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2015 (12) TMI 296 - ITAT MUMBAI

2015 (12) TMI 296 - ITAT MUMBAI - [2016] 46 ITR (Trib) 561 - Re-computation of the arm’s length price of the assessee’s international transaction in respect of Information Technology Enables Services (‘ITES’) - main argument of the Ld. Counsel was that since the mark-up MAP has concluded the Arm’s Length mark-up at 14.38% for 96% of the total transactions done with the AE’s, then without prejudice to the other submissions, for remaining transactions of 4% also same treatment should be given, sam .....

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Delhi wherein it has been confirmed that for A.Y.2006-07, for US related transactions, the margin has been determined at 14.38% as against margin of 21.58%, as was determined by the Transfer pricing officer (TPO). It has been further clarified by way of note in the said letter that apportionment between ‘US’ and ‘non-US’ ALP and TP adjustment had been margined out by the APA section (of FT and TR Division) on the basis of ‘US’ and ‘non-US’ revenue. It is further noted from the perusal of the an .....

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It is worth noting that, even before us, no distinction in facts or nature of transactions has been brought out on record. Therefore, in our considerate view, mark-up of 14.38% should be determined for the remaining 4% transactions pertaining to ‘non-US’ entities as well.

Exemption u/s 10A - lower authorities held that unabsorbed depreciation has emanated from exempt unit and accordingly exemption u/s 10A of the Act should be computed after setting off of the unabsorbed depreciation .....

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orders of coordinate bench of earlier years in assesee’s own case, we hold that interest income, would be assessable under the head income from business. Since the income from interest has been treated as part of business income, it shall be included for determining the amount of total turnover of the business and accordingly the benefit of deduction u/s 10A shall be provided on the amount of interest income proportionately, in terms of mechanism provided in subsection (4). In other words the a .....

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mount of interest income on deposits of ₹ 2,05,03,390/- credited to profit and loss account, to which provisions of section 10A apply, in terms of clause (ii) to Explanation 1 to Section 11JB - Held that:- Respectfully following the judgment of Coordinate Bench in assessee’s own case, we hold that for the purpose of computing to profit u/s 115JB of the Act, income has to be computed as per the schedule VI of the Companies Act and not on the basis of provisions of Income Tax Act. - ITA No. .....

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were made by Shri Porus Kaka & Shri Divesh Chawla, Authorised Representative (Ld. Counsel) on behalf of the Assessee and by Shri N.K. Chand, Departmental Representative (Ld CIT DR) on behalf of the Revenue. We first take up ITA No.8987/M/2010, for A.Y. 2006-07: After hearing both the sides, the appeal is decided ground wise as under: 3. Ground No.1: In this ground, the assessee has challenged the decision of the DRP in confirming the action of AO in making the addition of ₹ 39,30,43,00 .....

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s Associated Enterprise (i.e. AE), JP Morgan Chase & Co., US ('JPMC') had initiated MAP proceedings under Article 27 of the India-USA agreement for avoidance of double taxation of income under the transfer pricing regulations (towards US related international transactions) made during the subject assessment year. The Assessee has received a letter dated 29th April, 2015 (attached as Annexure A) from the Deputy Commissioner of Income-tax 10(2)(1) ('AU'), stating that the MAP h .....

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grounds filed with the original appeal memo. The assessee has challenged the addition to reduce amount of addition for a sum of ₹ 1,65,07,806/-. 3.2. During the course of hearing, it has been submitted that the assessee company is providing IT Enabled Services to its AE s. The assessee had shown a margin of 12.26%. The AO held and treated ITES business as one , and applied mark-up @ 21.58%. It is further submitted that out of the total transactions done by the AE s world over, around 96 tr .....

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ition ) at arm s length mark-up of 14.38%. Accordingly, the above ground has been revised to cover only the remaining addition of ₹ 1,65,07,806/- i.e. 4.20% of the total addition. 3.4. Before us, the main argument of the Ld. Counsel was that since the mark-up MAP has concluded the Arm s Length mark-up at 14.38% for 96% of the total transactions done with the AE s, then without prejudice to the other submissions, for remaining transactions of 4% also same treatment should be given, same ben .....

