TMI Blog2021 (11) TMI 1129X X X X Extracts X X X X X X X X Extracts X X X X ..... be considered for each 10A unit separately. The assessee is directed to furnish the necessary details in this regard and the AO may examine the same in accordance with law. As in assessee s own case for Assessment Year 2007-08 [ 2016 (6) TMI 1333 - ITAT BANGALORE] s ub-section 1 of 80JJAA clearly show that the deduction is given on profits and gains derived from industrial undertaking engaged in manufacture of production of article or thing. It is only for quantification of the amount that 30% is applied. In our opinion the deduction is very much linked to the profits of the undertaking. We are therefore unable to accept this line of argument taken by the counsel. In the result, we hold that assessee is not eligible for deduction u/s.80JJAA of the Act, in respect of its units 2 , 3 and 4. However, denial of such claim in respect of unit-1, where it was not claiming any deduction, in our opinion is incorrect. We, therefore set aside the orders of authorities below for the limited purpose of quantifying the eligible deduction u/s.80JJA in respect of Unit-1. Employees engaged in software industry cannot be regarded as workmen for the purpose of section 80JJAA - Thus ground sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is settled by APTEAN INDIA PVT. LTD. VERSUS THE DY. COMMISSIONER OF INCOME TAX, CIRCLE-1 (1) (2) , BENGALURU. [ 2020 (11) TMI 958 - ITAT BANGALORE] wherein it was held that education cess and secondary and higher education cess is deductible as business expenditure under section 37 (1) of the Act for determining the assessed income. As per TATA STEEL LIMITED case [ 2019 (12) TMI 750 - ITAT MUMBAI] education cess and secondary and higher education cess is not in the nature of tax which is not deductible expenditure. Following the decisions referred to above, we allow the additional ground of appeal. - IT(TP)A No. 623/Bang/2016, 566/Bang/2016 - - - Dated:- 29-11-2021 - Shri N.V. Vasudevan, Vice President And Shri B. R. Baskaran, Accountant Member For the Appellant : Shri. Aliasger Rampurawala, CA For the Respondent : Shri. Sumer Singh Meena, CIT(DR)(OSD)(ITAT), Bengaluru ORDER PER N. V. VASUDEVAN, VICE PRESIDENT: These cross appeals by the Revenue and assessee are directed against the final order of assessment dated 28.1.2016 of the ACIT, Circle 6(1)((1), Bangalore (hereinafter referred to as the Assessing Officer, AO in short) passed u/s.1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was 9.90% and after adjustment of (-) (+) range as per proviso to Sec.92C(2) of the Act, the assessee claimed that its profit margin was comparable with the Operating margin of the comparable companies and therefore the price was at Arm s length. The assessee therefore claimed that the price it charged in the international transaction should be considered as at Arm s Length. 4. The Transfer Pricing Officer (TPO) to whom the determination of ALP was referred to by the AO, accepted TNMM as the MAM and also used the same PLI for comparison i.e., OP/TC. He also selected comparable companies from database. The TPO chosen a set of 13 comparable companies and worked out the average arithmetic mean of their profit margins as follows: Comparables selected by TPO and their arithmetic mean: Sl. No. Name of the Company Mark-up on Total Costs (WC unadj) (in %) 1 Acropetal Technologies Ltd. (seg) 31.98 2 e-Zest Solutions Ltd. 21.03 3 E-Infochips Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TPO as adjustment to ALP was added to the total income of the assessee by the AO. The assessee filed objections before the DRP and the DRP gave certain directions. Based on the directions of the DRP, the AO passed the final order of assessment. To the extent the assessee did not get relief from the DRP, the assessee has preferred appeal before the Tribunal. 7. The relevant provisions of the Act in so far as comparability of international transaction with a transaction of similar nature entered into between unrelated parties, provides as follows: Determination of arm's length price under section 92C . 10B . (1) For the purposes of sub-section (2) of section 92C, the arm's length price in relation to an international transaction [ or a specified domestic transaction ] shall be determined by any of the following methods, being the most appropriate method, in the following manner, namely :- (a) to (d). ..... (e)transactional net margin method, by which,- ( i ) the net profit margin realised by the enterprise from an international transaction [ or a specified domestic transaction ] entered into with an associated enterprise is computed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ternational transaction [ or a specified domestic transaction ] if- ( i ) none of the differences, if any, between the transactions being compared, or between the enterprises entering into such transactions are likely to materially affect the price or cost charged or paid in, or the profit arising from, such transactions in the open market; or ( ii ) reasonably accurate adjustments can be made to eliminate the material effects of such differences. 8. A reading of Rule 10B(1)(e)(iii) of the Rules read with Sec.92CA of the Act, would clearly shows that the net profit margin arising in comparable uncontrolled transactions has to be adjusted to take into account the differences, if any, between the international transaction and the comparable uncontrolled transactions, which could materially affect the amount of net profit margin in the open market. 