AI Drafter 
TaxTMI 
TaxTMI 
2018 (7) TMI 1877
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....8th September 2008, declaring loss of Rs. 39,38,42,462, after claiming deduction under section 10A of the Act. Subsequently, the assessee filed a revised return of income on 18th March 2010, claiming additional TDS. The return of income filed by the assessee was selected for scrutiny and in course of assessment proceedings the Assessing Officer noticing that the assessee has entered into international transactions with its overseas Associated Enterprises (AE) made a reference under section 92CA of the Act to the Transfer Pricing Officer for determining the arm's length price of the international transaction. In the course of proceedings before him, the Transfer Pricing Officer after calling for various information and details relating to the international transactions with the AE and examining the transfer pricing analysis done by the assessee found that assessee has earned revenue from providing services to its AE under three different segments viz. Software Development Services, ITES and Consultancy Services. From the transfer pricing study of the assessee, he found that the assessee has combined the software development services and ITES together for bench marking purpose. T....
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....9. On the basis of the adjustment made by the Transfer Pricing Officer the Assessing Officer framed the draft assessment order making addition of the said amount. Being aggrieved of the draft assessment order, the assessee raised objections before the DRP. 4. DRP after considering the objections of the assessee did not find merit in them and mostly upheld the findings of the Transfer Pricing Officer in respect of the comparables. On the basis of directions of the DRP the Assessing Officer passed the impugned assessment order. 5. Shri P.J. Pardiwalla, The learned Sr. Counsel for the assessee and Shri Saurabh Deshpande, learned Departmental Representative were heard. The major dispute between the parties insofar as it relates to transfer pricing adjustment is, with regard to selection / rejection of certain comparables. Hereinafter we will deal with the acceptability or otherwise of the comparables disputed before us. ACROPETAL TECHNOLOGIES LTD. (SEGMENT) AND R.S. Software (India) Ltd 6. Objecting to the selection of Acropetal Technologies Ltd., the learned Sr. Counsel for the assessee submitted that the employee cost of the company works out to 8.2% of the total turnover....
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....e following decisions:- (i) BP India Services (P.) Ltd. v. Asstt. CIT [2015] 55 taxmann.com 150 (Mum. - Trib.) (ii) Capgemini India (P.) Ltd. v. ITO [2016] 66 taxmann.com 163 (Mum. - Trib.) (iii) Zyme Solutions (P.) Ltd. v. ACIT [IT (TP) Appeal No. 85 (Bang.) of 2016, dated 26-7-2017] (i) IBM India (P.) Ltd. v. Joint CIT [2014] 46 taxmann.com 129/149 ITD 191 (Bang. - Trib.) (ii) Ness Technologies India (P.) Ltd. v. Asstt. CIT [2014] 52 taxmann.com 406 (Mum. - Trib.) 7. As regards R.S. Software (India) Ltd., the learned Sr. Counsel submitted that the Transfer Pricing Officer has rejected this company selected by the assessee on the reasoning that it has substantial on-site revenue. He submitted, there is no break-up of on-site and offshore revenue in the audit report of the company. He submitted, relying upon the foreign currency expenditure of the company the Transfer Pricing Officer has assumed that the company must be having similar proportion of on-site revenue as well. Whereas, he submitted, though the same is the fact situation in respect of Acropetal Technologies Ltd., the Transfer Pricing Officer has selected the said company w....
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....6) of the Act to state that the company has reported nil on-site revenue, however, the reason for doing so as stated by the company in the said letter is, since, the billing is done from head office for the total work carried out on-site as well as offshore the contract revenue could not be separately bifurcated for on-site work. It is relevant to observe, while rejecting R.S. Software (India) Ltd., the Transfer Pricing Officer noticing that it has incurred substantial foreign currency expenditure has opined that it must have substantial on-site revenue and accordingly held that the company fails the on-site revenue filter adopted by him. Though, the very same reasoning applies to Acropetal Technologies Ltd., the Transfer Pricing Officer adopting a very selective approach has accepted it as a comparable, since, it is proposed by him. In our considered opinion, such selective approach of the Transfer Pricing Officer on identical facts and circumstances cannot be appreciated. Further, it is relevant to observe, the Tribunal, Bangalore Bench, in IBM India (P.) Ltd. (supra) which is for the very same assessment year i.e., 2008-09, has excluded Acropetal Technologies Ltd. as a comparabl....
