2019 (6) TMI 931 - HC - Income Tax

Disallowance of deduction u/s 10A on account of disallowances made u/s 40(a)(ia) and 43B - HELD THAT - As decided in JOHN DEERE INDIA PVT. LTD. 2019 (1) TMI 1580 - BOMBAY HIGH COURT it is an agreed position between the parties that the issue raised herein stands concluded in favour of the Respondent-Assessee by the decision of this Court in CIT V/s. Gem Plus Jewellery India Pvt. Ltd. 2010 (6) TMI 65 - BOMBAY HIGH COURT In the above view, as the issue stands concluded by the decision of this Court in Gem. Plus Jewellery India Pvt. Ltd. (Supra), the question as proposed does not give rise to any substantial question of law. Thus, not entertained. Comparable selection - HELD THAT - Companies functionally dissimilar wit that of assessee need to be deselected from final list. Include the instance of one SIP Technology and Exports Limited in the set of comparables - HELD THAT - In this context, the objection of the Revenue was that the said SIP Technology was a loss making company and therefore, had to be excluded. The Tribunal however, held that the Company was not constantly loss making Company. It had suffered losses only in one out of the last three years under consideration. The Tribunal therefore, refused to exclude the said Company from the list of comparables Deduction u/s 10A - allocation of expenditure between two units i.e. eligible and non-eligible units - HELD THAT - Assessee had questioned this allocation before the Tribunal. The Tribunal appears to have deleted this addition, restoring the expenditure allocation as claimed by the assessee. However, having perused the impugned judgment of the Tribunal with the assistance of the learned Counsel for the parties, we do not find any discussion on this issue in the entire decision. Tribunal appears to have totally lost sight of this contentious issue. We would therefore, request the Tribunal to decide this ground of Appeal of the assessee confined to the question of allocation of operative expenses between assessee's two units i.e. eligible and non-eligible units for deduction u/s 10A - The Tribunal would entertain this ground and give its opinion on merits. For such limited purpose, the proceedings are placed back before the Tribunal.

Summary

Issues:
1. Allocation of expenditure between eligible and non-eligible units for deduction under Section 10A.
2. Exclusion and inclusion of companies from the set of comparables by the Tribunal.

Issue 1: Allocation of Expenditure

The dispute between the Revenue and the assessee centered around the allocation of expenditure between two units, one eligible for deduction under Section 10A and the other not eligible. The Disputes Resolution Panel applied Section 80IA(8) of the Act to determine the allocation of operating expenses based on the sales ratio between the eligible and non-eligible units. The Tribunal, however, deleted this addition and accepted the expenditure allocation as claimed by the assessee. The High Court noted that the Tribunal did not address this contentious issue in its decision. Therefore, the Court requested the Tribunal to specifically decide on the allocation of operative expenses between the two units for deduction under Section 10A.

Issue 2: Exclusion and Inclusion of Companies in Comparables

Regarding the exclusion of companies from the set of comparables by the Tribunal, the High Court analyzed each instance. The Tribunal excluded certain companies like Coral Hubs, Genesys International, and Apitco Limited from the comparables list based on functional differences and high operating margins. The Court agreed with the Tribunal's reasoning, stating that the companies were functionally different from the assessee, and hence, their exclusion was justified. The Court found no legal question arising from these exclusions.

On the inclusion of SIP Technology and Exports Limited in the set of comparables, the Revenue objected due to the company's past losses. However, the Tribunal noted that the company had losses in only one of the last three years under consideration and refused to exclude it. The High Court concurred with the Tribunal's decision, stating that there was no legal issue raised by including SIP Technology in the comparables list.

In conclusion, the High Court addressed the issues of expenditure allocation between units for Section 10A deduction and the selection of comparables by the Tribunal. The Court directed the Tribunal to decide on the expenditure allocation matter and upheld the Tribunal's decisions on excluding and including companies in the comparables list, finding no legal questions arising from these actions.