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2019 (2) TMI 1915 - AT - Income TaxComputation of deduction under section 10A - exclusion of expenditure from both the export turnover and total turnover for the purposes of computation of deduction u/s 10A - HELD THAT - This issue before us stands covered by the decision of the Hon ble Karnataka High Court in the case of CIT Vs. Tata Elxsi Ltd. 2011 (8) TMI 782 - KARNATAKA HIGH COURT which proposition has been upheld by the Hon ble Apex Court in the case of CIT Vs. HCL Technologies Ltd. 2018 (5) TMI 357 - SUPREME COURT . The only grievance of Revenue in the grounds raised was that the decision of the Hon ble Karnataka High Court in the case of Tata Elxsi Ltd. (supra) had not attained finality and an SLP by the Department is pending before the Hon ble Apex Court. Now in view of the decision of the Hon ble Apex Court in HCL Technologies Ltd. 2018 (5) TMI 357 - SUPREME COURT this issue is no longer res integra and therefore we find no reason to interfere in the decision of the DRP on this issue. Working Capital Adjustment - DRP in restricting the working capital adjustment on the basis of advances received from AEs in the absence of debtors and inventory in the case of the assessee for calculating the cost of working capital built in the profit margin - Based on the discussions in the body of the TP order the assessee had raised objections before the DRP which had issued directions that no such restriction shall be made on the working capital adjustment and it shall be granted as per actuals. As the working capital adjustment has been granted at actuals i.e. (-)1.40% without making any restriction as contended by Revenue in the grounds of appeal ground Nos. 4 and 5 raised on this issue are infructuous as they require no adjudication and are accordingly dismissed as infructuous. Exclusion of M/s. Acropetal Technologies Ltd. (Acropetal) - DRP has not adjudicated on the functional comparability of Acropetal vis- -vis the assessee in the case on hand. Instead the DRP has rendered a finding that the services rendered by Acropetal are predominantly on-site services and applied the on-site filter. The DRP further directed that Acropetal needs to be excluded from the set of comparables as its employee cost is less that 25% and employee cost filter should be applied. As seen that neither the assessee in its TP study nor the TPO has applied the on-site filter while determining the ALP. Similar is the case with employee cost filter; which has neither been applied by the assessee nor by the TPO while determining the ALP. As such the DRP has applied these filters suo moto. When new filters are applied it is necessary to examine whether such an application of a new filter has any impact on the other companies about their inclusion or exclusion. It is also seen that the DRP has not rendered a finding on the functional comparability of Acropetal even though a specific ground has been raised and the judicial decisions in this regard have been brought to the notice of the DRP. In view of the above we deem it appropriate to remand the issue of comparability of Acropetal Technologies Ltd. back to the file of the TPO with a direction that the two filters i.e. on-site filter and employee cost filter applied by the DRP suo moto may be applied to the other comparable companies as well and functional capacity be decided. Exclusion of ICRA Online Ltd. and Sundaram Business Services Ltd. - In the absence of any such discussion or decision being rendered as claimed applying the 75% export earning filter suo moto is not tenable. Further if any new filters are applied it is imperative to examine whether the application of such a filter has any impact on the other companies about their inclusion or exclusion in the set of comparables. That ICRA was not selected as a comparable by TPO s in other cases cannot be a valid ground for exclusion in this case also unless the reasons for such exclusion in other cases are known. In view of the above we deem it appropriate to remand the issue of comparability of this company i.e. ICRA Online Ltd. to the file of the TPO with the direction that the filter applied suo moto by the DRP in the case of ICRA be applied to the entire set of comparable companies. Company Sundaram was selected as a comparable by the TPO and the assessee had accepted the same without any objection. We find that the DRP suo moto examined the comparability of this company and directed its exclusion from the set of comprables on the ground that it fails the 75% export earning filter a new filter introduced by the DRP which was not applied either by the TPO or the assessee. Since we have taken the stand that if any new filter is applied it should be applied uniformly on the entire set of comparable companies we deem it appropriate to remand the issue of comparablity of this company Sundaram Business Services Ltd. back to the file of the TPO with a direction that the 75% export earning filter applied suo moto by the DRP be applied on the entire set of comparable companies. Exclusion of Infosys BPO Ltd. (Infosys) on grounds of functional dissimilarity the application of new filters by the DRP will have no bearing on its exclusion or inclusion as it would continue to remain excluded on grounds of functional comparability. Therefore we find there is no need to remand the comparability of this company to the file of the TPO as sought for by the learned DR. Consequently ground of Revenue s appeal is dismissed. Exclusion of Eclerx Services Ltd. - No infirmity in the order of the DRP and the direction of the DRP to