2022 (7) TMI 1294 - AT - Income Tax

TP Adjustment - Comparable selection - CG-VAK Software and Exports Ltd., as a good comparable - HELD THAT - CG-VAK Software and Exports Ltd., had earned profit in A.Y.2007-08 and 2009-10 and had incurred loss only in A.Y.2008-09. Hence, it has earned profit in two out of three past consecutive financial years. In view of the same and in view of our aforesaid judicial precedents, we hold that CG-VAK Software and Exports Ltd., should be included as a good comparable with that of the assessee company. AR Stated that once this comparable is included in the final list of comparables, it would be well within the /-5% tolerance band and hence, no transfer pricing adjustment would be required to be made in respect of ITES segment of the assessee. In view of this, inclusion and exclusion of other comparables challenged by the assessee are not adjudicated by this Tribunal and they are left open. Accordingly, ground No. 1 2 raised by the assessee are allowed. Addition on account of un-reconciled receipts with Form 26AS in respect of unit eligible for deduction u/s.10A - HELD THAT - It is not in dispute that assessee is eligible for deduction u/s.10A of the Act. It is not in dispute that the said un-reconciled receipts from sister concern also pertains to 10A unit of the assessee. The deduction u/s.10A of the Act as directed by the ld. DRP was not granted to the assessee on the ground that the said un-reconciled receipt of Rs.10,33,974/- was not included in Form No.56F issued by the Chartered Accountant for claiming deduction u/s.10A of the Act. We hold that once the receipt whether reconciled with AIR data or not reconciled with AIR data, pertains to 10A Unit, then the whole of the profits of the said undertaking / eligible unit would be eligible for deduction u/s.10A of the Act. This is the mandate provided in the provisions of Section 10A of the Act itself. Accordingly, any addition made which goes to increase the profits of the 10A Unit would only result in consequential increase in grant of deduction u/s.10A - we direct the ld. AO to grant deduction u/s.10A of the Act for unreconciled receipt of Rs.10,33,974/-. Accordingly, the ground No.3 raised by the assessee is allowed.

Issues Involved:
1. Transfer Pricing Adjustment in respect of ITES segment for A.Y. 2009-10 and A.Y. 2010-11.
2. Addition of Rs.10,33,974/- on account of un-reconciled receipts with Form 26AS for A.Y. 2009-10.
3. Computation of interest u/s.234D of the Act for A.Y. 2009-10.

Issue-wise Detailed Analysis:

1. Transfer Pricing Adjustment in respect of ITES segment for A.Y. 2009-10 and A.Y. 2010-11:

The assessee challenged the transfer pricing adjustment made by the TPO concerning the ITES segment for A.Y. 2009-10. The main contention was the inclusion of CG-VAK Software and Exports Ltd. as a comparable. The assessee argued that if this comparable was included, it would fall within the +/-5% tolerance band, negating the need for any TP adjustment. The Tribunal noted that the TPO had previously accepted CG-VAK Software and Exports Ltd. as a comparable in A.Y. 2007-08 when it was profit-making. The Tribunal also referenced the case of the assessee's sister concern, where CG-VAK Software and Exports Ltd. was considered a good comparable for A.Y. 2009-10. The Tribunal found that CG-VAK Software and Exports Ltd. had made profits in A.Y. 2009-10 and subsequent years, thus not a persistent loss-making company. Consequently, the Tribunal directed the inclusion of CG-VAK Software and Exports Ltd. as a comparable, resulting in no TP adjustment for the ITES segment for A.Y. 2009-10.

For A.Y. 2010-11, the TPO again rejected CG-VAK Software and Exports Ltd. as a comparable on the grounds of being a persistent loss-making company. The DRP, however, held it to be a good comparable since it had made profits during A.Y. 2009-10 and A.Y. 2010-11. The Tribunal upheld this view, stating that CG-VAK Software and Exports Ltd. had earned profits in A.Y. 2007-08, 2009-10, and 2010-11, and directed its inclusion in the final list of comparables. The Tribunal dismissed the Revenue's additional grounds regarding functional dissimilarity as they did not emanate from the lower authorities' orders. Consequently, the Revenue's appeal for A.Y. 2010-11 was dismissed, and the assessee's cross-objections were deemed infructuous.

2. Addition of Rs.10,33,974/- on account of un-reconciled receipts with Form 26AS for A.Y. 2009-10:

The assessee contested the addition of Rs.10,33,974/- made by the AO due to un-reconciled receipts with Form 26AS. The Tribunal noted that the assessee is eligible for deduction u/s.10A of the Act and that the un-reconciled receipts pertain to the 10A unit. The Tribunal held that any addition increasing the profits of the 10A unit should result in a corresponding increase in the deduction u/s.10A, as mandated by the Act. The Tribunal cited the decision of the Hon'ble Jurisdictional High Court in CIT vs. Gem Plus Financial India Ltd., which supports this view. Consequently, the Tribunal directed the AO to grant deduction u/s.10A for the un-reconciled receipt of Rs.10,33,974/-, allowing the assessee's ground.

3. Computation of interest u/s.234D of the Act for A.Y. 2009-10:

The assessee's ground challenging the computation of interest u/s.234D was not pressed during the hearing. The Tribunal dismissed this ground as not pressed, based on the statement made from the Bar.

Conclusion:

In summary, the Tribunal partly allowed the appeal for A.Y. 2009-10, directing the inclusion of CG-VAK Software and Exports Ltd. as a comparable and granting deduction u/s.10A for the un-reconciled receipt. The Tribunal dismissed the Revenue's appeal for A.Y. 2010-11, upholding the inclusion of CG-VAK Software and Exports Ltd. as a comparable, and dismissed the assessee's cross-objections as infructuous.

Order Pronounced:

Order pronounced on 15/07/2022 by way of proper mentioning in the notice board.

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