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....5] 53 taxmann.com 76/68 SOT 247 (URO) (Hyd. - Trib.) (ii) Net Cracker Technology Solutions (India) (P.) Ltd. v. Addl. CIT [IT Appeal No. 86 (Hyd.) of 2013, dated 17-6-2015] (iii) 3DPLM Software Solutions Ltd. v. Dy. CIT [2014] 42 taxmann.com 333 (Bang. - Trib.) (iv) NTT Data India Enterprise Application Service (P.) Ltd. v. DCIT [IT Appeal No. 1862 (Hyd.) of 2012, dated 2-1-2015] (v) CIT v. PTC Software (I) (P.) Ltd. [2016] 75 taxmann.com 31/[2017] 395 ITR 176 (Bom.) (vi) UCB India (P.) Ltd. v. Addl. CIT [2016] 73 taxmann.com 389 (Mum. - Trib.) (vii) Aircom International India (P.) Ltd. v. Dy. CIT [2017] 84 taxmann.com 218 (Delhi - Trib.) (viii) Systech Integrators India (P.) Ltd. v. ITO [2014] 44 taxmann.com 324 (Bang. - Trib.) (ix) Tavant Technologies India (P.) Ltd. v. Dy. CIT [2017] 83 taxmann.com 105/166 ITD 529 (Bang. - Trib.) (x) United Online Software Development India (P.) Ltd. v. ITO [2016] 69 taxmann.com 446 (Hyd. - Tirb.) (xi) Emptoris Technologies India (P.) Ltd. v. Dy. CIT [2016] 67 taxmann.com 279 (Pune - Trib.) (xii) APP Labs Technologies (P.) Ltd. v. Dy. CIT [2014] 42....
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....940 of the paper book the learned Sr. Counsel submitted that the export sales figure mentioned in the said reply does not tally with the export sales figure mentioned in the audited annual account of the assessee for the relevant previous year. On factual verification, we find the aforesaid contention of the learned Sr. Counsel to be correct. Thus, on the basis of such unverified information also, the Transfer Pricing Officer was not justified in selecting this company as a comparable. 13. Therefore, we direct the Assessing Officer to exclude this company from the list of comparables. THIRDWARE SOLUTIONS LTD. 14. Objecting to the selection of this company, the learned Sr. Counsel for the assessee submitted that this company cannot be considered as a comparable as it is functionally different from the assessee. He submitted, the company is engaged in providing software services as well as sale of software products. The learned Sr. Counsel submitted, considering the aforesaid fact, the learned Commissioner (Appeals) in assessee's own case for assessment year 2005-06 excluded this company from being treated as a comparable. He submitted that the aforesaid decision of the ....
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....7-3-2017] (xii) MWH India (P.) Ltd. v. Dy. CIT [2017] 88 taxmann.com 22 (Mum. - Trib.) 15. The learned Departmental Representative relied upon the observations of DRP and the Transfer Pricing Officer. 16. We have considered rival submissions and perused materials on record. The main planks on which the assessee seeks exclusion of this company as a comparable is, it is functionally dissimilar to the assessee being involved in sale of products and further the information obtained by the Transfer Pricing Officer under section 133(6) of the Act is incomplete, hence, unreliable. The Transfer Pricing Officer has repelled the aforesaid contentions of the assessee by observing that whatever information obtained was provided to the assessee. The DRP has also accepted the view of the Transfer Pricing Officer without much deliberation. It is relevant to observe, while examining the comparability of this company in assessee's own case in assessment year 2005-06, the learned Commissioner (Appeals) having found this company to be engaged in sale of software products excluded it from being treated as comparable. The aforesaid decision of the learned Commissioner (Appeals) was u....
