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TMI Blog2024 (12) TMI 549X X X X Extracts X X X X X X X X Extracts X X X X ..... functions of this company are similar to. Further we are of the opinion that merely the HSCC (India) Ltd. is an government undertaking that will not make it not comparable with the assessee. In view of the above, we disapprove the contention of the assessee and refuse to exclude this company from the list of comparables. Kitco Ltd. - Since in the present case, the profile of the comparable Kitco Ltd. is matching with that of the assessee and we do not find any infirmity in the order of Ld. CIT(A) and accordingly we reject the contention of the assessee to exclude this company. Not granting the additional deduction u/s.10AA claimed during the course of assessment proceedings on the amounts realised from export turnover subsequent to the filing the return of income - The entitlement of the assessee u/s. 10AA of the Act is required to examine in the light of the duty cast on the assessee to fulfil the requirements as contemplated u/s.10AA(8) r.w.s. 10A (4 5) of the Act. A concise reading of the provisions make it abundantly clear that the assessee was duty bound to file the Form no. 56F before the specified date referred to in section 44AB. However the assessee has filed the said for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... king a fresh economic analysis during the course of assessment proceedings, thereby holding the adjustment made by learned AO/ TPO to the international transactions as valid. Error in computation of net margin of the Appellant 4. That on the facts and circumstances of the case, the learned CIT(A) erred in considering interest on short term loans of Rs. 54,28,741 as part of operating cost for the purpose of computation of operating margins of the Appellant without appreciating that it was considered as non- operating cost by the learned TPO also. 5. That on the facts and circumstances of the case, the learned CIT(A) erred in considering rent equalization reserve as part of operating cost for the purpose of computation of operating margins of the Appellant. 6. That on the facts and circumstances of the case, the learned CIT(A) erred in not treating donations, loss on sale of fixed assets and interest payment on MSMED as non-operating in nature. 7. That on the facts and circumstances of the case, the learned CIT(A) erred in not adjudicating, in the impugned order, upon the nature of donations, loss on sale of fixed assets and other interest costs for the purpose of computation of oper ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the case and in law, the learned CIT(A) has erred in disregarding the working of risk adjustment submitted by the Appellant under the Capital Asset Pricing Model. Arm's length range of 5% 17. That the learned AO be directed to re-work the profit margins of the Appellant vis- -vis the resultant comparable companies and to allow the benefit of + /- 5% range as provided in proviso to Section 92C(2) of the Act. Corporate tax 18. That on the facts and circumstances of the case, the learned CIT(A) has erred in not granting additional deduction of Rs. 18,71,030 under section 10AA of the Act claimed by the Appellant during the course of assessment proceedings on the amounts realized from export turnover subsequent to the filing the return of income, and ignoring, in law, that Section 10AA of the Act does not explicitly provide the time line for realization of export proceeds. The Appellant craves, to consider each of the above grounds of appeal without prejudice to each other and craves leave to add, alter, delete or modify all or any of the above grounds of appeal. 3. Brief facts of the case is that, the assessee is a captive services provider engaged in providing administrative s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eral decisions of the Hon'ble Tribunal that Empire Industries is not comparable to purely service providing companies * In the case of Hitachi Data Systems for AY 2011-12,, which was a service providing entity ( copy of the order at S.No. 1 of the case law compendium), the Hon'ble Tribunal has held that Empire industry is into trading segment and a major chunk of its revenue is from trading activity and not comparable to service providing entity - Page 4 5 of case law compendium) * In the case of CISCO Systems (copy of the order at S.No. 2 of the case law compendium), while dealing with support services, the Hon'ble Tribunal has held that Empire Industries is not comparable to service providing companies - Page 59 to 61 of case law compendium) India Cements Capital Ltd * This company is a NBFC and provides financial services like a NBFC - Pages 641, 643, 670 and 691 of Paper Book * The business of the company is not even remotely connected with the Business and administrative support services rendered by appellant * This company is functionally not comparable * The CIT(A) has misdirected himself in giving reverse arguments to consider this company as a comparable * Whet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the appellant - This company has been excluded being a Government company, in a plethora of decisions, as mentioned above. 