TaxTMI 
TaxTMI 
TaxTMI 
2023 (5) TMI 701
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....ansactions with its associated enterprise, a reference was made to the Transfer Pricing Officer (TPO). The TPO passed an order wherein an adjustment of Rs.6,70,16,931/- was proposed. The Assessing Officer passed a draft assessment order incorporating the transfer pricing adjustment. Besides, the Assessing Officer also treated the interest income as not eligible for deduction claimed under section 10AA and according made the addition to the income. Aggrieved, the assessee raised its objections before the Ld.Dispute Resolution Panel(DRP). The Ld.DRP sustained the TP adjustments as well as the additions made by the Assessing Officer. Aggrieved, the assessee is in appeal before the Tribunal. 3. The assessee raised 9 grounds contesting the transfer pricing adjustment as well as treatment of interest income as not eligible for deduction u/s.10A and other consequential issues. TP Adjustment(Grounds 1 to 3) 4. As per the Transfer Pricing Study, the assessee has entered into the following international transactions:- Sr.No. Transaction Amount Method 1 Provision o administrative support and back office services 1,13,12,38,862 TNMM 2 Receipt of Cost Allocation 3,62,36,546 TNMM ....
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.... IRIS Business Services Limited 27.06% Average Margin 25.58% 9. Accordingly, the TP arrived at the Transfer Pricing adjustment as under : Operating Cost 95,41,77,252 Arms length Margin 25.58% Arms Length Price @125.58% of operating cost 1,19,82,55,793 Actual receipt 1,13,12,38,862 Shortfall being adjustment u/s 92CA 6,70,16,931 10. The Ld.DRP confirmed the Pricing adjustment. 11. During the course of hearing, the Ld.AR submitted that if the exclusion of one comparable, viz. R Systems International Ltd by the TPO is adjudicated in favour of the assessee, then the other comparables/contentions raised by the assessee with regard to TP adjustment would become academic. Accordingly, we will first proceed to adjudicate the inclusion of R Systems International Ltd to the list of comparables. 12. The TPO has excluded R Systems International Ltd from the list of comparables for the reason that the company is following different financial year end. The DRP confirmed the rejection for the reason that the assessee is fully engaged on ITeS whereas the BPO revenue of R Systems International Ltd is only 13.05% of its total turnover and therefore the company is not compara....
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....P wherein it was noted that, the business structure of both these concerns would be geared for their primary activity. According to the DRP, the segmental accounts wherein the financials relatable to the BPO segments are typically derived, using allocation keys, are from the overall revenues and relatable expenses of the entire business. Such derived BPO segmental results of concerns primarily engaged in software service like the two presently under consideration would not be comparable to an entity like the assessee which is wholly or predominantly operating in the back office support segment. He also referred to the findings given by the Ld. DRP accepting M/s Acropetal Technologies Ltd and M/s Infosys BPO Ltd as suitable comparables. The Ld. Sr. DR thus supported the orders of the lower authorities and claimed that it does not call for any interference. 7. We have heard both the parties and perused the material placed on record. We have also gone through the decisions cited before us. On the question of exclusion of M/s. CG-Vak Software and Exports and M/s. R. Systems International as comparables, it is noted that similar issue had come up for consideration before this Tribunal....
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....case of Cadence Design Systems India Ltd., the Tribunal directed the TPO to consider the quarterly results and work out the proportionate margin results. 31. We have gone through the order and also the facts involved in this matter. The rejection of this comparable is not on the ground of functional dissimilarity, but only because of a different accounting period. Facts being similar, we are of the considered opinion that it is a fit case to direct the ld. AO to consider the quarterly results and work out the proportionate profit margin for this purpose, we remand the matter to the file of the ld. TPO/AO for compliance of our direction. 32. **** 33. ***** 34. **** 8. Respectfully following the decision of the Tribunal (supra), we direct the TPO/AO to consider these two entities for benchmarking the international transactions. 16. We notice that the reasons quoted by the TPO and the DRP for exclusion of R Systems International Ltd is same as in AY 2010-11 and therefore in our considered view, the issue is covered by the above decision of the coordinate bench in assessee's own case. Therefore respectfully following the same we remit the issue back to the TPO with a directi....
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.... vs Hewlett Packard Global Soft Ltd (2017) 87 taxmann.com 182 where it has been held that all profits and gains of 100% EOU including incidental income by way of interest on bank deposits or soft loans would be entitled to 100% exemption or deduction under section 10A / 10B. The Ld.DR relied on the order of the lower authority. 21. We heard the parties and perused the materials on record. We notice that the Hon'ble Karnataka High Court while considering the issue of interest on deposits being treated as income eligible for deduction under section 10A / 10B has held that - "34. We are of the considered opinion that the above referred decisions relied upon by the learned counsel for the Revenue, Mr. Aravind do not cover the cases under Sections 10-A and 10-B of the Act which are special provisions and complete code in themselves and deal with profits and gains derived by the assessee of a special nature and character like 100% Export Oriented Units (EOUs.) situated in Special Economic Zones (SEZs), STPI, etc., where the entire profits and gains of the entire Undertaking making 100% exports of articles including software as is the fact in the present case, the assessee is given 100....
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.... income by way of interest on Bank Deposits or Staff loans would be entitled to 100% exemption or deduction under Section 10-A and 10-B of the Act. Such interest income arises in the ordinary course of export business of the Undertaking even though not as a direct result of export but from the Bank Deposits etc., and therefore eligible for 100% deduction. 36. We have to take a purposive interpretation of the Scheme of the Act for the exemption under Section 1 A/10-B of the Act and for the object of granting such incentive to the special class of assessees selected the Parliament, the play-in-the-joints is allowed to the Legislature and the liberal interpretation of t exemption provisions to make a purposive interpretation, was also propounded by Hon'ble Supreme Court the following cases:- [I] In Bajaj Tempo Ltd. v. CIT [1992] 196 ITR 188/62 Taxman 480. the Hon'ble Supreme Court held that:- "5. ..... Since a provision intended for promoting economic growth has to be interpreted liberally, the restriction on it, too, has to be construed so as to advance the objective of the section and not to frustrate it. But that turned out to be the, unintended, consequence of constr....
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....irected to practical problems, that the economic mechanism is highly sensitive and complex, that many problems are singular and contingent, that la are not abstract propositions and do not relate to abstract units and are not to be measured by abstract symmetry"; "that exact wisdom and nice adaption of remedy are not always possible" and that "judgment is largely a prophecy based on meagre and uninterpreted experience". Every legislation particularly economic matters is essentially empiric and it is based on experimentation or what one may call trial and error method and therefore it cannot provide for all possible situations or anticipate all possible abuses. There may be crudities and inequities in complicated experimental economic legislation but on that account alone it cannot be struck down as invalid.' 37. On the above legal position discussed by us, we are of the opinion that the Respondent assessee was entitled to 100% exemption or deduction under Section 10-A of the Act in respect of the interest income earned by it on the deposits made by it with the Banks in the ordinary course of its business and also inter earned by it from the staff loans and such interest incom....