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2012 (12) TMI 592 - AT - Income TaxTransfer Pricing – Interest free advance to foreign associated enterprises – Held that:- As the TP adjustment is possible only in cases where comparable uncontrolled transactions entered into between two enterprises are established. Unless such an uncontrolled transaction is identified, no ALP adjustment is possible. The interest determined AO and confirmed by DRP is not an arms length rate determined in comparable uncontrolled transaction and therefore order be set aside in conformity with the Tribunal’s findings in the assessee’s own case for earlier years. In favour of assessee Disallowance of expenditure u/s 14A – AO disallow 5% of the dividend as expense incurred in relation to earn exempt income – AO argued that other expenses on corporate establishment should also be considered u/s 14A - Held that:- The disallowance u/s. 14A of the Act in the present case is restricted only to indirect expenses. The Assessee’s calculation is based on the time spent by the functionaries responsible for making investment of cash surpluses. Therefore, the quantum of disallowance estimated at 5% is on the higher side. An estimate of 2.5% of the dividend income in our view would be just, fair and reasonable. Issue partly allowed Set Off of losses – STP units claim deduction u/s 10A – Whether loss incurred by STP/SEZ unit is set off against income from Non STP/SEZ unit for same assessment year – Held that:- Following the decision of Tribunal in assessee’s own case in favour of the assessee. Set-off of loss allowed. In favour of assessee Contribution to Trust - Payment of such contributions as deferred compensation to the employee-director who separated from the Company is a payment by the trust on behalf of the assessee and hence eligible for deduction u/s 37(1) – Held that:- As the specific prohibition in Sec.40A(9) and keeping in mind the principle that when there are specific provisions governing a deduction then the general deduction allowable u/s.37(1), cannot be invoked, the disallowance made by the Revenue authorities had to be sustained. In favour of revenue Alternative claim of the Assessee that in the event of the disallowance being sustained, the action of the AO in allocating the aforesaid expenses to the profits of the units eligible for deduction u/s.10A which had gone to reduce the profits eligible for deduction u/s.10A cannot be sustained. The AO is therefore directed to computed the enhanced profits on which eligible deduction u/s.10A should be allowed. In favour of assessee Allocation of common expense – Expenses incurred by HO allocate to units which are eligible for deduction u/s.10A – Held that:- Following the decision in assessee’s own case for earlier years that when direct expenses of rates and taxes were known in respect of unit whose income is deductible u/s 10A then otherwise allocation cannot be made. The allocation of common expenditure cannot be made on the basis of revenue generated. Hence, direct expenditure disallowed by the AO is confirmed and disallow of 20% of common expenditure. In favour of assessee Deduction u/s 10A - AO refused to allow deduction u/s.10A on profits generated by overseas software development - AO was of the view that the revenue generated by the above Software Development Centers abroad are included in the revenues shown by the STP / SEZ units – Held that:- The issue requires to be remitted back to the AO and accordingly do so with a direction to the AO to follow the decision of Tribunal. Issue remand back to AO Exclusion from income while allowing deduction u/s 10A - AO excluded interest income, income generated from sale of scrap and exchange fluctuation – Held that:- Following the decision in case of assessee’s own case for earlier years that, as the amount received from the sale of scrap cannot be excluded for the purpose of computing deduction u/s 10A, foreign exchange gain due to fluctuation in the rate of rupee is to be included in the profit of the undertaking and is to be considered as eligible for deduction u/s 10A. And in respect of interest income AO has not treated the interest income as income from Other sources or has not held that such income does not belong to the undertaking to which section 10A is applicable. In favour of assessee Deduction u/s 10A – Whether deemed export is also part of export sale for the purpose of calculating the deduction u/s 10A – Held that:- Following the decision in assessee’s own case on identical issue and decided the issue against the assessee. In favour of revenue Computation of total turnover for claiming deduction u/s 10A – AO excludes the Foreign taxes (VAT/GST) from the total turnover while computing deduction u/s.10A – Held that:- Following the decision in assessee’s own case for earlier years that once this sum is not included in export turnover, then the same cannot be included in the total turnover. In favour of revenue
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