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ange. It was also submitted that the assessee reserves its right to contest the levy of any kind of penalty, as and when initiated, if any. Our attention has been drawn to the annual accounts of the company and orders of the lower authorities to show that no distinction has been made between the 96% and 4% transactions. 3.5. On the other hand, Ld. CIT-DR, vehemently opposing the arguments of the Ld. Counsel, submitted that there is no concept of determination of ALP under the Mutual Agreement Pr .....

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ugh the arguments made by both the sides and also the material placed before us for our consideration. It is noted that letter dated 9th April 2015 in Fno. 480/13/2010-FTD-1 has been issued in the case of the assessee company under MAP proceedings for A.Y.2006-07 to 2010-111 by the DCIT(OSD), APA-I on behalf of the Foreign Tax and Tax Research Division -I, Central Board of Direct Taxes, New Delhi wherein it has been confirmed that for A.Y.2006-07, for US related transactions, the margin has been .....

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tion has been made between the US and non-US transactions. Similarly in the orders passed by the lower authorities also no such distinction as ever been made by any of the authorities. Under these circumstances, in our considered view, whatever margin has been determined for the 96% of the transactions, same margin should be determined for the remaining 4% transactions as well. It is worth noting that, even before us, no distinction in facts or nature of transactions has been brought out on reco .....

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During the course of hearing, it was submitted at the very outset by the ld. Counsel of the assessee that this issue is covered by the order of the Tribunal in assessee s own case for assessment year 2005-06. On the other hand, Ld. CIT-DR supported the order of the AO. 4.2. We have gone through, with the assistance of the parties, the order of Hon ble Tribunal for A.Y.2005-06 in ITA No.5547/Mum/2009 dated 23.04.2013, in assessee s own case. The relevant Para s of the Tribunal s order are reprodu .....

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r of the assessee by the decision of the Hon ble Bombay High Court in the case of CIT VS Black And Veatch Consulting Pvt. Ltd. (2012) 348 ITR 72 (Bom). 14. The Ld. Departmental Representative fairly conceded that the issue stands covered in favour of the assessee. 15. We have carefully perused the facts of the vase vis-avis decision of the Hon ble Jurisdictional High Court (supra). The question before the Hon ble Jurisdictional High Court was - whether on the facts and in the circumstances of th .....

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t of a Division Bench of this court, while construing the provisions of section 10B, in Hindustan Unilever Ltd. v. Deputy CIT [2010] 325 ITR 102 (Bom) at paragraph 24. The submission of the Revenue placed its reliance on the literal reading of section 10A under which a deduction of such profits and gains as are derived by an undertaking from the export of articles or things or computer software for a period of ten consecutive assessment years is to be allowed from the total income of the assesse .....

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n accordance with and subject to the provisions of the Chapter, the deductions specified in sections 80C to 80U. Section 80B(5) defines for the purposes of Chapter VI-A "gross total income" to mean the total income computed in accordance with the provisions of the Act, before making any deduction under the Chapter. What the Revenue in essence seeks to attain is to telescope the provisions of Chapter VI-A in the context of the deduction which is allowable under section 10A, which would .....

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ll accordingly stand dismissed. There shall be no order as to costs. Respectfully following the decision of the Hon ble Jurisdictional High Court, we direct the AO to allow deduction u/s. 10A before setting of the brought forward unabsorbed depreciation and business loss. Ground No. 5 to 9 taken together is allowed. 4.3. It is noted that none of the parties have disputed that facts of both the years are similar. There is no change in the position of law. The Ld. CIT-DR has also not made any dist .....

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eating the interest income on deposits with banks, amounting to ₹ 2,05,03,390/-as chargeable to income tax under the head Income from other Sources as against the assessee s claim that such interest income is chargeable to tax under the head profit and gains of business of profession , and the assessee is further aggrieved with the action of lower authorities in holding that such interest income is not derived from the eligible undertakings u/s 10A and thus, not eligible for deduction u/s .....

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e us provisions of section 10A(1)(iv) for the proposition that legislature has used the expression derive and Supreme Court has carefully considered scope and meaning of this expression in the case of Liberty India Ltd., (supra). He further submitted that the object of this section is to give benefit of tax concession to those persons who are bringing foreign exchange into the country as stipulated u/s 10A(iii) of the Act. He also relied upon the judgment of Distributors (Baroda) Pvt. Ltd. v. Un .....

