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TMI Blog2011 (5) TMI 509X X X X Extracts X X X X X X X X Extracts X X X X ..... s to be set off against the normal business income - allow the claim of the assessee. Deduction of data line cost from export turnover - the data line cost being the telecommunication expenses have been excluded by the Assessing Officer from the export turnover - case of the assessee that the telecommunication expenses had been incurred in the business of software development at the software undertakings of the assessee in India- Held that:- Claim of assessee has not been controverted by the AO by placing any material on record. The expenses incurred on development of software in India cannot be considered as expenses attributable to the delivery of computer software outside India. Therefore such expenses cannot be excluded from the export turnover and in case these are excluded, these have to be excluded from total turnover also following the judgment Gem Plus Jewellery India Ltd. (2010 (6) TMI 65 - BOMBAY HIGH COURT) and Sak Soft Ltd. (2009 (3) TMI 243 - ITAT MADRAS-D) - hold that these expenses are not to be excluded from the export turnover. Transfer pricing adjustment - Held that:- The computation filed by the assessee before us prima facie, shows that the price charged by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee explained that, in view of the amended provisions of section 10A from 1-4-2001, it was no longer an exempted provision but only a deduction was allowed under section 10A and therefore loss from the 10A unit has to be set off against the taxable profits of other businesses under the provisions of section 70. It was also submitted that deduction allowable under section 10A was in respect of a particular undertaking and not from the total income which had also been clarified by the circular issued by the CBDT. The Assessing Officer however did not accept the arguments advanced and held that total income of the assessee was required to be computed with respect to the various undertaking and thereafter deduction was required to be given in respect of these units from the total income. He accordingly reduced the loss from Kolkata unit from the deduction claimed in respect of Mumbai-II unit and deduction to that extent in respect of Mumbai-II unit was thus reduced. Aggrieved by the said decision the assessee is in appeal before the Tribunal. 2.1 Before us the Learned AR for the assessee reiterated the submissions made before the authority below that after the amendment of section 10A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s consistent with the new scheme of section 10A which is a deduction provision and not exemption provision from assessment year 2001-02. Therefore the loss from 10A unit has to be adjusted against taxable profits of other units after deduction under section 10A has been allowed in respect of each eligible unit. Same view has been taken by the Hon'ble High Court of Mumbai in case of Hindustan Unilever Ltd. (supra) in which it was held that deduction has to be allowed in respect of three eligible units and loss of the fourth 10A unit has to be set off against the normal business income. The Tribunal in case of Honeywell International India (P.) Ltd. (supra) has also followed the same view. Therefore respectfully following the above judgments, the order of the Additional CIT cannot be sustained. We accordingly set aside the order of the Additional CIT and allow the claim of the assessee. 3. The second dispute is regarding deduction of data line cost from export turnover while computing deduction under section 10A. The assessee had incurred data line cost amounting to Rs. 1,68,47,257; Rs. 1,13,54,505; and Rs. 1,07,75,007 respectively in respect of Mumbai-II unit, Mumbai-III unit and B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only and computed deduction accordingly aggrieved by which the assessee is in appeal before the tribunal. 3.1 Before us, the Learned AR for the assessee reiterated the submissions made before the authority below that under the provisions of Explanation 2(iv) only the freight, telecommunication charges and insurance attributable to the delivery of computer software outside India has to be excluded from export turnover. In case of the assessee, it was pointed out, that the telecommunication expenses had been incurred in the business of software development at the software development centre in India and therefore were not attributable to the delivery of computer software outside India and thus it could not be excluded from the export turnover. Alternatively it was also submitted that in case these are excluded from export turnover, deduction should also be allowed in respect of total turnover. Reliance was placed on the judgment of Hon'ble High Court of Mumbai in case of CIT v. Gem Plus Jewellery India Ltd. [2011] 330 ITR 175/[2010] 194 Taxman 192 and on the decision of the Special Bench of the tribunal in case of Sak Soft Ltd. (supra). The Learned DR on the other hand supported th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... method; (iv) profit split method; (v) transactional net margin method (TNMM) and (vi) such other methods as may be prescribed by the Board and it also says that ALP must be determined by applying the most appropriate method. Further, in terms of the proviso inserted from 1-4-2002, where more than one price is determined by the most appropriate method the ALP has to be taken as arithmetic mean of all such prices or at the option of the assessee, a price which may vary from the arithmetic mean by an amount not exceeding 5 per cent. 4.1 The Assessing Officer referred the issue of determination of ALP to the Transfer Pricing Officer (TPO). The TPO in this case selected the TNMM method for computation of arm's length price. A search for comparable cases was conducted and a set of 36 companies were selected as comparables to which some more companies were added later and finally the Assessing Officer short listed 20 companies, the arithmetic mean of which was computed at 20.68 per cent. After making adjustment on account of working capital of 1.42 per cent the Assessing Officer determined the adjusted arithmetic mean at 19.26 per cent as per details given below. Sr. No. Name of the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ness activities of the company were as under. (i) Transmatic system - design, development and manufacture of multi function kiosks Queue management system, ticket vending system (ii) Ushus Technologies - offshore development centre for embedded software, net work system, imaging technologies, outsourced product development (iii) Accel IT Academy (the net stop for engineers)- training services in hardware and networking, enterprise system management, embedded system, VLSI designs, CAD/CAM/BPO (iv) Accel Animation Studies software services for 2D/3D animation, special effect, erection, game asset development. 4.3 On careful perusal of the business activities of Accel Transmatic Ltd. DRP agreed with the assessee that the company was functionally different from the assessee company as it was engaged in the services in the form of ACCEL IT and ACCEL animation services for 2D and 3D animation and therefore assessee's claim that this company was functionally different was accepted. DRP therefore directed the Assessing Officer to exclude ACCEL Transmatic Ltd. from the final list of comparables for the purpose of determining TNMM margin. 4.4 The Assessing Officer thereafter excluded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e had been confronted with the information obtained by the TPO. It was also submitted that the assessee had pointed out to DRP that 12 comparables selected by the TPO were functionally different. But the DRP considered only two comparables out of 12 comparables pointed out by the assessee. It was also submitted that various contentions raised by the assessee before the DRP were not considered which were placed at pages 166 onwards in the paper book. The Learned AR also submitted that even on the basis of directions of DRP to exclude Accel Transmatic Ltd. the price charged by the assessee came within plus/minus 5 per cent of the ALP computed on the basis of 19 comparables and therefore under the provisions of the Act, no adjustment was required to be made. It was argued that A.O. was required to compute the TP adjustments on the basis of directions of DRP correctly under the provisions of law which had not been done. The Learned AR gave the following working of the ALP on the basis of arm's length margin of 18.02 per cent based on 19 comparable which showed that price charged by the assessee was within the 5 per cent variation below the arm's length price. Operating Cost Rs. 343,0 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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