powers of the Tribunal are not limited by the claims made in the return of income, as per the Supreme Court's decision in Goetze (India) Ltd. Vs. CIT. The Tribunal cited the decisions in Clarion Technologies Pvt. Ltd. Vs. Dy. Commissioner of Income Tax and Expert Net Cad Solutions Pvt. Ltd. Vs. The Asstt. Commissioner of Income Tax, where alternate claims under Section 10A were considered if the conditions were met. The Tribunal remitted the issue back to the AO to verify the assessee's eligibility for deduction under Section 10A, allowing ground No. 7 for statistical purposes. Conclusion: The Tribunal partly allowed the appeal for statistical purposes, remitting the issues related to the exclusion of Coral Hubs Ltd. from the list of comparables and the alternate claim for deduction under Section 10A back to the AO for reconsideration and verification. The disallowance of the deduction under Section 10B was upheld.
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