TaxTMI 
TaxTMI 
2020 (4) TMI 300
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....assessment year 2011-12. 2. We first proceed with assessee's appeal in ITA No.540/BAN/2015 for A.Y. 2010-11. 2.1. The relevant facts as culled out from the material on record are as under :- Assessee is a Private Limited Company stated to be engaged in providing hardware and software application and IT-enabled services. The name of the assessee company was changed to "FIS Solutions (India) Private Limited w.e.f. 11.11.2016. Assessee filed its original return of income for A.Y. 2010-11 on 29.09.2010 declaring total income of Rs. 42,86,46,600/-. The case was selected for scrutiny and accordingly, notice u/s 143(2) of the Act dated 29.08.2011 was issued and served on the assessee. It was noticed that assessee had entered into international transactions with its Associated Enterprises (AEs) during the year which exceeded Rs. 15 crore. Accordingly, a reference was made to the Transfer Pricing Officer (TPO) u/s 92CA of the Act for determining the Arms Length Price (ALP) in respect of the international transactions. The TPO vide order dated 30.01.2014 passed u/s 92CA of the Act concluded that adjustment of Rs. 23,41,57,183/- was required to be made to the ALP determined ....
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....o Unit I, Bangalore. 2.1. The Learned AO has erred in not considering the facts and submission made by the Appellant, and not allowing claim for deduction under section 10A of the Act to Unit I (based in Bangalore) which was inadvertently missed out by the Appellant in its return of income and the Learned DRP erred in confirming the same. 2.2. The Learned AO and the Learned DRP failed to appreciate the provisions of law and natural justice wherein any inadvertent omission of claim by an assessee has to be considered by the assessing officer and be granted to the assessee if the assessee is eligible for such claim on merits. 3. Denial of deduction under section 10A of the Act to Unit II, Bangalore 3.1. The Learned AO has erred in denying the deduction under section 10A of the Act to Unit II of the Appellant following the Learned AO's predecessor's order for AY 2009-10 wherein it was held by the Learned AO's predecessor that Unit II is not a new unit but an expansion of Unit I. 3.2. Without prejudice to the above, if deduction under section 10A of the Act is granted to the Appellant for Unit I, the Learned AO should grant the deduction ....
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.... the present ground is with respect to disallowance of depreciation on computer software u/s 40(a)(ia) of the Act. It is an undisputed fact that during the year assessee had purchased the software and it was capitalized and the purchase of software has not been claimed as an expenditure. It is also a fact that no TDS was deducted by the assessee on the purchase price paid by it. We find that the Bangalore Tribunal in the case of Kawasaki Microelectronics Inc., (supra) has held that the question of disallowance of expenses u/s 40(a)(ia) of the Act arises only when an expenditure is claimed by the assessee and on which the tax at source as per the provisions of Chapter XVII-B of the Act has not been deducted. It held that when assessee has not claimed payment as an expenditure, then the question of disallowance u/s 40(a)(ia) of the Act does not arise. It further held that when the assessee has once capitalized the payment and had not deducted TDS on such payments, Sec.40(a)(ia) of the Act cannot be invoked for disallowance of depreciation. Before us, Revenue has not pointed out any contrary binding decision in its support nor has placed any material to demonstrate that the aforesa....
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....e, the claim was not made in the return of income. He thereafter submitted that even if the claim was not made before the AO but it can be made before the appellate authorities and for this proposition, he placed reliance on the decision of Bombay High Court in the case of CIT Vs. Pruthvi Brokers & Shareholders reported in 349 ITR 336. He further submitted that Hon'ble Bombay High Court in the case Alok Textile Industries Vs. DCIT order dated 10.07.2018 by following the decision of Pruthvi Brokers & Shareholders (supra) and after considering the decision of the Hon'ble Apex Court in the case of Goetze (India) Pvt. Ltd., (supra) has held that though Hon'ble Apex Court in the case of Goetze (India) Pvt. Ltd., (supra) has held that AO has no power to entertain the claim of deduction otherwise than by filing revised return of income by assessee, but that the same would not fetter the Appellate authority from entertaining a claim not made before the AO. He further submitted that the claim for deduction u/s 10A of the Act was allowed in A.Ys. 2007-08, 2008-09 and 2009-10 and in such a situation, the DRP was not justified in denying the claim of deduction for the year under considerati....
