2020 (10) TMI 1356 - AT - Income Tax
TP Adjustment - comparable selection - HELD THAT:- Companies functinally disimilar of assessee's software development services to its Associated Enterprises (AEs) and if RPT was beyond the threshold limit of 15% need to be deselcted from final list.
Deduction u/s 10A - whether the Ld DRP was justified in directing the AO to follow the decision of Tata Elxsi Ltd, [2011 (8) TMI 782 - KARNATAKA HIGH COURT] i.e., exclusion of expenses incurred in foreign currency from both export turnover and total turnover - HELD THAT:- The Hon'ble Supreme Court has settled this issue in the case of CIT vs. HCL Technologies Ltd [2018 (5) TMI 357 - SUPREME COURT] held even in common parlance, when the object of the formula is to arrive at the profit from export business, expenses excluded from export turnover have to be excluded from total turnover also. Otherwise, any other interpretation makes the formula unworkable and absurd. Hence, we are satisfied that such deduction shall be allowed from the total turnover in same proportion as well.
On the issue of expenses on technical services provided outside, we have to follow the same principle of interpretation as followed in the case of expenses of freight, telecommunication etc., otherwise the formula of calculation would be futile. Hence, in the same way, expenses incurred in foreign exchange for providing the technical services outside shall be allowed to exclude from the total turnover.
Gain/loss arising on account of fluctuation in foreign exchange as operating income/expenses - HELD THAT:- DRP has followed the decision rendered by the Tribunal in the case of Sap Labs India (P) Ltd [2010 (8) TMI 676 - ITAT, BANGALORE] and Cisco Systems Services BV [2014 (10) TMI 852 - ITAT BANGALORE] and accordingly held that the foreign exchange fluctuation gain/loss arising to the assessee on realization of trade debtors, payment to creditors etc were nothing but operation income. DRP has directed the AO to consider the foreign exchange fluctuation gain/loss as operating in nature both in the hands of the assessee and in the hands of comparable companies. Since the ld DRP has followed the decision rendered by the Tribunal in this regard, we do not find any infirmity in its decision rendered on this issue.
Appeal of the assessee is treated as allowed and the appeal of the revenue is treated as partly allowed.