2017 (12) TMI 862 - AT - Income Tax

Expenditure claimed u/s 10B - whether the assessee has not been approved as a 100% EOU by the Board appointed in this behalf by the central Govt. - Held that - Where the assessee is registered under the STPI as a 100% EOU it is entitled for deduction u/s 10B of the Act. See case of Secunderabad Software Services Pvt. Ltd 2014 (7) TMI 546 - ITAT HYDERABAD Computation of deduction u/s 10B - Held that - For the purpose of computation of deduction u/s 10B of the Act if any expenditure is excluded from the export turnover then the same should also be excluded from the total turnover. See CIT vs. Tata Elxsi Ltd 2011 (8) TMI 782 - KARNATAKA HIGH COURT AO not followed the direction of the DRP to take the profit before depreciation - Held that - DRP has directed the AO to consider the margins of the assessee as well as the comparables after excluding the depreciation. Since the AO has not followed the said method while computing the ALP we direct the AO to recompute the ALP after taking the margins of the assessee as well as the comparables after excluding the depreciation in accordance with the directions of the DRP. The grounds on this issue are therefore treated as allowed for statistical purposes. Interest on receivable - assessee had transactions with both the AEs and non-AEs and has not charged interest on the receivable - Held that - Where the assessee is not charging interest on both AE and non-AE transactions and the receivables are outstanding for a period of less than six months no interest can be charged. For the receipts beyond six months also we find that the interest is not chargeable because the assessee has not charged any interest on receivable from the non-AEs. Therefore the grounds of appeal relating to this issue are also treated as allowed.

Summary

Issues:
1. Eligibility for deduction u/s 10B of the Income Tax Act.
2. Treatment of communication and Band Width VOIP charges for deduction u/s 10A of the Act.
3. ALP adjustment for software development services and interest on receivables for A.Y 2012-13.

Eligibility for deduction u/s 10B of the Income Tax Act:
The appeal filed by the Revenue against the order of the CIT (A) directed the AO to allow expenditure claimed by the assessee u/s 10B of the Act, despite not being approved as a 100% EOU by the Central Govt. The AO disallowed the deduction u/s 10B as the assessee was only registered as a 100% EOU by STPI, not approved by the Central Govt. The Tribunal, following previous decisions, held that registration with STPI as a 100% EOU entitles the assessee to deduction u/s 10B. The Tribunal dismissed the Revenue's appeal, confirming the CIT (A)'s decision.

Treatment of communication and Band Width VOIP charges for deduction u/s 10A of the Act:
The Revenue appealed against the direction of the CIT (A) to reduce communication and Band Width VOIP charges from both export turnover and total turnover for computing deduction u/s 10A of the Act. The Tribunal upheld the CIT (A)'s decision, citing precedents and directions from High Courts, stating that if any expenditure is excluded from export turnover, it should also be excluded from total turnover. The Revenue's appeals for all relevant A.Ys were dismissed.

ALP adjustment for software development services and interest on receivables for A.Y 2012-13:
In the assessee's appeal for A.Y 2012-13, two main issues were raised: ALP adjustment for software development services and interest on receivables. The Tribunal directed the AO to recompute the ALP after excluding depreciation, following the DRP's direction and High Court decisions. Regarding interest on receivables, the Tribunal held that no interest can be charged if the receivables are outstanding for less than six months and if the assessee does not charge interest on transactions with both AE and non-AE. The Tribunal partly allowed the assessee's appeal for statistical purposes.

In conclusion, the Revenue's appeals for all A.Ys were dismissed, and the assessee's appeal for A.Y 2012-13 was partly allowed. The Tribunal provided detailed reasoning and analysis for each issue, relying on legal precedents and directions from higher courts.