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....t. CIT [2015] 53 taxmann.com 76/68 SOT 247 (URO) (Hyd. - Trib.) (ii) Net Cracker Technology Solutions (I) (P.) Ltd. (supra) (iii) UCB India (P.) Ltd. (supra) (iv) 3DPLM Software Solutions Ltd., (supra) (v) Symphony Services Pune (P.) Ltd. v. ITO [2014] 46 taxmann.com 182/65 SOT 30 (URO) (Pune - Trib.) (vi) Dy. CIT v. Misys Software Solutions (I) (P.) Ltd. [2017] 87 taxmann.com 170 (Bang. - Tirb.) (vii) ITO v. Ketera Software India (P.) Ltd. [2017] 79 taxmann.com 183 (Bang. - Trib.) (viii) Tesco Hindustan Service Centre (P.) Ltd. v. Dy. CIT [2017] 77 taxmann.com 48 (Bang. - Trib.) (ix) Tavant Technologies India (P.) Ltd. (supra) (i) Dy. CIT v. Amber Point Technology India (P.) Ltd. [2018] 90 taxmann.com 289 (Pune - Trib.) (ii) John Deere India (P.) Ltd. v. ACIT [IT Appeal No. 2236 (Pn) of 2012, dated 18-11-2015] (iii) Emptoris Technologies India (P.) Ltd. (supra) (iv) Barclays Technology Centre India (P.) Ltd. (supra) (i) PTC Software India (P.) Ltd., (supra) (ii) Pr. CIT v. Saxo India (P.) Ltd. [2016] 74 taxmann.com 88/243 Taxman 411/[2017] 397 ITR 160 (Delh....
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....sues relating to these comparables are left open for consideration, if warranted, in any other assessment year:- (i) Avani Simcon Technologies Ltd. (ii) E-Infochips Ltd. (iii) SIP Technologies and Exports Ltd. (iv) Wipro Ltd. (SEG) and (v) Infosys Technologies Ltd. 21. The Assessing Officer is directed to determine the arm's length price of the international transaction relating to software development services keeping in view our observations herein above. 22. The next dispute is with regard to selection / rejection of comparables in ITES or Business Process Outsourcing (BPO) segment. 23. Hereinafter we will deal with the specific objections of the assessee with regard to selection / rejection of certain comparables under this segment. Genesys International Corporation Ltd. and Nucleus Netsoft and GIS India Ltd. (SEG) 24. Objecting to selection/rejection of these two companies, the learned Sr. Counsel for the assessee submitted that Genesys International Corporation Ltd. is functionally different from the assessee as it is engaged in engineering design services (CAD/CAM) and Geographic Information System (GIS) which a....
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....16] 68 taxmann.com 42 (Bang. - Trib.) (viii) Yodlee Infotech (P.) Ltd. v. ITO [IT (TP) Appeal No. 108 (Bang.) of 2014, dated 12-12-2014] (ix) International Specialty Products India (P.) Ltd. v. ITO [2015] 54 taxmann.com 251 (Hyd. - Trib.) (x) LG Chemical India (P.) Ltd. v. ACIT [IT Appeal No. 1819 (Delhi) of 2015, dated 3-5-2016] 25. The learned Departmental Representative relied upon the observations of the DRP and the Transfer Pricing Officer. 26. We have considered rival submissions and perused materials on record. As could be seen from the facts on record, both these companies are engaged in KPO services involving CAD/CAM and GIS services. Considering the aforesaid factual aspect, the Tribunal in assessee's own case for assessment year 2005-06 in ITA No.4100/ Mum./2009 dated 10th November 2017 excluded both these companies from being treated as comparable to the assessee. There being no material difference in facts involved in the impugned assessment year, respectfully following the decision of the Co-ordinate Bench as referred to above, we direct the Assessing Officer to exclude both these companies from the list of comparables. E-CLERX ....
