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2023 (1) TMI 1292 - ITAT MUMBAIDeduction u/s 10A - interest income has not been derived from exempt industrial undertaking - HELD THAT:- We are of the considered view that earning interest from the surplus funds deposited with bank, bonds as well as loans to the employees and subsidiaries are eligible for deduction under section 10A of the Act subject to the quantification and attribution of such interest to 10A units by the AO. The assessee shall furnish evidence to established its claim u/s 10A of the act which as derived from business of Software Technology Park of India (STPI) units. So ground No.1 of the assessee is allowed subject to the verification and quantification by the AO. Disallowance u/s 14A - expenditure incurred on earning exempt income - HELD THAT:- Honourable High Court of Bombay in case of CIT vs. Sociedade De Fomento Industrial (P.) Ltd. [2020 (11) TMI 277 - BOMBAY HIGH COURT] held that "no doubt expenditure u/s 14A includes both direct and indirect expenditure but that expenditure must have a proximate relationship with exempt income and surmises or conjunctures is no answer." So in the instant case when the assessee has purchased UTI bonds in 1998 and earned interest income thereon in A.Y. 2005 – 06 no proximate relationship in the expenditure disallowed by the AO with the exempt income has been established but mechanically applied rule 8D which is not applicable for the year under consideration. So in these circumstances we are of the considered view that disallowance made under section 14A by the AO and confirmed by the Ld. CIT(A) is not sustainable in the eyes of law. Computation of deduction of deduction 10A - AO is directed to allow the assessee's claim of deduction u/s 10A of the Act by including the same both in the total turnover as well as export turnover. AO has added back the amount of losses of the assessee's Chennai unit and Goregaon units on the ground that section 10A is an exemption section and not a deduction section - HELD THAT:- Since the issue is no longer res-integra having been covered by the order passed in Scientific Atlanta India Technology (P) Ltd [2010 (2) TMI 658 - ITAT, CHENNAI] and this issue has also been decided in favour of the assessee in case of CIT vs. Yokogawa India Ltd. [2016 (12) TMI 881 - SUPREME COURT] we find no illegality or perversity in the impugned findings. Hence, ground numbers 2 and 3 are determined against the Revenue. Addition on account of notional interest from overseas subsidiaries on account of outstanding balances lying with them - HELD THAT:- As we are of the considered view that when undisputedly AEs are not the end customers and their remittance to the assessee in turn depends upon the remittances by the end customers it cannot be said that the AEs have benefited because of delay in remitting the receivables. These facts have been duly thrashed by the Ld. CIT(A). So we find no illegality or perversity in the impugned findings returned by the Ld. CIT(A). Hence, ground decided against the Revenue. Addition on account of interest charged to the overseas subsidiaries in respect of the loans granted to them as well as deemed guarantee charge - CIT(A) deleted this addition which is under challenge - HELD THAT:- CIT(A) has rightly reached the conclusion that when the interest has already been charged by the average LIBOR rate as discussed in the impugned order the adjustment made by the Ld. TPO/AO on account of arms length is not sustainable in the eyes of law and similarly adjustment made by the assessee on account of guarantee fees also not sustainable as AEs have directly taken the loan from the assessee and as such there is no question of making payment of guarantee fee. So we find no ground to interfere into the findings returned by the Ld. CIT (A). Hence determined against the Revenue.
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