TMI Blog2015 (4) TMI 716X X X X Extracts X X X X X X X X Extracts X X X X ..... ly covered in favour of the assessee. The coordinate Bench of this Tribunal held that it is not permissible for the Assessing Officer to work out deduction under section 10A on the basis of arm's length price profit generated out of the order of the Transfer Pricing Officer. - Decided in favour of the assessee Foreign exchange gain - whether it should be taken as part of export turnover or not? - Held that:- As decided in the case of CIT v. Pentasoft Technologies Ltd. [2010 (7) TMI 75 - MADRAS HIGH COURT] gains due to fluctuation in the foreign exchange is directly related to export sales of the assessee and therefore, it cannot be treated as other than part of profit from export. Similar view has been expressed by the hon'ble Bombay High Court in the case of CIT v. Gem Plus Jewellery India P. Ltd. [2010 (6) TMI 65 - BOMBAY HIGH COURT]. Here in the case of the assessee the gain in foreign exchange is also in connection with the export sales, respectfully following the above decision of the hon'ble jurisdictional High Court, we hold that the foreign exchange gain has to be considered as part of the export turnover for the purpose of computing deduction under section 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ). - This appeal is filed by the assessee against the order of the Assistant Commissioner of Income- tax, Company Circle, Chennai passed under section 143(3) read with section 144C(8) read with section 92CA(3) of the Act on the directions of the Dispute Resolution Panel. 2. The first issue in the grounds of appeal Nos. 2.1 to 2.4 is with regard to challenging the validity of draft assessment order passed under section 143(3) read with section 144C of the Act. 3. Counsel for the assessee submits that it was the contention of the assessee that since there is no transfer pricing adjustment proposed by the Transfer Pricing Officer in his order, the Assessing Officer cannot pass draft assessment order under section 144C read with section 143(3) of the Act. Counsel for the assessee fairly concedes that this issue is covered against the assessee by the decision of the co-ordinate Bench of this Tribunal in the case of Visual Graphics Computing Services (India) P. Ltd. v. Asst. CIT [2012] 15 ITR (Trib) 393 (Chennai). Respectfully following the above order of the coordinate Bench of this Tribunal, we dismiss grounds Nos. 2.1 to 2.4 of the assessee challenging the validity of draft a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rprises. The assessee has declared its arm's length price for the sales to associated enterprises at ₹ 19,60,38,865. The assessee has adopted the transactional net margin method as the most appropriate method. The assessee has given 13 comparable companies. The Transfer Pricing Officer determined the arm's length price for sale of the assessee- company initially at ₹ 15,43,83,731 vide order under section 92CA(3) dated January 29, 2010 which was subsequently modified to ₹ 4,90,51,116 vide order dated February 24, 2011. The Transfer Pricing Officer has not made any adjustment to the value of international transactions of the assessee-company while passing the order under section 92CA(3) dated October 29, 2010 and modification order dated February 24, 2011. The Assessing Officer was of the view that since the assessee has overstated its sales at ₹ 19,60,38,865 to claim excess deduction under section 10B of the Act as against the arm's length price of sales at ₹ 4,90,51,116 as determined by the Transfer Pricing Officer. Therefore, on the directions of the Dispute Resolution Panel, the Assessing Officer reduced the difference of ₹ 4,69,87, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt case. The Assessing Officer has made the reference to the Transfer Pricing Officer under section 92CA. The reference is made for the purpose of computing income arising from an international transaction with regard to the arm's length price as provided in section 92. Therefore, it is to be seen that the scope and extent of reference made by the Assessing Officer to the Transfer Pricing Officer is confined to the singular purpose stated in section 92. Sections 92A, 92B, 92C, 92CB, 92D, 92E and section 92F are all, precisely defining and facilitating provisions ultimately for the purpose of computing the income as stated in section 92. All the above stated sections provided in Chapter X of the Income-tax Act, 1961 belong to a separate code as such, enacted for the purpose of computing income from international transactions having regard to the arm's length price so as to confirm that there is no avoidance of tax by an assessee. Therefore, where in a case, the Transfer Pricing Officer suggests that the operating profit declared by an assessee is compatible to the arm's length price norms and no adjustment is necessary, the operation of all those provisions come to an en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 10B(7) so as to reduce the eligible profits on the basis of the arm's length price computed by the Transfer Pricing Officer without showing how he determined that the assessee had shown more than 'ordinary profits'. 28. As rightly argued by learned senior counsel, the arm's length price is determined on the basis of the most appropriate method. Most appropriate method is chosen either on profit basis method or price basis method. In the latter case, profits are not at all considered. In that method, profit is only a derivative of prices. When profits itself is not worked out, how it is justified to adopt the arm's length price profits to determine what is 'ordinary profits' for the purpose of section 10A(7) ? 29. In the facts and circumstances of the case, we hold that the Assessing Officer has erred in reducing ₹ 4,48,50,795 from the eligible profits of the assessee under section 10A. The said adjustment made by the assessing authority in computing the deduction under section 10A is accordingly, deleted 30. This issue is decided in favour of the assessee. 8. Respectfully following the above ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s on account of foreign exchange fluctuation has to be considered for the purpose of exclusion from the export turnover and such gain/loss cannot be reduced from the total turnover in computing the deduction under section 10B of the Act. 14. Heard both sides. Perused the orders of the lower authorities and the decisions relied on. In so far as grounds Nos. 3.5.1 to 3.5.5 are concerned, i.e. in respect of the foreign exchange gain, whether it should be taken as part of export turnover or not, we find that the hon'ble jurisdictional High Court in the case of CIT v. Pentasoft Technologies Ltd. [2012] 347 ITR 578 (Mad) has held that gains due to fluctuation in the foreign exchange is directly related to export sales of the assessee and therefore, it cannot be treated as other than part of profit from export. Similar view has been expressed by the hon'ble Bombay High Court in the case of CIT v. Gem Plus Jewellery India P. Ltd. [2011] 330 ITR 175 (Bom). Here in the case of the assessee the gain in foreign exchange is also in connection with the export sales, respectfully following the above decision of the hon'ble jurisdictional High Court, we hold that the foreign exchang ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the memo of income adjusted for Income-tax purposes for the assessment year 2007-08, submits that the Assessing Officer has erroneously adopted the book profit of ₹ 30,85,21,693 which is the figure of profit as per the profit and loss account while computing deduction under section 10B of the Act instead of adopting the profits and gains of business of ₹ 31,09,15,618 as required under section 10B of the Act. Therefore, he pleaded that the issue may be sent back to the Assessing Officer for reworking out of deduction allowable under section 10B of the Act to which the Departmental representative has no serious objection. 18. On reading of the provisions of section 10B of the Act, prima facie, we feel that the deduction is allowable on the profits and gains of the undertaking and not on the profits as per the profit and loss account, as rightly contended by counsel for the assessee. Therefore, we remit this issue back to the file of the Assessing Officer to examine this issue and decide in accordance with law. The ground raised by the assessee on this issue are allowed for statistical purposes. 19. In the result, the appeal of the assessee is partly allowed for ..... X X X X Extracts X X X X X X X X Extracts X X X X
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