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.... (x) Symphony Marketing Solutions India (P.) Ltd., (supra) (xi) HSBC Electronic Data Processing India (P.) Ltd., dated 14.10.2014 (xii) Stream International Services (P.) Ltd. v. Asstt. CIT [2015] 53 taxmann.com 19/152 ITD 664 (Mum. - Trib.) (xiii) ExxonMobil Co. India (P.) Ltd. v. Addl. CIT [2018] 92 taxmann.com 5 (Mum. - Trib.) (xiv) NCS Pearson India (P.) Ltd. v. ACIT [IT Appeal No.99 (Delhi) of 2018] (xv) Maersk Global Centre (I) (P.) Ltd. v. Dy. CIT [2015] 56 taxmann.com 129/69 SOT 33 (URO) (Mum. - Trib.) (xvi) PTC Software India (P.) Ltd. v. Dy. CIT [2014] 52 taxmann.com 351/[2015] 67 SOT 138 (URO) (Pune - Trib.) (xvii) Ventura India v. ACIT [IT Appeal No.1788 (Pun.) of 2014, dated 9-3-2018] (xviii) United Health Group Information Services (P.) Ltd. v. Dy. CIT [2018] 90 taxmann.com 423 (Delhi - Trib.) (xix) Agilent Technologies (International) (P.) Ltd. v. ITO [2018] 91 taxmann.com 59 (Delhi - Trib.) (xx) Samsung Heavy Industries (P.) Ltd. v. Asstt. CIT [IT Appeal No.402 (Delhi) of 2017, dated 1-1-2018] 28. The learned Departmental Representative relied upon the observations of t....
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...., it was submitted that the company being functionally different cannot be treated as comparable to the assessee. Further, the learned Sr. Counsel submitted that the financials of the company provided by the Transfer Pricing Officer do not contain the director's report, management discussion and analysis. He submitted, these information are also not available in the public domain. He submitted, in the absence of complete annual report, the assessee cannot verify comparability of this company, hence, it should be rejected. In support of his contention, the learned Sr. Counsel relied upon the following decisions:- (i) Pr. CIT v. Aptara Technology (P.) Ltd. [2018] 92 taxmann.com 240 (Bom.); (ii) Hyundai Motors India Engineering (P.) Ltd. (supra) (iii) Market Tools Research (P.) Ltd. (supra) (iv) Mindcrest India (P.) Ltd. v. DCIT [IT Appeal No.7289 (Mum.) of 2012, dated 12-12-2014] (v) Symphony Marketing Solutions India (P.) Ltd. (supra) (vi) Aegis Ltd. v. Addl. CIT [IT Appeal No.1213 (Mum.) of 2014, dated 27-7-2015] (vii) Dy. CIT v. Willis Processing Services India Ltd. [2014] 51 taxmann.com 459 (Mum. - Trib.) ....
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....d, since the merger of the subsidiary has not impacted the profitability in any manner and both the merged and merging company are functionally similar, the company cannot be rejected. In support of such contention, the learned Sr. Counsel relied upon the following decisions:- (i) Willis Processing Services (India) (P.) Ltd. v. Asstt. CIT [2017] 83 taxmann.com 198 (Mum. - Trib.) (ii) Evalueserve SEZ (Gurgaon) (P.) Ltd. v. Asstt. CIT [2017] 83 taxmann.com 371 (Delhi - Trib.) 34. The learned Departmental Representative submitted that this company is simply a call centre, hence, cannot be considered to be a comparable to BPO service provider. Further, he submitted that since in the relevant previous year, there is a merger the company cannot be selected as a comparable. 35. We have considered rival submissions and perused materials on record. No doubt, this company was selected by the assessee as one of the comparable. However, the Transfer Pricing Officer has rejected this company by stating that it has merged with another entity and closed down its business. The aforesaid factual finding of the Transfer Pricing Officer is grossly erroneous and contrary to fac....
