2020 (11) TMI 819 - AT - Income Tax

Denial of claim of deduction u/s 10AA on transfer pricing adjustment made by the assessee voluntarily - HELD THAT - We notice that an identical issue has been examined by the Bengaluru bench of Tribunal in the assessee s own case in assessment year 2010-11 2020 (5) TMI 548 - ITAT BANGALORE and it has been decided in favour of the assessee by following the decision rendered by the Pune Bench of Tribunal in the case of Apoorva Systems Pvt. Ltd. 2018 (3) TMI 1031 - ITAT PUNE - Decided against revenue.

Summary

Issues Involved:
1. Dismissal of Ground No. 2.
2. Levy of interest under Section 234B of the Income-tax Act, 1961.
3. Denial of claim of deduction under Section 10AA of the Income-tax Act on voluntary transfer pricing adjustment.

Issue-wise Detailed Analysis:

1. Dismissal of Ground No. 2:
The appellant did not press Ground No. 2 during the hearing. Consequently, this ground was dismissed as not pressed.

2. Levy of Interest under Section 234B:
Ground No. 3 pertains to the levy of interest under Section 234B of the Income-tax Act, 1961. This issue was deemed consequential in nature and was not elaborated upon in the judgment.

3. Denial of Claim of Deduction under Section 10AA:
The primary issue contested was the eligibility to claim a deduction under Section 10AA of the Income-tax Act on the voluntary transfer pricing adjustment made by the assessee. The assessee, a 100% subsidiary of EYGI B.V., Netherlands, engaged in providing Information Technology Enabled Services (ITES), had made a voluntary transfer pricing adjustment and claimed a deduction under Section 10AA on this amount.

The Tribunal referenced its earlier decision in the assessee's own case for the assessment year 2010-11, where a similar issue was decided in favor of the assessee. The Tribunal followed the decision rendered by the Pune Bench in the case of Apoorva Systems Pvt. Ltd. and the decision in I-Gate Global Solutions Ltd., which was upheld by the Hon’ble High Court of Karnataka.

The Tribunal noted that the assessee had voluntarily made a transfer pricing adjustment of Rs. 8,11,70,000 and included this amount in the total income while filing the return. The assessee also claimed a deduction under Section 10AA on the profits of the business, including the adjusted amount. The Dispute Resolution Panel (DRP) had previously denied this claim, arguing that the assessee did not provide sufficient details on how the adjustment figure was determined and that the amount would not be brought into India as foreign exchange within the prescribed period.

However, the Tribunal found that the assessee had indeed furnished the details of the voluntary transfer pricing adjustment and had determined the adjustment scientifically by comparing margins of comparable companies. The Tribunal held that the DRP was not justified in treating the adjustment as an ad-hoc amount and noted that the decision in I-Gate Global Solutions Ltd. supported the assessee's claim for deduction under Section 10AA on voluntary transfer pricing adjustments.

The Tribunal also referenced the Pune Bench's decision in Apoorva Systems (P) Ltd., which supported the inclusion of such adjustments in the business profits for the purpose of Section 10AA deductions. The Tribunal concluded that the artificial income from the transfer pricing adjustment, though not part of export turnover or total turnover, forms part of the business profits and should be considered for the deduction under Section 10AA.

Conclusion:
The Tribunal, consistent with its earlier view in the assessee's own case and supported by decisions in similar cases, held that the assessee is eligible for the deduction under Section 10AA of the Income-tax Act in respect of the voluntary transfer pricing adjustment. The appeal filed by the assessee was partly allowed, and the order was pronounced in the open court on 23rd November 2020.