2016 (8) TMI 1424 - AT - Income Tax

Computation of deduction u/s 10A - exclusion both from export turnover as well as total turnover - HELD THAT - See Sak Soft 2009 (3) TMI 243 - ITAT MADRAS-D wherein it is held that communication charges attributable directly to the export of article or thing outside India has to be excluded both from export turnover as well as total turnover while computing exemption u/s 10A of the Act. In view of the ratio laid down as above the finding of the DRP on this issue is upheld and ground raised by the Revenue is dismissed. TP Adjustment - exclusion of comparables - HELD THAT - No infirmity in the order of the DRP in directing the AO/TPO to exclude the companies from the list of comparables considering their advantageous brand value along with high turnover. Accordingly this ground of appeal of revenue is dismissed.

Summary

Issues:
- Appeal against order passed u/s 143(3) r.w.s. 92CA(3) r.w.s.144C(13) of the Income Tax Act, 1961 for AY 2010-11.
- Exclusion of certain comparables and telecommunication charges for computation of deduction u/s 10A.

Analysis:
1. Appeal by Revenue (ITA No. 180/Hyd/2015):
- The AO made adjustments to the total income of the assessee based on the TPO's proposed arm's length price adjustment.
- DRP directed to exclude certain comparables and exclude telecommunication charges for computing deduction u/s 10A.
- Revenue appealed against the exclusion of comparables and telecommunication charges.
- The DRP's decision was upheld based on previous ITAT decisions and the spirit of the law.

2. Grounds for Exclusion of Comparables:
- eClerx Services Ltd., Infosys BPO Ltd., and TCS Eservice Ltd. were added as comparables by the TPO.
- Assessee objected based on functional differences, turnover, brand value, and intangibles.
- DRP excluded the three companies due to advantageous brand value and high turnover.
- ITAT upheld the exclusion based on brand value and turnover differences.

3. Telecommunication Charges Exclusion:
- DRP directed to exclude telecommunication charges from both total and export turnover for computing deduction u/s 10A.
- Upheld based on the Hon'ble Bombay High Court's decision and other Tribunal rulings.

4. Assessee's Appeal (ITA No. 326/Hyd/2015):
- Assessee raised grounds for inclusion of certain comparables and exclusion of TCS E-serve International Ltd.
- Assessee did not press some grounds during the hearing.
- TCS E-serve International Ltd. was selected as comparable by the TPO and upheld by the DRP.
- Assessee argued functional differences and high profitability percentage.
- ITAT excluded TCS E-serve International Ltd. based on brand value and functional dissimilarity.

In conclusion, the revenue's appeal was dismissed, and the assessee's appeal was partly allowed. The judgments were based on the functional dissimilarities, turnover, brand value, and previous ITAT decisions. The exclusion of comparables and telecommunication charges for deduction computation was upheld in line with legal precedents and the provisions of the Income Tax Act, 1961.