TMI Blog2021 (5) TMI 792X X X X Extracts X X X X X X X X Extracts X X X X ..... on on that basis. Thus the orders of lower authorities on this issue are set aside. Deductibility of the education cess under the provisions of Section 37 (1) - HELD THAT:- As the assessee has paid taxes including the education cess along with taxes and the same is claimed now as deduction u/s 37 (1) of the act. This issue is squarely covered in favour of the assessee by the decision of the honourable Rajasthan High Court in case of CIT versus Chambal fertilizers and chemicals Ltd [ 2018 (10) TMI 589 - RAJASTHAN HIGH COURT] as well as of the decision of Sesa Goa Ltd [ 2016 (2) TMI 308 - BOMBAY HIGH COURT] . In view of the above judicial precedents of the Honourable High Court s we find that the education cess paid on income tax is allowable to the assessee as a deduction u/s 37 (1) of the act. We direct the learned assessing officer to examine the calculation of the education cess and grant assessee deduction accordingly. In view of this additional ground raised by the assessee is allowed. TP Adjustment - direction of the ld CIT (A) for exclusion of the comparable (1) TSR Darshaw Limited and (2) Aptico Limited - HELD THAT:- As in assessee s own case the above two compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... outsourcing services Infosys BPO Ltd and TCS E serve - Both these comparable companies have significantly higher turnover compared to the turnover of the assessee and both are enjoying the brand value of respective group companies, thus we direct the learned AO/TPO to exclude the above two comparable companies. - ITA No. 6558/Del/2016, ITA No. 6552/Del/2016, ITA No. 5801/Del/2017, ITA No. 5770/Del/2017 - - - Dated:- 24-5-2021 - Shri Amit Shukla, Judicial Member And Shri Prashant Maharishi, Accountant Member For the Assessee : Shri Deeraj Kr. Jain, Sr. DR For the Revenue : Shri Rajan Vora, CA ORDER PER PRASHANT MAHARISHI, A. M. 1. These are the four cross appeals of the same assessee for Assessment Year 2010-11 and 2011-12, these appeals also involve similar facts raising similar grounds, argued by both the parties together. Therefore, this bunch of appeals is disposed of by this common order. 2. For A Y 2010-11 ITA No 6562/Del 2016 is filed by Additional CIT, New Delhi (ld AO) against the order of ld CIT(A)-37, New Delhi dated 24.10.2016 in which following grounds of appeal is raised:- 1. On the facts and in the circumstance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e case and in law, the Ld. AO and Ld. CIT(A) has erred in not appreciating the fact that the appellant has submitted separate revenue and expenses of the corporate division. 3. That on facts and in circumstances of the case and in law, the Ld. CIT(A) has erred in initiating the penalty proceedings under section 271(1)(c) of the Act consequent to the additions made in the order passed under section 250 of the Act 4. That on facts and in circumstances of the case and in law, the Ld. AO and Ld. CIT(A) has erred in levying the interest under section 234C/234D of the Act. 4. For AY 2011-12 , the ld AO has raised the following grounds of appeal in ITA No. 5801/Del/2017 for the Assessment Year 2011-12:- 1. Whether on the facts and circumstances of the case the Ld. CIT(A) was correct in rejecting the comparable namely M/s Eclerx Services Ltd. from the set of final comparables used by the TPO stating that the company is functionally dissimilar without going into the fact that the company offered services Data analytics and process outsourcing which are part and process of ITES segment. 2. Whether on the facts and circumstances of the case the Ld. CIT(A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing and the Ld. C1T(A) has erred in confirming the action of Ld. AO and Ld. TPO, of disregarding prior years' data used by the Appellant to benchmark its international transactions, in its TP Documentation for the year and holding that current year (i.e. FY 2010-11) data for comparable companies should -be used despite the fact that the same was not necessarily available to the Appellant at the time of preparing its TP Documentation, and grossly misinterpreting the requirement of contemporaneous' data in the Rules to necessarily imply current year data, thereby breaching the principles of natural justice and 'impossibility of performance'. Corporate Tax Grounds 5. That the Ld. C1T(A) and Ld. AO has erred on facts and in law in treating business expense of corporate division as an overhead and allocating a part of it to the unit eligible for exemption under section 10A of the Act ( 10A unit ) when such expense in any manner (directly or indirectly) does not pertain to the 10A unit. 5.1 That the Ld. CIT(A) and Ld. AO has grossly erred on facts and in law in holding that the functions of the corporate office are restricted to and as defined in Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cator of OP/ OC was determined @ 24.06%. Operation cost of the assessee was ₹ 18,67,41,542/-, average margin applied was 24.06%, determining the ALP of ₹ 23,16,71,557/- against the international transaction value of ₹ 20,54,15,696/-. Ld TPO proposed an adjustment of ₹ 2,62,55,861/- considering 105% of the price received at ₹ 21,56,86,481/- as per order u/s 92CA(3) dated 17.01.2014. Over and above the ld AO found that the assessee is eligible for deduction u/s 10A of the Act. The ld AO found that all common expenses are not allocated to eligible units (units on which deduction is available u/s 10A of the Act) and non eligible units. Therefore, the ld AO argued that why not all common expenses should be allocated on the basis of turnover. The assessee objected to the same stating that there is different revenue stream in eligible and non-eligible units. Corporate division of the assessee also provides business support services to other entity. Ld AO held that corporate division is nothing but a corporate office. He examined the detailed chart of income and various expenses submitted by the assessee. He also looked at the profit and loss account of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. Thus, the action of the learned assessing officer was upheld. 