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2017 (9) TMI 1863 - AT - Income TaxDeduction u/s 10A - Computation of deduction - HELD THAT:- This issue is covered in favour of the assessee by the judgment of Hon’ble Karnataka High Court rendered in the case of CIT Vs. Tata Elxsi Ltd.[2011 (8) TMI 782 - KARNATAKA HIGH COURT] this issue is decided in favour of the assessee and the AO is directed to reduce the telecommunication expenses incurred in foreign currency and attributable to computer software and also other foreign currency expenses which are reduced by AO from export turnover for the purpose of computing deduction u/s 10A allowed the assessee to reduce from total turnover also for the purpose of computing this deduction because it was held by Hon’ble High Court that total turnover is sum of total of export turnover and domestic turnover and therefore, if any amount is reduced from export turnover then the total turnover also gets reduced by the same amount automatically. Accordingly ground no. 4 is allowed. Comparable selection - HELD THAT:- Various objections were raised by the assessee regarding various comparables such as high turnover, over size, brand and high profitability and on none of these objections, any specific finding has been recorded by the DRP and such a cryptic order of DRP cannot be approved. Hence, we feel it proper to restore this matter back to the file of DRP for fresh decision by way of a speaking and reasoned order. Foreign exchange gain considered for computing profit percentage for the purpose of ALP - HELD THAT:- Foreign exchange gain is nothing but an integral part of the sales proceeds of an assessee carrying on export business. To this extent, there is no quarrel but in our considered opinion, even after holding that the Foreign Exchange fluctuation gain is operating profit, it has to be seen as to whether the same can be considered for the purpose of computing ALP if the said gain is not in respect of sale of the present year. This is so because for the purpose of ALP under TNMM, what is determined is the percentage of profit by dividing the profit of the year by turnover of the year and such profit percentage of the assessee is compared with the average profit percentage of the comparables. Hence, even after holding that foreign exchange fluctuation gain is operating profit, it has to be seen as to whether the said gain is in respect of turnover of the present year or turnover of the earlier year because if the gain is on account of turnover of the present year than the gain is included in the numerator i.e. profit but the relevant turnover is not included in the denominator and therefore, the result will be absurd. Hence, we restore this matter to the file of the A.O. with the direction that the foreign exchange gain should be considered for computing profit percentage for the purpose of ALP if it is in respect of turnover of the present year. We feel it proper that either the foreign exchange gain of comparable should not be considered in that situation or such details should be obtained from the respective comparable companies u/s. 133(6) of the IT Act, 1961. Ground allowed for statistical purposes
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