2018 (10) TMI 1350 - AT - Income Tax

Entitlement to deduction u/s 10A - Held that - When the claim u/s 10B of the I.T.Act was sought to be denied, the assessee during the course of assessment proceedings claimed deduction u/s 10A of the I.T.Act. In the various mentioned cases, it was stated when claim u/s 10B of the I.T.Act is denied, the assessee s alternative claim u/s 10A of the I.T.Act made during the assessment proceeding or before Appellate authorities has to be considered and granted, provided conditions are satisfied for such deduction, since both sections 10A and 10B of the I.T.Act are pari materia. In view of the above judicial pronouncement, we deem it appropriate to remit the issue to the Assessing Officer for fresh consideration. TPA - Erroneous exclusion of forward premium while computing the operating margin of the assessee (Transfer Pricing) - Held that - As in assessee s own case for the assessment year 2010-2011 Tribunal had restored the issue to the TPO with certain specific directions to place necessary evidence before the TPO to claim that premium on forward exchange contract is earned in the normal course of the business to hedge against fluctuations in foreign currency exchange rate and gains from such contract has to be considered while computing the PLI in the international transaction with the AE. It is ordered accordingly. Selection of comparable - Held that - We find that the objections raised by the assessee have been disposed off by the DRP without passing a speaking order. The assessee has raised various contentions why the above mentioned companies are not comparable companies. The objections with regard to non-availability of segmental account details for the above comparables, presence of intangibles for above mentioned companies and failure to satisfy certain filters adopted by the TPO himself were not discussed in TPO s order nor in DRP s order. The DRP on its part has merely confirmed the TPO s order without passing a speaking order. Therefore, we deem it appropriate to restore this issue to the files of the TPO

Summary

Issues Involved:
1. Entitlement to deduction under section 10A of the Income-tax Act.
2. Exclusion of forward premium while computing the operating margin.
3. Inclusion of certain companies as comparable by the Transfer Pricing Officer (TPO).

Issue-wise Detailed Analysis:

1. Entitlement to Deduction under Section 10A of the Income-tax Act:
The assessee, a 100% subsidiary providing healthcare data processing services, claimed a deduction under section 10B amounting to ?1,85,34,036. The Assessing Officer (A.O.) denied this deduction, citing the lack of necessary approval from an appropriate authority, per the Industrial (Development & Regulations) Act, 1951. The A.O. also rejected an alternative claim under section 10A, referencing the Supreme Court judgment in Goetz (India) Ltd. v. CIT.

The Dispute Resolution Panel (DRP) upheld the A.O.'s decision, despite the assessee's argument that its unit had valid approval and had previously been granted the deduction. The Tribunal referenced several judicial pronouncements indicating that sections 10A and 10B are pari materia. It was decided that if section 10B is denied, the authorities must consider the alternative claim under section 10A, provided the conditions are met. Consequently, the Tribunal remitted the issue back to the A.O. for fresh consideration, following the guidelines from previous judicial pronouncements.

2. Exclusion of Forward Premium while Computing the Operating Margin:
The A.O./TPO excluded the forward premium of ?19,07,688 from the operating profits. The assessee argued that this premium, arising from hedging against foreign exchange fluctuations, should be considered part of the operating margin. The DRP did not address this contention.

The Tribunal noted that in the previous assessment year, a similar issue was remitted to the TPO with directions to include the forward premium as part of the operating margin. Following this precedent, the Tribunal restored the issue to the TPO, instructing adherence to the prior year's directions.

3. Inclusion of Certain Companies as Comparable by the TPO:
The TPO included ICRA Online Limited, Acropetal Technologies, Accentia Technologies Limited, and Jeevan Scientific Technologies Limited as comparables. The assessee objected, citing functional dissimilarities, erroneous margin computations, and non-compliance with certain filters. The DRP rejected these objections without a detailed explanation.

The Tribunal found that the DRP failed to provide a speaking order addressing the assessee's objections. Noting the lack of discussion on segmental accounts, intangibles, and specific filters, the Tribunal decided to restore the issue to the TPO. The assessee was directed to present evidence supporting its contentions against the comparability of these companies.

Conclusion:
The appeal was allowed for statistical purposes, and the stay application was dismissed as infructuous. The Tribunal remitted the issues back to the A.O. and TPO for fresh consideration, ensuring adherence to judicial precedents and proper evaluation of the assessee's contentions.