AI Drafter 
TaxTMI 
TaxTMI 
2020 (5) TMI 548
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....TES). The nature of services provided by the assessee to its Associated Enterprises (AEs) includes financial analysis and reporting functions such as standard reporting/analysis, work-in-progress details, time sheet details etc., accounting centre processing activities/functions such as accounts receivable, accounts payable functions, billing analysis and invoice preparation etc and financial assistance/administration functions such as time and expenses review, helpdesk providing assistance on employee queries etc. The assessee is remunerated at "cost plus" basis for the services provided to its AEs. 3. The assessee adopted TNMM method to benchmark its international transactions and adopted Operating Profit/Operating Cost (OP/OC) as Profit Level Indicator (PLI). The assessee made Transfer pricing adjustment of Rs. 8,11,70,000/- voluntarily to its financial results. It also included foreign exchange gains as part of its operating income. Accordingly, it worked out the PLI at 28.86%. The arithmetic mean of PLI of comparable companies selected by the assessee worked out to 18.53%. Accordingly, the assessee claimed that its international transactions with the AEs are at arms l....
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....ng adjustment, referred above. Accordingly the Ld DRP held that the assessee is not eligible for deduction u/s 10AA of the Act and accordingly directed the AO to disallow the claim. The AO, accordingly, passed the final assessment order in pursuance of directions given by Ld DRP. 5. Aggrieved by the directions given by Ld DRP, both the parties are in appeal before us. 6. We shall first take up the appeal filed by the Revenue. Ground No.1,11 & 12 are general in nature. The ground no.2 & 3 relate to the direction of Ld DRP to allow deduction of telecommunication expenses and foreign travel expenses from Total turnover also while computing deduction u/s 10A/10AA of the Act. We notice that the Ld DRP has followed the binding decision rendered by the Hon'ble jurisdictional High Court in the case of Tata Elxsi Ltd (2011)(247 CTR 334)(Kar.) in giving the said direction. Since the Ld DRP has followed the decision rendered by the jurisdictional High Court in directing the AO to exclude telecommunication & foreign travel expenses both from Export turnover and Total turnover while computing deduction u/s 10A/10AA of the Act, we do not find any reason to interfere with the said direction....
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....(seg.) is functionally different and cannot be compared with a company providing captive services. Further, in the case of Symphony Marketing Solutions India (P) Ltd (IT(TP)A No.1316/Bang/2012 dated 14.08.2013 for AY 2008-09), the co-ordinate bench has held as under:- "12.......As far as Acropetal Technologies Ltd is concerned, this company does the business of export of software services. It is also seen from segmental revenue of this company (Note 15 to the notes on accounts to Annual report 07-08) that it derives income from engineering design services and software development services. It is also pertinent to point out that before the TPO, the assessee raised an objection that this company performs different functions and mainly engaged in the area of software development services and engineering design services. The TPO in his order has observed that the services rendered by this company fall in the definition of ITES. 13. We have considered the submissions of the learned counsel for the Assessee. On a perusal of the Note No.15 of notes to accounts which gives segmental revenue of this company, it is clear that the major source of income for this com....
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....eign exchange gain can be taken as operating income or not. The TPO was of the view that the foreign exchange gain cannot be considered as part of operating income. The Ld DRP, following the decision rendered by the co-ordinate bench in the case of SAP Labs India (P) Ltd vs. ACIT (2011)(44 SOT 156)(bang.) held that the foreign exchange gain should be considered as part of operating income. The revenue is aggrieved. 12. We heard the parties on this issue and perused the record. We notice that the Ld DRP has followed the decision rendered by the coordinate bench in the case of SAP labs India (P) Ltd (supra). Identical view has also been expressed by another co-ordinate bench in the case of CISCO Systems (India) Private Ltd (IT(TP)A No.271/Bang/2014 dated 14.08.2014. Accordingly, we do not find any infirmity in the direction given by Ld DRP on this issue. 13. Ground No.10 urged by the revenue relates to the direction given by Ld DRP to apply export filter in ITES segment. The contention of the revenue is that the said direction actually amounts to setting aside the draft order and hence the same is beyond the scope of the DRP. We notice that the Ld DRP has applied the export fil....
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....Ld DRP also proceeded on the ground that the assessee did not determine the voluntary T.P adjustment in its Transfer Pricing Study. Accordingly, the Ld DRP held that the decision rendered by the co-ordinate bench in the case of I-Gate Global Solutions Ltd (2007)(112 TTJ 1002) is distinguishable. Accordingly the Ld DRP directed the AO to disallow the deduction claimed u/s 10AA in respect of Voluntary Transfer pricing adjustment. 18. We heard the parties on this issue and perused the record. The Ld A.R submitted that the Ld DRP was factually not correct in observing that the assessee did not furnish details of voluntary Transfer pricing adjustment. It has added the amount of voluntary TP adjustment while computing the revised margin of the assessee, which is placed at page 680 of the paper book. He further submitted that the assessee has arrived at the amount of voluntary T.P adjustment in a scientific manner by comparing the margins of comparable companies selected by the assessee. Accordingly he submitted that the Ld DRP was not justified in observing that the same is an adhoc amount. He further submitted that the coordinate bench has held in the case of I-Gate Global Solutio....