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....vt. Ltd., (supra) held that the issue in the case was limited to the power of assessing authority and does not impinge on the powers of Income Tax Appellate Tribunal u/s 254 of the Act. We further find that the Hon'ble Bombay High Court in the case of Alok Textile Industries Vs. DCIT (supra) after considering the decision of Hon'ble Bombay High Court in the case of Pruthvi Brokers (supra) has held that the claim can be made before the appellate authorities for the first time by the assessee. Before us, Revenue has not pointed out any contrary binding decision in its support. In such a situation, we following the aforesaid decisions of Hon'ble Bombay High Court in the case of Pruthvi Brokers (supra) hold that AO was not justified in denying the claim of deduction u/s 10A of the Act with respect to Unit No.1 of Bangalore. We therefore direct the AO to grant deduction subject to the assessee complying with other conditions of deduction. Thus, the ground No.2 of the assessee is allowed. 9. Ground No.3 is with respect to denial of claim of deduction u/s 10A of the Act with respect to Unit No.II in Bangalore. 9.1. AO noted that assessee had claimed deduction u/s 10A of the Act for ....
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....ng and finance industry. That apart, the STPI has confirmed that Unit 2 exists separate and independent of Unit 1 of which approval, the Assessing Officer in his remand report arrived at findings that the same is free for any mistakes. The Ld. AR further submitted that STPI being an independent authority would accord its approval to a new unit only after due verification of the application and credentials of an applicant. In the case of the assessee, the approval was granted by STPI only after due verification of the facts of the case. The Ld. AR addressed another objection raised by the Assessing Officer that most of the employees of both units are same and with regard to this, the Ld. AR submitted that the skill set/qualification required by the software developers for the finance and banking industry are completely different as compared to that required for higher education industry. The Ld. AR further submitted that as on 31st March, 2008 (end of first financial year), out of 32 employees in Unit II, only 7 were old employees. This further justifies the contention of the assessee that Unit II was to be a new and independent unit. It is admitted fact as appearing in the....
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....e lower authorities. We therefore direct that the assessee be granted deduction u/s 10A of the Act with respect to Unit No.II of Bangalore. Thus, the ground No.3 of assessee is allowed. 12.1. Ground No.4 being consequential in nature and ground No.4.1 being premature in nature, requires no adjudication. Hence, the same are dismissed. 13. In the result, the appeal of assessee in ITA No.540/BAN/2015 for A.Y. 2010-11 is partly allowed. 14. Now we take up Revenue's appeal in ITA No.519/BAN/2015 for A.Y. 2010-11. 14.1. Assessee filed original return of income for A.Y. 2010-11 on 29.09.2010 showing the total taxable income u/s 42,86,46,600/-. The case was selected for scrutiny and thereafter, notice u/s 143(1) of the Act was issued and served on the assessee. It was noticed that assessee had entered into international transactions with it's Associated Enterprises (AEs) during the year which exceeded Rs. 15 crore. Accordingly a reference was made to TPO for determining the Arms Length Price (ALP) in respect of those international transactions. The Transfer Pricing Officer (TPO) vide order dated 30.01.2014 passed order u/s 92CA of the Act concluding that adjustment of Rs. 23....
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....ITA NO.237/Bang/2007) that Risks are two types, namely, anticipated risks and actual contemporary risks. 6. On the facts and in the circumstances of the case the Dispute Resolution Panel erred in appreciating that risks are always anticipated risk and there is nothing like contemporary risk. If there is contemporaneous, it cannot be risk. 7. On the facts and in the circumstances of the case whether the Dispute Resolution Panel is justified in holding that 1% risk adjustment may be considered as guidance when risk cannot be allowed on estimated basis and as per Rule 10B(3) only reasonably accurate adjustment can be made. 8. On the facts and in the circumstances of the case the Dispute Resolution Panel erred in directing the AO to reduce expenses on telecommunication, Software expenses, travel and other expenses incurred in foreign currency both from export turnover and as well as from total turnover for the purpose of computation of deduction u/s 10A of the Income tax Act without appreciating the fact that the statute allows exclusion of such expenditure only from the Export turnover by way of specific definition of export turnover defined in the Act and t....
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....O has erred and the Hon'ble DRP has further erred in not rejecting the action of the Ld. TPO / AO in disregarding the comparable companies selected by the Respondent despite them being comparable; 7. On the facts and in the circumstances of the case and in law, the Ld. TPO / AO has erred and the Hon'ble DRP has further erred in not rejecting the action of the Ld. TPO / AO in applying arbitrary filters inconsistently to arrive at a fresh set of companies as comparables to the Respondent. 8. The facts and in the circumstances of the case and in law, the Ld. TPO/AO has erred and the Hon'ble DRP has further erred in not rejecting the action of the Ld. TPO / AO in rejecting the use of multiple year data; 9. On the facts and in the circumstances of the case and in law, the Ld. TPO /AO has erred in not allowing the Respondent the benefit of 5% variation envisaged in the proviso to Section 92C(2) of the Income-tax Act, 1961; 10. On the facts and in the circumstances of the case and in law, the Ld. TPO/AO has erred and the Hon'ble DRP has further erred in not demonstrating that the motive of the Respondent was to shift profits outside of I....
