Tribunal Partially Allows Appeal, Orders Reconsideration. Transfer Pricing Adjustment, 80JJAA Disallowance Remitted.

The Tribunal partially allowed the appeal, directing the Assessing Officer to reconsider various issues. The Transfer Pricing Adjustment involved exclusion of certain companies from comparables and potential inclusion of others. The disallowance under section 80JJAA was remitted for fresh consideration based on a previous High Court decision. Issues regarding software expenditure, legal and professional fees, and annual maintenance contract expenses were either dismissed or resolved under the Vivad Se Vishwas Scheme. The deduction for education cess and secondary higher education cess was denied in line with legislative amendments.

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Issues Involved:
1. Transfer pricing adjustment.
2. Disallowance of deduction claimed under section 80JJAA.
3. Disallowance of software expenditure.
4. Disallowance of payment of legal and professional expenditure.
5. Disallowance of expense on annual maintenance contract and software.
6. Deduction in respect of education cess and secondary higher education cess under section 37(1).

Detailed Analysis:

1. Transfer Pricing Adjustment:
The Tribunal addressed the transfer pricing adjustment concerning the Information Technology enabled Services (ITeS) transaction. The taxpayer's Transfer Pricing Officer (TPO) rejected the taxpayer's Transfer Pricing (TP) study for using outdated data and not applying appropriate filters. The Tribunal referred to previous decisions, emphasizing the importance of using current financial year data and appropriate filters. The Tribunal directed the exclusion of certain companies (Infosys BPO Ltd., Excel Infoway Ltd., TCS E-Serve Ltd., BNR Udyog Ltd.) from the comparables list due to functional dissimilarities and extraordinary events. The Tribunal also directed the inclusion of "Informed Technologies Pvt. Ltd." and "Crystal Voxx Pvt. Ltd." if they pass necessary filters.

2. Disallowance of Deduction Claimed Under Section 80JJAA:
The Tribunal noted that the issue of disallowance under section 80JJAA was previously decided in favor of the assessee by the Karnataka High Court in Texas Instruments India (P.) Ltd. The Tribunal reiterated that the deduction under section 80JJAA is available for employees who complete 300 days of employment, even if spread across two years. The Tribunal remitted the issue back to the Assessing Officer (AO) for fresh consideration, directing the AO to examine the issue afresh in light of the High Court's decision.

3. Disallowance of Software Expenditure:
The Tribunal acknowledged that the issue concerning disallowance of software expenses under section 40(a)(i) had been settled under the Vivad Se Vishwas Scheme (VSVS), and Form No.5 had been issued by the department. Consequently, the Tribunal dismissed the related grounds as not pressed.

4. Disallowance of Payment of Legal and Professional Expenditure:
The Tribunal referred to its previous decision in the assessee's case for the assessment year 2011-12, where it was held that legal and professional fees paid to foreign firms for services rendered outside India are not taxable in India. The Tribunal directed the AO to delete the disallowance of legal and professional fees made under section 40(a)(i) of the Act, as these payments do not constitute income under Indian tax laws and are not subject to tax deduction at source under section 195.

5. Disallowance of Expense on Annual Maintenance Contract and Software:
The Tribunal acknowledged that the issue concerning disallowance of AMC and software expenses under section 40(a)(i) had been settled under the VSVS. Consequently, the Tribunal dismissed the related grounds as not pressed.

6. Deduction in Respect of Education Cess and Secondary Higher Education Cess Under Section 37(1):
The Tribunal dismissed the additional ground concerning the deduction of education cess and secondary higher education cess on income tax, citing the amendment brought by the Finance Act 2022, which mandates the disallowance of such claims.

Conclusion:
The Tribunal provided detailed directions on each issue, emphasizing the need for fresh consideration by the AO in light of previous judicial decisions and clarifications. The appeal was partly allowed for statistical purposes, with specific instructions for the AO to re-examine certain issues.

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