TMI Blog2020 (5) TMI 548X X X X Extracts X X X X X X X X Extracts X X X X ..... mined by the Special bench of the Tribunal in the case of M/s Maersk Global Centres (India) Private Limited vs. ACIT [ 2014 (3) TMI 1159 - ITAT MUMBAI] and the Special bench has given a finding that the above said company is mainly engaged in providing high-end services involving specialised knowledge and domain expertise in the field and hence the same cannot be compared with a company engaged in providing low end services to the group concerns as like assessee in present case. M/s Acropetal Technologies Ltd company is engaged in the development of computer software. So it appears that the nature of engineering design services provided by the above said company is in the form of development computer software and it may be in the nature of high end services. However, the assessee herein is providing low end ITES services. We hold that this company cannot be considered to be a good comparable. Accordingly we uphold the decision rendered by Ld DRP on this company. Working capital adjustment - whether working capital adjustment could be given or not? - HELD THAT:- As earlier noticed that the TPO has granted rebate towards working capital adjustment to the tune of 0.23%. The co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he case are discussed in brief. The assessee is 100% subsidiary of EYGI B.V., Netherlands. It is engaged in the business of providing back office support services, which are in the nature of Information Technology Enabled Services (ITES). The nature of services provided by the assessee to its Associated Enterprises (AEs) includes financial analysis and reporting functions such as standard reporting/analysis, work-in-progress details, time sheet details etc., accounting centre processing activities/functions such as accounts receivable, accounts payable functions, billing analysis and invoice preparation etc and financial assistance/administration functions such as time and expenses review, helpdesk providing assistance on employee queries etc. The assessee is remunerated at cost plus basis for the services provided to its AEs. 3. The assessee adopted TNMM method to benchmark its international transactions and adopted Operating Profit/Operating Cost (OP/OC) as Profit Level Indicator (PLI). The assessee made Transfer pricing adjustment of ₹ 8,11,70,000/- voluntarily to its financial results. It also included foreign exchange gains as part of its operating income. Acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... excluded from Total turnover also. The DRP also held that the foreign exchange gains shall form part of operating income. The Ld DRP also noticed that the assessee has claimed deduction u/s 10AA against the Voluntary Transfer Pricing adjustment of ₹ 8.11 crores made by the assessee. The Ld DRP noticed that the assessee has not furnished any details as to how the above said amount was worked out by the assessee. Further the provisions of sec.10AA also mandate that the export consideration should be brought into India in order to claim deduction u/s 10AA of the Act. The Ld DRP noticed that the assessee has claimed deduction u/s 10AA in respect of its Gurgaon Unit and the said unit has actually incurred loss. The assessee has shown profit by making voluntary Transfer pricing adjustment, referred above. Accordingly the Ld DRP held that the assessee is not eligible for deduction u/s 10AA of the Act and accordingly directed the AO to disallow the claim. The AO, accordingly, passed the final assessment order in pursuance of directions given by Ld DRP. 5. Aggrieved by the directions given by Ld DRP, both the parties are in appeal before us. 6. We shall first take up the appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... petal Technologies Ltd, the Ld D.R submitted that the Ld DRP has applied on site filter and employee cost filter for excluding this company. The Ld D.R submitted that the TPO has not applied these filters and hence the Ld DRP was not right in applying these filters. The Ld A.R, on the contrary, submitted that this company has been held to be not comparable for an ITES company by the co-ordinate bench in the case of Tesco Hindustan Service Centre P Ltd (IT(TP)A Nos. 191 569/Bang/2015 dated 25-01-2017). In the above said case, the co- ordinate bench has excluded this company by following the decision rendered by another co-ordinate bench in the case of Kodiak Networks (India) P Ltd vs. DCIT (IT(TP)A No.1540/Bang/2012), wherein it was held that M/s Acropetal Technologies Ltd (seg.) is functionally different and cannot be compared with a company providing captive services. Further, in the case of Symphony Marketing Solutions India (P) Ltd (IT(TP)A No.1316/Bang/2012 dated 14.08.2013 for AY 2008-09), the co-ordinate bench has held as under:- 12.......As far as Acropetal Technologies Ltd is concerned, this company does the business of export of software services. It is also s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ged by the revenue relate to the working capital adjustment given by the TPO and modified by Ld DRP. The contention of the revenue is whether working capital adjustment could be given or not. We have earlier noticed that the TPO has granted rebate towards working capital adjustment to the tune of 0.23%. The contention of the assessee before Ld DRP was that the TPO has actually worked out the working capital adjustment at 0.64%, but granted the rebate only to the tune of 0.23%. The Ld DRP, hence, directed the TPO to correct the mistake, if any. Since the direction given by Ld DRP relates to correction of mistake only, we do not find any infirmity in the direction so given. 11. Ground No.8 and 9 urged by the revenue relate to the question as to whether the foreign exchange gain can be taken as operating income or not. The TPO was of the view that the foreign exchange gain cannot be considered as part of operating income. The Ld DRP, following the decision rendered by the co-ordinate bench in the case of SAP Labs India (P) Ltd vs. ACIT (2011)(44 SOT 156)(bang.) held that the foreign exchange gain should be considered as part of operating income. The revenue is aggrieved. 