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Sami Labs Ltd. Versus The Deputy Commissioner of Income Tax, Circle 12 (3) , Bangalore.

2016 (2) TMI 293 - ITAT BANGALORE

Adjustment of total turnover while allowing deduction u/s. 10B - Held that:- In light of the decisions in CIT v. Tata Elxsi Ltd., [2011 (8) TMI 782 - KARNATAKA HIGH COURT ] and CIT v. Samsung Electronics Co. Ltd. (2011 (11) TMI 429 - KARNATAKA HIGH COURT) it is very clear that, the deduction claimed u/s 10B should not be restricted by not reducing the freight and forwarding and insurance from total turnover. Hence we direct the AO to follow the decision of the Karnataka High Court in Tata Elxsi .....

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e EOU undertakings for the purpose of determining the deduction u/s. 10B of the I.T. Act is erroneous.

Transfer Pricing adjustment in respect of interest on loan given to subsidiary company - Held that:- Respectfully following the decision of this Tribunal in assessee’s own case for the AY 2008-09, interest charged on loan given to Australian subsidiary is deleted.

Relief u/s. 91 - Credit for Dividend Distribution Tax - rectification - Held that:- We direct the Assessing Of .....

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Officer u/s. 143(3) r.w.s. 144C(13) of the Income-tax Act, 1961 [ the Act ] relating to assessment year 2007-08. 2. The assessee is an Indian multinational company engaged in the export of standardized herbal extracts, fine chemicals, specialty chemicals, cosmeceuticals, phytonutrients and probiotics, and carries on business from several units including two units which are 100% EOUs. It has several registered patents to its credit. It uses its own subsidiaries / associates for marketing its pro .....

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11 and raised a demand of ₹ 38,50,642/- including interest. In this order, the TP adjustment was reduced to ₹ 10,65,962/- based on a rectification order passed by the TPO dated 17-06-2011 rectifying mistakes apparent on record in the order u/s 92CA of the Act dated 28-10-2010. Against this order, the assessee has filed an appeal before this Tribunal. 4. The first ground of appeal relates to adjustment of total turnover while allowing deduction u/s. 10B. For the AY 2007-08, the assess .....

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ing a corresponding deduction from the total turnover which resulted in reduction in the deduction u/s. 10B to the extent of ₹ 19,45,581. In respect of the other EOU at Kunigal, no claim u/s. 10B was made as the 10 year period had already elapsed. 5. The ld. counsel for the assessee submitted that deduction u/s. 10B ought to have been computed by reducing the amount of freight and forwarding expenses and insurance expenses from the total turnover also, as one cannot include in the total tu .....

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ermination of export turnover cannot be added back while determining the total turnover. It was also held by the High Court that there should be uniformity in the ingredients of both the numerator and the denominator of the formula, since otherwise it would produce anomalies or absurd results. Section 10A/10B is a beneficial section intended to provide incentives to promote exports and the incentive is to exempt profits relatable to exports. 6. The ld. counsel for the assessee argued that when t .....

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that, the deduction claimed u/s 10B should not be restricted by not reducing the freight and forwarding and insurance from total turnover. Hence we direct the AO to follow the decision of the Karnataka High Court in Tata Elxsi Ltd., 349 ITR 98 and reduce the freight & forwarding and insurance expenses from total turnover. 8. The next ground relates to set-off of losses other than EOU against profits of EOU. The AO has reduced the loss incurred by non-EOU of the assessee company from the amo .....

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on u/s. 10B as the deduction is attached to the profits of the undertaking and travels with the undertaking as mentioned in the section. The benefit provided to an assessee to whom section 10B is applicable is in the form of an exemption and this exemption is not considered as income in the course of arriving at the Gross Total Income. 10. It was submitted that deduction u/s. 10B is undertaking specific and hence is to be calculated on the basis of profits and gains derived by the respective EOU .....

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provisions under Sec 70 of the Act. The ld. counsel for the assessee submitted that the issue has been decided in favour of the assessee in assessee s own case for AY 2005-06 and earlier years following the decision in the case of CIT vs. Yokogawa India Limited. (supra). 11. We have heard both the parties. The reliance placed by the AO on the decisions of the Hon ble High Court of Karnataka in the case of Himatsingke Seide Ltd. reported in 286 ITR 255 for netting off loss of non- EOU undertakin .....

