2024 (12) TMI 549 - AT - Income Tax

Software company loses Section 10AA deduction claim due to delayed Form 56F filing beyond statutory deadline

M/s. Corteva Agriscience Services India Pvt. Ltd. Versus Dy. Commissioner of Income Tax Hyderabad

M/s. Corteva Agriscience Services India Pvt. Ltd. Versus Dy. Commissioner of Income Tax Hyderabad - TMI Issues Involved:1. Exclusion of Comparable Companies in Transfer Pricing.2. Corporate Tax Deduction under Section 10AA of the Income-tax Act.Detailed Analysis:1. Exclusion of Comparable Companies in Transfer Pricing:The primary issue in this case revolves around the exclusion of certain companies as comparables in the transfer pricing analysis. The assessee contested the inclusion of Empire Industries Limited, India Cements Capital Limited, HSCC (India) Limited, and Kitco Limited as comparable companies by the Transfer Pricing Officer (TPO) and upheld by the Commissioner of Income Tax (Appeals) [CIT(A)].- Empire Industries Limited: The assessee argued that Empire Industries is functionally dissimilar as it is engaged in manufacturing amber glass bottles, trading, and indenting services. The Tribunal found that Empire Industries is primarily involved in trading activities, which are not comparable to the assessee's service-oriented business. Therefore, Empire Industries was excluded from the list of comparables.- India Cements Capital Limited: The assessee contended that this company is a Non-Banking Financial Company (NBFC) providing financial services, which are not comparable to the assessee's business support services. The Tribunal agreed with the assessee, noting the functional dissimilarity and excluded India Cements from the comparables.- HSCC (India) Limited: The Tribunal upheld the inclusion of HSCC, noting that despite being a government company, its business activities in consultancy services are comparable to the assessee's support services. The Tribunal dismissed the argument that government companies cannot be comparables.- Kitco Limited: The Tribunal found that Kitco's consultancy services are similar to the assessee's business support services. Despite the assessee's argument regarding Kitco's involvement in construction contracts, the Tribunal retained Kitco as a comparable.2. Corporate Tax Deduction under Section 10AA:The second issue pertains to the denial of additional deduction under Section 10AA of the Income-tax Act for export proceeds realized after the filing of the return. The assessee claimed an additional deduction of Rs. 18,71,030, which was disallowed by the Assessing Officer (AO) and CIT(A) on the grounds that the export proceeds were not realized within the prescribed time.- The Tribunal examined the provisions of Section 10AA and noted that there is no explicit time limit for the realization of export proceeds. The Tribunal referred to the decision in the case of Uni Design Jewellery Pvt. Ltd., which held that the deduction under Section 10AA should be allowed if the export proceeds are ultimately realized.- However, the Tribunal also considered the procedural requirement of filing Form 56F within the specified time. The Tribunal referred to the Supreme Court's decision in DCIT Vs. Wipro Ltd., emphasizing the mandatory nature of procedural compliance for claiming deductions.- In this case, since the assessee failed to file Form 56F within the specified time, the Tribunal denied the additional deduction under Section 10AA, following the Supreme Court's precedent.Conclusion:The Tribunal partly allowed the appeal for statistical purposes, excluding certain companies from the list of comparables in the transfer pricing analysis, while denying the additional deduction under Section 10AA due to procedural non-compliance. The decision underscores the importance of functional comparability in transfer pricing and strict adherence to procedural requirements for tax deductions.