TaxTMI 
TaxTMI 
TaxTMI 
2016 (3) TMI 1384
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....ovision in Section 10A that such expenses should be reduced from the total turnover also, as clause(iv) of the explanation Section 10A provides that such expenses are to be reduced only from the export turnover also. 3. The CIT(A) erred in not appreciating the fact that the jurisdictional High Court's decision in the case Of Tata Elxsi Limited 349 ITR 98 has not been accepted by the department and an appeal has been filed before the Hon'ble Supreme Court. 4. The CIT (A) erred in law as well as on facts in holding that. as the working capital adjustment provided by the T PO has negative impact on adjusted margin. the assessee is entitled to risk adjustment as per prevailing norms, which shall be worked out by the TPO and granted to the assessee without appreciating that risk adjustment could not be allowed in the absence or specific difference in risk and its impact on profit margin when TP regulations in India are against making any assumptions in respect of any adjustments and such risk adjustment cannot be provided without making necessary assumptions. 5. For these and such other grounds that may be urged at the time of hearing. it is humbly prayed that the order of the....
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....art of the total turnover. The export turnover, in the numerator must have the same meaning as the export turnover which is a constituent element of the total turnover in the denominator. The legislature has provided a definition of the expression "export turnover" in Explanation 2 to section 10A by which the expression is defined to mean the consideration in respect of export by the undertaking of articles, things or computer software received in, or brought into India by the assessee in convertible foreign exchange but so as not to include inter alia freight, telecommunication charges or insurance attributable to the delivery of the articles things or software outside India. Therefore in computing the export turnover the Legislature has made a specific exclusion of freight and insurance charges. The submission which has been urged on behalf of the Revenue is that while freight and insurance charges are liable to be excluded in computing export turnover, a similar exclusion has not been provided in regard to total turnover. The submission of the Revenue, however, misses the point that the expression "total turnover" has not been defined at all by Parliament for the purposes of....
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....since otherwise it would produce anomalies or absurd results. Section 10-A is a beneficial section. It is intended to provide incentives to promote exports. The incentive is to exempt profits relatable to exports. In the case of combined business of an assessee, having export business and domestic business, the legislature intended to have a formula to ascertain the profits from export business by apportioning the total profits of the business on the basis of turnovers. Apportionment of profits on the basis of turnover was accepted as a method of arriving at export profits. In the ease of Section 80HHC, the export profit is to be derived from the total business income of the assessee, whereas in Section 10-A, the export profit is to be derived from the total business of the undertaking. Even in the case of business of an undertaking, it may include export business and domestic business, in other words, export turnover and domestic turnover. The export turnover would be a component or part of a denominator, the other component being the domestic turnover. In other words, to the extent of export turnover, there would be a commonality between the numerator and the denominator of the f....
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....principle underlying both these provisions is one and the same. Therefore, we do not see any merit in these appeals. The substantial question of law framed is answered in favour of the assessee and against the revenue." 6. Following the judgment of Hon'ble jurisdictional High Court in the case of Tata Elxsi Ltd. (supra), we do not find any error or illegality in the impugned order of the CIT(A), qua this issue. 7. Ground NO.4 is regarding direction of the CIT(Appeals) to provide risk adjustment. 8. The TPO while determining the arm's length price (ALP) has considered a negative working capital adjustment and consequently increased the PLI of the comparables. On appeal, the CIT(Appeals) held that once the TPO has granted working capital adjustment which is negative adjustment made by the TPO, then the TPO shall look into this matter and take rectificatory action. In case if the TPO finds that working capital adjustment remains negative, then she was directed to grant risk adjustment in that case. Thus, the CIT(A) has passed the directions subject to the reconsideration of the working capital adjustment and held that if the working adjustment is still found to be negative, the....
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....is contention, he has relied upon the decision of the Hyderabad Bench of the Tribunal dated 25.3.2015 in the case of Adaptec (India) P. Ltd. v. ACIT, ITA No.206/Hyd/2014 and submitted that the Tribunal has held that when the assessee is a captive service provider running its business without any working capital risk, then there is no need for making any negative working capital adjustment. 14. On the other hand, the Id. DR has relied upon the order of the TPO. 15. Having considered the rival submissions and on careful perusal of the record, we find that the Hyderabad Bench of the Tribunal in the case of Adaptec (India) P. Ltd. (supra) has considered identical issue in paras 10 & 11 as under:- "10. Ground No.8 pertains to the issue of negative working capital. As briefly stated above, after arriving at the arithmetic mean of all comparables at 22.03%, the A.O. worked out negative working capital adjustment of 3.22% thereby, making arms length price at 25.25%. Even though, DRP refused to interfere with the objections of the assessee in its order, we were informed that DRP has directed the TPOIA.O. not to make any negative working capital adjustment in some of the cases in the nex....