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2022 (5) TMI 97 - AT - Income TaxDisallowance u/s 43B - A.R. submitted that the assessee had inadvertently deleted excess amount of leave encashment under Section 43B of the Act in the return of income - HELD THAT - We have heard the rival submissions. In our opinion the plea of the assessee is justified. Accordingly in the interest of justice, we remit this issue to the file of the AO to consider the aggregate amount of provision for disallowance on leave encashment and AO has to decide the issue after giving opportunity of hearing to the assessee. TP Adjustment - comparable selection - Mindtree Limited and e4e Healthcare Business Services Pvt. Ltd. - HELD THAT - We direct the AO/TPO to include these 2 comparables in the list of comparables while determining the ALP in segment. Exclusion of ICRA Online Limited from the list of comparables - As relying on Lam Research India (P) Ltd 2021 (9) TMI 1379 - ITAT BANGALORE we direct the AO/TPO to exclude ICRA Online Ltd. from the list of comparables while determining ALP of the international transactions. Seeking correct computation of operating margin of Mindtree Limited - As D.R. put no objection on this issue. Accordingly, we direct the AO/TPO to consider the correct operating margin of Mindtree Limited after giving opportunity to the assessee. Negative working capital adjustment - HELD THAT - As decided in e4e Business Solutions India Pvt. Ltd. 2020 (12) TMI 1255 - ITAT BANGALORE we are of the opinion that the assessee having no working capital risk no negative working capital adjustment is called for. Accordingly, this ground of the assessee is allowed Comparability - Companies functionally dissimilar with that of assessee need to be deselected from final list. Disallowance of deduction under Section 10A - Exclusion of telecommunication expenses both from export sales and total turnover - HELD THAT - After hearing both the parties we are of the opinion that this issue is settled by the judgment of Hon'ble Supreme Court in the case of CIT vs. HCL Technologies Ltd. 2018 (5) TMI 357 - SUPREME COURT wherein it is held that the expenditure incurred in foreign currency, towards telecommunication to be excluded both from export turnover and total turnover for the purpose of computation of deduction under Section 10A of the Act. Being so, respectfully following the above judgment of the Hon'ble Supreme Court we dismiss the ground taken by Revenue. Deduction claimed only on interest earned from fixed deposits - HELD THAT - We find that this issue is covered by the judgment of Hon'ble Karnataka High Court in the case of CIT vs. Hewlett Packard Global Software Ltd. 2017 (11) TMI 205 - KARNATAKA HIGH COURT in favour of the assessee. As such the interest earned from fixed deposit invested in the export earning of the assessee to be included in the profit of the undertaking while computing the deduction under Section 10A of the Act. Accordingly, this ground of Revenue is dismissed.
Issues Involved:
1. Validity of the assessment order. 2. Transfer Pricing issues. 3. Corporate Tax issues. 4. Admission of additional grounds. 5. Inclusion and exclusion of comparables in the ITES segment. 6. Negative working capital adjustment. 7. Disallowance of deduction under Section 10A. 8. Exclusion of telecommunication expenses from export sales and total turnover. 9. Deduction claimed on interest earned from fixed deposits. Detailed Analysis: 1. Validity of the Assessment Order: - The assessee contended that the assessment order passed by the AO under Section 143(3) read with Section 144C(13) was erroneous and bad in law. However, these grounds were general in nature and did not require adjudication. 2. Transfer Pricing Issues: - The assessee raised multiple grounds challenging the adjustments made by the TPO, DRP, and AO regarding the arm's length price (ALP) of transactions with associated enterprises (AEs). These included errors in the selection and rejection of comparables, application of filters, and the computation of adjustments. However, the assessee did not press these grounds during the hearing, leading to their dismissal. 3. Corporate Tax Issues: - The assessee argued that an inadvertent mistake was made in the return of income regarding the provision for leave encashment under Section 43B. The Tribunal remitted the issue back to the AO to consider the correct aggregate amount for disallowance. - The issue of non-granting of deduction under Section 10A on the enhanced assessed income was deemed academic and kept open for future argument. - The initiation of penalty proceedings under Section 271(1)(c) was not adjudicated at this stage. - The ground related to consequential matters was also not adjudicated. 4. Admission of Additional Grounds: - The Tribunal admitted additional grounds for adjudication, as they did not require investigation of fresh facts and were necessary for justice. 5. Inclusion and Exclusion of Comparables in the ITES Segment: - The Tribunal directed the inclusion of Mindtree Limited and e4e Healthcare Business Services Pvt. Ltd. in the list of comparables for determining the ALP. - The Tribunal directed the exclusion of ICRA Online Limited from the list of comparables, citing functional dissimilarity and failure to meet specific filters. - The Tribunal directed the AO/TPO to compute the correct operating margin of Mindtree Limited after giving the assessee an opportunity to be heard. 6. Negative Working Capital Adjustment: - The Tribunal deleted the negative working capital adjustment, following the precedent set in the case of ACIT vs. e4e Business Solutions India Pvt. Ltd., as the assessee did not bear any working capital risk. 7. Disallowance of Deduction under Section 10A: - The Tribunal dismissed the Revenue's ground regarding the exclusion of telecommunication expenses from export sales and total turnover, following the Supreme Court judgment in CIT vs. HCL Technologies Ltd. 8. Exclusion of Telecommunication Expenses from Export Sales and Total Turnover: - The Tribunal followed the Supreme Court's judgment in CIT vs. HCL Technologies Ltd., which mandated the exclusion of telecommunication expenses from both export turnover and total turnover for the purpose of computing the deduction under Section 10A. 9. Deduction Claimed on Interest Earned from Fixed Deposits: - The Tribunal ruled in favor of the assessee, stating that interest earned from fixed deposits invested in export earnings should be included in the profit of the undertaking while computing the deduction under Section 10A, following the Karnataka High Court judgment in CIT vs. Hewlett Packard Global Software Ltd. Conclusion: - The appeal filed by the assessee was partly allowed for statistical purposes, and the appeal filed by the Revenue was partly allowed. The Tribunal's order was pronounced in the open court on 8th April 2022.
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