TMI Blog2016 (3) TMI 1396X X X X Extracts X X X X X X X X Extracts X X X X ..... he said case the assessee had benchmarked its international transaction relating to interest rate charged at international rate. The benchmarking was adopting at foreign currency City Bank rates. The TPO rejected the benchmarking made by the assessee and adopted the BPLR. We hold that the DRP has erred in confirming the findings of the TPO in adopting BPLR rates. The TPO is directed to recompute the interest rate by adopting WIBOR + 1% in respect of the international transaction under appeal. Accordingly, ground no. 3 raised in the appeal is allowed. Claim of deduction u/s.10A - HELD THAT:- We find that identical issue had come up before the Tribunal in appeal of the assessee for the assessment years 2005-06 and 2006-07. The Tribunal decided the issue in favour of the assessee. The relevant extract of the order of the Tribunal [ 2015 (12) TMI 398 - ITAT PUNE ] held that the deduction under section 10A of the Act has to be given at the stage when the profits and gains of the business are computed in the first instance. - ITA No. 1510/PN/2011 - - - Dated:- 4-3-2016 - SHRI R.K. PANDA, AM AND SHRI VIKAS AWASTHY, JM For The Assessee : Shri Kishor Phadke For The Rev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oncerned. Accordingly, the TPO rejected the benchmarking adopted by the assessee. The TPO for benchmarking the transaction, proposed to adopt CUP method at Banking Prime Lending Rate (BPLR) of State Bank of India (SBI) @ 12.25%, the rate as was applicable on 31-03-2007. The assessee raised objection to the BPLR proposed by the TPO for benchmarking the transaction. The TPO rejected the contentions of the assessee and computed the Arm s Length Price (ALP) by considering the rate of BPLR (12.25%) as the benchmark rate and made an adjustment of ₹ 2,27,807/- in respect of international transaction towards interest receivable from its AE. 3. During the year, the assessee had declared turnover of ₹ 315.78 Crores. The assessee filed its return of income on 30-10-2007 declaring total income as NIL, after claiming the benefit of deduction u/s. 10A on the eligible STP units. The assessee computed deduction before setting off the profits of the eligible units with the losses of other eligible /non-eligible units and the brought forward losses from assessment year 2005-06. The Assessing Officer in draft assessment order dated 21-10-2010 disallowed the claim of deduction u/s. 10A. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and DRP. Further, the ld. AR to strengthen his submissions placed reliance on the decision rendered by the Hon'ble Bombay High Court in the case of Commissioner of Income Tax Vs. Tata Autocomp Systems Ltd. reported as 276 CTR 481 (Bom) and the decision of Mumbai Bench of the Tribunal in the case of Deputy Commissioner of Income Tax Vs. Tech Mahindra Ltd. reported as 46 SOT 141 (Mumbai)(URO). The ld. AR also placed reliance on the decision of Co-ordinate Bench of the Tribunal in the case of Varroc Engineering Pvt. Ltd. Vs. The Asstt. Commissioner of Income Tax in ITA No. 2482/PN/2012 for the assessment year 2008-09 decided on 30-12-2014. The ld. AR submitted that the Co-ordinate Bench of the Tribunal after considering several decisions including the decision rendered in the case of Deputy Commissioner of Income Tax Vs. Tech Mahindra Ltd. (supra) has held that where the transaction is between the assessee and its associated enterprise in foreign currency then the same had to be looked into by applying commercial principle in regard to international transactions. 7. In respect of grounds of appeal no. 5 and 6, the ld. AR submitted that the similar issue had come up before the C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee had benchmarked its international transaction relating to interest rate charged at international rate. The benchmarking was adopting at foreign currency City Bank rates. The TPO rejected the benchmarking made by the assessee and adopted the BPLR. The Co-ordinate Bench decided the issue by observing as under: 13. During the year under consideration, interest of ₹ 2,91,82,060/- had accrued as interest on loan granted to its associated enterprises. The assessee had granted loan to M/s. Varroc European Holding BV Netherlands Euro 1,00,00,000 and repayment of loan of Euro 5,00,000, hence during the year, the effective loan amounted to Euro 96,30,000 which was equivalent to ₹ 55,21,57,400/-. The assessee had charged interest @ 4.75% per annum. As per the TPO, the rate prevailing as per LIBOR +, for the year ending 31.03.2008 was 6.79%. The TPO tabulated the transactions of granting of loan and the interest charged by the assessee and computed the proposed adjustment as under:- (Amt. in Rs.) Description Varroc European Holding BV Netherlands [A] ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .25% i.e. the BPLR of the SBI was taken as benchmark rate and the differential quantum of interest on the loan advanced to the subsidiaries, amounting to ₹ 4,41,74,661/- was added to the value of international transactions to arrive at the arm's length price of the international transactions. The TPO dis-regarded the LIBOR+ rate of 6.75% as not the benchmark applied by the assessee as according to that rate, the interest should have been charged at ₹ 4,03,52,970/- whereas it had only charged ₹ 2,86,27,089/-. In view thereof, an adjustment of ₹ 4,41,74,661/- was made in the hands of the assessee. The said order of TPO has been upheld by DRP. 15. In the