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TMI Blog2023 (5) TMI 701X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. - I.T.A. No. 6313/Mum/2017 - - - Dated:- 12-5-2023 - Amit Shukla (Judicia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Payment of interest on external commercial borrowings 44,44,050 Other Method 4 Payment of interest on debentures 16,53,312 CUP 5 Reimbursement of expenses 1,11,79,233 Other Method 6 Recovery of expenses 6,95,43,254 Other Method 5. The assessee has benchmarked the transaction of provision of administrative support and back office services under Transaction Net Margin Method (TNMM). The operating profit to total cost is taken as the profit level indicator (PLI). The PLI of the assessee as per the Transfer Pricing Study is calculated at 20.14%. Particulars FY 2012-13 Income Income from services rendered 1,13,12,38,862 Other Income 2,98,72,438 Less : Non-operating income Interest received 1,47,38,409 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1 e4e Healthcare Business Services Private Limited 19.49% 2 eClerx Services Limited 59.08% 3 ICRA Online Limited (Segmental) 25.53% 4 Cheers Interactive (India) Private Limited -3.27% 5 IRIS Business Services Limited 27.06% Average Margin 25.58% 9. Accordingly, the TP arrived at the Transfer Pricing adjustment as under : Operating Cost 95,41,77,252 Arms length Margin 25.58% Arms Length Price @125.58% of operating cost 1,19,82,55,793 Actual receipt 1,13,12,38,862 Shortfall being adjustment u/s 92CA 6,70,16,931 10. The Ld.DRP confirmed the Pricing adjustment. 11. During the course of hearing, the Ld.AR submitted that if the exclusion of one comparable, viz. R Systems Int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not the same. The relevant findings of the Hon ble Tribunal is extracted herein below 6. Per contra the Ld. Sr. AR appearing on behalf of the Revenue vehemently supported the orders of the lower authorities. He pointed out that the Ld. DRP had rightly observed that, only 14% of the revenue of M/s. CG-Vak Software Exports and less than 11% of the revenue of M/s. R. Systems International was derived from their respective BPO related business activities, whereas the bulk of the activities of both these concerns were software services and therefore there were rightly categorized by the lower authorities as functionally different. He invited our attention to the findings of the Ld. DRP wherein it was noted that, the business structure of both these concerns would be geared for their primary activity. According to the DRP, the segmental accounts wherein the financials relatable to the BPO segments are typically derived, using allocation keys, are from the overall revenues and relatable expenses of the entire business. Such derived BPO segmental results of concerns primarily engaged in software service like the two presently under consideration would not be comparable to an entity ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rmation by invoking the powers u/s 133(6) of the Act, so long as the company is functionally comparable with the assessee. It is further submitted that M/s R. System s comparability was considered at length and accepted on the very same ground by a coordinate bench of this Tribunal in ITA No.1973/Del/2014 for Asstt. Year 2009-10 and the 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. 31. We have 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... our of the assessee by the Hon ble Tribunal in AY 2010-11 and that the department has not preferred further appeal which would mean that the issue has reached finality that the interest income need to be included for the purpose of claiming deduction u/s.10AA. However the DRP rejected the contentions raised by the assessee and upheld the Assessing Officer s order by stating that the term derived from should be construed narrowly and that the Revenue did not file appeal against the earlier order of DRP for the reason of low tax effect and, therefore, that contention cannot be accepted. 20. Before us, the Ld.AR submitted that the issue is covered by the of the Hon ble Karnataka High Court in the case of CIT vs Hewlett Packard Global Soft Ltd (2017) 87 taxmann.com 182 where it has been held that all profits and gains of 100% EOU including incidental income by way of interest on bank deposits or soft loans would be entitled to 100% exemption or deduction under section 10A / 10B. The Ld.DR relied on the order of the lower authority. 21. We heard the parties and perused the materials on record. We notice that the Hon ble Karnataka High Court while considering the issue of interes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of income entitled to exemption under Section 10-A or 10-B of the Act is done the prior stage of computation of Income from Profits and Gains of Business as per Sections 28 to 44 under Part-D of Chapter IV before 'Gross Total Income' as defined under Section 80-B(5) is computed and after which the consideration of various Deductions under Chapter VI-A in Section 80HH etc. comes into picture. Therefore analogy of Chapter VI Deductions cannot be telescoped or imported in Section 10-A or 10-B oft Act. The words 'derived by an Undertaking' in Section 10-A or 10-B are different from 'derived from employed in Section 80-HH etc. Therefore all Profits and Gains of the Undertaking including the incidental income by way of interest on Bank Deposits or Staff loans would be entitled to 100% exemption or deduction under Section 10-A and 10-B of the Act. Such interest income arises in the ordinary course of export business of the Undertaking even though not as a direct result of export but from the Bank Deposits etc., and therefore eligible for 100% deduction. 36. We have to take a purposive interpretation of the Scheme of the Act for the exemption under Section 1 A/10- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Doud [351 \ 457 : 1 L Ed 2d 1485 (1957)] where Frankfurter, J., said in his inimitable style: In the utilities, tax and economic regulation cases, there are good reasons for judicial self-restraint if not judicial deference to legislative judgment. The legislature after all has the affirmative responsibility. T courts have only the power to destroy, not to reconstruct. When these are added to the complexity economic regulation, the uncertainty, the liability to error, the bewildering conflict of the experts, and t number of times the judges have been overruled by events self-limitation can be seen to be the path judicial wisdom and institutional prestige and stability. The Court must always remember that legislation is directed to practical problems, that the economic mechanism is highly sensitive and complex, that many problems are singular and contingent, that la are not abstract propositions and do not relate to abstract units and are not to be measured by abstract symmetry ; that exact wisdom and nice adaption of remedy are not always possible and that judgment is largely a prophecy based on meagre and uninterpreted experience . Every legislation particularl ..... X X X X Extracts X X X X X X X X Extracts X X X X
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