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2020 (10) TMI 1200 - AT - Income TaxExemption u/s 10A - As per AO assessee has bifurcated the expenditure against the domestic income as well as export income AND profit from domestic sale does not qualify either adjustment of loss from export business u/s 10A - assessee explained that it has entered into a Master Outsourcing Agreement with C S USA to provide ITES and also entered into an agreement called Master Outsourcing Agreement with GHCL - CIT-A allowed deduction - HELD THAT - Provisions of section 10A(4) of the Act have been explained elsewhere. In our understanding of the present facts and law as both the export sales and domestic sales were done by the same undertaking therefore profit or loss of the undertaking needs to be calculated as a whole and profit from domestic sales cannot be charged separately to tax and adjusted against loss from export business in the present case. We therefore do not find any error or infirmity in the findings of the CIT(A). - Decided against revenue. Staff travel foreign expenses - assessee was required to give nexus between travelling expenses incurred and business receipts as a whole and the designation of the employees who made the travelling - HELD THAT - As the company is in export of call centre services setting up a successful international call centre requires up-to-date technology quality assurance data analysis and continuous training of employees international level of communication skills continuous business development and for this purpose the top management and the other related employees went abroad to gain knowledge of the call centres to have international standards. As mentioned elsewhere this is the first year of the business. Therefore it is more important for the appellant company to update its key employees with advanced technology. - Decided against revenue. Legal and Professional Expenses - AO formed a belief that the assessee has claimed expenditure under this head which does not have any business nexus and purpose for payment of legal and professional expenses are not justified - HELD THAT - Assessing Officer fell into error in holding that the expenditure under this head does not have any business nexus. As mentioned in the earlier ground that the Assessing Officer should not decide which expenses are necessary for the purpose of carrying on the business and it is for the business-man to decide. Moreover legal and professional expenses are paid to professionals for their legal and commercial advice which are necessary for carrying on business. As the genuineness of the expenses have not been questioned and the Assessing Officer has merely questioned the legitimacy of the expenses which in our opinion is not correct. It is for the business- man to decide which expenses are necessary to further its business.- Decided against revenue. TP Adjustment - unutilised capacity - alternative TP study done by the assessee - HELD THAT - As total available man hours for calling during the year was 1, 93, 440 and total billed hours were 1, 01, 851/-. Thus the idle hours of calls 91, 589 which makes unutilised capacity at 47.35%. In the subsequent years capacity utilisation has been increased from 50% to 100%. We therefore do not find any infirmity in deciding this issue on unutilised capacity by the CIT(A). Alternative TP study done by the assessee fulfils the requirements of TP regulations and is found to be correct. OP/TC with C S USA is 11.20% which is more than the average OP/TP of the comparable companies at minus 6.89%. Assuming that the OP/TC of the comparable companies as per the TPO is correct which is at 9.52% the assessee s OP/TC being 11.20% we are of the considered view that the international transaction is at ALP and needs no further adjustment and accordingly no interference is called for in the findings of the CIT(A) - Decided against revenue.
Issues Involved:
1. Deduction under Section 10A for domestic sales. 2. Disallowance of foreign travel expenses. 3. Disallowance of legal and professional expenses. 4. Transfer pricing adjustments. 5. Violation of Rule 46A and principles of natural justice. Issue-wise Detailed Analysis: 1. Deduction under Section 10A for Domestic Sales: The primary issue was whether the profit from domestic sales qualifies for deduction under Section 10A. The Assessing Officer (AO) disallowed the benefit on domestic profit of ?20.91 lakhs, arguing that Section 10A applies only to export sales. The CIT(A) allowed the deduction, interpreting Section 10A as a deduction section with a formula under Section 10A(4) that does not require separate calculation for domestic and export sales. The Tribunal upheld the CIT(A)'s decision, stating that profit or loss of the undertaking should be calculated as a whole and not separately for domestic and export sales. 2. Disallowance of Foreign Travel Expenses: The AO disallowed ?30.04 lakhs of foreign travel expenses, questioning their business nexus. The CIT(A) allowed the expenses, noting they were incurred for business development and training, essential for the company's call center operations. The Tribunal upheld this decision, emphasizing the necessity of such expenses for setting up a successful international call center and the AO's failure to question the genuineness of the expenses. 3. Disallowance of Legal and Professional Expenses: The AO disallowed ?1.11 crore under the head "Legal and Professional Expenses," doubting their business nexus. The CIT(A) examined each expense and found them justified, directing the AO to delete the addition. The Tribunal agreed, stating that the AO should not decide the necessity of business expenses and acknowledging the importance of legal and professional advice for business operations. 4. Transfer Pricing Adjustments: The AO made an adjustment of ?3.64 crores, questioning the selection of the tested party and benchmarking analysis. The CIT(A) considered multiple justifications from the assessee, including under-utilisation of capacity, and allowed the appeal. The Tribunal upheld the CIT(A)'s decision, noting the significant under-utilisation of capacity in the first year of business and the correctness of the alternative TP study by the assessee, which showed the international transaction to be at arm's length. 5. Violation of Rule 46A and Principles of Natural Justice: The Revenue contended that the CIT(A) violated Rule 46A and principles of natural justice by not giving the AO/TPO an opportunity to respond. The Tribunal found that the CIT(A) had given multiple opportunities to the AO, who failed to respond, and thus, there was no violation of natural justice. Conclusion: The Tribunal dismissed the Revenue's appeals for both assessment years, affirming the CIT(A)'s decisions on all grounds. The order was pronounced in the open court on 28.10.2020.
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