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...., the Department cannot be allowed to take such inconsistent stand in the matter of selecting / rejecting comparables. 37. The learned Sr. Counsel for the assessee submitted, if Allsec Technologies Ltd. is rejected on account of merger, this company should also be rejected for the same reason. 38. The learned Departmental Representative relied upon the observations of the DRP and the TPO. 39. We have considered rival submissions and perused materials on record. On a perusal of the order passed by the Transfer Pricing Officer, it is noticed that while considering assessee's objection against selecting this company on account of merger of two entities the Transfer Pricing Officer has rejected such objection and selected the company by stating that the acquired / merged entity are also in the same business and assessee's operating margin in the earlier year was also high. It is observed that the DRP has also accepted the Transfer Pricing Officer's view by simply stating that the assessee has not brought on record any fact to indicate that the merger has an impact on the financial results of the company. Notably, while rejecting Allsec Technologies Ltd. selected by....
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....fficer may be directed to allow working capital adjustment in similar line. Learned Departmental Representative submitted, issue may be restored to Transfer Pricing Officer for considering assessee's claim. Having considered rival submissions we find that in Assessment Year 2012-13 the Transfer Pricing Officer himself has allowed working capital adjustment to the assessee. That being the case, we direct the Assessing Officer/Transfer Pricing Officer to consider assessee's claim of working capital adjustment while computing the margins of the comparables. 42. At this juncture, it is necessary to observe, in the course of hearing the learned Departmental Representative had submitted that while examining the suitability and unsuitability of comparables objectivity has to be applied. The learned Departmental Representative submitted that neither the assessee nor the Transfer Pricing Officer can select or reject comparable by adopting a selective approach. He submitted, if by applying certain criteria a company is found to be suitable or unsuitable as a comparable, such criteria should be applied to all the companies selected as comparable. He submitted, the assessee cannot b....
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....1] 16 taxmann.com 47/133 ITD 543 (Mum.) the Tribunal observed in the following manner:- "40. Having exhausted the argument that the ld. CIT(A) should have examined the cases cited by the assessee as comparable, the ld. DR then took upon herself the task of distinguishing some of such cases. Referring to the material on record, it was stated that in certain cases, the comparison was not proper. She argued that such cases be excluded from the final list drawn by the ld. CIT(A) for the purposes of determining the ALP. When the learned AR objected to this argument advanced on behalf of the Revenue by stating that the learned Departmental Representative could not improve the order of the TPO, the learned Departmental Representative pressed into service the Special Bench order in the case of Dy. CIT v. Quark Systems (P.) Ltd. [2010] 38 SOT 307/4 ITR (Trib.) 606 (Chd.) (SB)]. 41. Primarily we need to decide as to whether the learned Departmental Representative, while arguing the appeal, can validly improve the order of the AO/TPO by contending that the assessing authority was wrong in accepting a particular claim of the assessee. In the case of Quark Systems (P.) Ltd. (supra) ....
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.... and finds the very first condition as lacking. Without examining the fulfilment or otherwise of the other two conditions, he rejects the claim. In that case if such first requirement is subsequently found to be fulfilled in the appellate proceedings, the Departmental Representative can very well point out to the tribunal that the other two conditions were also not fulfilled. By so contending the DR cannot be said to set up a new case. Rather it would amount to supporting the viewpoint of the Assessing Officer on the question of deduction. But in no circumstance the Departmental Representative can be allowed to take a stand contrary to the one taken by the AO/TPO. 43. The Special Bench of the Tribunal in Mahindra & Mahindra Ltd. v. Dy. CIT [2009] 122 TTJ (Mum.) (SB) 577/30 SOT 374 / [2010] 122 ITD 216 (Mum.) has laid down the proposition to the effect that the Departmental Representative has no jurisdiction to go beyond the order passed by the A.O. It has further been observed in this case that the scope of argument of the Departmental Representative should be confined to supporting or defending the impugned order and he cannot be permitted to set up an altogether different case....