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ble for deduction u/s 10A, and that similar mechanism is not available in the section 80-IA and 80HHC etc., and therefore the position of section 10A is quite different from these two sections, and that Hon ble Supreme Court has explained the meaning of the expression derive in context of section 80IA and 80HHC. He reiterated that computation of profits eligible for deduction u/s 10A has to be made strictly in terms of the mechanism provided by subsection (4), laying down the manner of computing .....

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exchange to the country. Thus argument of Ld. CIT-DR was misplaced. Lastly, Ld. Counsel has relied upon the judgment of Hon ble Karnataka High Court in the case of CIT vs. Motorola India Electronics (P) Ltd.(265 CTR 94), wherein Hon ble High Court has considered the judgment of Hon ble Supreme Court in the case of Liberty India Ltd. (supra) as well as Pandian Chemicals Ltd.(supra). After considering all these judgments it was held by the Hon ble High Court that the assessee company was eligible .....

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also the judgment of Hon ble Karnataka High Court. 5.3. We have gone through the submissions made by both the sides as well as the orders passed by the Tribunal in earlier years and judgments relied upon before us. It is noted that similar issue came up for adjudication before the Tribunal in assessee s own case in assessment year 2004-05. The Tribunal has decided this issue in ITA No.7351/M/2007 vide order dated 26th June 2009 relevant para of Tribunal order is reproduced below: Coming to the .....

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t the ld. Departmental Representative has relied on the decision of the Kerala High Court in the case of CIT v. Jose Thomas (supra) for the proposition that interest from bank deposit could not be considered as income from business for claiming deduction u/s.80HHC of the Act. However, we find that the jurisdictional High Court in the case of CIT vs. Punit Commercial Ltd. (supra) has held that where an assessee was 100% exporter, deduction u/s.80HHC had to be given on the entire business income i .....

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, Hon ble jurisdictions High Court in the case of Punit Commercial Ltd. (supra) held that the whole for the business income was eligible for deduction u/s.80HHC of the act. Further to this, we also find that Hon ble Jurisdictional High Court in the case of CIT v. Lok Holding (supra) has clearly held that if surpluses were deposited by the assessee out of its business proceeds interest there from could only be considered as part of profits and gains of business of the assessee. Therefore, we are .....

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ons it to be a deduction from profits and gains derived by an undertaking from export of articles of things or computer software. Therefore, it cannot be deemed as an exemption provision for the impugned assessment year. Ground no.2 of the assessee is therefore, partly allowed. 5.4. Further this issue again came up for consideration before the Tribunal in assessment year 2005-06, wherein in ITA No.5547/M/2009 the Tribunal vide its order dated 23.4.2013 held that under: The second issue relates t .....

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decision of the Tribunal in assessee s own case reported in 33 SOT 327. Drawing our attention to Para-11 of the said order of the Tribunal, the Ld. Counsel for the assessee submitted that the Tribunal has directed to tax the interest under the head Profits & gains of business or profession . 9. The Ld. Departmental Representative relied upon the findings of the lower authorities. 10. We have carefully perused the orders of the lower authorities and also the decision of the Tribunal in assess .....

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usiness or profession eligible for deduction u/s. 10A of the Act. Ground Nos. 3 & 4 are accordingly allowed. 5.5. The perusal of the order of the Tribunal shows that income of interest was assessed as income from business in earlier years. There is no change in facts in the impugned year as nothing could be brought on record by Ld. CIT-DR to show that there was change in facts in this year. Therefore, respectfully following orders of coordinate bench of earlier years in assesee s own case, w .....

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es done by the assessee. It has been rightly contended by the Ld. Counsel that sub-section (4) has provided mechanism to compute the amount of profit eligible for deduction u/s 10A. For the sake of ready reference sub-section (4) is reproduced herein: (4) For the purpose of [sub-sections (1) and (1A)], the profits derived from export of articles or things or computer software shall be the amount which bears to the profits of the business of the undertaking, the same proportion as the export turn .....