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....th price. In other words, section provides computation of income from international transactions having regard to the arm's length price. The income which is so computed in respect of international transactions entered into by the assessee is notional income in the hands of assessee. This is the basic point which has to be kept in mind while adjudicating the issue raised in the present appeal. 16. Under section 92CA of the Act, where a person has entered into an international transaction in any previous year with its associated enterprises, then in order to benchmark the arm's length price of such an international transaction and to compute its arm's length price under section 92C of the Act, reference is to be made to the TPO by the Assessing Officer under the specified conditions, who in turn has to compute the said arm's length price in the hands of assessee. 17. Section 92C(4) of the Act provides that where an arm's length price is determined under sub-section (3), then the Assessing Officer may compute total income of assessee having regard to the arm's length price so determined. In other words, the Assessing Officer is empowered to c....
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....ts of business of the undertaking, the same proportion as the export turnover in respect of such articles or things or computer software, bears to the total turnover of business carried on by the undertaking. Thus, the first step we have to look at the profits derived from export of articles or things of computer software and the profits of business of undertaking. The additional income is on the basis of artificial/notional income computed in the hands of assessee under the provisions of section 92(1) of the Act. The case of CIT(A) is that the assessee has failed to bring into country the export proceeds in foreign exchange in respect of such additional income offered and consequently, no deduction under section 10A of the Act is to be allowed. The connected aspect of the issue is that there is no dispute in the minds of authorities below that it is profits of business. Such profit of business is neither export turnover nor the total turnover of assessee but is artificial income which needs to be taxed in the hands of assessee. Consequently, we hold that the said artificial income cannot be part of export turnover or total turnover though it will be part of profits of bus....
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....ear relevant to the previous year in which the (undertaking began to. manufacture or produce such articles or things or computer software) in such free trade zone or export processing zone : Provided also that for the assessment year beginning on the 1-4- 2003, the deduction under this sub-section shall be ninety per cent of the profits and gains derived by an undertaking from the export of such articles or things or computer software : Provided also that no deduction under this section shall be allowed to any undertaking for the assessment year beginning on the 1-4-2010 and subsequent years." 18. Section 10A(4) has also been amended with effect from 1-4- 2001. Before amendment, the profit derived from export of articles or things was the amount which bears to the profit of the business, the same, proportion as the export turnover in respect of such article or thing or computer software, bears to the total turnover of the business. With effect from 1-4-2001, instead of profits of the business, the words 'profit of the business of the undertaking have been substituted. The word 'undertaking' has not been defined under section 10A. The words ....
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.... with activities of other two units is restored back on the file of the Assessing Officer. In case it is found that it is part of the other two units and is associated with the activities done in other two units, then it will be considered as part of the same undertaking and loss will be adjusted. However, in case, if it is found, it is an independent unit, then it will be treated as independent undertaking and the assessee cannot be forced to have exemption in respect of such independent undertaking. In that case the loss will (not) be adjusted against other income. 21. The last grievance is in respect of not allowing deduction under section 10A on the adjustment made by the assessee to the arm's length price. 22. In the instant case, the assessee company entered into transaction with associated enterprise. The assessee company determined arm's length price and accordingly made adjustment to the income because arm's length price determined was more than the consideration, at which the transactions were shown in the books of account. The deduction under section 10A has not been allowed as per proviso to section 92C(4). As per this proviso, no deduction....
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.... 22. The Hon'ble High Court in paras 5 and 6 of its order held as under:- "5. In so far as substantial question of law No.4 is concerned, the error committed by the Assessing Officer was relying on Section 92(C)(4) to a case where Arm's Length Price was determined by the assessee, whereas the said provision applies to a case where Arm's Length Price was determined by the Assessing Officer. That mistake has been corrected by the Tribunal by setting aside the order passed by the Commissioner as well as the assessing authority. 6. In that view of the matter, we do not see any error committed by the Tribunal in the impugned order. Therefore, the said question is also answered in favour of the assessee and against the Revenue." 23. The issue thus, has been decided by the Hon'ble High Court of Karnataka in the case of iGate Global Solutions Ltd. (supra), wherein the assessee's claim for deduction under section 10A of the Act in respect of suo-moto TP adjustment made by the assessee, has been allowed. 24. The Bangalore Bench of Tribunal in a later decision in the case of Austin Medical Solutions (P.) Ltd. (supra) has applied....