TMI Blog2015 (12) TMI 296X X X X Extracts X X X X X X X X Extracts X X X X ..... ainst 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 annual accounts of the assessee company that aggregate turnover has been shown at ₹ 47,30,521/-, and no distinction 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 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 unabsorbe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT-DR ) ORDER Per Ashwani Taneja (Accountant Member) These appeals are filed by the Assessee against the orders of Disputes Resolution Panel -I, Mumbai {in short, DRP }, for the assessment years 2006-07 2007-08. 2. During the course of hearing, arguments 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 ₹ 39,30,43,000/- to the income of the assessee company by re-computing the arm s length price of the assessee s international transaction in respect of Information Technology Enables Services ( ITES ) provided by it. It has been submitted by the Ld. Counsel at the outset that this is primarily a concluded issue. During the course of hearing, he submitted copy of petition dated 30th June 2015 seeking revision of grounds of appeal on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 bench marking should be done, and ALP mark-up of 14.38% should be applied, more particularly, because of the fact that the AO or DRP have not made any distinction between the US entities and non-US entities. It was further submitted that although the assessee can very well contest these additions, but this concession has come from the assessee s side with a view to bury the litigation, notwithstanding the facts that no addition should have been made as the case of the assessee falls within +/- 5% range. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and accordingly exemption u/s 10A of the Act should be computed after setting off of the unabsorbed depreciation. 4.1. 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 reproduced herein. 12. The grievance relates to the setting off of the unabsorbed depreciation. It is the contention of the assessee that in computing income under the head Profits gains of business or profession deduction u/s. 10A should be allowed before setting off of brought forward business loss and unabsorbed depreciation and the same should be set off of against the balance taxable income if any. 13. The Ld. Counsel for the assessee submitted that these issues are now well settled in favour of the assessee by the decision of the Hon ble Bombay High Cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duction which is allowable under section 10A, which would not be permissible unless a specific statutory provision to that effect were to be made. In the absence thereof, such an approach cannot be accepted. In the circumstances, the decision of the Tribunal would have to be affirmed since it is plain and evident that the deduction under section 10A has to be given at the stage when the profits and gains of business are computed in the first instance. So construed, the appeal by the Revenue would not give rise to any substantial question of law and shall 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 distinction in the facts or legal position of these two years. Therefore, respectfully following the judgment of coordinate Bench in assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /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 profit eligible for granting deduction u/s 10A. With regard to the contention of the Ld. CIT-DR on sub-section (3) of section 10A i.e. requirement of bringing sale proceeds into India, it was contended by the Ld. Counsel that requirement for bringing sale proceeds into country is only with respect to the amount of export sales, as would be clear from the claim reading of sub-section (3). There is no requirement, as stipulated under the section, to bring any other receipts in the form of foreign 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... % exporter was entitled for deduction u/s.80HHC of the Act. Again the Hon ble Delhi High Court in the case of CIT vs. Eltek S.G. (supra) has held that the term derived by an undertaking from export of articles of things or computer software used in section 10A was neither as broad as attributable to nor as narrow as derived from . Though section 80HHC of the act used the term derived from, 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 inclined to allow the claim of the assessee for treating the interest from fixed deposit of ₹ 7,96,233/- and interest on staff loan ₹ 1,377/- as income falling under the head profits and gains from business or profession eligible for deduction u/s.10A of the Act. As far as the contention o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terest 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, we hold that interest income, would be assessable under the head income from business. 5.6. Having decided the interest income as income from business, the next step is to compute the amount of deduction available u/s 10A on the amount of aforesaid interest income. It is noted that this aspect has not been decided in earlier years. Therefore, this issue needs to be decided by us, as per provisions of section 10A. It is further noted that it is a case of 100% exporter. There are no other local sales 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 soft ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 1 to Section 11JB of the Act. It was submitted by the Ld. Counsel that this issue is covered by the order of the Tribunal in assessee s own case for A.Y. 2005-06. 6.1. We have gone through the orders of the Tribunal of assessment year 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 contention is that Book Profit u/s. 115JB of the Act has to be computed , inter alia , by reducing the amount of income credited to profit and loss account to which Sec. 10A apply and by increasing the amounts of expenditure debited to Profit and loss account relatable to any income to which Sec. 10A apply in terms of Caluse (ii) and clause (f) to Explanation to Sec. 115JB of the Act. 4. At the very outset, the Ld. Counsel for the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... udgment 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. Accordingly, Ground no. 4 is allowed. 7. Ground No.5: In this ground, the assessee has contended that the AO has erred in not following the direction of DRP of allowing sufficient opportunity to the assessee to explain its case in respect of the deduction of business expenditure of ₹ 2,04,64,709/-, which was disallowed as prior period expenditure for A.Y.2007-08, while computing income under the head profits and gains 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 reinforce the direction of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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