MAP margin and section 10A turnover parity applied to non-US transactions and export deduction computation

Where the record made no distinction between US and non-US ITES transactions and the MAP resolution fixed the arm's length margin for the substantial US component, the same margin was applied to the remaining non-US transactions as well. For section 10A computation, expenses excluded from export turnover had to be excluded from total turnover on the same principle of consistency, following binding jurisdictional precedent. The assessee succeeded on the transfer-pricing issue, while the Revenue failed on the section 10A issue.

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Issues: (i) Whether the margin accepted in Mutual Agreement Procedure proceedings for US transactions in the ITES segment could also be applied to the remaining non-US transactions where no distinction had been drawn in the accounts or in the transfer pricing exercise. (ii) Whether, while computing deduction under section 10A, expenses excluded from export turnover must also be excluded from total turnover.

Issue (i): Whether the margin accepted in Mutual Agreement Procedure proceedings for US transactions in the ITES segment could also be applied to the remaining non-US transactions where no distinction had been drawn in the accounts or in the transfer pricing exercise.

Analysis: The accepted MAP margin covered the substantial bulk of the ITES segment transactions, while the balance non-US transactions formed only a small portion. The accounts, transfer pricing study, and the orders below did not distinguish between US and non-US transactions. In these circumstances, and following the cited coordinate-bench and Mumbai-bench authorities, the same margin determined under MAP for US transactions was held applicable to the non-US transactions as well.

Conclusion: The issue was decided in favour of the assessee, and the MAP margin was directed to be applied to the non-US transactions also.

Issue (ii): Whether, while computing deduction under section 10A, expenses excluded from export turnover must also be excluded from total turnover.

Analysis: The issue was treated as covered by the jurisdictional High Court decision in Tata Elxsi, which held that when certain expenses are reduced from export turnover, the same reduction must be reflected in total turnover for a consistent computation under section 10A. The appellate order followed that binding principle and no infirmity was found in it.

Conclusion: The issue was decided against the Revenue and the exclusion was upheld.

Final Conclusion: The assessee succeeded on the transfer-pricing issue concerning non-US transactions and the Revenue failed on the section 10A computation issue, resulting in a partial allowance of the assessee's appeals and dismissal of the Revenue's cross-appeal.

Ratio Decidendi: Where the record makes no distinction between US and non-US transactions and the MAP resolution fixes the arm's length margin for the substantial US component, the same margin can be applied to the remaining non-US transactions; and for section 10A, any exclusion from export turnover must be mirrored in total turnover.

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