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Income Tax Appellate Tribunal, “A” BENCH : BANGALORE
Before: SHRI A.K. GARODIA & SHRI LALIET KUMAR
O R D E R
Per A.K. Garodia, Accountant Member
This is a revenue’s appeal directed against the assessment order passed by the Assessing Officer u/s. 143(3) r.w.s. 144C (13) of the Income- tax Act, 1961 [hereinafter referred to as “the Act”] on 23.01.2015 for the assessment year 2010-11 as per the DRP directions.
The grounds raised by the revenue are as under:-
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1. Deduction u/s 10A i) On the facts and in the circumstances of the case the Dispute Resolution Panel erred in law in directing the Assessing Officer to reduce expenses incurred in foreign currency on telecommunication and travelling both from the Export Turnover and as well as Total Turnover for the purpose of computation of deduction u/s 10A of the IT Act without appreciating the fact that the statute allows exclusion of such expenditure only from the ETO by way of specific definition of export turnover defined in the Act. On the other hand, there is no specific provision in 10A warranting exclusion of the above expenses from the total turnover also. ii) The DRP also erred in placing reliance on the decision of the Hon'ble High Court of Karnataka in the case of M/s Tata Elxsi Ltd., which has not become final since the same has been not accepted by the Department and SLPs are pending before the Hon'ble Supreme Court.
2. Turnover filter i) The learned DRP Member erred in holding that the size and turnover of the company are deciding factors for treating a company as a comparable and accordingly erred in excluding M/s Tata Elxsi Limited, Sasken Communication Technologies Ltd., Persistent Systems Ltd., Mindtree Ltd., L & T Infotech and Infosys Limited as comparables. ii) The Learned DRP Member erred in excluding uncontrolled comparables having turnover more than Rs.200 crores in the absence of Turnover criterion prescribed in Rule 10B of Income Tax Rules and also there being no correlation between turnover and profit margin. 2. RPT Filter The Hon'ble DRP has erred in applying 0% RPT.
3. Risk Adjustment i) In so far as the issue of working capital adjustment is concerned, whether the learned DRP is justified in holding that capital adjustment has not been provided as it has negative impact. This is IT(TP)A No.349/Bang/2015 Page 3 of 6
because working capital adjustment is given to increase comparability on the uncontrolled comparable with tested party and not to provide benefit to the assessee. Incidentally, the adjustment may or may not lead to a benefit for the assessee. In the instant case wrong capital adjustment made by the TPO. ii) Whether the learned DRP is justified in directing the TPO to grant risk adjustment without advising any reasonable accurate method in the absence of which the TPO had not provided the same.”
The ld. DR of revenue supported the assessment order, whereas the ld. AR of assessee supported the order of DRP. He also submitted that the assessee’s appeal for the same assessment year was decided by the Tribunal in IT (TP) A No.458/Bang/2015 dated 14.05.2015 and he submitted a copy of this Tribunal’s order. It was also submitted that at that point of time, the assessee was not aware about the appeal of revenue, which has been filed on 11.03.2015. It was further pointed out that as per this Tribunal’s order, the Tribunal has restored back the matter to the file of AO/TPO for a fresh decision regarding claim of assessee for exclusion of KALS Information Systems (Seg.).
He further submitted that the DRP has adopted 0% RPT filter, but now the Tribunal is adopting and approving 15% RPT filter and once 15% RPT filter is adopted instead of 0% RPT filter, some comparables excluded by the DRP will come back. It was also submitted that the turnover filter adopted by the DRP is the upper filter of Rs.200 Crores turnover but the Tribunal is now adopting the upper turnover filter of 10 times the turnover of IT(TP)A No.349/Bang/2015 Page 4 of 6 the assessee company. He submitted that under these facts, the TP issue involved in the appeal of revenue may also be restored back to the file of TPO for fresh decision simultaneously with the decision on TP issue restored back by the Tribunal to the file of TPO while deciding the appeal of assessee for the same assessment year.
Regarding the issue in respect of deduction u/s. 10A of the Act, he submitted that this issue is covered in favour of assessee by the judgment of Hon’ble High Court of Karnataka in the case of Tata Elxsi Ltd., 349 ITR 98 (Karn).
We have considered the rival submissions. We find that in the present appeal of the revenue, one issue involved is regarding quantum of deduction allowable to the assessee u/s. 10A which has been reduced by the AO by reducing the export turnover on account of expenses incurred in foreign currency on telecommunication and travelling. The DRP has held that same expenses be reduced from the export turnover as well as from total turnover. Now this issue is covered in favour of assessee by the judgment of Hon’ble High Court of Karnataka rendered in the case of Tata Elxsi Ltd. (supra) wherein it was held by the Hon’ble High Court of Karnataka that total turnover is sum total of export turnover and domestic turnover and therefore, if an amount is reduced from the export turnover, then total turnover also goes down automatically by the same amount.
Since the decision of the DRP on this issue is in line with this judgment of IT(TP)A No.349/Bang/2015 Page 5 of 6 Hon’ble High Court of Karnataka, we find no reason to interfere in the order of DRP on this issue. Accordingly, ground No.1 of revenue is rejected.
The remaining grounds of revenue’s appeal are in respect of TP issues, which are in respect of turnover filter, RPT filter and risk adjustment. The DRP has adopted the turnover filter of Rs.200 crores and RPT filter of 0%, whereas the Tribunal is now adopting turnover filter of 10 times the assessee’s turnover and 15% RPT filter. With the change of these two filters, some comparables which were rejected by applying these filters will come back and then these comparables have to be examined on other aspects. Therefore, we feel it proper to restore all the TP issues to the file of the AO/TPO for a fresh decision after applying proper turnover filter and proper RPT filter. Needless to say that AO/TPO should allow adequate opportunity of being heard to the assessee.
Regarding risk adjustment also, we feel it proper to restore back the matter to the file of AO/TPO for a fresh decision because it was held by the DRP that no working capital adjustment is to be allowed because it had negative impact. In our considered opinion, whether the impact is negative or positive is not relevant to decide as to whether any adjustment is to be made or not. Therefore, the issue regarding adjustment on account of risk adjustment and working capital adjustment is also restored back to the file of AO/TPO for a fresh decision.
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In the result, the appeal of revenue is partly allowed for statistical purposes.
Pronounced in the open court on this 22nd day of February, 2017.