DEPUTY COMMISSIONER OF INCOME TAX CIRCLE-7(1)(2), BANGALORE vs. M/S XCHANGING LIMITED, BANGALORE

Per N. V. Vasudevan, Vice President :

1. The order of the learned CIT(A) is opposed to law and facts of the case.

2. The C1T(Appeals) ought to have considered that that the expenditure incurred in foreign currency, towards telecommunication expenses in connection with rendering technical services outside India, to be excluded only from export turnover and not from total turnover for the purpose of computation of deduction u/ s 10A of the Act, since such exclusion is permitted to arrive at the export turnover only as per the definitions given in Sec. 10A and total turnover has not been defined in the same. 3. "Whether the C17'(A) is correct in law in following the judgements of jurisdictional High Court in the case of CIT vs. Tata Elxsi Ltd., which has not become final since the same has not been accepted by the Department and SLPs are pending before the Hon'ble Apex Court"? 4. "Whether the CIT(A) was right in fact and law in removing 3 companies in software development segment."? 5. "Whether the CTT(A) is right in not appreciating in fact that transfer pricing is not an exact science and no two entities can be exact replicas"? 6. "Whether the CTI(A) is right in trying to find out exact replica of the assessee for determining the ALP based on such replicas, even when the law and the international jurisprudence itself recognise that there cannot be an exact comparable to a given situation, especially with TNMM as the most appropriate method"? 7. "Whether the CIT(A) is right in law in demanding comparability standards that may itself defeat the purpose of law relating to determination of ALP under the IT Act"? 8. "Whether the order of the CIT(A) in imposing conditions is beyond the scope of law and business reality by rejecting all close comparables on the other ground, without appreciating that not two companies can ever be the same"? 9. For these and other grounds that may be urged at the time of hearing, it is prayed that the order of the CIT(A) in so far as it relates to the above grounds may be reversed andthat of the Assessing Officer may be restored.

10. The appellant craves leave to add, alter, amend and/or delete any of the grounds mentioned above.

2. Ground Nos.1, 9 and 10 are general and does not call for any specific adjudication. As far as ground Nos.2 and 3 are concerned, the issue is with regard to the computation of deduction under section 10A of the Income Tax Act, 1961 (hereinafter called ‘the Act’). While computing deduction under section 10A of the Act, the AO excluded telecommunication expenses from the total turnover but did not reduce the same from the export turnover. Consequently, the deduction under section 10A of the Act was allowed at a sum lesser than what was claimed by the assessee. On appeal by the assessee, the CIT(A), following the decision of the Hon’ble Karnataka High Court rendered in the case of CIT Vs. Tata Elxsi Ltd., 349 ITR 98, directed the AO to exclude telecommunication expenses both from the export turnover and the total turnover. Since the CIT(A) has adjudicated the issue following the judgment of the jurisdictional High Court, no interference in his order is called for and accordingly we confirm the order of the CIT(A). Moreover, the order of the Hon’ble Karnataka High Court has been upheld by the Hon’ble Supreme Court in the case of CIT v. HCL Technologies Ltd. in Civil Appeal No.8489-98490 of 2013 & Ors. dated 24.04.2018. Consequently, ground Nos.2 and 3 raised by the Revenue is dismissed.