9. Chapters I and III of the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (hereafter the TPG ) contain extensive guidance on comparability analyses for transfer pricing purposes. Guidance on comparability adjustments is found in paragraphs 3.47-3.54 and in the Annex to Chapt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s tribunal held paragraph 9.2.4 of its order held that this company is a SWD service as well as Software Product company and the segmental details of the various segments are not available. As far as exclusion of Sasken Communication Technologies Ltd.. is concerned. in the very same decision in the case of Electronics for Imaging India (P) Ltd., (supra), this company was held to be not comparable as it had revenues both from software products and SWD services and segmental details were not available. In view of the aforesaid decisions, we direct that the aforesaid two companies be excluded from the list of comparable companies. No other grounds in the CO were pressed for adjudication. 11. As far as inclusion of FCS Software Solutions is concerned, the learned counsel for the assessee relied on the decision of the ITAT Bangalore Bench in the case of Rambus Chip Technologies (India) Pvt.Ltd. Vs. ACIT ITA No.978/Bang/2017 for AY 2011-12 order dated 10.1.2020 rendered in the case of a company engaged in SWD services such as the assessee and in whose case also the very same 13 comparable companies chosen in the present case was chosen as comparable company. The functional profile ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce in different risk profile of the parties is therefore correct and hence upheld. Grd.No.2 raised by the Revenue in its appeal is therefore dismissed. No other grounds were pressed for adjudication with regard to transfer pricing issue. We direct the TPO to compute the ALP of the international transaction in accordance with the directions given in this order after affording the assessee opportunity of being heard. 13. As far as corporate tax grounds are concerned, Grd.No.6 to 6.4 is with regard to deduction u/s.80JJA of the Act and these grounds read thus: 6. While doing so, the learned DRP/ AO erred in: 6.1. Not appreciating the fact that deduction under section 8oJJAA of the Act is Assessee specific and not undertaking / unit specific. [corresponding to ground no. 6.1] 6.2. Invoking the provisions of section 8oA(4) in the context of deduction under section 8oJJAA for 10A units [corresponding to ground no. 6.2] 6.3. Not appreciating the fact that the amendment made in the Finance Act 2013, restricting the deduction to an Indian Company deriving profits from the manufacture of goods in a factory, is applicable with effect from April 1, 2014 and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all the units put together as basis in order to reckon 10% increase in workforce during the year under reference, inclusion of only 100 employees in respect of all the units for the purpose of quantifying the additional wages paid instead of considering 100 employees for inclusion in each and every unit. 7.6 In view of the above, I am of the opinion that in the absence of furnishing unit wise certificate in respect of fulfillment of conditions stipulated u/s 80JJAA, the assessee is rot eligible to claim deduction u/s 80JJAA. On this specific ground itself, I have no hesitation to deny the deduction u/s 80JJAA for the current year also. 15. The learned Counsel for the assessee has accepted the decision of the DRP in so far as ground No.6.1 is concerned and is willing to give the details as per each unit. The deduction can therefore be considered for each 10A unit separately. The assessee is directed to furnish the necessary details in this regard and the AO may examine the same in accordance with law. As far as ground 6.2 is concerned, it was agreed by the parties that in assessee s own case for Assessment Year 2007-08 in IT(TP)A No.1006/Bang/2011 by order dated 30.06 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gaged in manufacture of production of article or thing. It is only for quantification of the amount that 30% is applied. In our opinion the deduction is very much linked to the profits of the undertaking. We are therefore unable to accept this line of argument taken by the counsel. In the result, we hold that assessee is not eligible for deduction u/s.80JJAA of the Act, in respect of its units 2 , 3 and 4. However, denial of such claim in respect of unit-1, where it was not claiming any deduction, in our opinion is incorrect. We, therefore set aside the orders of authorities below for the limited purpose of quantifying the eligible deduction u/s.80JJA in respect of Unit-1. In the result, ground no.6 is treated as partly allowed for statistical purpose. 16. As far as ground No.6.3 is concerned, the issue has been decided in Assessment Year 2007-08 in the order referred to above and this Tribunal held that the employees engaged in software industry cannot be regarded as workmen for the purpose of section 80JJAA of the Act. The following were the relevant observations of the Tribunal: 24. We have perused the orders and considered the rival contentions. The claim of asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st. yr. 2001-02. Similarly, for asst. yr. 2002-03 the appellant has claimed deduction of ₹ 4,78,05,176 being 30 per cent of the wages of ₹ 1,59,30,588 which also included the wages of ₹ 4,38,68,182 pertaining to the new workers employed in the previous year 1999- 2000. For the reasons mentioned above the appellant is not entitled for relief under s. 80JJAA in respect of the wages pertaining to the workers employed in the previous year 1999-2000. As such the appellant would be eligible for