2016 (9) TMI 1309 - AT - Income Tax

Tax Tribunal Decision: Exclusion upheld for comparable companies, telecom charges, ESOPs treated as revenue.

The Tribunal upheld the exclusion of comparable companies Infosys Technologies Ltd and L&T InfoTech Ltd, supported by functional dissimilarities. ... TPA - selection of comparable - Held that:- Assessee company is engaged in the business of export and sale of developed software thus companies with dissimilar activities with that of assessee need to deleted from final list of comparable. Deduction u/s 10A - Held that:- Exclusion of telecommunication charges and other expenditure both from the export turnover as well as from the total turnover in accordance with the decision of the Special Bench of the Tribunal at Chennai in the case of Income Tax Officer vs. SAK Soft Ltd (2009 (3) TMI 243 - ITAT MADRAS-D). We find that this issue is also covered by the decision of the Hon'ble Karnataka High Court in the case of Tata Elxsi Ltd. (2011 (8) TMI 782 - KARNATAKA HIGH COURT) and therefore, we see no reason to interfere with the same. The Revenue’s Ground of appeal No.2 is therefore, rejected. Expenditure incurred towards employees stock (ESOPs) - Held that: -We find that this issue is also covered by the decision of the Special Bench of the Tribunal at Bangalore in the case of Biocon Ltd (2013 (8) TMI 629 - ITAT BANGALORE) which has been taken note of by the DRP in directing the AO to allow the same as revenue expenditure. Issues involved:1. Revenue's appeal for the A.Y 2010-11 and the Cross Objection by the assessee.2. Exclusion of comparable companies Infosys Technologies Ltd and L&T InfoTech Ltd.3. Treatment of telecommunication charges and other expenditure for computation of allowable deduction under section 10A.4. Classification of expenditure towards stock-based compensation (ESOPs) as revenue or capital expenditure.Detailed Analysis:1. The case involved the Revenue's appeal for the A.Y 2010-11 and the Cross Objection by the assessee. The Revenue challenged the order of the DRP on various grounds, including the exclusion of comparable companies Infosys Technologies Ltd and L&T InfoTech Ltd. The assessee argued that these companies were not functionally comparable. The Tribunal considered previous decisions and functional dissimilarities, leading to the exclusion of Infosys Technologies Ltd and L&T InfoTech Ltd from the list of comparables, supporting the order of the DRP.2. The issue of telecommunication charges and other expenditure for the computation of allowable deduction under section 10A was also raised. The DRP directed the exclusion of these charges from both export turnover and total turnover, citing relevant legal precedents. The Tribunal upheld this decision, referring to the Special Bench of the Tribunal at Chennai and the decision of the Hon'ble Karnataka High Court in the case of Tata Elxsi Ltd. Therefore, the Revenue's Ground of appeal on this issue was rejected.3. The classification of expenditure towards stock-based compensation (ESOPs) as revenue or capital expenditure was another point of contention. The DRP, guided by the decision of the Special Bench of the Tribunal at Bangalore in the case of Biocon Ltd, directed the AO to treat ESOPs expenditure as revenue expenditure. The Tribunal found no reason to interfere with this decision, leading to the rejection of the Revenue's appeal on this ground. Consequently, the Revenue's appeal was dismissed, and the assessee's cross objection was partly allowed.In conclusion, the Tribunal's judgment addressed various issues raised by both the Revenue and the assessee, providing detailed reasoning based on legal precedents and factual analysis to arrive at the final decision. The judgment upheld certain decisions of the DRP while rejecting others, ensuring a fair and comprehensive resolution of the tax dispute for the relevant assessment year.