TMI Blog2016 (5) TMI 1321X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that it had written off its stock, however, evidence in this regard has been filed by way of additional evidence before us. We are of the view that the said evidence going to the root of the issue, needs to be admitted and after admitting the same, we deem it fit to restore this issue back to the file of Assessing Officer, who shall verify the claim of assessee in this regard and decide the issue in accordance with law. Computation of deduction under section 10B - Held that:- Applying the ratio laid down by the Hon’ble Bombay High Court in CIT Vs. Black & Veatch Consulting Pvt. Ltd. (2012 (4) TMI 450 - BOMBAY HIGH COURT) we hold that the deduction under section 10B of the Act is to be computed before adjusting brought forward unabsorbed losses/depreciation. The learned Authorized Representative for the assessee had not raised any other issue except pointing out that the issues stands covered by the order of Tribunal. In view thereof, we direct the Assessing Officer to recompute the deduction under section 10B of the Act without setting of brought forward and unabsorbed depreciation of earlier years. - ITA No. 133/PN/2011 - - - Dated:- 16-5-2016 - Pradip Kumar Kedia (Accoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... riff Area (DTA) unit- Erred on facts and in law by disallowing the deduction claimed by the Appellant in respect of stock written-off amounting to ₹ 1,387,520/without appreciating the fact that disallowance of obsolete stock writtenoff is not a provision for obsolescence but an actual loss allowable under section 28/37(1) of the Act and also without appreciating that all documentary evidences as required were submitted during the course of assessment proceedings, supporting such write-off. 12. Claim of deduction under section 10B of the Act from the total income and not at source level (i.e. income from the eligible unit)- Erred in facts and in law by allowing the claim of deduction under section 10B of the Act from total income instead of at source level (i.e. from the profit of eligible unit of the Appellant). 13. Set-off of brought forward unabsorbed depreciation before claiming of deduction under section 10B of the Act- Erred in holding that deduction under section 10B of the Act needs to be allowed after setting-off brought forward unabsorbed depreciation of earlier years. 15. Erroneous levy of interest under section 234B of the Act- Wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ne with the directions. The alternate plea raised by the assessee was that the transfer pricing adjustment has to be made with reference to value of international transaction with the associate enterprises alone and not on the total turnover. The said plea of the assessee was allowed and the issue of determination of arm's length price of international transaction was sent back to the file of Assessing Officer to re-work the same. The Tribunal thereafter, vide para 27 onwards considered the issue raised by the assessee vide grounds of appeal No.10 and 11 relating to manner of computation of deduction under section 10B of the Act. 3. The assessee now, before us has agitated that certain grounds of appeal which are in relation to the transfer pricing adjustment to be made in the hands of assessee were not adjudicated by the Tribunal in the first round of appeal. The first such issue raised by the assessee was against the action of TPO in conducting fresh search for identifying additional comparable companies at the time of assessment proceedings and thereafter relying on information available at the time of assessment proceedings for determining arm's length price, but whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2008 and data of DEKI Electronics Ltd. came into public domain on 26.12.2008 and the data of said two concerns was used by the TPO, who carried out search on 24.08.2009. The learned Authorized Representative for the assessee referred to the search carried out by the assessee by the name of such concerns and pointed out that the aforesaid data came into public domain on a later date. He stressed that under Rule 10B(4) of the Rules, the data to be used for transfer pricing should be contemporaneous and should exist latest by specific data. Another proposition raised by the assessee was recognition of statutory interpretation i.e. only information available in the public domain as on due date of filing the original return of income can be taken into account in determining the arm's length price and further it was not open to the TPO to take into account information coming into public domain subsequently and not available at the time of preparation of TP report. For this proposition, the learned Authorized Representative for the assessee in his written submissions submitted as under:- (a) any other interpretation would lead to complete arbitrariness and would completely violat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s per Rule 10D(4) of the Act, whereas the Assessing Officer has to compute the arm's length price of international transactions on the basis of documents, information, etc. which is available in public domain. Our attention was drawn to the provisions of Rule 10B(4) of the Rules, where it is provided that the relevant year data is to be used for computation of transfer pricing adjustment and the proviso under the Rule provides that if there are fluctuations in profitability due to certain factors, then the Legislature has provided that provisions of two years data may be applied. Section however, requires the current year s data to be taken and only when earlier year data is affecting the profits of this year, then data of other years is to be taken. In this regard, the learned Departmental Representative for the Revenue placed reliance on the ratio laid down by Bangalore Special Bench of Tribunal in Aztec Software and Technology Vs. ACIT (2007) 107 ITD 141 (Bang). The learned Departmental Representative for the Revenue further pointed out that where search has been undertaken by the assessee, then also there were variations in data. He further questioned that are we to say tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has already been deliberated upon by the Tribunal and after deliberations, the issues have been sent back to the file of Assessing Officer with directions. It was put to the learned Authorized Representative for the assessee as to whether after passing of the order of Tribunal, whether any adjustment on account of transfer pricing provisions has been made in the hands of assessee and he pointed out that the arm's length price is eventually determined to be within +/-5%. However, an appeal has been filed by the Revenue against the orders of authorities below and hence, the present issues need to be adjudicated which were originally not adjudicated by the Tribunal in the first round of appeal. 