Tribunal partially allows assessee's appeal on foreign currency expenses deduction in tax case The tribunal partly allowed the appeal of the assessee in a case involving the deduction of travelling expenses in foreign currency from export turnover ...
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Tribunal partially allows assessee's appeal on foreign currency expenses deduction in tax case
The tribunal partly allowed the appeal of the assessee in a case involving the deduction of travelling expenses in foreign currency from export turnover under section 10A of the Income-tax Act. The tribunal disagreed with including travelling expenses in export turnover but agreed to exclude them from total turnover. Additionally, the tribunal ruled that the deduction under section 10A should be calculated without setting off the loss incurred in non-STP units. Furthermore, the tribunal directed the exclusion of certain comparables in an arms length pricing adjustment on international transactions with Associated Enterprise, requiring a rework of the calculations.
Issues Involved:
1. Deduction of travelling expenses in foreign currency from export turnover while computing deduction u/s.10A of the Income-tax Act. 2. Adjustment of loss incurred in non-STP units with profits earned in STP units before granting deduction u/s.10A. 3. Arms length pricing adjustment on international transactions with Associated Enterprise (AE).
Issue-Wise Detailed Analysis:
1. Deduction of Travelling Expenses in Foreign Currency:
The assessee challenged the deduction of travelling expenses amounting to Rs. 19,34,938/- and other expenses totaling Rs. 3,11,787/- from its export turnover while computing the deduction available u/s.10A of the Income-tax Act. The assessee argued that these expenses were not attributable to the export of services outside India and should not have been deducted from the export turnover. Additionally, even if excluded, the same amount should be deducted from the total turnover as per the judgment in CIT v. Tata Elxsi Ltd [349 ITR 98]. The tribunal, referencing Explanation 2(iv) to Section 10A, did not agree with the inclusion of travelling expenses in the export turnover but agreed that amounts excluded from export turnover should also be excluded from total turnover, as per Tata Elxsi Ltd. Consequently, grounds 2 to 6 were partly allowed.
2. Adjustment of Loss Incurred in Non-STP Units:
The assessee was aggrieved by the AO's adjustment of a loss of Rs. 60,26,010/- incurred in non-STP units with the profits earned in STP units before granting deduction u/s.10A. The assessee relied on CIT (LTU) v. Yokogawa India Ltd [(2013) 341 ITR 0385], which held that profits eligible for relief u/s.10A should be excluded from total income before effecting set off mandated u/s.70. The tribunal found this judgment more appropriate than CIT v. Himatasingike Seide Ltd [286 ITR 255], which dealt with netting loss of 100% EOU from profits of other 100% EOUs. Hence, the tribunal ruled that deduction u/s.10A should be calculated without setting off the loss incurred in non-STP units, allowing grounds 7 to 9.
3. Arms Length Pricing Adjustment:
The assessee contested an arms length pricing adjustment of Rs. 2,24,39,633/- u/s.92CA on its international transactions with its AE. The assessee confined arguments to the exclusion of twelve comparables selected by the TPO due to functional differences. The tribunal examined the comparability of these companies based on the assessee's arguments and previous tribunal decisions, particularly the case of 3DPLM Software Solutions Ltd v. DCIT [(2013) 37 CCH 0674]. The tribunal found the following companies functionally dissimilar and directed their exclusion from the list of comparables:
The tribunal directed the TPO to rework the PLI of the comparables after excluding these companies and considering the working capital adjustment. Grounds 10 to 18 were partly allowed.
Conclusion:
The appeal of the assessee was treated as partly allowed, with specific directions for reworking the calculations based on the tribunal's findings and exclusions. The order was pronounced in the open court on April 29, 2016.
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