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.... 18.1. TPO while finalizing the list of comparables had included Infosys Ltd., as a comparable. Assessee objected to its inclusion inter-alia on the ground that its turnover was quite high as compared to the assessee. The objections of assessee were brushed aside by TPO. When the matter was carried before DRP, DRP while directing to exclude Infosys as comparable noted that Hon'ble Bangalore ITAT in the case of Genisys Integrity Systems (ITA No.1231/BAN/2010 had provided a guidelines in the matter of Turnover Filter by suggesting that the categorization of software companies in the Dun & Broad Street Study be adopted as a method of classification of comparables by size. It further noted that since the turnover of the assessee was Rs. 342.21 crore, it would fall in the category of a "medium" seized firm as per Dun & Brad Street categorization compared to Infosys Ltd., which would fall in large company with turnover greater than Rs. 2000 crore. It therefore directed its exclusion. Aggrieved by the directions of DRP, Revenue is now before us. 19. Before us, Ld. D.R. supported the order of TPO. Ld.A.R. on the other hand, reiterated the submissions before lower authorities and f....
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....e directions of DRP, Revenue is now before us. 22. Before us, Ld. D.R. took us through the order of TPO and supported his order. Ld.A.R. on the other hand reiterated the submissions made before lower authorities and further placing reliance on the decision of Tribunal in the case of DCIT Vs. Hello Soft Pvt. Ltd., (supra) submitted that the Tribunal in that case has upheld the direction of allowing the benefit of risk adjustment at 1%. He further submitted that even otherwise if the Infosys Ltd., is deleted out of the comparables then the assessee is at Arms Length and therefore also no adjustment would be required in the present case. 23. We have heard the rival submissions and perused the material available on record. The issue in the present case is with respect to granting of percentage of risk adjustment by DRP. We find that DRP after considering various decisions cited in his order has directed the TPO to decide the percentage of risk adjustment. Before us, Revenue has not pointed any contrary binding decision in its support nor has pointed out any fallacy in the findings of DRP. Before us, Ld.A.R. has further submitted that if Infosys Ltd., is excluded from the list of ....
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....of DRP is called for. 26. We have heard the rival submissions and perused the material on record. The issue in the present grounds are with respect to the method of computation of deduction u/s 10A of the Act. We find that identical issue arose before the Tribunal in assessee's own case for A.Y. 2009-10 wherein the Co-ordinate Bench of the Tribunal by following the decision of Hon'ble Apex Court in the case of CIT Vs. HCL Technologies (supra) held that to calculate deduction u/s 10A of the Act, the expenses should be reduced from the export turnover and total turnover also. Before us, Revenue has not pointed out any contrary binding decision in its support. We therefore find no reason to interfere with the order of DRP. Thus, the grounds of Revenue are dismissed. 27. In the result, the appeal of Revenue in ITA No.519/BAN/2015 for A.Y. 2010-11 is dismissed. 28. Before us, Ld.A.R. submitted that if the appeal of Revenue is dismissed then the Cross-Objections of assessee in C.O.No.134/BAN/2015 of the assessee would be rendered academic. Since we have dismissed the appeal of Revenue in ITA No.519/BAN/2015 hereinabove, in view of the submissions of the Ld.A.R., the C.O. is a....
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....l as prevailing market conditions are different in predominantly onsite companies from predominantly offshore companies. 5. Whether the DRP was right in law and on facts in excluding companies which are considered as functionally comparable by the assessee himself. 6. Did the DRP fall into error in not appreciating the term of rules 10B(2) of the Income- tax Rules, 1962 regarding functional comparability. 35. Before us, at the outset, Ld.A.R. submitted that though Revenue has raised various grounds but no specific grievance has been raised. In such a situation, the appeal of the Revenue should be held to be not maintainable. Ld. D.R. on the other hand, submitted that grounds 5 and 6 are general in nature which requires no separate adjudication and ground No.4 is the sub-ground of ground No.2. 36. Ground No.1 to 4 being inter-connected are considered together. 36.1. AO noted that in the TP document assessee had selected 12 comparables in respect of software activities by applying certain filters and Transactional Net Margin Method (TNMM) was considered to be the most appropriate method. Out of the various comparables selected by assessee, TPO noted that....