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2020 (4) TMI 749 - AT - Income TaxDisallowance of deduction u/s 10B - HELD THAT - Wherein in respect of the claim of deduction u/s 10B of the Act a coordinate bench of this Tribunal found that by applying the decision of Textile Machinery Corporation Ltd. Vs. CIT 1977 (1) TMI 3 - SUPREME COURT CIT(A) had rightly extended the relief to the assessee u/s 10B of the Act and therefore the revenue cannot have any grievance against the same. It is not the case of the revenue that any appeal was preferred against the order or that this position was disturbed. It is not the case of Revenue that there is any change of facts and circumstances involved in this case to taken a different view. Transfer Pricing Adjustment - international transaction - international transaction in respect of firewall charges reimbursement to AE - HELD THAT - In the instant case the assessee has incurred expenditure and not making payment of mark-up is not adverse to the entity in Indian Jurisdiction. The assessee has claimed the expenditure paid by the AE on its behalf. The contention of the TPO is that the assessee was not required to incur the said expenses. But it was under jurisdiction of the Assessing Officer whether particular expenditure was incurred wholly and exclusively for the purpose of business and not in the domain of the TPO to hold that in view of the warranty etc. the assessee was not required to incur expenditure on firewall charges. The contention of the assessee seems plausible that motors were required to checked for content of moisture acquired in transport from India to the USA i.e. the destination point and it was the responsibility of the assessee to provide defect free motors to the end customers. Thus respectfully following the finding of EKL APPLIANCES LTD 2012 (4) TMI 346 - DELHI HIGH COURT we delete the transfer pricing adjustment.
Issues Involved:
1. Disallowance of deduction under Section 10B of the Income Tax Act. 2. Transfer pricing adjustment related to the payment of testing, warranty repair, and service charges fee to Associated Enterprises (AEs). 3. Levying of interest under sections 234B and 234D of the Act. 4. Initiation of penalty proceedings under section 271(1)(c) of the Act. Issue-wise Detailed Analysis: 1. Disallowance of Deduction under Section 10B: - The assessee claimed a deduction under Section 10B for its newly established Export Oriented Unit (EOU). The Assessing Officer (AO) disallowed this deduction, asserting that the EOU was merely an expansion of an existing unit and not a newly established independent unit. - The Dispute Resolution Panel (DRP) upheld the AO's decision, stating that the new unit was not an integrated new unit and hence not eligible for the deduction. - The assessee argued that the eligibility conditions for the deduction were already examined and approved in the initial year of the claim, citing the decision of the Hon’ble Delhi High Court in CIT Vs. Tata Communication Internet Services Ltd. - The Tribunal found that the issue was covered in favor of the assessee by earlier orders of the Tribunal for assessment years 2005-06 and 2006-07, where similar disallowances were deleted. Consequently, the Tribunal deleted the disallowance of the deduction under Section 10B for the assessment year 2007-08 and 2009-10. 2. Transfer Pricing Adjustment: - The AO, based on the Transfer Pricing Officer's (TPO) findings, made an adjustment by determining the arm's length price of the international transaction for payment of testing, warranty repair, and service charges fee as NIL. - The assessee contended that the payment was for testing motors to ensure they met quality standards, which was necessary to maintain brand reputation and avoid potential liabilities. - The TPO argued that such payments were unnecessary, duplicative, and should not have been incurred, benchmarking the transaction at NIL. - The Tribunal, referencing the Hon’ble Delhi High Court’s decision in EKL Appliances Ltd., held that the TPO is not authorized to make a wholesale disallowance of expenditure based on extraneous reasoning. The Tribunal found the assessee's expenditure justifiable and deleted the transfer pricing adjustment for both assessment years. 3. Levying of Interest under Sections 234B and 234D: - The AO levied interest under sections 234B and 234D of the Act. - The Tribunal did not specifically address the issue of interest levied under these sections in the detailed analysis provided. 4. Initiation of Penalty Proceedings under Section 271(1)(c): - The AO initiated penalty proceedings under section 271(1)(c) of the Act. - The Tribunal did not specifically address the initiation of penalty proceedings in the detailed analysis provided. Conclusion: - The Tribunal allowed the appeals of the assessee for both assessment years 2007-08 and 2009-10, deleting the disallowance of deduction under Section 10B and the transfer pricing adjustments made by the AO. The issues of levying interest under sections 234B and 234D and the initiation of penalty proceedings under section 271(1)(c) were not specifically addressed in the Tribunal's detailed analysis.
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