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2022 (8) TMI 893 - AT - Income TaxTP adjustment - comparable selection - functional dissimilarity - HELD THAT - Companies functionally dissimilar and diversified services with that of assessee software service provider need to be deselected from final list. Disallowance of expenses on non-deduction of tax - Non deduction of TDS Freight charges u/s 194C and Expense on hotel accommodation u/s 194I - As submitted deduction u/s 10A of the Act shall be computed on the assessed income after considering all the allowances/disallowances made by the AO during the assessment proceedings - HELD THAT - AO, on the basis of the TDS Survey, conducted and order passed by the ITO, TDS made addition on account of Freight charges and expense on hotel accommodation by invoking the provisions of section 40(a)(ia) of the Act. Without going into the merit of the addition, we find the alternate argument of the ld. Counsel for the assessee acceptable according to which once the assessee is entitled to deduction u/s 10A of the IT Act, then, such higher assessed income on account of disallowance made by the AO is eligible for deduction u/s 10A. Since the assessee is entitled to deduction u/s 10A of the Act, therefore, the assessee is entitled to deduction u/s 10A of the Act on such enhanced assessed income due to disallowance of the expenditure on account of freight charges and expenses on hotel accommodation. We, therefore, allow the ground of appeal by the assessee.
Issues Involved:
1. Transfer Pricing Adjustment for ITES and Software Development Segments. 2. Exclusion of Certain Comparables. 3. Disallowance of Expenses under Section 40(a)(ia) of the IT Act. Detailed Analysis: 1. Transfer Pricing Adjustment for ITES and Software Development Segments: The Tribunal addressed the adjustments made by the TPO for the ITES and Software Development segments. The TPO had proposed upward adjustments for both segments, which were contested by the assessee. The Tribunal evaluated the comparables used by the TPO and the assessee's objections to these comparables. 2. Exclusion of Certain Comparables: - Coral Hub Limited: Excluded due to its outsourcing business model, which is different from the assessee's captive service model. The Tribunal cited several decisions supporting the exclusion of companies with different business models. - Eclerx Services Limited: Excluded as it provides high-end KPO services and follows an outsourcing model. The Tribunal referenced the Delhi High Court's decision in Rampgreen Solutions Pvt. Ltd. and other cases to support this exclusion. - Genesys International Corporation Limited: Excluded due to its engagement in high-skill geographical information services and an extraordinary event (acquisition) during the assessment year. The Tribunal cited decisions from various High Courts and Tribunals to support this exclusion. - Infosys BPO Limited: Excluded due to its giant size, brand value, and significant intangibles, which make it incomparable to the assessee. The Tribunal referenced its own previous decisions and the Delhi High Court's ruling in Avaya India Pvt. Ltd. - Wipro Limited (BPO Segment): Excluded for similar reasons as Infosys BPO, including incomparable scale of operations and brand value. The Tribunal cited the Delhi High Court's decision in H & S Software Development and Knowledge Manager Centre Pvt. Ltd. - Acropetal Technologies Limited: Excluded as its income from ITeS services was less than 75% of total revenues, failing the TPO's filter. The Tribunal referenced the decision in IHG IT Services (India) Pvt. Ltd. - Accentia Technologies Limited: Excluded due to an extraordinary event (merger) during the assessment year, which significantly impacted its financials. The Tribunal cited its own previous decision in the assessee's case for AY 2007-08. - HCL Comnet: Remanded back to the TPO/AO for verification of the RPT/sales computation. - LGS Global Limited: Excluded due to its diversified services and lack of segmental accounts. The Tribunal referenced the decision in Cash Edge India Pvt. Ltd. - Quintegra Solutions Limited: Excluded due to its engagement in proprietary software products and infrastructure management services, and lack of segmental accounts. The Tribunal cited decisions from various Tribunals. - Infosys Technologies Limited: Excluded due to its giant size, brand value, and significant intangibles. The Tribunal referenced its own previous decisions and the Delhi High Court's ruling in Agnity India Technologies Pvt. Ltd. - Persistent Systems Limited: Excluded due to its engagement in software products and services, and lack of segmental accounts. The Tribunal cited its own previous decisions and the decision in AVL India Software (P.) Ltd. - Avani Cimcon Technologies Limited: Excluded due to unreliable information and supernormal profits. The Tribunal referenced decisions from various Tribunals. - Softsol India Limited: The issue of correct margin computation was remanded back to the AO/TPO for verification. 3. Disallowance of Expenses under Section 40(a)(ia) of the IT Act: The AO disallowed freight charges and hotel expenses due to non-deduction of TDS. The Tribunal accepted the assessee's alternate argument that such disallowed expenses should be considered for computing profits eligible for deduction under Section 10A. The Tribunal cited several decisions supporting this position and allowed the ground of appeal. Conclusion: The Tribunal partly allowed the appeal, directing the AO/TPO to recompute the ALP in light of the exclusions and adjustments discussed. The Tribunal also allowed the assessee's claim for deduction under Section 10A on the enhanced assessed income due to disallowance of expenses.
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