Tribunal Dismisses Cross Appeals, Upholds AO's Order for 2011-12, Citing Karnataka HC on Export Turnover Adjustment.

The ITAT Bangalore dismissed cross appeals by both the assessee and the Revenue for the Assessment Years 2010-11 and 2011-12. The Tribunal found that the TP grounds were irrelevant due to the conclusion of the MAP. Regarding the corporate tax issue for 2011-12, the Tribunal upheld the AO's order, aligning with the Karnataka HC precedent, which clarified that reducing export turnover also reduces total turnover. The appeals were dismissed based on these considerations, with the judgment pronounced on 07-02-2020.

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Issues involved: Cross appeals by assessee and Revenue for Assessment Years 2010-11 and 2011-12 against separate assessment orders passed under section 143(3) r.w.s. 144C of the IT Act, 1961.

Analysis:

1. Cross Appeals and Common Order: The appeals were filed by both the assessee and Revenue against assessment orders for the years 2010-11 and 2011-12. The Tribunal heard these appeals together and decided to dispose of them through a common order for convenience.

2. Transfer Pricing (TP) Grounds: It was acknowledged during the hearing that Mutual Agreement Procedure (MAP) had been concluded for both years in relation to the assessee's transactions with the associated enterprise in the US. Consequently, the TP grounds raised by both parties for these years were deemed irrelevant and rejected.

3. Corporate Tax Issue - Assessment Year 2011-12: The Revenue raised a corporate tax issue concerning the treatment of expenses reduced from export turnover for the purpose of computing deduction under section 10A of the IT Act, 1961. The Revenue contended that the expenses should not be reduced from total turnover. However, referencing a judgment of the Hon'ble Karnataka High Court in the case of Tata Elxsi Ltd., it was established that total turnover comprises both domestic and export turnover. Therefore, reducing an amount from export turnover automatically decreases the total turnover by the same amount. In line with this legal precedent, the Tribunal declined to interfere with the AO's order and the directions of the Dispute Resolution Panel (DRP) on this issue.

4. Decision and Dismissal of Appeals: After considering the submissions and legal precedents, the Tribunal dismissed both the appeals of the assessee and the Revenue. The judgment was pronounced in open court on 07-02-2020.

This detailed analysis covers the key issues addressed in the legal judgment delivered by the Appellate Tribunal ITAT Bangalore for the cross appeals filed by the assessee and Revenue for the Assessment Years 2010-11 and 2011-12.

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