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2020 (3) TMI 335

..... the TPO as well as DRP had not assigned any reason as to why CUP method is not most appropriate method in the nature of transactions assessee company had with its AE. It was also submitted that TPO has not considered the alternative submissions of the assessee company that in case TNMM is adopted as the most appropriate method, same should be applied based on internal comparables rather than external comparables. Now, law is quite settled that internal comparables are more preferable to external comparables. Finally, learned authorised representative of the assessee submitted that the TPO had not considered the submissions of the assessee-company for adjustment towards unutilized capacity. AO also not followed directions of the DRP while passing final assessment order. In the circumstances, it was prayed that the matter may be restored back to the file of the AG for de novo consideration. CIT(DR) had no serious objections for restoring the matter back to the file of the AO/TPO for fresh analysis of TP study. In the circumstances, we remit the matter back to the AO to consider the above submissions de novo after affording due opportunity of being heard to the assessee company. Deduc .....

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..... uded from export turnover for the purpose of computing deduction u/s 10A of the Act. The said additional ground reads as under:- The learned AO has erred in excluding foreign currency expenses from export turnover without appreciating that the Appellant is engaged in the business of rendering software development services and not in rendering technical services. 3. In the appeal filed by the Revenue following issues are urged : a) Relief granted by ld DRP in respect of Transfer Pricing Adjustments. b) Computation of deduction u/s 10A of the Act c) Computation of book profit by excluding the provision for gratuity treating the same as ascertained liability. 4. The assessee is engaged in the business of providing software development and premium solution worldwide. The assessee is a subsidiary of company named Key Management Group (KMG) (Inc), USA. 5. The first common issue related to transfer pricing adjustment made by the TPO and partially confirmed by ld DRP. Both the parties are in appeal challenging the decision rendered by ld DRP. The ld AR submitted that KMG, USA does extensive marketing and secure contracts from 3rd parties. It outsources the same to the assessee on back to b .....

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..... ers. For the services performed by AE, assessee company pays commission at 10% for offshare services and 25% on onsite revenue services. Thus, revenue earned by the 'assessee-company from its AE is only pass through income and they are not an international transaction. It is the contention of the learned counsel for the assessee that TPO had not considered the submissions of the assessee-company. DRP rejected the assessee-company's contentions without assigning reasons whatsoever. The assessee also contends that the TPO as well as DRP had not assigned any reason as to why CUP method is not most appropriate method in the nature of transactions assessee company had with its AE. It was also submitted that TPO has not considered the alternative submissions of the assessee company that in case TNMM is adopted as the most appropriate method, same should be applied based on internal comparables rather than external comparables. Now, law is quite settled that internal comparables are more preferable to external comparables. Finally, learned authorised representative of the assessee submitted that the TPO had not considered the submissions of the assessee-company for adjustment towa .....

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..... jurisdictional Karnataka High Court in the case of Tata Elixi Ltd (supra). However, the requirement of considering the issue of deduction of foreign expenses from both export turnover and total turnover shall arise only if the additional ground urged by the assessee is decided against the assessee, i.e., if the additional ground is decided in favour of the assessee by holding that there is no requirement of deducting foreign expenses from the export turnover, then the ground urged by the revenue shall become infructuous. We notice that the additional ground has been raised for the first time before us. Hence the Ld D.R submitted that the factual aspects relating to the issue and the applicability of the decision rendered by Hon ble Karnataka High Court in the case of Mphasis Ltd (supra) need to the examined by the AO. We find merit in the submissions made by Ld D.R. 14. We further notice that the AO has actually allowed deduction u/s 10B of the Act. The Ld DRP has referred to both sec.10B and 10A in its directions. The grounds urged by both the parties refer to sec.10A only. Thus, there is confusion about the section under which the deduction was claimed by the assessee. 15. In vi .....

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..... ained liability in the following case law:- (a) Dresser Valve India P Ltd vs. ACIT (2009)(30 SOT 495)(Mum) (b) CIT vs. Echjay Forgings P Ltd (2001)(116 Taxman 322)(Bom) (c) Eicher Motors Ltd vs. DCIT (2004)(82 TTJ 0061)(Ind) (d) CIT vs. Bechtel India P Ltd (2007)(Taxcorp (DT) 40696)(Del). On the contrary, the Ld D.R placed his reliance on the assessment order. 26. In the case of Dresser Valve India P Ltd (supra), an identical issue was examined by Mumbai bench of Tribunal and it was held as under:- 18. We have heard both the parties and have gone through the orders, decisions and judgments and provisions of the Income-tax Act. From the facts, it is noticed that the objection of the revenue is with regard to the assessee s failure to follow the AS-15 and the actuarial method referred therein and not disputed the quantification of the provision of gratuity. In other words, the incorrect quantification of the provision makes the provisions as an unascertainable liability and therefore, such provisions should be dealt with as per the provisions of section 115JB read with Explanation1( c) and accordingly, the book provisions should be increased. On the other hand, the case of the assess .....

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