facts of the present case, the assessee had advanced money in the form of share application money which were later converted into loan on the advice of European Consultants. On such advance made to its associated enterprises, the assessee had charged interest @ 4.75%. While benchmarking the international transactions what has to be seen is the comparison between related transactions i.e. where the assessee has advanced money to its associated enterprises and charged interest then the said transaction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dollars, and assessee was also receiving interest from the associated enterprises in Indian rupees. Once the transaction between the assessee and the associated enterprises was in foreign currency and the transaction was an international transactions, then the transaction would have to be looked upon the applying the commercial principles in regard to international transactions. If that was so, then the domestic prime lending the rate would have no applicability and the international rate fixed being LIBOR would come into play. In the circumstances, the view that LIBOR rate had to be considered while determining the arm's length price interest rate in respect of the transaction between the assessee and the associated enterprises was to be upheld. As it was noticed that the average of the LIBOR rate for 1-4-2005 to 31- 3-2006 is 4.42 per cent and the assessee had charged interest at 6 per cent which was higher than the LIBOR rate, no addition on this account was liable to be made in the hands of the assessee. In the circumstances, the addition made by the Assessing Officer on this count was deleted. 17. The Mumbai Bench of the Tribunal in DCIT Vs. Tech Mahindra Ltd. (201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respect of the international transaction under appeal. Accordingly, ground no. 3 raised in the appeal is allowed. 12. The second issue raised in the present appeal is with respect to claim of deduction u/s. 10A of the Act. We find that identical issue had come up before the Tribunal in appeal of the assessee for the assessment years 2005-06 and 2006-07. The Tribunal decided the issue in favour of the assessee. The relevant extract of the order of the Tribunal in ITA Nos. 1508 1509/PN/2011 (supra) is as under: 12. We have heard the rival contentions and perused the record. The assessee is engaged in export of software and IT enabled services. During the year under consideration the assessee was running eight units at different places and five of which units had declared positive profits and the balance three units declared losses for the captioned assessment year. The assessee was entitled to claim deduction u/s. 10A of the Act in respect of export of software. The assessee computed the deduction u/s. 10A of the Act by treating each of the unit as separate unit/undertaking and claimed the deduction at ₹ 24,55,53,914/-. The losses from three units aggregating ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exempted from tax under section 10B, the loss of that unit was wrongly set off against the normal business income. The Hon'ble High Court noted that after the substitution of section 10B of the Act by the Finance Act of 2000, the provisions provided for deduction of such profit or gains as were derived by 100% EOU for the period prescribed under that section. The Hon'ble High Court thus held that the basis on which the assessment was sought to be reopened was belied by a plain reading of the provisions and the Assessing Officer was in error in proceeding on the basis that because the income was exempted, the loss was not allowable. The Hon'ble High Court further considered that all the four units of the assessee were eligible under section 10B, out of which three units had returned profits during the course of the assessment year, while the Crab stick Unit had returned a loss. The High Court further held that The assessee was entitled to a deduction in respect of the profits of the three eligible units while the loss sustained by the fourth unit could be set off against the normal business income. In these circumstances, the Hon'ble High Court held that the basis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eturned profit during the course of assessment year and one unit had returned the loss, the assessee was entitled to deduction in respect of the profits of three eligible units, while the loss sustained by the fourth unit could be set off against normal business income. Applying the said ratio to the facts of the present case we are of the view that the deduction u/s. 10A and 10B are units specific in contradiction to be assessee specific. The assessee while claiming the deduction u/s. 10A of the Act in respect of each of its unit has to satisfy the conditions viz-a-viz each unit/undertaking. Even the quantification of amount of deduction has to be worked out independently in each unit . The assessee before us has furnished on record the audit report in Form No. 56F in respect of each of the unit against which it has claimed the deduction under section 10A of the Act. The quantification of the deduction under section 10A of the Act is to be worked out independently for each eligible unit and in case after the deduction so claimed under section 10A of the Act, there are profits in the hands of the assessee for such unit then the same can be set off against the losses, if any, incu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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