Tax Tribunal Decision: Appeal allowed, cross objection dismissed. Transfer pricing adjustments clarified. Risk adjustment upheld.

The assessee's appeal was allowed, and the revenue's appeal along with the cross objection filed by the assessee were dismissed. The Tribunal directed the Assessing Officer to apply the same margin for non-USA related transactions in transfer pricing adjustments, correct an arithmetical error in marketing support services adjustment, and clarified that broadband connectivity charges and depreciation on software purchases were not subject to disallowance. The Tribunal upheld the risk adjustment and deduction of expenses under section 10A, ensuring compliance with legal precedents.

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Issues Involved:
1. Transfer pricing adjustment in respect of "Engineering Design Segment".
2. Transfer pricing adjustment in respect of "Marketing Support Services".
3. Disallowance under section 40(a)(ia) for broadband connectivity charges.
4. Disallowance under section 40(a)(ia) of depreciation claimed on software purchases for non-deduction of tax at source.
5. Alternative claim that disallowances increase business profits eligible for deduction under section 10A.
6. Revenue's appeal on granting of risk adjustment and deduction of expenditure from total turnover while computing deduction under section 10A.

Detailed Analysis:

1. Transfer Pricing Adjustment in Respect of "Engineering Design Segment":
The assessee settled the issue relating to transfer pricing adjustment for USA-related transactions under Engineering Design Services (EDS) through a Mutual Agreement Procedure (MAP) with competent authorities of the USA and India. The margin was determined at 15.85% for USA-related transactions, which constituted 96.30% of the total turnover. The Tribunal directed the Assessing Officer (AO) to apply the same margin to non-USA related transactions, following a similar decision in the assessee's case for the assessment year 2008-09.

2. Transfer Pricing Adjustment in Respect of "Marketing Support Services":
The Transfer Pricing Officer (TPO) made an adjustment of Rs. 70,71,129/- instead of Rs. 40,71,129/- due to an arithmetical error. The Tribunal directed the AO/TPO to verify and correct this error. Additionally, two comparable companies selected by the TPO were excluded, following a decision in a similar case. The AO/TPO was directed to determine the sufficiency of one remaining comparable company and allow working capital adjustment on an actual basis.

3. Disallowance Under Section 40(a)(ia) for Broadband Connectivity Charges:
The Tribunal deleted the disallowance of Rs. 62,459/- paid to BSNL, following a decision in the assessee's own case for the assessment year 2008-09. It was held that the payment for broadband/Internet facility does not constitute "technical services" requiring tax deduction at source under section 194J.

4. Disallowance Under Section 40(a)(ia) of Depreciation Claimed on Software Purchases:
The AO disallowed depreciation on software purchases for non-deduction of tax at source. The Tribunal noted that depreciation is not an item mentioned under section 40(a)(ia) and thus cannot be disallowed. The issue was restored to the AO for fresh examination in light of the Supreme Court decision in Engineering Analysis Centre of Excellence Pvt. Ltd.

5. Alternative Claim Regarding Disallowances and Deduction Under Section 10A:
The Tribunal did not specifically address this issue in the detailed analysis, implying that the primary issues were resolved without needing to consider the alternative claim.

6. Revenue's Appeal on Risk Adjustment and Deduction Under Section 10A:
The TPO granted risk adjustment as per the DRP's direction, supported by decisions in similar cases. The Tribunal found no infirmity in this. Regarding the computation of deduction under section 10A, the Tribunal upheld the DRP's direction to deduct expenses from total turnover as well, following the Karnataka High Court's decision in Tata Elxsi Ltd., which was upheld by the Supreme Court in HCL Technologies Ltd.

Conclusion:
The appeal filed by the assessee was allowed, while the appeal by the revenue and the cross objection filed by the assessee were dismissed. The Tribunal provided specific directions for the AO/TPO to follow, ensuring compliance with established legal precedents and correcting any errors in the assessment process.

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