9. Thus, Assessee is aggrieved with the same and is in appeal before us as per ground number 2 of the appeal. According to that ground assessee contests that assessee has already allocated an expenditure of ₹ 3,525,995/ and the learned assessing officer and the learned CIT A has confirmed the allocation of ₹ 31,798,275/ which is erroneous. The ground of appeal no 3 of initiation of the penalty proceedings and chargeability of interest u/s 234C and 234D were not pressed. Therefore, the solitary issues of the appeal of the assessee are with respect to allocation of expenditure between eligible and non eligible units for working of deduction u/s 10A of the Act. 10. In the appeal of the revenue with respect to TP adjustment of market support services, there was no dispute between the assessee and the revenue with respect to 3 comparables. However, the ld TPO included 2 fresh comparables being (1) TSR Darshaw Ltd having a margin of 41.57% and (2) M/s. Apitco Ltd shows margin 40.09%. On appeal the ld CIT(A) accepted the argument of the assessee and rejected the inclusion of both the comparables and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng of eligible profit for deduction u/s 10 A of the income tax act where common expenditure of ₹ 3,595,995/ are allocated and it has been reduced from the allowable deduction. The assessee has also separate division, which is called as corporate division stated to be providing services of supervision for other business division. That division also provides business support services to various other entities of the group and thus claimed to have a separate stream of income. The ld AO held that there is no separate division in existence and therefore expenditure with respect to the corporate division was allocated in the eligible units in proportion to the turnover. Thus the deduction u/s 10A was reduced by ₹ 3,17,95,275/-. The learned CIT A also upheld the same. 15. The ld AR submitted that the assessee allocates the common expenses on scientific basis, which is consistently followed by the assessee and accepted by the ld AO in past years. Therefore, it should also be accepted in the present year. He further stated that the separate business activity, which is being conducted by the assessee in altogether different way, expenses related to that unit, cannot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the appellant is charging a substantial markup from its international AEs. There is no reason why similar margin would not be charged from its AEs in India. Though he held that the cost allocation of the assessee is incorrect but it was also held that amount of allocation adopted by the ld AO is also incorrect. It was further held that the cost allocated by the assessee contains an element which relates to common services or common corporate functions and hence, is to be allocated to both exempt and non exempt entities. He further held that as of both the units the services are provided to AEs and APA of assessee has accepted margin 16% therefore, similar margin should also be received from the domestic companies. Thus according to this, indirectly referred that 16% of the cost is required to be allocated of the corporate division to the eligible unit for deduction u/s 10 A of the act. From this it is apparent that allocation of expenditure of corporate division which provides services to the internal units of the assessee which are eligible for deduction u/s 10 A and also not eligible for deduction Under that Section as well as to the outside parties, has different cost structure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oks of accounts, the expenditure needs to be allocated based on turnover. There is no such mandate provided Under the law wherein assessee has maintained its books of accounts on ERP software which clearly gives an assurance about the allocation of those expenditure. No doubt, if, there is any defect or infirmity found in allocation of such expenditure even in ERP system, the AO can rework the same. But no such efforts have been made either by the learned AO or by CIT A therefore allocation of expenditure merely on the basis of turnover when there are different kind of services rendered by both these units i.e. eligible as well as noneligible, such a thumb rule allocation key of turnover cannot be approved in absence of detailed verification by the learned AO showing that allocation made by the assessee on different allocation key is incorrect. It is also important to note that in subsequent assessment year i.e. assessment year 2011-12 the learned CIT A has dealt with this issue wherein the learned CIT A had reworked the cost to be located between the 10 A and non-10 A units based on the 16% markup agreed in the advance pricing agreements entered into by the assessee. The ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The fact shows that the assessee has paid taxes including the education cess along with taxes and the same is claimed now as deduction u/s 37 (1) of the act. This issue is squarely covered in favour of the assessee by the decision of the honourable Rajasthan High Court in case of CIT versus Chambal fertilizers and chemicals Ltd (ITA number 52 of 2018 dated 31 July 2018 as well as of the decision of the Honourable Bombay High Court in case of Seas Goa Ltd in tax appeal number 17 and 18 of 2013 dated 28th of February 2020. In view of the above judicial precedents of the Honourable High Court s we find that the education cess paid on income tax is allowable to the assessee as a deduction u/s 37 (1) of the act. We direct the learned assessing officer to examine the calculation of the education cess and grant assessee deduction accordingly. In view of this additional ground raised by the assessee is allowed. 