Appeal partially allowed in favor of assessee on transfer pricing & deduction issues. Reassessment ordered for TDS & foreign tax credits.

The appeal was partly allowed, with decisions favoring the assessee on key issues of transfer pricing adjustment and deduction under section 10AA for interest income. The AO was directed to reassess the credit for TDS and foreign tax. The order was pronounced on 12/05/2023.

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Issues Involved:
1. Transfer Pricing Adjustment
2. Denial of Deduction u/s.10AA for Interest Income
3. Non-granting of Credit for TDS & Foreign Tax

Summary:

Transfer Pricing Adjustment (Grounds 1 to 3):
The assessee, engaged in administrative and back office support services, filed a return for AY 2013-14. The Transfer Pricing Officer (TPO) proposed an adjustment of Rs.6,70,16,931/-. The assessee contested this adjustment, and the Dispute Resolution Panel (DRP) sustained the TPO's adjustments. The Tribunal focused on the exclusion of R Systems International Ltd as a comparable due to different financial year-end. The Tribunal cited previous decisions, including the assessee's own case for AY 2010-11, and directed the TPO to consider quarterly results and work out the proportionate profit margin of the comparable. This issue was allowed for statistical purposes, making other grounds academic.

Denial of Deduction u/s.10AA for Interest Income (Ground 4):
The Assessing Officer (AO) denied the deduction u/s.10AA for interest income, stating that it should be construed narrowly. The DRP upheld this decision. The Tribunal referred to the Karnataka High Court's decision in CIT vs Hewlett Packard Global Soft Ltd, which held that profits and gains of 100% EOUs, including incidental income by way of interest on bank deposits, are entitled to 100% exemption under section 10A/10B. The Tribunal followed this decision and held that the interest income earned by the assessee is eligible for deduction under section 10AA, deleting the disallowance made by the AO.

Non-granting of Credit for TDS & Foreign Tax (Grounds 6 and 7):
The Tribunal directed the AO to consider the submissions and evidence provided by the assessee regarding the non-granting of credit for TDS and foreign tax and decide in accordance with the law.

Consequential Grounds (Grounds 8 and 9):
These grounds were deemed consequential and did not warrant separate adjudication.

Conclusion:
The appeal was partly allowed, with decisions favoring the assessee on key issues of transfer pricing adjustment and deduction under section 10AA for interest income. The AO was directed to reassess the credit for TDS and foreign tax. The order was pronounced on 12/05/2023.

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