2022 (1) TMI 1026 - AT - Income Tax

TP Adjustment - addition in Software development transactions under Mutual Agreement Proceedings (MAP) under Article 27 of DTAA entered between India and USA - correctness of granting risk adjustment to the assessee by Ld DRP - HELD THAT - Since the entire transfer pricing dispute has been resolved under MAP proceedings, this ground of the revenue does not require to be adjudicated. Accordingly, we reject the same. Deduction allowed u/s 10A - whether the Ld CIT(A) was justified in holding that the expenses incurred in foreign currency is required to be reduced from both export turnover and total turnover while computing deduction u/s 10A ? - HELD THAT - D.R fairly agreed that this issue has since been decided in the case of HCL Technologies Ltd 2018 (5) TMI 357 - SUPREME COURT holding that the expenses should be excluded both from export turnover and turnover for the purpose of computing deduction u/s 10A of the Act. We also notice that the CBDT has issued a Circular No.4/2018 dated 14th August, 2018 directing the department not to file appeals in respect of the above said issue. Accordingly, this ground of revenue is liable to be rejected.

Summary

Issues:
1. Challenge to assessment order by assessee and revenue.
2. Resolution of transfer pricing dispute under Mutual Agreement Proceedings (MAP).
3. Granting risk adjustment by DRP.
4. Deduction allowed under section 10A of the Act.

Analysis:

1. The judgment involves appeals by both the assessee and the revenue challenging the assessment order passed by the Assessing Officer (AO) under section 143(3) read with 144C(13) of the Act for the assessment year 2011-12, pursuant to directions by the Dispute Resolution Panel (DRP).

2. The assessee sought to withdraw the appeal as it had resolved the transfer pricing dispute in Software development transactions under Mutual Agreement Proceedings (MAP) as per the DTAA between India and USA. The Tribunal allowed the assessee to withdraw the appeal, considering the resolution of the dispute under MAP proceedings.

3. The first issue addressed was the correctness of granting risk adjustment to the assessee by the DRP. However, since the transfer pricing dispute had been resolved under MAP proceedings, the Tribunal concluded that this ground of the revenue did not require adjudication and rejected it accordingly.

4. The next issue focused on the deduction allowed under section 10A of the Act. It questioned whether the expenses incurred in foreign currency should be reduced from both export turnover and total turnover while computing the deduction under section 10A. The Tribunal referred to the decision of the Hon'ble Supreme Court in the case of HCL Technologies Ltd and a Circular issued by the CBDT, which directed the department not to file appeals on this issue. Consequently, the Tribunal held that the expenses should be excluded from both export turnover and turnover for computing the deduction under section 10A, leading to the rejection of this ground of revenue.

5. In conclusion, the Tribunal dismissed both the appeal of the assessee and the appeal of the revenue, emphasizing the resolution of the transfer pricing dispute under MAP proceedings and the correct computation of deduction under section 10A of the Act as per judicial precedents and CBDT directives.