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....r the learned Commissioner of Income Tax (Appeals) (the First appellate authority) order was perverse or vitiated by any error of law apparent on the face of record. It also considered the complaint as to whether the Commissioner exercised his discretion of his powers as the first appellate authority arbitrarily and capriciously. Having found no basis in all these complaints and dismissing the appeals of the revenue, the Tribunal did not commit any error. To our mind, the order of the Tribunal is not vitiated by any serious legal infirmity nor is it perverse, rather it is unfortunate that a detailed and properly reasoned order of the first appellate authority and the second appellate authority is being challenged and that too on such grounds by the revenue. We would highly appreciate the parties not discrediting the Tribunal or the first appellate authority in this manner. The complaints about unfair treatment or breach of principles of natural justice ought to be backed and supported by some material which would demonstrate serious prejudice and loss. A technical objection of nature will not carry the case of either parties any further. It would mean that a speaking order of the r....
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....ment with the A.E. viz. IPSA for providing certain other services. While benchmarking the arm's length price under the IPSA, the assessee treated an amount of Rs. 90,41,87,522, received from A.E. as ITES and accordingly to bench marked it by aggregating with the revenue received from ITES rendered under the DCA. However, an amount of Rs. 8,47,34,817, received from the A.E. towards services rendered under the IPSA was segregated by the assessee and a separate benchmarking was conducted in the transfer pricing study since the assessee was of the view that the services rendered in respect of such revenue earned from the A.E. is neither in the nature of software services nor ITES. Proceeding on the aforesaid basis, the assessee set out to benchmark the transaction by adopting TNMM as the most appropriate method with operating profit to operating cost as the Profit Level Indicator (PLI). Undertaking a search in the databases assessee selected 28 companies as comparable with average arithmetic mean of 12.31%. Since, the margin shown by the assessee was within +/-5% of the average arithmetic mean of the comparables, the price charged to the A.E. was claimed to be at arm's length. ....
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....ified as ITES, it should be aggregated with the entire ITES segment for benchmarking purpose and cannot be benchmarked separately as has been done by the Transfer Pricing Officer. The learned Sr. Counsel submitted, in that event, the margin of comparables pertaining to ITES segment should also apply to this transaction for determining the arm's length price. 51. The learned Departmental Representative relying upon the observations of the Transfer Pricing Officer submitted, after a thorough analysis the Transfer Pricing Officer has come to a valid conclusion that the services rendered under the IPSA is in the nature of ITES. As regards assessee's contention to aggregate this transaction with the entire transaction under the ITES segment and apply the margin of the comparable selected under ITES segment, the learned Departmental Representative submitted that assessee's claim can be verified by the Transfer Pricing Officer. 52. We have considered rival submissions and perused materials on record. Undisputedly, the assessee has rendered services to its overseas A.E. under two different agreement viz. DCA and IPSA. While the services rendered under the DCA have been tr....
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....nged the mode of computation of deduction under section 10A and section 10AA of the Act after reducing / setting-off of losses in some other STP / SEZ unit. 54. Brief facts are, the assessee has eight Special Economic Zone (SEZ) units functioning at Mumbai, Hyderabad, Bangalore, Chennai, Pune, Haryana and Chennai SEZ. In the return of income filed, the assessee claimed deduction under section 10A of the Act in respect of three SEZ units independently which have made profit during the year. The Assessing Officer while examining assessee's claim of deduction under section 10A of the Act, was of the view that assessee's claim of deduction under section 10A, unit-wise, is not allowable, since, such deduction has to be allowed from the total income of the assessee. Referring to his decision in assessee's own case for the preceding assessment year, the Assessing Officer observed, under section 10A of the Act was made a deduction provision by virtue of amendment brought into the statute w.e.f. 1st April 2001, the deduction has to be allowed after computation of total income. Thus, the Assessing Officer held that the profit of all eligible units has to be computed first and,....
