TMI Blog2011 (5) TMI 509X X X X Extracts X X X X X X X X Extracts X X X X ..... ction of data line cost from export turnover - the data line cost being the telecommunication expenses have been excluded by the Assessing Officer from the export turnover - case of the assessee that the telecommunication expenses had been incurred in the business of software development at the software undertakings of the assessee in India- Held that:- Claim of assessee has not been controverted by the AO by placing any material on record. The expenses incurred on development of software in India cannot be considered as expenses attributable to the delivery of computer software outside India. Therefore such expenses cannot be excluded from the export turnover and in case these are excluded, these have to be excluded from total turnover also following the judgment Gem Plus Jewellery India Ltd. (2010 (6) TMI 65 - BOMBAY HIGH COURT) and Sak Soft Ltd. (2009 (3) TMI 243 - ITAT MADRAS-D) - hold that these expenses are not to be excluded from the export turnover. Transfer pricing adjustment - Held that:- The computation filed by the assessee before us prima facie, shows that the price charged by the assessee was within 5 per cent variation of the mean ALP and in such a case, no additi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the amended provisions of section 10A from 1-4-2001, it was no longer an exempted provision but only a deduction was allowed under section 10A and therefore loss from the 10A unit has to be set off against the taxable profits of other businesses under the provisions of section 70. It was also submitted that deduction allowable under section 10A was in respect of a particular undertaking and not from the total income which had also been clarified by the circular issued by the CBDT. The Assessing Officer however did not accept the arguments advanced and held that total income of the assessee was required to be computed with respect to the various undertaking and thereafter deduction was required to be given in respect of these units from the total income. He accordingly reduced the loss from Kolkata unit from the deduction claimed in respect of Mumbai-II unit and deduction to that extent in respect of Mumbai-II unit was thus reduced. Aggrieved by the said decision the assessee is in appeal before the Tribunal. 2.1 Before us the Learned AR for the assessee reiterated the submissions made before the authority below that after the amendment of section 10A from assessment year 2001-0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scheme of section 10A which is a deduction provision and not exemption provision from assessment year 2001-02. Therefore the loss from 10A unit has to be adjusted against taxable profits of other units after deduction under section 10A has been allowed in respect of each eligible unit. Same view has been taken by the Hon ble High Court of Mumbai in case of Hindustan Unilever Ltd. (supra) in which it was held that deduction has to be allowed in respect of three eligible units and loss of the fourth 10A unit has to be set off against the normal business income. The Tribunal in case of Honeywell International India (P.) Ltd. (supra) has also followed the same view. Therefore respectfully following the above judgments, the order of the Additional CIT cannot be sustained. We accordingly set aside the order of the Additional CIT and allow the claim of the assessee. 3. The second dispute is regarding deduction of data line cost from export turnover while computing deduction under section 10A. The assessee had incurred data line cost amounting to Rs. 1,68,47,257; Rs. 1,13,54,505; and Rs. 1,07,75,007 respectively in respect of Mumbai-II unit, Mumbai-III unit and Bangalore unit. The Assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion accordingly aggrieved by which the assessee is in appeal before the tribunal. 3.1 Before us, the Learned AR for the assessee reiterated the submissions made before the authority below that under the provisions of Explanation 2(iv) only the freight, telecommunication charges and insurance attributable to the delivery of computer software outside India has to be excluded from export turnover. In case of the assessee, it was pointed out, that the telecommunication expenses had been incurred in the business of software development at the software development centre in India and therefore were not attributable to the delivery of computer software outside India and thus it could not be excluded from the export turnover. Alternatively it was also submitted that in case these are excluded from export turnover, deduction should also be allowed in respect of total turnover. Reliance was placed on the judgment of Hon ble High Court of Mumbai in case of CIT v. Gem Plus Jewellery India Ltd. [2011] 330 ITR 175/[2010] 194 Taxman 192 and on the decision of the Special Bench of the tribunal in case of Sak Soft Ltd. (supra). The Learned DR on the other hand supported the order