relief of ₹ 3,46,44,722 being 30 per cent of the additional wages of ₹ 11,54,82,406 (₹ 15,93,50,588 ₹ 4,38,68,182) in respect of the workmen employed in previous years 2000-01 and 2001-02. The learned Authorised Representatives of the appellant vide order-sheet noting dt. 24th Aug., 2004 agreed that the relief under s. 80JJAA in respect of the employees who joined in the previous year relevant to the asst. yr. 2001-02 onwards only may be considered and in respect of the employees who joined in earlier years the appellant is not pressing for relief under s. 80JJAA. In the circumstances, the AO is directed to allow the relief under s. 80JJAA of ₹ 1,09, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the view that ground Nos.6 and 6.4 should be decided in the light of the directions given above by the AO afresh after affording opportunity of being heard to the assessee. 18. As far as Grd.No.7 of the rephrased ground of appeal of the assessee is concerned, the same can be conveniently discussed and decided together with Ground No.4 raised by the Revenue in its appeal. These grounds read as follows: 7. On the facts and circumstances of the case and in law, the learned DRP/ AO erred in not considering the adjustment made under section 4o(a)(ia) in arriving at the profits from business eligible for a deduction under section ioA of the Act. [corresponding to ground no. 7] Ground No.4 of Revenue s appeal: 4. On the facts and in the circumstances of the case, the DRP erred in directing the Assessing Officer not to exclude the amount disallowed u/s 40(a)(ia) for the purpose of disallowance u/s 10A. The DRP's decision is not in conformity with the ratio of the decision of the Hon'ble ITAT, Ahmedabad Bench 'C' in the case of DCIT, Circle-2(2) Vs. Ramesh Bhai C. Prajapati (29 Taxman.com 64), wherein it was held that the amount disallowed u/s 40(a) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pter VI-A deduction has been claimed, result in enhancement of the profits of the eligible business and that deduction under Chapter VI-A is admissible on the profits so enhanced by the disallowance . 21. Further the Hon ble Karnataka in the case of CIT Vs. M/s.M.Pact Technology Services Pvt.Ltd. in ITA No.228/2013 order dated 11.7.2018 had to deal with admissibility of the following substantial question of law in an appeal by the Revenue u/s.260A of the Act :- 5. Whether the Tribunal is correct in law in not adjudicating the main issue of applicability of provisions of section 40(a)(ia) in respect of disallowance of sub-contracting chares of RS.16,21,851/- made by assessing authority on the ground that the assessee had failed to deduct tax at source under section 194C of I.T.Act? 6. Whether the Tribunal is justified in law in directing the assessing authority to allow deduction under section 10A in respect of amount disallowed under section 40(a)(ia) without appreciating the fact that the income enhanced on account of deeming provisions cannot be considered for the purpose of claiming benefit under the provisions of section 10A? 18. The Hon ble Karnataka High ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ari, IT Appeal No.2 of 2011, September 11 2015, Bombay High Court [ii] If deduction under section 40A[3] of the Act is not allowed, the same would have to be added to the profits of the undertaking on which the assessee would be entitled for deduction under section 80-IB of the Act. 7. Applying the same analogy, it can be held that if deduction u/s. 40[a][ia] of the Act is not allowed, the same would have been to be added to the profits of the undertaking on which the Assessee would be entitled for deduction u/s. 10A of the Act. This view is fortified by the decision of Bombay High Court in the case of Commissioner of Income Tax v. Gem Plus Jewellery India Ltd., [2011] 330 ITR 175 [Bom] , wherein it is held thus: 13. By reason of the judgment of the Supreme Court in Commissioner of Income Tax v. Alom Extrusions Limited [2009] 319 ITR 306 the employer's contribution was liable to be allowed, since it was deposited by the due date for the filing of the return. The peculiar position, however, as it obtains in the present case arises out of the fact that the disallowance which was effected by the Assessing Officer has not, the Court is informed, been challenged ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he AO is directed to allow the claim of the assessee as directed by the DRP which is now confirmed by us. 23. As far as Grd.No.3 raised by the revenue is concerned, the same relates to the exclusion of expenses incurred in foreign currency from total turnover and export turnover while computing deduction u/s.10A of the Act. We have considered the rival submissions. Taking into consideration the decision rendered by the Hon ble High Court of Karnataka in the case of CIT v. Tata Elxsi Ltd [2012] 349 ITR 98 (Karn), we are of the view that communication charges and expenses incurred in foreign exchange should be excluded both from export turnover and total turnover. We are of the view that as of today, law declared by the Hon'ble High Court of Karnataka which is the jurisdictional High Court is binding on us. Moreover, the order of the Hon ble Karnataka High Court has been upheld by the Hon ble Supreme Court in the case of CIT v. HCL Technologies Ltd. in Civil Appeal No.8489-98490 of 2013 Ors. dated 24.04.2018. The ground of the revenue is therefore dismissed. 24. The next ground that requires adjudication is the additional ground of appeal with regard to allowing as de ..... X X X X Extracts X X X X X X X X Extracts X X X X
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