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....ctual property services agreement. During the assessment proceedings, the Assessing Officer noticed that in the relevant previous year the assessee claimed to have received an amount of Rs. 90,41,87,522, under the IPSA agreement which is claimed to be in the nature of ITES. Further, he found that the margin earned by the assessee at 15% of the aforesaid amount received the assessee was claimed as deduction under section under section 10A of the Act. The Assessing Officer referring to the assessment order passed for the preceding assessment year held that the income derived under the IPSA agreement is not in the nature of ITES, hence, assessee is not eligible for deduction 10A of the Act in such income. Accordingly, he disallowed assessee's claim of deduction under section 10A of the Act with regard to the profit derived from the said activity. Though, the assessee objected to this decision of the Assessing Officer before the DRP, however, the DRP also rejected assessee's claim. 60. The learned Counsel for the assessee drawing our attention to the order passed by the Transfer Pricing Officer submitted that after examining the nature of service rendered by the assessee und....
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....alysis, he has finally concluded that the services rendered are more akin to ITES. Accordingly, the Transfer Pricing Officer has proceeded to benchmark the revenue received from IPSA agreement as ITES. Thus, the contention of the Department that the Transfer Pricing Officer has not recorded any conclusive finding with regard to the nature of income from IPSA agreement is contrary to facts on record. In any case of the matter, when the Transfer Pricing Officer has classified the income received under IPSA agreement to be of the nature of ITES and has also benchmarked it as such, the Assessing Officer cannot take a contrary view by stating that it is not in the nature of ITES only for disallowing assessee's claim of deduction under section 10A of the Act. The Department cannot be permitted to take contrary view with regard to the nature of a particular item of income for its own advantage. Once, the income under the IPSA has been classified to be in the nature of ITES, assessee's claim of deduction under section 10A of the Act have to be allowed. In view of the above, we direct the Assessing Officer to allow assessees claim of deduction under section 10A of the Act in respect....
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....) of the Act. Further, the DRP held that once the assessee debits some expenditure to the Profit & Loss account it is liable to withhold tax on such payment if it comes within the purview of TDS provision. Thus, the DRP held that disallowance made under section 40(a)(ia) of the Act by the Assessing Officer was proper. 66. The learned Sr. Counsel for the assessee drawing our attention to the tax audit report submitted in the paper book contended that the auditor has certified that except the amount of Rs. 4,05,40,683, the other inadmissible expenditure has been disallowed under section 40(a)(ia) of the Act. Further, explaining the reason for not deducting tax on the aforesaid amount, it was submitted that liability to deduct tax at source would not arise as the names of the parties are not ascertainable. Without prejudice to the aforesaid submissions, the learned Sr. Counsel submitted, in case the amount is disallowed under section 40(a)(ia) of the Act, section 10A deduction to that extent has to be allowed as it enhances the business profit of the assessee. In this context, he referred to the certificate dated 30th November 2011, issued by the Chartered Accountant certifying the....
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.... the assessee has contended that out of the amount of Rs. 4,05,40,683, claimed as deduction, an amount of Rs. 3,05,66,130 pertains to STPI/SEZ unit eligible for deduction under section 10A of the Act. It is the contention of the assessee that once such amount is disallowed under section 40(a)(ia) of the Act, the profit of the eligible unit is enhanced to that extent, hence, is entitled to deduction under section 10A of the Act. Though, we find substantial force in the aforesaid contention of the assessee, however, it is observed that the DRP has not at all considered the aforesaid claim in proper perspective. In our considered opinion, if the expenditure claimed by the assessee pertains to STPI / SEZ unit, on disallowance of such deduction the profit of STPI / SEZ unit will get enhanced, hence, the assessee will be eligible to avail deduction under section 10A of the Act to that extent. We direct the Assessing Officer to examine the aforesaid claim of the assessee having regard to the facts and material brought on record and allow the same after factual verification. Further, the assessee has submitted that the provision made of Rs. 4,05,45,683, has been reversed on 1st April 2008,....