of Assessing Off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plit method; (v) transactional net margin method (TNMM) and (vi) such other methods as may be prescribed by the Board and it also says that ALP must be determined by applying the most appropriate method. Further, in terms of the proviso inserted from 1-4-2002, where more than one price is determined by the most appropriate method the ALP has to be taken as arithmetic mean of all such prices or at the option of the assessee, a price which may vary from the arithmetic mean by an amount not exceeding 5 per cent. 4.1 The Assessing Officer referred the issue of determination of ALP to the Transfer Pricing Officer (TPO). The TPO in this case selected the TNMM method for computation of arm s length price. A search for comparable cases was conducted and a set of 36 companies were selected as comparables to which some more companies were added later and finally the Assessing Officer short listed 20 companies, the arithmetic mean of which was computed at 20.68 per cent. After making adjustment on account of working capital of 1.42 per cent the Assessing Officer determined the adjusted arithmetic mean at 19.26 per cent as per details given below. Sr. No. Name of the compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ftware Services provider to product development company during the current financial year and that during the financial year ending 2006, it was only a generic software company. Therefore DRP rejected the plea of the assessee that Mega Soft was not a comparable case. In regard to Accel Transmatics Ltd. the assessee submitted the company profile and its annual report for financial year 2005-06 from which the DRP noted that the business activities of the company were as under. (i) Transmatic system - design, development and manufacture of multi function kiosks Queue management system, ticket vending system (ii) Ushus Technologies - offshore development centre for embedded software, net work system, imaging technologies, outsourced product development (iii) Accel IT Academy (the net stop for engineers)- training services in hardware and networking, enterprise system management, embedded system, VLSI designs, CAD/CAM/BPO (iv) Accel Animation Studies software services for 2D/3D animation, special effect, erection, game asset development. 4.3 On careful perusal of the business activities of Accel Transmatic Ltd. DRP agreed with the assessee that the company was functiona ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mputed the transfer price adjustments at Rs. 18,46,75,062 as per the computation mentioned below: Operating Cost Rs. 343,95,40,000 Arm s length Margin 18.03% of the operating cost ALP @118.03% of operating cost Rs. 405,96,89,062 Price charged by the assessee in the international transaction Rs.387,50,14,000 Short face being adjustment under section 92CA Rs. 18,46,75,062 4.6 Assessing Officer accordingly made addition of Rs. 18,46,75,062 to the total income on account of transfer pricing adjustments. Aggrieved by the said decision the assessee is in appeal before the Tribunal. 4.7 Before us, the Learned AR for the assessee submitted that the TPO had obtained certain information under the provisions of section 133(6) and the assessee was not confronted with the complete information obtained. It was pointed out that DRP was not correct in stating that the assessee had been confronted with the information obtained by the TPO. It was also submitted that the assessee had pointed out to DRP that 12 comparables selected by the TPO were functionally different. But the DRP considered only two comparables ou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he TPO and DRP after considering the submissions of the assessee agreed for exclusion of ACCEL Transmatic Ltd. from the list of comparables and directed the Assessing Officer to compute the transfer pricing adjustment after excluding Accel Transmatic Ltd. as a comparable. The Assessing Officer computed the final comparable margin on the basis of remaining 19 comparable at 18.03 per cent and on that basis arm s length price was computed at Rs. 405,96,89,062. Since the price charged by the assessee was Rs. 387,50,14,000, the Assessing Officer made adjustment of Rs. 18,46,75,062 under section 92CA to the total income. The Learned AR for the assessee has pointed out that even if the ALP was computed on the basis of average margin of 19 comparables, the price charged by the assessee is within plus/minus 5 per cent margin of the ALP. It has been pointed out that ALP comes to Rs. 405,93,45,108 and 5 per cent variation below arm s length price comes to Rs. 385,63,77,853 and the price charged by the assessee was Rs. 387,50,14,000 and therefore the same was within the 5 per cent margin. We find that Assessing Officer while giving effect to the directions of the DRP has not considered the plu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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