TaxTMI 
TaxTMI 
2011 (5) TMI 509
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....ter software for a period of 10 consecutive assessment years beginning with the year in which the undertaking begins to manufacture or produce such article or things or computer software while computing the total income. The assessee had four 10A units - two at Mumbai namely Mumbai-II and Mumbai III units and one each at Bangalore and Kolkata. The assessee also had one non 10A unit at Mumbai, namely, Mumbai-I unit. The assessee during the relevant year had claimed deductions of Rs. 22,42,07,255 Rs. 11,77,03,498 and Rs. 6,11,18,437 in respect of Mumbai-II, Mumbai-III and Bangalore unit respectively. In the Kolkata unit, the assessee had incurred a loss of Rs. 22,02,698. The assessee had set off the loss from Kolkata unit against income from other units after claiming deduction under section 10A in respect of each unit. The Assessing Officer during the assessment proceedings asked the assessee to explain as to why the loss from Kolkata unit should not be ignored as income was exempt or alternatively the claim of deduction under section 10A should not be reduced to that extent. The assessee explained that, in view of the amended provisions of section 10A from 1-4-2001, it was no longe....
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....h the provisions of section 10A and find that as per the provisions in force prior to assessment year 2001-02, the profit and gain from the eligible undertaking was not to be included in the total income which meant that the income from the eligible unit was exempt from tax. However, provisions were amended with effect from assessment year 2001-02 and as per the amended provisions, the profit and gain derived by an eligible undertaking is required to be deducted from the total income. Thus from assessment year 2001-02, section 10A is no longer an exemption provision and it allows only deduction from total income. The deduction is to be allowed in respect of each eligible undertaking separately which has also been clarified by the CBDT. We also note that prior to assessment year 2001-02 when section 10A was an exemption provision, section 10(6) provided restriction on set off and carried forward of business loss and unabsorbed depreciation. However subsequently, section 10(6) was amended by Finance Act 2003 with effect from assessment year 2001-02 and such restriction was withdrawn which was consistent with the new scheme of section 10A which is a deduction provision and not exempti....
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....ttributable to the delivery of computer software outside India and therefore these were not required to be deducted from the export turnover. Alternatively it was also submitted that in case these expenses were excluded from the export turnover these should also be deducted from the total turnover. The assessee placed reliance on the decision of the special bench of the tribunal in case of ITO v. Sak Soft Ltd. [2009] 30 SOT 55 (Chennai). The assessee also drew analogy to the parallel provisions of section 80HHC in which the total turnover was defined as per which the freight, telecommunication charges or insurance attributable to the delivery of computer software outside India was required to be deducted. The Assessing Officer however did not accept the explanation given. As regards the alternate claim that such expenses should also deducted from total turnover, the Assessing Officer observed that there were no provisions in section 10A as per which these expenses could be excluded from total turnover also. The Assessing Officer therefore excluded the data line costs from the export turnover only and computed deduction accordingly aggrieved by which the assessee is in appeal before....
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....ve to be excluded from total turnover also following the judgment of Hon'ble High Court of Mumbai in case of Gem Plus Jewellery India Ltd. (supra) and decision of the Tribunal in case of Sak Soft Ltd. (supra). In any case since we have held that these expenses have been incurred in the business of software development in India, these could not be considered as expenditure attributable to delivery of computer software outside India. We therefore set aside the order of Assessing Officer on this point and hold that these expenses are not to be excluded from the export turnover. 4. The third dispute is regarding transfer pricing adjustment amounting to Rs. 18,46,75,062 made by the Assessing Officer. The assessee during the year had entered into certain international transactions with its associated enterprises. Under the provisions of section 92(1), income from international transactions has to be determined having regard to the arm's length price (ALP). Section 92C prescribes various methods of computation of ALP; (i) comparable uncontrolled price method; (ii) resale price method ; (iii) cost plus method; (iv) profit split method; (v) transactional net margin method (TNMM) and (vi)....
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....ration of records at the submissions of the assessee observed that the assessee which was a subsidiary of CAP Gemini was engaged in the business of providing information technology services and main area of operation was software development and integration, business strategy and transformation and implementation of enterprises resource planning. DRP also observed that the information collected by the TPO regarding the comparables had been confronted to the assessee. DRP considered the plea of the assessee regarding exclusion of Mega Soft Ltd. and Accel Transmatics Ltd. from the list of comparables. The assessee submitted that Mega Soft Ltd. was engaged in a different line of business and enclosed the Directors report of the company in support of the claim. The DRP noted from the report that the company had made a transition from Generic Software Services provider to product development company during the current financial year and that during the financial year ending 2006, it was only a generic software company. Therefore DRP rejected the plea of the assessee that Mega Soft was not a comparable case. In regard to Accel Transmatics Ltd. the assessee submitted the company profile a....
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.... Ltd. 15.61% Arithmetic Mean 19.45% Less: Working capital adjustment 1.42% Final Comparable Margin 18.03% 4.5 After the DRP issued directions to the Assessing Officer, the assessee filed a letter dated 26-10-2010 before the Assessing Officer which was not considered by the Assessing Officer on the ground that under the provisions of section 144C(13), the Assessing Officer on receipt of directions from DRP was required to complete the assessment without providing any further opportunity of being heard to the assessee. The Assessing Officer accordingly computed the transfer price adjustments at Rs. 18,46,75,062 as per the computation mentioned below: Operating Cost Rs. 343,95,40,000 Arm's length Margin 18.03% of the operating cost ALP @118.03% of operating cost Rs. 405,96,89,062 Price charged by the assessee in the international transaction Rs.387,50,14,000 Short face being adjustment under section 92CA Rs. 18,46,75,062 4.6 Assessing Officer accordingly made addition of Rs. 18,46,75,062 to the total income on account of transfer pricing adjustments. Aggrieved by the said decision the assessee is in....
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....s to be computed on the basis of arm's length price. The Assessing Officer selected TNNM method for determination of ALP and there is no dispute regarding the method selected by the TPO. TPO also selected 20 comparables which have been listed in para 4.1 earlier and on the basis of which arithmetic mean margin of the comparables was computed at Rs. 19.26 per cent and based on that TPO proposed transfer pricing adjustment of Rs. 22,69,81,000. The assessee filed objections before the DRP against the order of the TPO and DRP after considering the submissions of the assessee agreed for exclusion of ACCEL Transmatic Ltd. from the list of comparables and directed the Assessing Officer to compute the transfer pricing adjustment after excluding Accel Transmatic Ltd. as a comparable. The Assessing Officer computed the final comparable margin on the basis of remaining 19 comparable at 18.03 per cent and on that basis arm's length price was computed at Rs. 405,96,89,062. Since the price charged by the assessee was Rs. 387,50,14,000, the Assessing Officer made adjustment of Rs. 18,46,75,062 under section 92CA to the total income. The Learned AR for the assessee has pointed out that even if the....