12. We ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not be bringing the above said amount in foreign exchange within the period prescribed in sec.10AA of the Act, which is one of the mandatory conditions for allowing deduction under that section. The Ld DRP also noticed that the eligible unit has actually incurred loss and hence the assessee is not eligible to claim deduction u/s 10AA of the Act. However, the assessee, by making voluntary Transfer pricing adjustment, is attempting to avail deduction u/s 10AA of the Act and the same should not be permitted. The Ld DRP also held that the Transfer pricing adjustment determined by the TPO is added to the total income for tax purposes, irrespective of the profits/loss of 10A/10AA units and whether they are eligible for deduction under those sections or not. Further the Ld DRP also proceeded on the ground that the assessee did not determine the voluntary T.P adjustment in its Transfer Pricing Study. Accordingly, the Ld DRP held that the decision rendered by the co-ordinate bench in the case of I-Gate Global Solutions Ltd (2007)(112 TTJ 1002) is distinguishable. Accordingly the Ld DRP directed the AO to disallow the deduction claimed u/s 10AA in respect of Voluntary Transfer pricing adjus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee is entitled to claim 10A deduction on the additional TP adjustment offered by the assessee on its own motion in the return of income. The assessee was 100% Export Oriented Unit which was captive service provider to its associated enterprises. The total exports were to the associated enterprises and the plea of assessee in this regard is that foreign exchange due on exports has been received in India in time. In order to adjudicate the issue, we need to take into consideration the provisions of section starting with section 92(1) of the Act. The Chapter X of the Act lays down the special provisions relating to avoidance of tax. Under section 92 of the Act, any income arising from international transactions shall be computed having regard to the arm's length price. In other words, section provides computation of income from international transactions having regard to the arm's length price. The income which is so computed in respect of international transactions entered into by the assessee is notional income in the hands of assessee. This is the basic point which has to be kept in mind while adjudicating the issue raised in the present appeal. 16. Under section 92C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his regard, there is need to look at the computation provisions provided in sub-section (4) to section 10A of the Act. The said sub-section reads as under: - 10(A)(1).. (2) (3) ** ** ** (4) For the purposes of sub-sections (1) and (1A), the profits derived from export of articles or things or computer software shall be the amount which bears to the profits of the business of the undertaking, the same proportion as the export turnover in respect of such articles or things or computer software bears to the total turnover of the business carried on by the undertaking. 19. As per said sub-section, the profits derived from the export of articles or things or computer software, shall be the amount which bears to the profits of business of the undertaking, the same proportion as the export turnover in respect of such articles or things or computer software, bears to the total turnover of business carried on by the undertaking. Thus, the first step we have to look at the profits derived from export of articles or things of computer software and the profits of business of undertaking. The additional income is on the basis of artificial/notional income computed in the hands ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its profits and gains had not been included by application of the provisions of this section as it stood immediately before its substitution by the Finance Act, 2000, the undertaking shall be entitled to deduction referred to in this sub-section only for the unexpired period of the aforesaid ten consecutive assessment years : Provided further that where an undertaking initially located in any free trade zone or export processing zone is subsequently located in a special economic zone, by reason of conversion of such free trade zone por export processing zone into a special economic zone, the period of ten. consecutive assessment years referred to in this sub-section shall be reckoned from the assessment year relevant to the previous year in which the (undertaking began to. manufacture or produce such articles or things or computer software) in such free trade zone or export processing zone : Provided also that for the assessment year beginning on the 1-4- 2003, the deduction under this sub-section shall be ninety per cent of the profits and gains derived by an undertaking from the export of such articles or things or computer software : Provided also that no deduction unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted with the activities carried out at Bangalore or Chennai unit. In absence of the facts, it is not possible to say that Pune unit was an independent undertaking engaged in the business of software development, which was in no way related to the software development done at Bangalore or Chennai unit. In case, the Pune unit is found to be independent, then loss from such unit is to be independently calculated. In case such unit is associated with the activities, which are carried out at Bangalore or Chennai unit, then Pune unit will be considered as part of that undertaking. Hence, the issue of ascertaining as to whether Pune unit was an independent unit or a unit associated with activities of other two units is restored back on the file of the Assessing Officer. In case it is found that it is part of the other two units and is associated with the activities done in other two units, then it will be considered as part of the same undertaking and loss will be adjusted. However, in case, if it is found, it is an independent unit, then it will be treated as independent undertaking and the assessee cannot be forced to have exemption in respect of such independent undertaking. In that ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome due to determination of arm's length price. Hence, it is held that assessee was entitled to deduction under section 10A in respect of income declared in the return of income on the basis of computation of arm's length price.' 21. The Hon'ble High Court of Karnataka in its order in the case of iGate Global Solutions Ltd. ( supra ) considered the following substantial question of law raised by the Revenue. (4) Whether the Tribunal was correct in holding that deduction u/s. 10A of the Act is allowable in respect of income computed on the arm's length price by ignoring the proviso to Section 92(4) of the Act 22. The Hon'ble High Court in paras 5 and 6 of its order held as under:- 5. In so far as substantial question of law No.4 is concerned, the error committed by the Assessing Officer was relying on Section 92(C)(4) to a case where Arm's Length Price was determined by the assessee, whereas the said provision applies to a case where Arm's Length Price was determined by the Assessing Officer. That mistake has been corrected by the Tribunal by setting aside the order passed by the Commissioner as well as the assessing authority. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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