6. On the other hand, the Learned Department Representative ( Ld. DR ) had drawn our attention to para Nos.7.3 to 10.2 of the order passed by the Ld. CIT(A), which are reproduced as under : 7.3 Empire Industries Limited: Summary of Appellant's contentions is: i. Empire is functionally not similar - Empire is into manufacturing of glass bottles for pharmaceutical industry and also trading in industrial machineries. ii. The actual segment is Trading and Indenting' segment which involves trading of goods deriving revenue from the same. iii. The trading and indenting activity cannot be compared with the low-end business support services provided by the Appellant. iv. The Trading of the goods involve buying and selling of the finished goods and the company operating as a trader, is functionally not similar to the activities performed by the Appellant. v. Carrying cost of inventories in Empire clearly indicate ownership in inventory, which is functionally not similar to that of the Company. vi. None of the segments of Empire, as disclosed in the segmental da ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tions i.e. manufacturing, agency service, vending business, trading and SEZ units. However, segment information is available for 3 segments namely 'Manufacturing', Trading Indenting' and 'Others'. Thus, I don't find any infirmities in the order of the TPO in selecting as a comparable. 8. India Cements Capital Ltd: The appellant has contended that the company is functionally different as it is classified as a Non-Deposit taking NBFC and mainly provides financial services in the nature of foreign exchange money changer, forex advisory service and ticketing service for domestic and international travel. Further, it is contended that the financial services cannot be compared with the low end business support services provided by the assessee. The company also fails RPT 10% filter applied by the assessee. 8.1 The summary of the Appellants contentions is: - India Cements is functionally not comparable as India Cements is a NBFC, operating under the directions of the Reserve Bank of India. -- The company fails RPT filter of 10% as applied by the Appellant -- Without prejudice, incorrect margin calculations of 19.26% need to be corrected to 17.96% 8.2 The Company is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AR submitted that, the particulars are evident that the company is into manufacturing of Amber Glass Bottles, trading and indenting services. There is no segmental information available with respect to the indenting services business. In view of the above, it was submitted that, this company is required to be excluded. The Ld.AR relied upon the decisions rendered by the Tribunal in the case of Aavya India Pvt. Ltd. 2020(3) TMI 278 - ITAT Delhi dated Aug 30, 2019 AY 2011-12, in which it was held as under : 21. Turning to Empire Industries Limited, while referring to the annual report of this company, the contention of the assessee is that this company is functionally dissimilar to the assessee inasmuch as Empire Industries Ltd. is engaged in the business of manufacturing and distribution of hightech machines and pharmaceuticals. It also has been engaged in trading of goods, apart from which they receive commission on trading and indenting business. He submitted that this aspect has been covered by the decisions of Philip Morris Services India SA (India Branch) v. ADIT [2016] 73 taxmann.com 264 (Delhi-Trib) 22. The learned Departmental representative heavily placed reliance on the or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . (supra) has held that deduction on account of ownership of intangibles, risk factors can be allowed. In aforesaid view of the matter, we are inclined to accept the view favorable to the assessee. We therefore uphold the direction of the CIT(A) in this regard in allowing the benefit of risk adjustments at 1%. Accordingly, the ground raised by the department is dismissed. Following the said decision, we direct the AO/TPO to allow the risk adjustment in accordance with the Rule 10B(1)(e) considering the fact that assessee is a captive service provider to its AEs. Accordingly, ground raised by the assessee is allowed for statistical purposes. 6.1 In view of the submission made by the Ld. AR, we find that this company is predominantly into trading activity and is not comparable to the assessee. Accordingly, we exclude this company from the list of comparable. India Cements 7. With respect to India Cements as a comparable company, the profile of the company is entirely different for the assessee. This company is into financial services which is in the nature of providing services like NBFC. On perusal of the financials of this company also, it is clear that this company is into busines ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ocuments before us. The company, HSCC (India) Ltd. is primarily into construction contract activity. This company is compared with the profile of the assessee and it is clear that the assessee is comparable with the HSCC (India) Ltd. as the comparable company is also into back end services. While applying the TNMM method, this company is a comparable company with the assessee since the activities of this company are into primarily undertaking software services. Therefore in our opinion the functions of this company are similar to. Further we are of the opinion that merely the HSCC (India) Ltd. is an government undertaking that will not make it not comparable with the assessee. In view of the above, we disapprove the contention of the assessee and refuse to exclude this company from the list of comparables. Kitco Ltd. 9. With respect to this company, the TPO has mentioned that this company is into consultancy services which are in nature of business support service similar to services provided by the assessee. 