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2022 (12) TMI 200 - AT - Income TaxTP Adjustment - reimbursement of pocket expenses incurred by the Appellant on behalf of its AEs - TPO has included in cost base of the assessee and made an adjustment of 12 % thereof - As submitted by the assessee that it is operating margin from software development services 19.45%, even if the out-of-pocket expenses incurred by the appellant on behalf of its associated enterprise are also treated as part of the cost base of the appellant - margins so computed are also higher than the arithmetic mean of the margins of the comparable companies computed at 8.69% selected by the assessee - HELD THAT:- To examine this alternative argument it is necessary to examine the order passed by the learned transfer pricing Officer u/s 92CA (3) of the act that whether the learned transfer pricing officer has objected to the any of the comparable companies selected by the assessee. On going through the transfer pricing officer’s order, we do not find that learned transfer-pricing officer has disputed any of the comparable selected by the assessee. Therefore, the set of comparable selected by the assessee for computation of the arm’s-length price deserves to be accepted as it has become final for the AY. On going through the same, we find that the computation of the margin considering the reimbursement as cost base is 19.45%, which is also accepted by the learned transfer-pricing officer. Therefore, there cannot be any dispute on the same. It is also fact that margin of the comparable companies selected by the assessee, which has become final, now is 8.69%. This argument was raised by assessee before the learned CIT-A however it was not at all considered. Therefore, we do not find any reason to sustain addition on account of adjustment of markup on pass through cost claimed by the assessee. Accordingly ground number 3 of the appeal of the assessee is allowed which deletes the transfer pricing adjustment - In view of this, ground treated as allowed. Loss incurred by eligible unit u/s 10 A set-off against the profits of other eligible units - HELD THAT:- We find that identical issue has been decided by the honourable Bombay High Court in the case of the assessee [2011 (5) TMI 509 - ITAT, MUMBAI] wherein the order of the coordinate bench dated 25th of may 2011 for assessment year 2006 – 2007 is upheld. While deciding the above issue the honourable High Court also considered its own decision in case of Hindustan Unilever Ltd [2010 (4) TMI 206 - BOMBAY HIGH COURT] The issue also reached before the honourable Supreme Court in assessee’s own case for assessment year 2005 – 06 known as CIT V Yokogawa India Limited [2016 (12) TMI 881 - SUPREME COURT] wherein it was decided in favour of the assessee. The learned departmental representative could not controvert the above fact. AO is directed to allow the loss of Chennai unit accordingly. Computation of deduction u/s 10A - telecommunication expenses of eligible units should be reduced from the export turnover of the eligible unit - HELD THAT:- As decided in [2014 (4) TMI 1224 - BOMBAY HIGH COURT] assessee is in business of software development and the charges, which are claimed to have been incurred, are in relation to the business of software development within India. Therefore, there could not be said to be cost deductible from the export turnover for the purposes of Section 10 A of the act. Therefore, ground number 8 and 9 of the appeal of the assessee is allowed directing the learned assessing officer to not to reduce the above sum from the export turnover of the eligible units. Equal treatment is required to be given to the above expenditure in view of the decision of the honourable Supreme Court in case of CIT versus HCL technologies Ltd [2018 (5) TMI 357 - SUPREME COURT] Accordingly, the learned assessing officer is directed to give the treatment of dental and cost i.e. telecommunication expenditure for the purpose of computation of export turnover as well as total turnover. Accordingly, ground number 8, 9, and 13 of the appeal are allowed. Consideration of the foreign exchange expenditure while computing deduction u/s 10 A - In view of the above decision of CIT versus HCL technologies Ltd. [2018 (5) TMI 357 - SUPREME COURT] we direct the learned assessing officer to give the treatment to the expenditure while computing export turnover and the total turnover of the eligible unit. Unexplained expenditure on the basis of unreconciled AIR statement - HELD THAT:- Assessee has denied any such transactions entered into with the bank. Assessee has also written to the bank and subsequent reminders also. In view of this we find that there is no infirmity in the direction of the learned CIT – A to give opportunity to the assessee as well as direction to the learned assessing officer to verify the claim of the assessee from external sources. Naturally, if the assessee has not entered into such transaction, the learned AO should have examined the above claim of the assessee of consistent denial through external sources. The assessee has also given the name of employee whose credit card transactions are found with the bank. Further, with respect to another party also assessee denied having entered into any such transactions. In view of this, we direct the learned assessing officer to carry out detailed examination of the above transactions whether they have been entered into by the assessee or not. If it is found that assessee has not entered into such transactions, the additions deserve to be deleted. In the result ground of the appeal of the assessee is allowed.
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