2007 (11) TMI 444 - ITAT BANGALORE

Computation of export turnover u/s 10A - newly established undertakings in free trade zone - expenses incurred towards link charges - Uplinking charges reduced from the export turnover -Loss of one STP unit - Computation of arm's length.

Deduction u/s 10A - newly established undertakings in free trade zone - expenses incurred towards link charges - Uplinking charges reduced from the export turnover - HELD THAT:- The details of expenses incurred towards link charges are available with the assessee company. It would not have been difficult for the assessee company to have asked the services provider to give the details of expenses incurred in transmitting information from India. The assessee could have obtained the details of expenses of outward transmission of data. When a specific information is available with the assessee and if the same is not produced, then adverse inference can be drawn. The assessee in the course of proceedings before the learned CIT(A) estimated such expenditure for transmission of data at 50 per cent of the expenditure on link charges. The learned CIT(A) discussed the software development with a number of representatives of various companies. Facts as mentioned by the learned CIT(A) in his order have not been controverted by the ld AR.

Therefore, we decline to interfere with the finding of the learned CIT(A) in estimating that 80 per cent of uplinking charges are to be reduced from the export turnover. Such finding is upheld for both the assessment years.

Uplinking charges reduced from the export turnover - Following the decision in the case of Tata Elxsi Ltd. v. Asstt. CIT [2007 (10) TMI 630 - ITAT BANGLORE] and CIT v. Infosys Technologies Ltd.[2007 (10) TMI 627 - ITAT BANGALORE] held that the components entering into export turnover and the total turnover should be the same. Thus, This ground of appeal is common for both the assessment years and, therefore, the decisions mentioned will be applicable for both the assessment years.

Determining profits of the business for the purposes of section 10A/10B - Loss of one STP unit - set off from profits of other STP units - HELD THAT:- In absence of the facts, it is not possible to say that Pune unit was an independent undertaking engaged in the business of software development, which was in no way related to the software development done at Bangalore or Chennai unit. In case, the Pune unit is found to be independent, then loss from such unit is to be independently calculated. In case such unit is associated with the activities, which are carried out at Bangalore or Chennai unit, then Pune unit will -be considered as part of that undertaking.

Hence, the issue of ascertaining as to whether Pune unit was an independent unit or a unit associated with activities of other two units is restored back on the file of the Assessing Officer. In case it is found that it is part of the other two units and is associated with the activities done in other two units, then it will be considered as part of the same undertaking and loss will be adjusted. However, in case, if it is found, it is an independent unit, then it will be treated as independent undertaking and the assessee cannot be forced to have exemption in respect of such independent undertaking. In that case the loss will (not) be adjusted against other income.

Computation of arm's length - HELD THAT:- In the instant case, the assessee himself has computed the arm's length prices and has disclosed the income on the basis of arm's length prices. It is not a case, where there is an enhancement of income due to determination of arm's length price. Hence, it is held that assessee was entitled to deduction under section 10A in respect of income declared in the return of income on the basis of computation of arm's length price.

In the result, both appeals are partly allowed.