9.1 Feeling aggrieved, the assessee has raised the issue before the Ld. CIT(A). The Ld. CIT(A) has rejected the assessee's contention under paras no. 10 10.2 of his order, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e that, the time line for realisation of export proceeds should be within period of six months from the date of export. It was also submitted by the Ld. AR that the ground of the assessee s claim u/s. 10AA of the Act is covered in favour of the assessee by the decision of the Tribunal in the case of Uni Design Jewellery Pvt. Ltd. Vs. DCIT (ITA No.3006 to 3008/Mum/2022 Dt.28.02.2023), wherein at para no 18 to 20 the order, the Tribunal had held as under : 18. We have considered the rival submissions and perused the material on record. 19. We find that the solitary issue raised in the present appeal stands decided in favour of the Appellant/Assessee by the decision of Delhi bench of the Tribunal bench in the case of BT e- Server (India) Private Limited (Supra) wherein it was held as under: 24. Ground Nos. 14 to 22 are with respect to disallowance of deduction of Rs. 16639234/- u/s. 10AA of the Act on the basis that export proceeds have not been realized within a period of six months from the end of the previous year. Ld Assessing Officer was of the view that as the assessee is a unit established under SEZ, therefore, if the proceeds have not been received in convertible exchange on o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ods or providing services out of India from a Special Economic Zone by land, sea, air, or by any other mode, whether physical or otherwise. Therefore primarily there should be export and consideration for export should be brought in to India. The Ld. assessing officer as well as the Ld. DRP has disallowed the claim of the assessee on the sum of Rs. 75085404/. The above sum comprises a sum of Rs. 480000000/-being foreign currency received of the export amount received by the assessee on 04/02/2011 and 24/2/2011. A sum of Rs. 27085404/- is unbilled revenue of the assessee. The unbilled revenue is like work in progress in case of ITES industries. The explanation 1 (ii) defines export means taking goods or providing services out of India from SEZ by land, sea, or by any other mode whether physical or otherwise. Regarding the unbilled revenue the assessee has not exported the goods and therefore such sum do not fall in the definition of export and therefore it cannot fall into the definition of export turnover. Hence, according to us the deduction under section 10 AA of the income tax act cannot be allowed on this sum as it does not qualify the definition of export and export turnover. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the end of relevant previous year in which export sales were made. In our view, in case an assessee is able to show that the consideration in respect of exports was received in India or brought into India, the deduction under Section 10AA of the Act should be allowed. In the present case the Appellant had filed the details of realization of export sales with the Assessing Officer and the CIT(A). Therefore, we direct the Assessing Officer to allow deduction to the Appellant under Section 10AA of the Act by taking into account the export sales realized by the Appellant. Accordingly, the order passed by the Assessing Officer and the CIT(A) are set aside. Ground No. 1 raised in the appeal is allowed. In result the present appeal by the Assessee is allowed. 10.1 On the basis of the aforesaid submission, the Ld. AR also submitted that, there is no stipulation u/s 10AA of the Act, which explicitly provide that, the time line for realisation of export proceeds should be within six months from the date of export and hence the assessee is entitled for deduction u/s. 10AA of the Act and therefore the grounds of the assessee is required to be allowed. 10.2 Per contra, the Ld. DR has submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the decision of the Delhi High Court in the case of Moser Baer (supra) has been dismissed as withdrawn due to there being low tax effect and the question of law has specifically been kept open. Therefore, withdrawal of the special leave petition against the decision of the Delhi High Court in the case of Moser Baer (supra) cannot be held against the revenue. 14. In view of the above discussion and for the reasons stated above, we are of the opinion that the High Court has committed a grave error in observing and holding that the requirement of furnishing a declaration under Section 10B (8) of the IT Act is mandatory, but the time limit within which the declaration is to be filed is not mandatory but is directory. The same is erroneous and contrary to the unambiguous language contained in Section 10B (8) of the IT Act. We hold that for claiming the benefit under Section 10B (8) of the IT Act, the twin conditions of furnishing a declaration before the assessing officer and that too before the due date of filing the original return of income under section 139(1) are to be satisfied and both are mandatorily to be complied with. Accordingly, the question of law is answered in favour o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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