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r words the amount of profit eligible for deduction u/s 10A shall be the amount which bears to the profits of the business of undertaking, the same proportion as export turnover bears to the total turnover the business of the undertaking of the assessee. The AO is directed to grant the benefit of deduction u/s 10A by re-computing the same in terms of our directions as given above. 5.8. Before we part with this issue, we shall like to clarify that we have meticulously pondered over this issue. In .....

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assessee, on the interest income or any other similar income, without following mandate of sub-section (4), it may frustrate the objective of section 10A. Therefore, to avoid any such situation, clear mechanism has been provided under sub-section (4) for computation purposes. Therefore, our decision is in line with express as well as implied provisions of section 10A. 6. Ground No.4: In this ground, the assessee has challenged the action of lower authorities in not accepting the assessee s clai .....

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r 2005-06. The relevant Para of the Tribunal in ITA No. 5547/M/2009 dated 23.4.2013 is reproduced below: 2. Ground No. 1 relates to computation of Book Profit u/s. 115JB of the Act. 3. Facts giving rise to this grievance show that while computing the income for the year under consideration and also while computing Book Profit u/s. 115JB of the Act, the Assessing Officer has reduced the amount of deduction u/s. 10A as recomputed by him under the normal provisions of the Act whereas the assessee s .....

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f the assessee. To substantiate his claim, the Ld. Counsel drew our attention to 3 decisions namely (i)Moser Baer India Ltd. Vs DCIT (2007) 17 SOT 510(Del), (ii) DCIT Vs Roxy Investments (P) ltd (2008) 24 SOT 227 (Del) and (iii) the decision of the Hon ble Supreme Court in the case of Ajanta Pharma Ltd Vs CIT (2010) 327 ITR 305. 5. The Ld. Departmental Representative fairly conceded that the issue stands covered in favour of the assessee. 6. We have carefully perused the orders referred to by th .....

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u/s. 10A/10B as computed on the basis of Book Profit as per Parts II and III of Schedule VI of Companies Act and not on basis of provisions of the I.T. Act. Similar view has been taken in the case of Roxy Investments (P) ltd (supra) wherein the co-ordinate Bench of Delhi has held that while computing Book Profit u/s. 115JB of the Act, amount of income which can be reduced by the AO for computing Book Profit under clause (ii) of Explanation to Section 115JB(2) will be amount which is credited to .....

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d as per Parts of Schedule VI of Companies Act and not on basis of provisions of I.T. Act. Ground No. 1 & 2 are accordingly allowed. 6.2 Ld. CIT-DR has relied upon the order of the AO on this issue, and nothing has been brought on record to make any distinction on facts or law. 6.3. Therefore, respectfully following the judgment of Coordinate Bench in assessee s own case, we hold that for the purpose of computing to profit u/s 115JB of the Act, income has to be computed as per the schedule V .....

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ains of business of profession of impugned assessment year i.e. A.Y. 2006-07. 7.1. It was contended by the Ld. Counsel that, business expenditure of the aforesaid amount which was disallowed as prior period expenditure for assessment year 2007-08, should be allowed notionally, for the year under consideration. It was further submitted that DRP has already given requisite directions to the AO in this regard, but the same has not been followed by the AO, and therefore, the Tribunal should reinforc .....

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on of the nature of expenditure or period of its accrual has been indicated. Therefore, the AO is directed to examine this issue and any expenditure which relates to the current assessment year and qualified to the allowed u/s.37 of the I.T. Act should be allowed in the current year. This ground of objection is disposed off accordingly. 7.3. It is noted, from the above, that DRP has already issued requisite directions in this regard. Keeping in view request of the assessee, we direct the AO to l .....

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r to Ground no.1 of assessee s appeal for A.Y. 2006-07. The facts and legal position being the same we direct to follow our order of assessment year 2006-07. The only change would be that for A.Y. 2007-08, the ALP margin has been determined under MAP @ of 15.54% as against 14.38% for A.Y. 2006-07, and therefore everything else remaining the same the ALP margin shall be applied @ of 15.54%, as against 29.67% as was determined by the TPO. We order accordingly. The assessee gets part relief accordi .....

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