9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2017 (11) TMI 71 - AT - Income TaxTPA - selection of comparable - Held that - NEC Technologies India Limited (NEC HCL) has been set up at Noida which is availing tax exemption under section 10A of the Act and is also having branch office in Japan (NEC HCL BO). The main activity of the taxpayer is with NEC group companies with regard to the contract awarded to NEC HCL. During the year under assessment, the taxpayer has entered into international transaction qua software development services, thus companies functionally dissimilar with that of assessee need to be deselected from final list. Deduction claimed by the taxpayer u/s 10A - change of accounting policy would result in taxpayer claiming deduction in AY 2011-12 with regard to invoices to be raised in AY 2012-13 when no such deduction u/s 10A is available - Held that - The assessee has proved before AO the date on which the invoices relating to such unbilled revenue is raised as well as date of realization of such invoices and this fact is not disputed by the AO and is otherwise in accordance with the Accounting Standard 09. Moreover when assessee has produced relevant documents viz. copies of FIRC before the AO to prove the fact that the export proceeds were realized from the six months of the export, disallowance of the deduction u/s 10A of the Act on unbilled revenue and relatable foreign exchange gain is not sustainable in the eyes of law. Consequently, we are of the considered view that the assessee is entitled for deduction of ₹ 12,11,000/- u/s 10A of the Act.
Issues Involved:
1. Validity of the assessment order. 2. Determination of the taxpayer's income. 3. Transfer Pricing adjustments. 4. Disallowance under Section 40(a)(i). 5. Deduction under Section 10A. 6. Levy of interest under Sections 234B and 234C. Issue-wise Detailed Analysis: 1. Validity of the Assessment Order: - The taxpayer contended that the assessment order framed by the assessing officer (AO) in pursuance of the directions of the Dispute Resolution Panel (DRP) was "bad in law, violative of principles of natural justice and void ab-initio." However, the tribunal did not require adjudication on these general grounds. 2. Determination of the Taxpayer's Income: - The AO determined the income of the taxpayer at ?16,67,38,442 against the returned income of ?3,09,32,409. This was due to adjustments made primarily on account of transfer pricing issues. 3. Transfer Pricing Adjustments: - The AO made an addition of ?4,11,03,650 to the taxpayer's income due to differences in the arm's length price (ALP) of international transactions related to software services. The taxpayer used the Transactional Net Margin Method (TNMM) with 21 comparables, but the Transfer Pricing Officer (TPO) selected 17 different comparables. Key Points: - The taxpayer's comparables had an OP/OC of 11.26%, while the TPO's comparables had an average mean of 26.93%. - The DRP directed the TPO to exclude certain companies and correct margins, resulting in 15 comparables with an arithmetic mean of 20.50%. - The tribunal examined the suitability of four comparables: Infosys Limited, Persistent Systems Ltd., Tata Elxsi, and Thirdware Solutions Ltd., and directed their exclusion due to significant differences in business models, scale, and functions. 4. Disallowance under Section 40(a)(i): - The AO disallowed ?9,34,91,383 under Section 40(a)(i) related to payments made by the taxpayer's Japan Branch Office to HCL Japan Ltd. Despite DRP's directions to delete the disallowance, the AO did not allow it. However, this ground was not pressed by the taxpayer during the hearing. 5. Deduction under Section 10A: - The AO disallowed ?12,11,000 under Section 10A related to unbilled revenue. The tribunal held that since the income derived from unbilled revenue pertains to export of software services, it is eligible for deduction under Section 10A(4). The tribunal relied on the decision in ACIT vs. Sonata Software Ltd., which allowed such deductions. 6. Levy of Interest under Sections 234B and 234C: - The levy of interest under Section 234B was deemed consequential. For Section 234C, the tribunal ruled that interest should be levied based on the tax on returned income, not on assessed income. Conclusion: - The tribunal allowed the taxpayer's appeal, directing the exclusion of certain comparables for transfer pricing adjustments and allowing the deduction under Section 10A. The interest under Sections 234B and 234C was to be recalculated based on the tribunal's findings.
|