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of the EOU undertakings for the purpose of determining the deduction u/s. 10B of the I.T. Act is erroneous. The Unit wise break up of Profit & Loss Account was filed before the AO during the course of the assessment proceedings. The Delhi Bench of the Tribunal in the case of ACIT v. M/s Keane India Limited, ITA No.3291/Del/2010 dated 20.5.2011 held as follows:- 6. Learned counsel for the assessee in support of his proposition relied on the judgments of ITAT Bangalore Bench in the cases of G .....

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VI-A would not be applicable to such deduction under s. 10A, and also that the deduction under s. 10A is undertaking specific, we have to answer the question posed before us by holding that the business losses of a non-eligible unit, whose income is not eligible for deduction under s. 10A of the Act, cannot be set off against the profits of the undertaking eligible for deduction under s. 10A for the purpose of determining the allowable deduction under s. 10A of the Act. Of course, if there are m .....

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gainst the profits of the eligible unit while determining deduction under s. 10A. 12. Therefore, following the decision of the Hon ble jurisdictional High Court in the case of CIT v. Yokogawa India Ltd., 341 ITR 385, the addition made by the AO in this regard and upheld by the DRP is deleted. 13. The next issue is regarding the Transfer Pricing adjustment in respect of interest on loan given to subsidiary company. During the year, a sum of ₹ 7,51,282 was received as interest on loan given .....

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king into account prices at which similar transactions have been entered into by the assessee with unrelated parties i.e. internal CUP. Since the transaction was of lending money in foreign currency to its foreign subsidiary, the comparable transaction is foreign currency loan availed from unrelated parties by the assessee. 15. It was further submitted that the assessee had obtained external commercial borrowings from banks at LIBOR plus 50 basis points for meeting its business requirements. Int .....

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r Pricing regulations in India. Disputes involved 16. The lower authorities did not accept the internal CUP method and concluded that the rate of interest prevailing in India for borrowing in rupees as applicable to five year BB rated bonds by making adjustments to the CRISIL average yield for BBB related bonds is appropriate bench mark for USD loan given to subsidiary. This completely ignored the internal comparable that the assessee holding company has borrowed from SBI at LIBOR + 50 basis poi .....

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he assessee had actually resorted to foreign exchange borrowings from SBI as arm s length price under CUP method. It cannot be anybody s case that a wholly owned subsidiary has a credit rating that is different from the holding company. 18. It was also submitted that the rate of 14% arrived at by the TPO is higher than the rate applicable for even a Rupee loan and definitely not for lending in USD which is the currency used in the case of the assessee. The method of arriving at the said 14% by t .....

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currency borrowings ought to have been found to be at arm s length. 19. It was further submitted that this issue has been decided in assessee s own case for AY 2008-09 wherein this Tribunal had decided that since loan given was in foreign currency, interest rate charged which is within +/- 5% of LIBOR is at arm s length. The relevant observations of the Tribunal in IT(TP)A No.1197/Bang/2012 dated 8.5.2015 are as follows:- 11. We have perused the orders and heard the rival contentions. TPO in his .....

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n pool, we cannot say that any loan funds were used for such purpose. When own funds are more than the loans, an assessee can always take an argument that loan funds had gone from own funds. In any case, in the case of M/s. Siva Industries & Holdings Ltd. (supra), in which one of us was a party, it was held as under in para 11 of its order: We have considered the rival submissions. A perusal of the order of the TPO clearly shows that the assessee had raised the funds by way of issuance of 0% .....

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on between the assessee and the Associated Enterprises is in foreign currency and the transaction is an international transaction, then the transaction would have to be looked upon by applying the commercial principles in regard to international transaction. If this is so, then the domestic prime lending rate would have no applicability and the international rate fixed being LIBOR would come into play. In the circumstances, we are of the view that it LIBOR rate which has to be considered while d .....

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refore, of the opinion that assessee s receipt of interest which was within + / - 5% of libor did not require any ALP adjustment. Addition of ₹ 10,77,990/- made on this count stands deleted. ……….. 20. Respectfully following the decision of this Tribunal in assessee s own case for the AY 2008-09, interest charged on loan given to Australian subsidiary is deleted. 21. The next issue that arises for consideration is with respect to relief u/s. 91 of the Act. During the ye .....

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