9. Now, coming to the issue raised by the assessee. The assessee is aggrieved by search carried out by the Assessing Officer for identifying additional comparable companies at the time of assessment proceedings and in this regard using non-contemporaneous data i.e. the data which was not available in public domain when the assessee compiled its transfer pricing report. The assessee is also aggrieved by the information being available in public domain on a later date, which in turn, was n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inconsistency. For deciding the issue of use of current year s data vis- vis the use of earlier two years data as canvassed by the learned Authorized Representative for the assessee at length, the relevant provisions to be taken note of are Rule 10B(4) of the Rules. Reading the provisions of said Rules, it provides that for computation of arm's length price, the data pertaining to the financial year to which the international transaction pertains shall alone be used. The word used in the Rule is shall and hence, the provisions of Rule 10B(4) of the Rules which provides the computation of procedure for working out the arm's length price under section 92C of the Act are to be applied. Under the proviso, it is further provided that earlier year s data relating to up to two years may also be considered to analyze, if certain facts had an influence on the determination of transfer price in relation to the transactions being compared. Reading the provisions of the Act, it entails that the earlier years data can be used in conjunction with the current year s data in case where the data revealed the facts influencing the determination of transfer pricing in the year under consid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the TPO in determining the PLI of the comparable companies on the basis of financial data for F.Y. 2006 -07 which corresponds to the assessment year under consideration in which the impugned international transactions have been carried out. So however, the proviso to Rule 10B(4) of the Rules prescribes that data relating to a period, not being more than two years prior to such financial year, may also be considered if such data reveals facts which could have an influence on the determination of transfer price in relation to the transactions being compared. The said proviso is sought to be invoked by the assessee to justify its claim that the financial information of the comparable companies for earlier two financial years of 2004-05 and 2005-06 be also considered. Before us, the learned counsel for the assessee submitted that there was justification for invoking of the proviso to Rule 10B(4) inasmuch as there is a variation in average PLI of the four comparable cases adopted by the assessee based on the single year data vis -vis the PLI computed after the use of multiple year s data. It was pointed out that after using multiple year s data of the four comparable cases, the averag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Rules in the present case and hence, we find no mistake in the order of Assessing Officer in considering the single year s data pertaining to assessment year 2006-07 to arrive at the PLI of comparable cases in order determine the transfer price of international transaction conducted by the assessee. Thus, the ground of appeal No.5 raised by the assessee in this regard is rejected. 13. Now, coming to the stand of assessee with regard to fresh search undertaken at the time of assessment proceedings. 14. Under section 92D of the Act, it is provided that every person who has entered into an international transaction is to keep and maintain such information and documents in respect thereof as may be prescribed. Rule 10D of the Rules prescribes the information and documents to be kept and maintained under section 92D of the Act. It is not any ones case that the assessee has not maintained such documents as prescribed under Rule 10D of the Rules. The plea of the assessee before us is that by way of maintenance of such information and documents, the assessee is to keep a record of its international transactions and by way of clause (l) to also prepare the details of adjustments, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... C(3) of the Act reads as under:- 92C. (1)..... (2)..... (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 correct; or (d) the assessee has failed to furnish, within the specified time, any information or document which he was required to furnish by a notice issued under sub-section (3) of section 92D, the Assessing Officer may proceed to determine the arm s length price in relation to the said international transaction [or specified domestic transaction] in accordance with sub-s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ansaction but also any other evidence which the TPO may require on some specified points or the information which may be gathered by the TPO can be used by the TPO to determine the arm's length price of international transaction. Undoubtedly, the assessee is the first person who is to collect the information and documents in respect of its international transaction which are enlisted under Rule 10D of the Rules. But mere collections of documents and compilation of data is not the only responsibility of the assessee, who can be asked to produce such other evidence as the TPO may require on any points. Further, the TPO is also empowered to take into account such material which he has gathered i.e. the data. However, there is a restriction in the section itself that such data should be available in public domain. Such material collected to be used against assessee should be put to the assessee to explain. Further, as decided by us in the paras hereinabove in view of Rule 10B(4) of the Rules, the data should be relatable to the financial year in which the international transaction has been entered into. Thus, it is incumbent upon the TPO to ensure that all the conditions provided u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d been undertaken, cannot be rejected on the surmise that they were not available on the date of compilation of documentation and/or came in the public domain later. The argument of learned Authorized Representative for the assessee before us is that if the TP proceedings of a particular case had been taken up on an earlier date when no such data was available, would put such a person on an advantageous position as compared to person whose TP proceedings were taken up on a later date when information in respect of such comparables were recently published. The search process is to be carried out by the TPO who in turn, has to determine the arm's length