exclude Eclerx Services Ltd. from the set of comparables is upheld since this company Eclerx is excluded on grounds of functional dissimilarity the application of new filters by the DRP will have no bearing on its exclusion or inclusion as it would continue to remain excluded on grounds of functional comparability. Therefore there is no need to remand the matter to the TPO as sought for by the learned DR. Accentia Technologies Ltd. be excluded from the list of comparable companies on grounds of functional dissimilarity. Jeevan Scientific Technology - new filters applied suo moto may be applied on the other comparable companies as well and then the inclusion/exclusion of this company as a comparable be decided. Comparability of R Systems International Ltd - Respectfully following the decision of Mercer Consulting Pvt. Ltd. 2016 (8) TMI 1163 - PUNJAB AND HARYANA HIGH COURT we also deem it appropriate to follow the principle that if data relating to the financial year in which the international transaction has been entered into is directly available from the annual accounts of that company then the company ought be examined / considered for comparability. We accordingly remand the matter of comparability of R Systems International Ltd. back to the file of the AO to examine / decide afresh. Short Credit for TDS - HELD THAT - AO directed to examine and verity the assessee s claim in respect of grant of short credit for TDS in accordance with law. Charging of interest u/s 234D - HELD THAT - The charging of interest is consequential and mandatory and the AO has no discretion in the matter. This proposition has been upheld by the Hon ble Apex Court in the case of Anjum H. Ghaswala 2001 (10) TMI 4 - SUPREME COURT therefore uphold the action of the AO in charging the assessee the aforesaid interest u/s 234D of the Act. The AO is however directed to recompute the interest chargeable u/s 234D of the Act if any while giving effect of this order.
Issues Involved:
1. Exclusion of expenditure from both export turnover and total turnover for the purpose of deduction under section 10A. 2. Working capital adjustment. 3. Exclusion of specific comparables by applying new filters. 4. Functional dissimilarity of comparables. 5. Computation of deduction under section 10A. 6. Short credit of tax deducted at source. 7. Levy of interest under section 234D. Detailed Analysis: 1. Exclusion of Expenditure from Both Export Turnover and Total Turnover for the Purpose of Deduction under Section 10A: The assessee had reduced expenses towards telecommunication from both export turnover and total turnover. The AO re-computed the deduction by reducing these expenses only from export turnover. The DRP directed that the expenses be reduced from both export turnover and total turnover. The tribunal upheld the DRP's decision, citing the Hon'ble Karnataka High Court's ruling in CIT Vs. Tata Elxsi Ltd., which was upheld by the Hon'ble Supreme Court in CIT Vs. HCL Technologies Ltd. 2. Working Capital Adjustment: The TPO initially discussed restricting the working capital adjustment to 0.23%, but the actual adjustment granted was (-)1.40%. The DRP directed that no restriction be made, and the adjustment should be granted as per actuals. The tribunal found the grounds raised by Revenue on this issue to be infructuous since the adjustment was already granted at actuals. 3. Exclusion of Specific Comparables by Applying New Filters: - Acropetal Technologies Ltd.: The DRP excluded this company by applying new filters (on-site services and employee cost filters). The tribunal remanded the issue back to the TPO to apply these filters uniformly to all comparables and decide on functional comparability. - ICRA Online Ltd. and Sundaram Business Services Ltd.: The DRP excluded these companies by applying a new 75% export earning filter. The tribunal remanded the issue back to the TPO for a uniform application of this filter to all comparables. - Infosys BPO Ltd.: The DRP excluded this company due to its significant brand value impacting pricing and margins. The tribunal upheld this exclusion, citing functional dissimilarity. - Eclerx Services Ltd.: The DRP excluded this company due to functional dissimilarity. The tribunal upheld this exclusion, noting that the new filters applied by the DRP would not affect this decision. 4. Functional Dissimilarity of Comparables: The tribunal upheld the DRP's decisions to exclude Infosys BPO Ltd. and Eclerx Services Ltd. due to functional dissimilarity, citing relevant judicial pronouncements. 5. Computation of Deduction under Section 10A: The assessee contended that the AO computed the deduction under section 10A incorrectly. The tribunal directed the AO to examine and verify the assessee's claims and compute the deduction correctly. 6. Short Credit of Tax Deducted at Source: The assessee claimed that the AO gave short credit for TDS. The tribunal directed the AO to examine and verify the assessee's claim in accordance with the law. 7. Levy of Interest under Section 234D: The assessee contested the levy of interest under section 234D. The tribunal upheld the AO's action, stating that the charging of interest is consequential and mandatory, but directed the AO to recompute the interest chargeable while giving effect to the tribunal's order. Conclusion: The tribunal partly allowed the appeals of both the Revenue and the assessee for statistical purposes, remanding several issues back to the TPO/AO for reconsideration and verification. The cross objections filed by the assessee were dismissed as not pressed.
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