TMI Blog2022 (2) TMI 177X X X X Extracts X X X X X X X X Extracts X X X X ..... nce from its employee for rendering uninterrupted services during the vesting period and as a quid pro quo it undertakes to compensate the employees with a certain amount given in the shape of discounted premium on the issue of shares. As per the Revenue, the vesting of shares after award is contingent upon many subsequent events and accordingly, the provision made by the assessee on account of award of shares is only a contingent liability. Similar contentions of Revenue for denying deduction to employees stock options expenses have been specifically dealt in Biocon Ltd.[ 2013 (8) TMI 629 - ITAT BANGALORE] as confirmed by HC [ 2020 (11) TMI 779 - KARNATAKA HIGH COURT] to be in favour of assessee. Quantification of deduction u/s 10A by considering revised computation - denial of revised claim of deduction under section 10A as per auditor s certificate dated 11.10.2010 - HELD THAT:- The audit certificate for claiming deduction under section 10A of the Act was dated 11.10.2010 which was the same date of filing the return of income by the assessee. Audit certificate in Form No. 56F is enclosed in pages 194 to 196 of the paper book filed by the assessee which contains the det ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same can be admitted for consideration and adjudication in view of the ratio laid down by Hon ble Supreme Court in NTPC Ltd. V. CIT [ 1996 (12) TMI 7 - SUPREME COURT] Coming to the additional ground of appeal, same is squarely covered in favour of the assessee by the decision of Hon ble Jurisdictional High Court in the case of Sesa Goa Ltd. [ 2020 (3) TMI 347 - BOMBAY HIGH COURT] and in the case of Chambal Fertilizers Chemicals Ltd. [ 2018 (10) TMI 589 - RAJASTHAN HIGH COURT] . As per the above decisions, the amount of education cess and higher secondary education cess is not tax as covered under section 40(a)(ii) of the Act and accordingly allowable as deduction in computing the income from business or profession. Though coordinate bench of Tribunal has taken a contrary view in the case of M/s Kanoria Chemicals Industries Ltd.[ 2021 (10) TMI 1153 - ITAT KOLKATA] , however, as the decision in the case of Sesa Goa Ltd. (supra) has been rendered by Hon ble Jurisdictional High Court, we are bound to follow same. Accordingly, the additional ground raised by the assessee is allowed. Transfer pricing adjustment - Comparable selection - HELD THAT:- We hold that Accentia T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vide directions dated 29.12.2014 issued under section 144C(5) of the Act. 2.3. Aggrieved by the disallowance, the assessee is in appeal before us. In this regard, Ld. AR submitted that under the ESOP scheme, equity stock options were granted to permanent employees of Indian Branches of Deutsche Bank and employees and directors of subsidiaries of Deutsche Bank in India. The assessee is a subsidiary of Deutsche Bank and therefore the employees and directors of assessee are entitled to receive the shares of ultimate holding company i.e. Deutsche Bank under the scheme. Ld. AR referred to details provided during the course of assessment proceedings vide letter dated 18.02.2014. Ld. AR further submitted that Special Bench of the Bangalore Tribunal in the case of Biocon Ltd. v. DCIT reported in 144 ITD 21 held that discount in relation to employee stock options vested during the year is not contingent liability. The said decision of Special Bench of Bangalore Tribunal has also been affirmed by Hon ble Karnataka High Court in CIT v. Biocon Ltd reported in 430 ITR 151. Thus, the employee stock option compensation expenses is allowable under section 37 (1) of the Act. On the other hand, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atio laid down by the Hon'ble Supreme Court in Bharat Earth Movers (supra) and Rotork Controls India (P.) Ltd. (supra), it becomes vivid that the mandate of these cases is applicable with full force to the deductibility of the discount on incurring of liability on the rendition of service by the employees. The factum of the employees becoming entitled to exercise options at the end of the vesting period and it is only then that the actual amount of discount would be determined, is akin to the quantification of the precise liability taking place at a future date, thereby not disturbing the otherwise liability which stood incurred at the end of the each year on availing the services. 2.5. We find that the appeal preferred by the revenue against the aforesaid Special Bench s decision was dismissed by the Hon ble Karnataka High Court. The ld. DR before us could not point out any subsequent change in legal position. Respectfully following the ratio of Special Bench as confirmed by Hon ble High Court, we direct the ld. AO to allow the deduction of ESOP expenses of ₹ 1,52,46,000/-. Accordingly, Ground No. 1 raised by the assessee is allowed. 3. Ground No. 2 raised in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nue does not dispute the claim of deduction under section 10A of the Act made by the assessee in its return of income. The grievance raised by assessee is limited to denial of revised claim of deduction under section 10A of the Act as per auditor s certificate dated 11.10.2010. We find that the audit certificate for claiming deduction under section 10A of the Act was dated 11.10.2010 which was the same date of filing the return of income by the assessee. We find that the audit certificate in Form No. 56F is enclosed in pages 194 to 196 of the paper book filed by the assessee which contains the detailed workings for computation of deduction under section 10A of the Act together with a note stating that the export turnover of ₹ 33,28,53,532/- was not realised within 6 months from the end of the financial year i.e 31.3.2010 and is expected to be received within the time allowed by RBI vide Circular RBI/2004-05/264 dated 1.11.2004. We also find from page 150 of the paper book filed before us