2014 (4) TMI 1224 - HC - Income Tax

Adjustment contemplated by Section 10A - Tribunal has directed that the loss of one unit can be adjusted against the profit of another unit but after allowance of deduction under Section 10A of such profitable units - Held that - The Tribunal has directed that the loss of one unit can be adjusted against the profit of another unit but after allowance of deduction under Section 10A of such profitable units. The loss of one unit under Section 10A of the Act shall be adjusted against the income liable for deduction under the same section but in relation to the income from other unit. As far as that aspect is concerned the counsel agree that the same is answered in favour of the assessee and against the revenue. This controversy has been dealt with by a Division Bench of this Court in the case of Hindustan Uni Liver Ltd. v/s. Deputy Commissioner of Income Tax & anr. (2010 (4) TMI 206 - BOMBAY HIGH COURT) . Deduction of data line cost from export turn over - Deduction u/s 10A - Expenses which AO desired to pick were not incurred in relation to export and therefore cannot be termed as deductions permissible from export turnover - Held that - These expenses have been incurred for the purposes of the business of software development at the software units in India. It is that finding which the Assessing officer was unable to controvert or unable to bring any contrary material to disprove the same. Tribunal found that the AO could not have insisted on the deduction. It is that exercise undertaken by AO which has not been upheld but rather disapproved by the Tribunal. This is a finding purely on the facts and pertaining to the business of the assessee. The facts pertaining to the assessee s business of software development the charges and which are claimed to have incurred are in relation to the business of software development within India. They could not be said to be costs deductible from export turnover for the purposes of Section 10A of the Act. In such circumstances we are of the opinion that any wider controversy or larger question does not require any answer. Recompute the transfer pricing adjustment - Held that - The Tribunal may have expressed some prima facie opinion in relation thereto however it has directed the Assessing officer to complete the same after giving an opportunity to the assessee in accordance with law. We are unable to find any substance in the complaint of Mr.Tejveer Singh that direction of the Tribunal or prima facie observations are binding the Assessing Officer in the fresh exercise. When the exercise is afresh the Assessing officer is directed to act in accordance with law then we do not think that any prima facie observation of the Tribunal will bind the Assessing officer or guide him to consider the claim in the particular manner. Additionally we clarify that all contentions and objections in relation to this claim of both sides are kept open. The Assessing Officer shall decide the claim or issue strictly in accordance with law.

Summary

Issues:
1. Adjustment under Section 10A of the Income Tax Act, 1961
2. Deduction of data line cost from export turnover
3. Recomputation of transfer pricing adjustment

Analysis:
1. Adjustment under Section 10A: The appeal questioned the Tribunal's order regarding the adjustment contemplated by Section 10A of the Income Tax Act, 1961. The first ground related to adjusting the loss of one unit against the profit of another unit after allowing deduction under Section 10A. The Division Bench's judgment in a previous case was cited, agreeing that the adjustment should be made in favor of the assessee. The Court concluded that this issue was adequately addressed by the Division Bench and did not constitute a substantial question of law.

2. Deduction of data line cost from export turnover: The second issue involved the deduction of data line cost from export turnover. The Tribunal found that the expenses were not incurred in relation to exports but for software development within India. The Tribunal's decision was based on factual findings and legal precedents, concluding that the Assessing Officer's insistence on deduction was unjustified. The Court upheld the Tribunal's decision, stating that no substantial question of law arose from this issue.

3. Recomputation of transfer pricing adjustment: The last issue pertained to the Tribunal directing the Assessing Officer to recompute the transfer pricing adjustment. The Court clarified that the Tribunal's prima facie observations did not bind the Assessing Officer in the fresh computation. Both sides were allowed to present contentions, and the Assessing Officer was instructed to decide the issue strictly in accordance with the law. The Court dismissed the appeal, stating that no substantial question of law was involved in this matter.