Tribunal confirms deletion of disallowance and rejects transfer pricing grounds

The Tribunal upheld the deletion of disallowance under section 10AA, noting that the AO's reallocation of expenses lacked credible defects. Regarding the transfer pricing issue, the Tribunal rejected the Revenue's grounds, finding merit in the argument that the comparables were not relevant to the services provided by the assessee. Both the Revenue's and the assessee's appeals were dismissed, affirming the decisions on both issues.

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Issues:
1. Deletion of disallowance made by the AO under section 10AA of the Act.
2. Transfer pricing issue.

Analysis:

Issue 1: Deletion of disallowance made by the AO under section 10AA of the Act:
- The assessee claimed deduction under section 10AA of the Act for SEZ-Unit-1.
- The AO disallowed certain expenses, reducing the deduction claimed by the assessee.
- The assessee contended that booking lesser expenses in the exempt unit would not benefit due to the revenue model based on cost + mark-up.
- The ld CIT(A) agreed with the assessee's submissions, noting that the cost plus model determines revenue and profit.
- The ld CIT(A) held that under the cost plus model, there was no need to avoid booking expenses to the 10AA unit, as it would result in excess deduction.
- The Tribunal upheld the ld CIT(A)'s decision, stating that the AO's reallocation of expenses was based on surmises and conjectures, not credible defects.

Issue 2: Transfer pricing issue:
- The Revenue raised various grounds related to comparability of companies for transfer pricing analysis.
- The ld AR argued that the comparables directed to be excluded were related to software development services, not IT enabled services provided by the assessee.
- The Tribunal found merit in the ld AR's submissions and rejected the transfer pricing grounds raised by the Revenue.
- The Tribunal held that the transfer pricing grounds did not stem from the ld CIT(A)'s order.

In conclusion, the Tribunal dismissed both the Revenue's and the assessee's appeals, upholding the decisions made regarding the deletion of disallowance under section 10AA and the transfer pricing issue. The order was pronounced on 14th February 2020.

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