that the assessee during the course of assessment proceedings vide letter dated 21.2.2014 had duly submitted that the revised claim of deduction under section 10A of the Act was ₹ 35,53 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 26,29,364/- during the previous year which is duly reflected in Schedule CFL thereon. The workings of Long Term Capital Loss of ₹ 26,29,364/- are enclosed in page 172 of the paper book filed before us. But by inadvertence, this figure of Long Term Capital Loss was not mentioned by the assessee in the computation of income which had triggered the ld. AO to reject the claim of the assessee despite the fact that it is a genuine claim of the assessee. We are unable to persuade ourselves to accept to the observations made by the ld. DRP and the ld. AO in this regard. Despite the fact that the correct loss figure is reflected in the relevant schedule in the return of income, the legitimate claim of the assessee has been denied by the revenue. Hence we have no hesitation in directing the ld. AO to allow the Long Term Capital Loss of ₹ 26,29,364/- to be carried forward to subsequent years. Accordingly, the Ground No. 3 raised by the assessee is allowed. 5. In respect of Ground No. 5, the Ld AR submitted that assessee had filed rectification application dated 30.03.2015 before the AO seeking grant of credit of tax paid of ₹ 3,31,24,030/-. However, the rectification a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gh Court in the case of Chambal Fertilizers Chemicals Ltd. v. Jt. CIT reported in 107 taxmann.com 484. As per the above decisions, the amount of education cess and higher secondary education cess is not tax as covered under section 40(a)(ii) of the Act and accordingly allowable as deduction in computing the income from business or profession. Though coordinate bench of Tribunal has taken a contrary view in the case of M/s Kanoria Chemicals Industries Ltd. (supra), however, as the decision in the case of Sesa Goa Ltd. (supra) has been rendered by Hon ble Jurisdictional High Court, we are bound to follow same. Accordingly, the additional ground raised by the assessee is allowed. 8. The ground Nos.7-18 raised by the assessee is with regard to transfer pricing adjustment made by the ld. TPO. 8.1. We have heard rival submissions and perused the material available on record. The assessee is a global processing centre undertaking offshore support services for various business lines of Deutsche Bank group entities. The assessee is a subsidiary of Deutsche Knowledge Service Pte Ltd., Singapore. It provides offshore support services to its Associated Enterprises (AEs) in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es 4,52,507 7,75,411 TNMM 14. Secondment expenses 6,11,03,717 98,44,078 TNMM 15. Expat Pension Cost 33,13,272 18,07,060 TNMM 16. Server Maintenance, Desktop Maintenance and Software Licensing related cost 13,30,263 20,77,404 TNMM Total 203,35,51,658 163,87,25,313 8.2. The ld. TPO observed from the functions performed by the assessee that it is not merely a low end activity as in the case of a Business Process Outsourcing (BPO) or any company engaged in the activity of call centre etc. On the contrary, the activity undertaken by the assessee is a high end support services which can be comparable to that of KPO service provider, as the KPO requires domain knowledge, analytical skills and decision making capabilities. Accordingly, the ld. TPO identifi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r (PLI) adopted by the ld. TPO is Operating Profit / Total Cost (OP/TC). The arm s length margin of the comparables chosen by the assessee as per the TP study report was 6.89%. The arm s length margin chosen by the ld. TPO as per the final list of comparables listed above was 34.69%. The ld. TPO accordingly made an adjustment of ₹ 18.68 Crores in respect of provision of business support services. We find that the ld. DRP had given partial relief to the assessee by directing the ld. TPO to exclude one of the comparables i.e. Coral Hubs Ltd., and by determining the arm s length margin of the comparables at 32.50% and consequently the TP adjustment was reduced to ₹ 15.22 Crores. 8.7. The ld. AR before us vehemently argued for exclusion of Accentia Technologies Ltd., In this regard, he placed reliance on the decision of the Co-ordinate Bench of this Tribunal in assessee s own case for A.Y.2008-09 in IT(TP)A No.134/Mum/2013 dated 09/11/2020 wherein in para 10, this Tribunal had held that Accentia Technologies Ltd., is not functionally comparable with that of the assessee company. It is not in dispute that the functions performed by the assessee and Accentia Technologies ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 20 assessee which is into provision of business support services (ITeS) to its group entities across the world. 10.6 In the backdrop of our aforesaid observations, and reasons given above, we are of a strong conviction that the abovementioned company, i.e Accentia Technologies Ltd. also could not have been included in the final list of the comparables for the purpose of benchmarking the international transactions of the assessee for the year under consideration. 8.8. Respectfully following the aforesaid decision, we hold that Accentia Technologies Ltd., is functionally not comparable with the assessee company and hence, we direct the ld. TPO / AO to exclude the same from the final list of comparables. 8.9. We find that the ld. AR before us stated that once Accentia Technologies Ltd., is excluded, the assessee would be within the tolerance band of +/- 5% and accordingly, there will be no need to make any adjustment in arm s length price of international transactions of the assessee. Considering the same, we direct the ld. TPO to re-work the arm s length margin in view of the above directions. Accordingly, the ground Nos. 7-18 raised by the assessee are allowed for ..... X X X X Extracts X X X X X X X X Extracts X X X X
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