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2016 (5) TMI 1377 - AT - Income TaxComputation of deduction under Section 10A - expenditure towards telecommunication expenses and expenses towards foreign travel expenses - Held that:- The Hon’ble Karnataka High Court in the case of CIT v M/s Tata Elxsi Ltd. & Others (2011 (8) TMI 782 - KARNATAKA HIGH COURT had held that while computing the exemption u/s 10A, if the export turnover in the numerator is to be arrived at after excluding certain expenses, the same should also be excluded from the total turnover in the denominator. Thus CIT(A) is correct and in accordance with law and he is justified in directing the AO to exclude the above mentioned expenses both from the export turnover as well as from the total turnover while calculating deduction u/s 10A of the Act 0% Related Party Transactions (‘RPT’) filter applied by the CIT (Appeals) - Held that:- assessee is a subsidiary of Net Devices Inc., USA and registered as 100% Export Oriented Unit (EOU) with Software Technology Park of India (STPI). The assessee carried out contract software design and development services for its parent company Net Devices Inc., USA on an exclusive basis. For this purpose, the assessee entered into a service agreement with Net Devices Inc., USA. Thus the assessee has been categorized as a software design and development service provider for its parent company thus companies functionally dissimilar with that of assessee need to be rejected from final comparability. Since we have directed the exclusion of various companies form the set of comparables and also remanded some of the comparable companies for verification of facts, therefore the TPO/A.O is directed to recompute the ALP after exclusion of the certain companies as directed by us as well as after considering the comparability of the companies remanded for verification. Needless to say that the benefit of the proviso to section 92C(2) of the Act regarding the tolerance range of + or – 5% also shall be considered.
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