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2014 (6) TMI 1076 - AT - Income TaxTP Adjustment - comparable selection - Functional dissimilarity - HELD THAT:- Deselection of companies as functionally dissimilar with that of assessee as engaged in rendering market research and related Information Technology Enabled Services (ITES) for domestic and international clients. Assessee’s Offshore Research Service Centre (ORSC) is registered with Software Technology Park of India and provides ITES to its group companies. Consideration of management fees disallowed in computation of operating margin - We are of the view that when the TPO is disallowing the payment of management fees, it cannot be considered for the purpose of computation of operating margin, otherwise, it will amount to double addition. We, therefore, remit this issue back to the file of the AO/TPO to look into this aspect and decide the issue after affording reasonable opportunity of being heard to the assessee. Computation of working capital adjustment - We are of the view that if the assessee has maintained separate records and can substantiate allocation of expenditure to the international transactions with AE and non-AE there is no reason why working capital adjustment should not be made accordingly. In that view of the matter, we remit the issue back to the file of the AO/TPO for deciding the same afresh after affording reasonable opportunity of being heard to the assessee. TPO must consider the submissions of the assessee in the context of the facts and materials placed before deciding the issue. Accordingly, we direct the AO/TPO to compute ALP in conformity with our directions hereinabove and work out adjustment if any to be made u/s 92CA of the Act. Exemption u/s 10A of the Act on the profit relating to offshore research services centre (ORSC) unit of the assessee - AO while framing draft assessment order rejected exemption claimed u/s 10A of the Act in respect of ORSC unit by holding that the aforesaid unit having been set up by splitting up/reconstruction of the existing business exemption claimed cannot be granted - HELD THAT:- So far as the first contention of the assessee that ORSC is a new unit, we are unable to accept such contention in view of the specific finding of the AO, which has not been controverted by the assessee by bringing sufficient material to substantiate its claim. Alternative contention of the assessee for allowing claim of deduction u/s 10A of the Act due to conversion from DTA unit to STPI unit, we find force in such contention of the learned AR. It is not in dispute that ORSC unit is recognized as a STPI unit. On perusal of the order passed by the DRP for the AY 2008-09, it is seen that in para 12 of the said order, the DRP has held that when ORSC unit is converted from domestic tariff area to STPI unit, it is eligible for deduction u/s 10A of the Act for the remaining period out of 10 consecutive assessment years starting from the year in which it was approved as STPI unit. In view of such finding of the DRP for the AY 2008-09, we direct the AO to allow deduction u/s 10A of the Act for the impugned assessment year also. Levy of interest u/s 234B is consequential to the final determination of income.
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