Dell International Services India Private Limited v. DCIT (ITAT Bangalore)
Benefit of Section 10A of the Act is Allowed on Enhanced Income Pursuant to Mutual Agreement Procedure (MAP) Resolution
Outcome: In favor of Assessee
Facts:
1. During the relevant year, the assessee has provided ITeS and Software Development Services (SWD) of INR 629,43,81,078 and INR 149,69,17,786 respectively for which a TP Adjustment to INR 154,56,23,611 towards ITeS and INR 22,98,32,484 towards SWD respectively was made by Ld. TPO.
ITeS Segment:
2. As far as TP Adjustment towards ITeS services is concerned, during the pendency of the appeal before Ld. CIT (A), the assessee’s AE in USA went to the MAP resolution as per Article 27 of India-USA DTAA for determining the ALP of this transaction. As per resolution dated 28.10.2015, the export income of the assessee was enhanced by INR 31,05,17,297.
3. AO passed the order u/r 44H (4) of the Rules and denied to allow deduction u/s 10A of the Act on such enhanced income arrived at in the MAP. Ld. AO allowed the deduction u/s 10A of the Act only to the extent of INR 132,97,49,723 based on the assessment order u/s 143 (3) of the Act.
4. CIT (A) upholds the decision of Ld. AO and held that adjustment made as per MAP resolution is not disclosed in the books of accounts of the assessee and hence, cannot be allowed for deduction. Thus, aggrieved assessee preferred appeal before the tribunal.
SWD Segment:
5. TPO rejected 14 out of 17 comparable companies chosen by the assessee and on his own chose 23 other comparable companies. Ld. TPO arrived at arithmetic mean of 24.13% of such 26 comparable companies as against the OPM of 16.11% of the Assessee and thereby made the upward adjustment of an amount INR 22,98,32,484.
6. CIT (A) upholds the TP Adjustments as made by Ld. TPO towards SWD services. Hence, aggrieved assessee preferred appeal before the tribunal.
Issues:
1. Hon’ble CIT (A) has erred in not allowing deduction u/s 10A of the Act on the enhanced export income amounting to Rs. 31,05,17,297 determined as per MAP resolution between the Competent Authorities of India and USA and as accepted by the assessee.
2. Hon’ble CIT (A) has erred in upholding the adjustment made by Ld. TPO despite the submission of the assessee that 14 out of 26 comparable companies as chosen by Ld. TPO for comparison purpose are not comparable to the assessee on account of functional dissimilarity, outsourcing of work, failing 25% employee-cost filter, ownership of intangibles, unavailability of segment break-up etc?
ITAT’s Decision:
ITeS Segment:
1. Hon’ble ITAT held that the taxpayer was to be allowed the benefit of section 10A with respect to the amount settled under the MAP.
Observations and findings of Hon’ble ITAT are:
2. As per First proviso to section 92C(4) of the Act, deduction u/s 10A will not be allowed in respect of amount of income by which the total income of the assessee is enhanced after computation of income u/s. 92C(4) of the Act by TPO which in turn is based on the Arm’s Length Price computed by Ld. AO pursuant to order of TPO passed u/s.92CA(3) of the Act.
3. The addition on account of determination of ALP can be in a different manner
