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2016 (1) TMI 1415 - AT - Income TaxDisallowance made under the head project risk expenses (PRE) - liquidated damages for breach of contract for delay in supply of goods - Allowable expenditure incurred for the purpose of business u/s 37(1) - HELD THAT:- As per the conditions of the agreement entered by the assessee with the HPCL, assessee had to compensate HPCL for delay in executing the project, that the factum of delay is not in dispute. Therefore, in our opinion the issue is directly covered by the decision of KCP Ltd. [1990 (6) TMI 111 - ITAT HYDERABAD-B] As relying on BHARAT EARTH MOVERS VERSUS COMMISSIONER OF INCOME-TAX [2000 (8) TMI 4 - SUPREME COURT] liquidated damages for breach of contract for delay in supply of goods are allowable deduction in the assessment year relevant to the point of time when the breach occurred and not the point of delivery of goods and raising of bills.Ground no.1 is decided in favour of the assessee for the two amounts i.e. ₹ 1.26 crores and ₹ 81.00 lacs.As far as ₹ 31.83 lacs is concerned we are of the opinion that AO should add back the PRE while computing deduction u/s. 10A/B in view of the decision of Hon'ble Jurisdictional High Court delivered in the case of Gem Plus Jewellery [2010 (6) TMI 65 - BOMBAY HIGH COURT] Adjustment on account of notional interest on overdue receivable - During the assessment proceedings,the AO found that the assessee had entered in to international transactions - HELD THAT:- The transaction in question is an international transaction and not a result of a transaction as argued by the AR.The assessee had provided specific services to its AE's therefore the series of events cannot be termed a result of international transaction. Once it has been decided that issue before us is a Transfer Pricing issue then the value of the transaction has to be determined. It is a case where the TPO has relied upon on the agreement entered into by the assessee with its AE and has treated it as a Benchmark.We find that no independent source was searched or relied upon by the him.It is a fact that the agreements with the third parties did not contain any clause for charging interest for delayed payment. Thus,the matter has its own peculiarities.The assessee has entered in to agreement with the AE.s.and value of the transaction will have to be decided.The arguments of factoring of delayed payment in the value of service cannot be brushed aside especially when it is found that the OPTC margin earned by the assessee was 29.41 % and it was quite higher than the parties compared with i.e.app.15%.The TPO had not considered these vital issues and had applied the flat rate of 2%,as mentioned in the agreement.In our,opinion the alternate argument advanced by the assessee of adopting LIBOR rate is worth considering,if the facts of the case under appeal are deliberated upon. In the interest of justice interest rate should be fixed at LIBOR+200 points for the delayed payments received by the assessee from its AE.s.for the period as mentioned in the agreements.AO is directed to recalculate the interest amount accordingly.Ground no.4-5 are decided in favour of the assessee,in part. Disallowance of expenditure under the heads ‘communication and network services’ and ‘IT Infrastructure Services’ - HELD THAT:- Assessee had filed invoices and the basis of payments made under the heads communication and network related services and IT Infrastructure service charge (page- 418-425 of the PB). It is found that assessee had made submission in that regard before FAA and had produced group IT Service agreement.We find that same were not properly analysed by the TPO/ FAA.We are of the opinion that issue needs further verification and investigations. Therefore, in the interest of justice we are remitting back the matter to the TPO for fresh adjudication who will decide the issue after affording a reasonable opportunity of hearing to the assessee. The assessee is directed to produce all the necessary documents related to Communication and network related services and IT Infrastructure service charge to the TPO Computation of deduction u/s 10A - reducing expenditure incurred in foreign currency for providing technical services from total turnover - HELD THAT:- Hon’ble Bombay High Court in assessee’s own case has decided the issue in íts favour for the AY.s. 2002-03-2005-06 [2013 (1) TMI 984 - BOMBAY HIGH COURT], [2013 (2) TMI 878 - BOMBAY HIGH COURT] and 2011 (7) TMI 1350 - BOMBAY HIGH COURT] wherein as held that the expenses reduced from the figure of export turnover should also be excluded from the figure of total turnover while computing deduction under section 10A & 10B
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