Tribunal grants deduction & upholds inclusion of CG-VAK Software Ltd. as comparable

The Tribunal partly allowed the appeal for A.Y. 2009-10, directing the inclusion of CG-VAK Software and Exports Ltd. as a comparable and granting deduction u/s.10A for the un-reconciled receipt. The Tribunal dismissed the Revenue's appeal for A.Y. 2010-11, upholding the inclusion of CG-VAK Software and Exports Ltd. as a comparable, and dismissed the assessee's cross-objections as infructuous.

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Issues Involved:
1. Transfer Pricing Adjustment in respect of ITES segment for A.Y. 2009-10 and A.Y. 2010-11.
2. Addition of Rs.10,33,974/- on account of un-reconciled receipts with Form 26AS for A.Y. 2009-10.
3. Computation of interest u/s.234D of the Act for A.Y. 2009-10.

Issue-wise Detailed Analysis:

1. Transfer Pricing Adjustment in respect of ITES segment for A.Y. 2009-10 and A.Y. 2010-11:

The assessee challenged the transfer pricing adjustment made by the TPO concerning the ITES segment for A.Y. 2009-10. The main contention was the inclusion of CG-VAK Software and Exports Ltd. as a comparable. The assessee argued that if this comparable was included, it would fall within the +/-5% tolerance band, negating the need for any TP adjustment. The Tribunal noted that the TPO had previously accepted CG-VAK Software and Exports Ltd. as a comparable in A.Y. 2007-08 when it was profit-making. The Tribunal also referenced the case of the assessee's sister concern, where CG-VAK Software and Exports Ltd. was considered a good comparable for A.Y. 2009-10. The Tribunal found that CG-VAK Software and Exports Ltd. had made profits in A.Y. 2009-10 and subsequent years, thus not a persistent loss-making company. Consequently, the Tribunal directed the inclusion of CG-VAK Software and Exports Ltd. as a comparable, resulting in no TP adjustment for the ITES segment for A.Y. 2009-10.

For A.Y. 2010-11, the TPO again rejected CG-VAK Software and Exports Ltd. as a comparable on the grounds of being a persistent loss-making company. The DRP, however, held it to be a good comparable since it had made profits during A.Y. 2009-10 and A.Y. 2010-11. The Tribunal upheld this view, stating that CG-VAK Software and Exports Ltd. had earned profits in A.Y. 2007-08, 2009-10, and 2010-11, and directed its inclusion in the final list of comparables. The Tribunal dismissed the Revenue's additional grounds regarding functional dissimilarity as they did not emanate from the lower authorities' orders. Consequently, the Revenue's appeal for A.Y. 2010-11 was dismissed, and the assessee's cross-objections were deemed infructuous.

2. Addition of Rs.10,33,974/- on account of un-reconciled receipts with Form 26AS for A.Y. 2009-10:

The assessee contested the addition of Rs.10,33,974/- made by the AO due to un-reconciled receipts with Form 26AS. The Tribunal noted that the assessee is eligible for deduction u/s.10A of the Act and that the un-reconciled receipts pertain to the 10A unit. The Tribunal held that any addition increasing the profits of the 10A unit should result in a corresponding increase in the deduction u/s.10A, as mandated by the Act. The Tribunal cited the decision of the Hon'ble Jurisdictional High Court in CIT vs. Gem Plus Financial India Ltd., which supports this view. Consequently, the Tribunal directed the AO to grant deduction u/s.10A for the un-reconciled receipt of Rs.10,33,974/-, allowing the assessee's ground.

3. Computation of interest u/s.234D of the Act for A.Y. 2009-10:

The assessee's ground challenging the computation of interest u/s.234D was not pressed during the hearing. The Tribunal dismissed this ground as not pressed, based on the statement made from the Bar.

Conclusion:

In summary, the Tribunal partly allowed the appeal for A.Y. 2009-10, directing the inclusion of CG-VAK Software and Exports Ltd. as a comparable and granting deduction u/s.10A for the un-reconciled receipt. The Tribunal dismissed the Revenue's appeal for A.Y. 2010-11, upholding the inclusion of CG-VAK Software and Exports Ltd. as a comparable, and dismissed the assessee's cross-objections as infructuous.

Order Pronounced:

Order pronounced on 15/07/2022 by way of proper mentioning in the notice board.

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