21. In the result appeal of the assessee for assessment year 2010 11 is partly allowed. 22. Coming to the appeal of the learned assessing officer wherein he has challenged the direction of the ld CIT (A) for exclusion of the comparable (1) TSR Darshaw Limited and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of ₹ 230,89,737/ . Accordingly, total income of the assessee was assessed at ₹ 625,933,000 against the returned income of ₹ 507,826,739. 27. Aggrieved by the order of the learned AO, The appeal was preferred by the assessee before the learned CIT A who passed an order on 4 July 2017. Addition on account of the arm s-length price of the market support services of ₹ 36,731,715, the learned CIT A directed the learned AO to exclude two comparables (1) Aptico Limited (2) Media Research Users for the reason that those are functionally not comparable. With respect to the determination of arm s-length price of ITeS segment the learned CIT A directed the learned AO/TPO to exclude E Clrex Services Ltd. With respect to the allocation of the common expenditure being total expenditure of 49,15,81,558 for allocation, he applying a margin of 16% to the cost incurred in the segment, held that there is less allocation f the cost in the service division by ₹ 20,942,886/ which should have been allocated between 10 A units and the taxable units , therefore the learned CIT A directed the learned assessing officer to allocate the total corporate expendit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company with the assessee (₹ 21.02 crores Vs ₹ 3419 crores) and respectfully following the decision of the coordinate bench in assessee s own case, wherein this comparable company was excluded from the comparability analysis, we do not find any infirmity in the order of the learned CIT A in direct the ld AO/TPO to exclude E clerex Services Limited for comparability analysis. Accordingly, ground number [1] of the appeal of the learned assessing officer is dismissed. 32. The second ground of appeal is with respect to the exclusion of Media Research Users Council in the market support service segment of the assessee. We have heard the rival contentions on this issue. The assessee has rendered the market support services to its overseas associated enterprise of ₹ 30.86 crores in order to facilitate the sale of their products in India. It also provided sourcing support services to its overseas group entities so as to assist them in procuring raw materials/components from India. Assessee provided market support services to other entities also. The significant functions of the assessee are performing market support and communication and advising and liaisons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e comparability analysis in provision of market support services segment of the assessee. Thus, ground number 2 of the appeal is dismissed. 33. The ground number [3] is with respect to the direction of the learned CIT A for exclusion of Aptico Limited which is identical to the issue involved in the appeal of the learned AO for assessment year 2010 11. The arguments of both the parties remain the same. We have already held for that year that Aptico Ltd is correctly excluded by the learned CIT A. Therefore, for those reasons, ground number [3] of the appeal of the learned AO is dismissed. 34. Ground number [4] of appeal of learned AO is with respect to the order of the learned CIT A directing the learned AO to allocate corporate expenditure of ₹ 20,942,886 instead of ₹ 49,15,81,559/ . Both the parties confirmed that the issue is identical to the issue in the appeal of assessee for assessment year 2010 11 and there are no change in the facts and circumstances for the current year. Both the parties also stated that their arguments are also similar for this year also. This issue has already been decided by us in the impugned order for assessment year 2010 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e dismissed. 38. The ground number 1 4 are with respect to the transfer pricing matter with respect to the determination of the arm s-length price of the ITeS services of the assessee. Mainly assessee is contesting the confirmation of the action of the learned assessing officer/transfer pricing officer by the learned CIT A in accepting the following comparable companies for the purpose of determination of the arm s-length price of the international transactions. The comparables contested are (1) Accentia technologies Ltd (2) Infosys BPO Ltd, (3) TCS E serve Limited. With respect to Accentia technologies Ltd the facts stated before us shows that in assessee s own case for assessment year 2008 09 , learned CIT (A) has excluded the above comparable company and the learned AO has accepted that order and not preferred any appeal before the ITAT. Further the assessee has also contested before us that this comparable company is engaged in providing knowledge process outsourcing services. The learned authorised representative has also relied upon the plethora of the judicial precedent wherein case of some other assessee this comparable is directed to be excluded. However, we do ..... X X X X Extracts X X X X X X X X Extracts X X X X
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