2023 (5) TMI 701 - AT - Income Tax

TP Adjustment - Comparables selection - TPO has rejected the R Systems International Limited from the list of comparables on the basis that it has a different year end as compared to assessee - HELD THAT - We notice that the coordinate bench in assessee s own case AY 2010-11 2022 (8) TMI 1379 - ITAT MUMBAI . Tribunal recorded that inasmuch as this company has not been rejected on the ground of functionality, if the quarterly results are available in the public domain wherein the figures for the relevant quarter are also available, there cannot be any difficulty to work out the proportionate margin. While placing reliance on the decision of this Tribunal in the case of Cadence Design Systems India Ltd., the Tribunal directed the TPO to consider the quarterly results and work out the proportionate margin results. As gone through the order and also the facts involved in this matter. The rejection of this comparable is not on the ground of functional dissimilarity, but only because of a different accounting period. Facts being similar, we are of the considered opinion that it is a fit case to direct the ld. AO to consider the quarterly results and work out the proportionate profit margin for this purpose, we remand the matter to the file of the TPO/AO for compliance of our direction. Thus as the issue is covered by the above decision of the coordinate bench in assessee s own case we remit the issue back to the TPO with a direction to consider the quarterly results and work out the proportionate profit margin of the comparable after giving a reasonable opportunity of being heard to the assessee. Denial of deduction u/s.10AA for interest income - HELD THAT - In assessee s case, we notice that the assessee has placed the surplus funds in FDs and has earned interest from the same. The facts of assessee s case being identical to the case of Hewlett Packard Global Soft Ltd 2017 (11) TMI 205 - KARNATAKA HIGH COURT respectfully following the above we hold that the interest income earned by the assessee is eligible for deduction under section 10AA. Accordingly, we delete the disallowance made by the Assessing Officer in this regard.

Summary

Issues Involved:
1. Transfer Pricing Adjustment
2. Denial of Deduction u/s.10AA for Interest Income
3. Non-granting of Credit for TDS & Foreign Tax

Summary:

Transfer Pricing Adjustment (Grounds 1 to 3):
The assessee, engaged in administrative and back office support services, filed a return for AY 2013-14. The Transfer Pricing Officer (TPO) proposed an adjustment of Rs.6,70,16,931/-. The assessee contested this adjustment, and the Dispute Resolution Panel (DRP) sustained the TPO's adjustments. The Tribunal focused on the exclusion of R Systems International Ltd as a comparable due to different financial year-end. The Tribunal cited previous decisions, including the assessee's own case for AY 2010-11, and directed the TPO to consider quarterly results and work out the proportionate profit margin of the comparable. This issue was allowed for statistical purposes, making other grounds academic.

Denial of Deduction u/s.10AA for Interest Income (Ground 4):
The Assessing Officer (AO) denied the deduction u/s.10AA for interest income, stating that it should be construed narrowly. The DRP upheld this decision. The Tribunal referred to the Karnataka High Court's decision in CIT vs Hewlett Packard Global Soft Ltd, which held that profits and gains of 100% EOUs, including incidental income by way of interest on bank deposits, are entitled to 100% exemption under section 10A/10B. The Tribunal followed this decision and held that the interest income earned by the assessee is eligible for deduction under section 10AA, deleting the disallowance made by the AO.

Non-granting of Credit for TDS & Foreign Tax (Grounds 6 and 7):
The Tribunal directed the AO to consider the submissions and evidence provided by the assessee regarding the non-granting of credit for TDS and foreign tax and decide in accordance with the law.

Consequential Grounds (Grounds 8 and 9):
These grounds were deemed consequential and did not warrant separate adjudication.

Conclusion:
The appeal was partly allowed, with decisions favoring the assessee on key issues of transfer pricing adjustment and deduction under section 10AA for interest income. The AO was directed to reassess the credit for TDS and foreign tax. The order was pronounced on 12/05/2023.