2014 (11) TMI 721 - AT - Income Tax

Tribunal directs re-analysis of transfer pricing, upholds decisions on ESOP, section 10A deduction, and export turnover exclusion.

The tribunal allowed the assessee's appeal for statistical purposes and dismissed the Revenue's appeal. The TPO was directed to re-analyze the transfer ... Transfer pricing adjustment – Corporate guarantee provided by the company – Held that:- DRP did not take into consideration any of the objections raised by the assessee including the internal CUP provided to it - the matter was also sent back to the TPO on a different issue for fresh consideration – it is difficult to understand as to how the TPO could arrive at the credit rating of the A.E. at BBB-without there being any analysis on the creditworthiness of the A.E – TPO/A.O. did not analyse the issue properly and the DRP also has not applied his mind to the objections raised by the assessee, the matter has to be set aside to the TPO to analyse the issue afresh – thus, the matter is to be remitted back to the AO for fresh adjudication – Decided in favour of assesse. Classification of ESOP - Expenses treated as revenue expenses – Held that:- DRP rightly followed the decision in Commissioner of Income Tax - III Chennai Versus M/s. PVP Ventures Limited [2012 (7) TMI 696 - MADRAS HIGH COURT] wherein it has been held that ESOP expenditure is a revenue expenditure which is allowable while computing the business income of the company as per provisions of the Act – the order of the DRP is upheld – Decided against revenue. Issues Involved:1. Transfer Pricing Adjustment for Corporate Guarantee2. Corporate Tax Matters3. ESOP Expenditure as Revenue Expenditure4. Deduction under Section 10A for Foreign Exchange Loss5. Exclusion of Communication Expenses from Export TurnoverDetailed Analysis:Transfer Pricing Adjustment for Corporate Guarantee:The assessee, a global healthcare services company, provided a corporate guarantee to its subsidiary in the USA for obtaining a loan. The TPO considered this guarantee as an 'international transaction' and proposed an addition of Rs. 30,92,14,242/-. The assessee contested this, arguing that the corporate guarantee does not amount to an international transaction and the rate fixed by the TPO was arbitrary. The DRP confirmed the addition, relying on its previous order. The tribunal found that the TPO did not follow a prescribed method and the DRP did not consider the assessee's objections, including an internal CUP provided by Andhra Bank at 0.92%. The tribunal set aside the issue to the TPO for fresh analysis, directing the TPO to adopt the CUP method and consider the assessee's objections.Corporate Tax Matters:Grounds 8 and 9, related to reducing data telecommunication charges from turnover and set off of loss, were not pressed by the assessee and were dismissed. Ground 13, regarding the initiation of penalty proceedings, was deemed premature and dismissed. Ground 10, concerning credit for self-assessment tax paid, was allowed for statistical purposes, directing the AO to examine and allow the credit after giving the assessee an opportunity to furnish necessary challans. Grounds 11 and 12, related to the levy of interest under sections 234B and 234C, were also allowed for statistical purposes, with directions to the AO to consider the principles laid down by the Hon'ble Madras High Court and the Hon'ble Supreme Court.ESOP Expenditure as Revenue Expenditure:The DRP treated ESOP expenditure as revenue expenditure, following the decisions of the Hon'ble ITAT, Special Bench (Bangalore) in the case of M/s. Biocon India Ltd. vs. CIT and the Hon'ble Madras High Court in the case of M/s. PVP Ventures Ltd. The tribunal upheld the DRP's decision, rejecting the Revenue's ground.Deduction under Section 10A for Foreign Exchange Loss:The DRP allowed the deduction under section 10A for foreign exchange loss, following the decision in the case of DCIT vs. M/s. Planet Online P. Ltd. and the Hon'ble Bombay High Court in the case of CIT vs. Gem Plus Jewellery India Ltd. The tribunal upheld the DRP's decision, rejecting the Revenue's ground.Exclusion of Communication Expenses from Export Turnover:The DRP directed the AO to exclude communication expenses from both export turnover and total turnover for computing deduction under section 10A, following various decisions, including those of the Special Bench of the ITAT and the Hon'ble High Courts. The tribunal upheld the DRP's decision, rejecting the Revenue's ground.Conclusion:The appeal of the assessee was allowed for statistical purposes, and the appeal of the Revenue was dismissed. The tribunal directed the TPO to re-analyze the transfer pricing issue afresh, considering the assessee's objections and adopting the CUP method. The tribunal upheld the DRP's decisions on ESOP expenditure, deduction under section 10A for foreign exchange loss, and exclusion of communication expenses from export turnover.