price of international transaction on the basis of information available with him and once such information is made available to him, then the same can be applied by the TPO after confronting the same to assessee, to compute the transfer pricing adjustment, if any, in the hands of the assessee. Accordingly, the TPO under the Act is fully justified in carrying out the fresh search, if needed, for identifying the comparable companies, may be additional and proceed with transfer pricing proceedings. Such data collected by the TPO can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e authorities were of the view that arm's length price was not correctly determined by taxpayer, then the same could be substituted by arm's length price on the basis of material or information furnished by the assessee or collected by the Revenue authorities. It was further held that such arm's length price had to be determined by keeping in mind the provisions of the Act and also the principles of natural justice and be fair and reasonable to the taxpayer and any material collected to be used against the taxpayer was to be put to the taxpayer to explain. It was further held that the adjustments made on account of arm's length price by tax authorities could be deleted in appeal only if appellate authorities are satisfied and records a finding that arm's length price submitted by the assessee was fair and reasonable. The relevant findings of the Tribunal are as under:- 133. Having regard to the statutory provisions, particularly the mandate of sections 92(1) and 92D read with relevant rules, we hold that it is obligatory on the part of the taxpayer to furnish information relating to controlled international transactions, select a suitable method for determi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ility of amended provisions of the Act. The question arising before the Hon ble Bombay High Court was that in case any provision has been amended later, were such amended provisions to be applied while completing assessment of the year which was pending as on the date, on which the amendment was brought in or as per the provisions which were applicable to the relevant year. The Hon ble Bombay High Court did not accept the contention of the learned Departmental Representative for the Revenue in this regard as it would cause startling results. The said proposition laid down by the Hon ble Bombay High Court is not applicable to the facts of the present case before us, where under the provisions of the Act itself, the TPO is empowered to substitute the arm's length price on the basis of material or information furnished by the assessee or collected by him. In case, such an authority has been delegated to the TPO and in exercise of such authority, certain information is collected by the TPO, which in turn, is confronted to the assessee and thereon applied to determine the arm's length price of international transaction, the said exercise of the jurisdiction by the TPO cannot pos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... horized Representative for the assessee has pointed out that as against the provision of ₹ 35,08,064/-, actual write off was ₹ 13,87,520/- and the same was written off in its books of account. In order to establish its claim of write off, the assessee has pointed out that some part of it relates to the Excise duty. In this regard, the assessee has furnished additional evidence along with letter dated 29.12.2012, wherein the assessee has submitted the evidence in relation to stock written off in the case of materials with Excise Registers and in the case of finished goods trading with quarterly excise returns. The assessee claimed that it had written off its stock, however, evidence in this regard has been filed by way of additional evidence before us. We are of the view that the said evidence going to the root of the issue, needs to be admitted and after admitting the same, we deem it fit to restore this issue back to the file of Assessing Officer, who shall verify the claim of assessee in this regard and decide the issue in accordance with law. The assessee shall furnish the aforesaid evidence before the Assessing Officer, who shall afford a reasonable opportunity of h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r section 10B of the Act was for being exempt from total income. However, the year under appeal before us is assessment year 2005-06, wherein the said section has been amended and the deduction now is allowable to the assessee as against the said income being exempt in the earlier years. The issue is settled by the Hon ble Bombay High Court in CIT Vs. Black Veatch Consulting Pvt. Ltd. (2012) 348 ITR 72 (Bom), wherein it was held as under:- The deduction under s. 10A, has to be given effect to at the stage of computing the profits and gains of business. This is anterior to the application of the provisions of s.72 which deals with the carry forward and set off of business losses. A distinction has been made by the Legislature while incorporating the provisions of Chapter VI-A. Section 80A(1) stipulates that in computing the total income of an assessee, there shall be allowed from his gross total income, in accordance with and subject to the provisions of the Chapter, the deductions specified in ss.80C to 80U. S.80B(5) defines for the purpose of Chapter VI-A gross total income to mean the total income computed in accordance with the provisions of the Act, before making any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the brought forward losses had to be adjusted before computing deduction under section 10A of the Act. It may be pointed out that the provisions of section 10A and 10B of the Act are at parametria. Following the ratio laid down by the Hon ble Bombay High Court, we hold that the deduction under section 10B of the Act is to be computed in the hands of the assessee before adjusting brought forward unabsorbed losses/depreciation. The ground of appeal No.3 raised by the assessee is thus, allowed. 30. Following the same parity of reasoning and applying the ratio laid down by the Hon ble Bombay High Court in CIT Vs. Black Veatch Consulting Pvt. Ltd. (2012) 348 ITR 72 (Bom), we hold that the deduction under section 10B of the Act is to be computed before adjusting brought forward unabsorbed losses/depreciation. The learned Authorized Representative for the assessee had not raised any other issue except pointing out that the issues stands covered by the order of Tribunal. In view thereof, we direct the Assessing Officer to recompute the deduction under section 10B of the Act without setting of brought forward and unabsorbed depreciation of earlier years. Thus, the ground of appeal N ..... X X X X Extracts X X X X X X X X Extracts X X X X
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