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2018 (4) TMI 428 - AT - Income TaxDeduction u/s 10A - exclude the communication charges from the export turnover as well as total turnover - Held that:- The Hon'ble Bombay High Court in case of CIT v. Gem Plus Jewellery India Ltd. [2010 (6) TMI 65 - BOMBAY HIGH COURT] as well as ITO v. Sak Soft Ltd. (2009 (3) TMI 243 - ITAT MADRAS-D) have held that communication charges attributable directly to the export of article or thing outside India has to be excluded both from export turnover as well as total turnover while computing exemption u/s 10A of the Act. In view of the above, we are in agreement with the order of DRP and direct the AO to exclude the communication charges from the export turnover as well as total turnover while computing 10A deduction. Transfer pricing adjustment on account of corporate guarantee - Held that:- Assessee has provided corporate guarantee to its AE in the current AY without charging any fees for the same. The term 'guarantee' was inserted in the definition of international transaction by inserting an explanation in the Finance Act, 2012 with retrospective effect from 01/04/2012. There is no dispute that the corporate guarantee is an international transaction and different assessees are adopting different methods of treatment. Some assessees charges nominal rate to the AEs, whereas other assessees are treating this as shareholder service. Here, the assessee has objected to include this transaction as international transaction for the reason that the Finance Act, 2012, which has inserted an explanation, which will be applicable prospectively from AY 2013-14 and the corporate guarantee transaction will not be applicable to the current AY. Thus we reject the treatment of corporate guarantee as international transaction and consequently, ALP adjustment is not warranted on this aspect Unrealised gains on foreign exchange forward contracts - Held that:- Real gain/loss is only when the contracts are concluded. Therefore, recognition of this notional gain or loss depends upon accounting policies or method of accounting regularly followed by the assessee, since the assessee is following mercantile system of accounting, recognition of gain/loss are traceable over the years. Since, all the notional gain/loss are regularly declared by the assessee in its financial accounts. Therefore, in our opinion, assessee is consistently following a method of accounting and also discloses foreign currency transactions in its books of account and consistently following the same method of accounting over a period of time. As per the Instruction No. 03/2010 dated 23/03/2010 issued by CBDT notional losses are not allowed to set off against taxable income. Similarly, notional gain also should not be added to the taxable income. Therefore, in our considered view, assessee is allowed to follow its method of accounting followed by it consistently over the period and, therefore, notional gain on forex transaction should be allowed to reduce from the net profit, which is arrived for tax purpose. Accordingly, ground raised by the assessee is allowed.
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