Exclusion of internet expenses allowed in ITA appeal, favorable ruling on deduction computation.

The Tribunal allowed the appeal in I.T.A. No. 1547/Mds/2012, directing the exclusion of internet expenses from both export turnover and total turnover. It ruled in favor of the assessee regarding the disallowance of deduction u/s.10A and the method of computation of deduction u/s.10A. The Tribunal partially allowed the appeal on the upward adjustment made by the DRP and remitted the issue of adopting operating cost back to the Assessing Officer for rectification. The appeal in I.T.A. No. 262/Mds/2013 was dismissed as redundant since all issues were addressed in the prior appeal.

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Issues Involved:
1. Exclusion of internet expenses from export turnover and total turnover.
2. Disallowance of deduction u/s.10A.
3. Method of computation of deduction u/s.10A.
4. Upward adjustment made by DRP.
5. Adoption of operating cost.

I.T.A. No. 1547/Mds/2012:

Issue 1 - Exclusion of Internet Expenses:
The assessee challenged the exclusion of internet expenses from export turnover and total turnover. The Special Bench of the Tribunal in the case of ITO Vs. M/s. Saksoft Ltd held that eligible expenditure must be excluded from both turnovers. The Tribunal allowed the appeal, directing the exclusion of internet expenses from both turnovers.

Issue 2 - Disallowance of Deduction u/s.10A:
The Tribunal considered the disallowance of deduction u/s.10A due to the formation of the assessee by splitting up or reconstruction of an existing business. Relying on past decisions, the Tribunal ruled in favor of the assessee, stating that the company was not formed through such means.

Issue 3 - Method of Computation of Deduction u/s.10A:
The dispute revolved around the computation of deduction u/s.10A before setting off unabsorbed depreciation and brought forward losses. The Tribunal referred to relevant judgments, including the Hon'ble Supreme Court's decision, and concluded that unabsorbed depreciation must be set off before computing the exemption under u/s.10A. The assessee was allowed to claim the deduction before setting off brought forward losses partially.

Issue 4 - Upward Adjustment by DRP:
The DRP made an upward adjustment based on the difference in Profit Level Indicator (PLI) between the assessee and comparables. The Tribunal found discrepancies in the comparables selected by the TPO and DRP, leading to a partial allowance of the appeal. The PLI was recalculated at 7% instead of 13.35%, requiring a re-calculation of the Arms' Length Price.

Issue 5 - Adoption of Operating Cost:
A factual error in adopting the operating cost led to the remittance of the issue back to the Assessing Officer for rectification based on the audited accounts of the assessee for the relevant financial year.

I.T.A. No. 262/Mds/2013:
This appeal challenged the DRP's order arising from a rectification petition. Since all issues were already addressed in a prior appeal (I.T.A. No. 1547/Mds/2012) and adjudicated on merits, rendering this appeal redundant, the Tribunal dismissed the appeal.

In conclusion, the judgment addressed various critical issues related to the assessment order, including the exclusion of expenses, disallowance of deductions, computation methods, upward adjustments, and factual discrepancies. The Tribunal's decisions were based on legal precedents and interpretations of relevant tax laws, resulting in partial allowances and remittances for rectification.

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