TMI Blog2015 (7) TMI 110X X X X Extracts X X X X X X X X Extracts X X X X ..... e Act, therefore, the CIT(A) also cannot enlarge the same. We, accordingly, set aside the findings of the ld. CIT(A)- Decided in favour of assessee. Disallowance of deduction u/s 10B in respect of the addition suo motu made by the assessee u/s 92-C - Held that:- In our considered opinion and understanding of the law and the understanding of the legislative intention, we cannot permit the assessee to stretch the benevolent provision to avail the benefit which the legislature never intended to. In the case in hand, there is no dispute that the assessee has under priced its services to AE’s and therefore made transfer pricing adjustment suo moto. This peculiar conduct of the assessee, if allowed to claim deduction u/s 10B of the Act will go against the legislative intention. We, therefore, decline to interfere with the finding of the lower authorities. In our considered opinion, the assessee is not entitled for deduction u/s 10B in respect of the addition of ₹ 4,09,54,804/- suo moto made by the assessee as per Form 3CEB. The cases relied upon by the assessee have not considered the relevant provisions of the Act with legislative intent and are therefore distinguished from pec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... adjustment was not brought into India, the CIT-1, Vishakhapatnam held that the order u/s 143(3) of the Act dtd. 29-3-2006 was erroneous and prejudicial to the interest of Revenue. The CIT-1 further noticed that the export turnover was to the tune of ₹ 6.56 crores, therefore, the A.O. should have referred the matter to the Transfer Pricing Officer (TPO) for the determination of arm s length price as per Instruction No. 3 of CBDT dated 20-5-2003. The CIT -1 accordingly directed the A.O. to refer the question of determination of transfer pricing to the TPO and finalise the assessment de novo. 4. Pursuant to the direction of the CIT -1 u/s 263 of the Act, the A.O. proceeded by issue of notice u/s 143(2) of the Act. The matter was referred to the TPO and after considering the facts and detail submission of the assessee the A.O. finally computed the income as under:- Total Sales as shown in ROI : Rs.6,27,75,153/- Less: w/w the foreign exchange not realized : Rs.4,09,45,804/- Eligible sales turnover for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . CIT(A) at para 6.1 of his order held as under:- After considering the learned authorized representative and on a careful consideration of the facts relating to the issue, it may be stated that there is substantial force in the contention of the appellant that the assessing officer ought not to have touched upon issues that were not directed by the Commissioner in the proceedings u/s 263 of the Act. However, it needs to be stated that the Commissioner of Income tax (Appeals) being the first appellate authority, his powers under the Act are coterminous with that of the assessing officer, and further he is vested with plenary powers do what an assessing officer can do as well do that an assessing officer has failed to do in accordance with law. Since a decision has been rendered to the effect that the expenditure incurred at Mumbai on research and development has a direct nexus with the export business of the appellant at Vizag, and such expenditure must have to be treated as an integral revenue expenditure of the appellant s export business, the grounds relating to this issue have been rendered redundant and otiose. Aggrieved by this, the assessee is before us. 6. Before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s made export turnover of ₹ 6,27,75,153/- and derived net profit of ₹ 4,69,58,722/- from STPI unit. The A.O. further observed that the assessee has admitted total income of ₹ 9,63,989/- which was set off against brought forward losses. The total income before exemption u/s 10B of the Act amounting to ₹ 50,26,347/- was claimed. The A.O. further noticed that the assessee itself has admitted that foreign exchange to the tune of ₹ 4,09,45,804/- was not realized in India within six months, therefore, as per the provisions of section 10B(3) of the Act the assessee was not entitled for the exemption. The assessee was asked to explain its claim. The assessee vide its letter dated 13-11-2009 stated that all the export turnover reported in the books have been received in convertible foreign exchange within the stipulated time, therefore, the claim of exemption should be allowed. This submission of the assessee did not find favour with the A.O. who was of the firm belief that the increased profit of ₹ 4,09,45,804/- on account of transfer pricing adjustment was not brought into India by the assessee in convertible foreign exchange therefore deduction u/s 10B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deduction u/s 10B of the Act can be denied to the assessee as per the proviso to section 92-C of the Act. The proviso to section 92-C read as under:- Provided that no deduction under section 10A or section 10AA or section 10B or under Chapter VI-A shall be allowed in respect of the amount of income by which the total income of the assessee is enhanced after computation of income under this sub-section. Section 92-C(3) read as under:- 92C. (3) Where during the course of any proceeding for the assessment of income, the Assessing Officer is, on the basis of material or information or document in his possession, of the opinion that- (a) the price charged or paid in an international transaction or specified domestic transaction] has not been determined in accordance with subsections (1) and (2); or (b) any information and document relating to an international transaction or specified domestic transaction] have not been kept and maintained by the assessee in accordance with the provisions contained in sub-section (1) of section 92D and the rules made in this behalf; or (c) the information or data used in computation of the arm s length price is not reliable or correc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... convertible foreign exchange. Export is boosted and at the same time the foreign exchange coffere is filled. 15. Coming back to the conduct of the assessee, there is no doubt that the assessee has suo moto made transfer pricing adjustment. At this point assuming that there is no enhancement by the TPO and the assessee is allowed the benefit of section 10B of the Act then, every tax payer will first under-price its sale with associated enterprises and thereafter suo moto enhance the sale price by making transfer pricing adjustment and claiming the deduction u/s 10B of the Act, stating that the under- price sale originally declared by the assessee in its books of account have been brought in India in convertible foreign exchange thereby keeping a certain portion of the sale abroad. 16. In our considered opinion and understanding of the law and the understanding of the legislative intention, we cannot permit the assessee to stretch the benevolent provision to avail the benefit which the legislature never intended to. In the case in hand, there is no dispute that the assessee has under priced its services to AE s and therefore made transfer pricing adjustment suo moto. This pecul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion under section 10A has to be given at the stage when the profits and gains of business are computed in the first instance. The Tribunal was right in holding that the deduction under section 10A in respect of the allowable unit under section 10A has to be allowed before setting off brought forwarded losses of a non-section 10A unit. 20. Respectfully following the decision of the Hon ble jurisdictional High Court, we set aside the finding of the ld. CIT(A) and direct the A.O.to compute the amount eligible for deduction u/s 10B of the Act in line with the decision of the Hon ble jurisdictional High Court (supra). Ground No. 4 is allowed. 21. Ground No. 5 relates to allowing interest u/s 234B and 234C of the Act. The levy of interest is mandatory though consequential, the A.O. is directed to charge interest as per the provisions of law. Ground No. 5 is allowed for statistical purpose. ITA No. 2226/Mum/2011 for A.Y. 2003-04 (Revenue s appeal) 22. The ground raised by the Revenue reads as under:- 1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in holding that the R D expenses of ₹ 7,53,14,7384,1- had a direct nexus with the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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