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2022 (7) TMI 1367 - AT - Income TaxValidity of order passed u/s. 92CA(3) - Time limit for completion of assessments and reassessments - HELD THAT - We hold that the adjustment proposed by the TPO in the order passed under section 92CA on account of adjustment on account of transfer pricing adjustment arising from the determination of the ALP of the international transactions to be time barred order, cannot be sustained. All issues raised by assessee on the grounds of appeal allowed. Disallowance of deduction u/s 80 JJAA - disallowance u/s 80JJAA in respect of additional wages paid to the employees working in 10A units read with section 80A(4) - HELD THAT - As decided in own case 2021 (11) TMI 1129 - ITAT BANGALORE the assessee had claimed deduction in respect of employees, who had joined as engineers in their respective field such as systems engineer, test engineer, software design engineer, IC design engineer, lead engineer etc. A cursory perusal of those lists establishes that the assessee had claimed deduction in respect of the engineers employed not in the category of supervisory control. All these details were filed before the AO during assessment proceedings. These facts were not properly considered by the AO. Further, from the order of the CIT(A), it is seen that he had taken note of the notification issued by the Government of Karnataka and concluded that as per the notification issued, the assessee company engaged in the development of software is covered by the Industrial Disputes Act, 1947. Further it is not the case of the Revenue that the assessee did not fulfil the conditions extracted elsewhere in this order. Considering all those factual matters we do not find any infirmity in the order of CIT(A) according relief to the assessee. In fact he had clarified the relevant portions related to Industrial Disputes Act, 1947 and IT Act while granting relief to the asssessee The facts and circumstances under which the disallowance in made in the present year is similar with the assessment year 2100-12. Respectfully following the above view, we direct the Ld.AO to consider the claims in accordance with the observations of this Tribunal in assessee s own case in the preceding assessment years.
Issues Involved:
1. Transfer Pricing Adjustments 2. Deduction under Section 80JJAA 3. Time Limitation for Transfer Pricing Order 4. Risk Adjustment 5. Depreciation on Servers, Switches, Routers 6. Disallowance under Section 40(a)(ia) 7. Computation of Deduction under Section 10A 8. Interest under Section 234B and 234D Detailed Analysis: 1. Transfer Pricing Adjustments - Adjustment to Provision of Contract Software Development Services: The assessee contested the adjustment of INR 49,18,48,634 made by the TPO, which was confirmed by the DRP. - Rejection of TP Documentation: The TPO rejected the TP documentation maintained by the assessee under Section 92D. - Multiple-Year Data and Non-Contemporaneous Data: The TPO disregarded the application of multiple-year data and used non-contemporaneous data not available in the public domain. - Comparability Analysis: The TPO retained companies like ICRA Techno Analytics Ltd., Infosys Ltd., Kals Information Systems Ltd., and Persistent Systems Ltd. in the comparability analysis, which the assessee argued were functionally dissimilar. - Exclusion of Companies with High Related Party Transactions: The TPO did not exclude companies with related party transactions exceeding the tolerance limit of 15%. - Foreign Exchange Fluctuation: The TPO did not consider foreign exchange fluctuation as part of operations for computing the operating mark-up. - Reimbursement of Expenses: The TPO included the reimbursement of expenses received as part of the cost base. - Domestic vs. International Transactions: The TPO made adjustments to the value of domestic transactions instead of international transactions. - Risk Adjustment: The TPO limited the risk adjustment to 1% without providing reasons. 2. Deduction under Section 80JJAA - Disallowance of Deduction: The DRP confirmed the AO's action in disallowing the deduction under Section 80JJAA amounting to INR 13,07,42,470. - Assessee Specific vs. Unit Specific: The assessee argued that the deduction is assessee-specific, not unit-specific. - Amendment Applicability: The assessee contended that the amendment made in the Finance Act 2013, restricting the deduction, is applicable from April 1, 2014, and is prospective. - Provisions of Section 80A(4): The AO invoked Section 80A(4) in the context of deduction under Section 80JJAA for 10A units. 3. Time Limitation for Transfer Pricing Order - Barred by Limitation: The assessee argued that the TPO's order dated 30 January 2014 was beyond the time limit prescribed under Section 92CA(3A) r.w.s 153, making the order illegal and void. - Consequential Proceedings: The assessee contended that all proceedings consequent to the draft assessment order are also illegal and void. 4. Risk Adjustment - Risk Adjustment Limitation: The DRP directed the AO to grant a risk adjustment of 1% to the average margin on account of the risk level assumed by the assessee, which the revenue contested. 5. Depreciation on Servers, Switches, Routers - Depreciation Rate: The DRP directed the AO to allow depreciation at the rate of 60% as against 15% allowed by the AO on servers, switches, routers, etc. 6. Disallowance under Section 40(a)(ia) - Depreciation on Computer Software: The DRP deleted the disallowance made under Section 40(a)(ia) on depreciation on computer software. 7. Computation of Deduction under Section 10A - Expenses Exclusion: The DRP directed the AO to reduce expenses on communication, travel, and other expenses incurred in foreign currency both from export turnover and total turnover. 8. Interest under Section 234B and 234D - Levy of Interest: The DRP confirmed the levy of interest under Sections 234B and 234D. Judgement Summary: The tribunal admitted the additional grounds raised by the assessee regarding the time limitation of the TPO's order. It was held that the TPO's order dated 31 January 2014 was beyond the prescribed time limit, making it illegal and void. Consequently, the transfer pricing adjustments proposed by the TPO were quashed. The issues related to transfer pricing adjustments raised by both the assessee and the revenue became academic and were not adjudicated further. For the deduction under Section 80JJAA, the tribunal directed the AO to reconsider the claims in accordance with the observations of the tribunal in the assessee's own case for the preceding assessment years. The tribunal also addressed the issues related to the computation of deduction under Section 10A, risk adjustment, and depreciation on servers, switches, and routers, directing the AO to follow the tribunal's previous decisions. The appeal filed by the assessee was partly allowed, and the appeal filed by the revenue was dismissed.
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