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TMI Blog2016 (2) TMI 1165X X X X Extracts X X X X X X X X Extracts X X X X ..... 1961 should be Rs. 65,04,43,280/- instead of Rs. 65,27,96,069/- as claimed by the appellant. 2. The learned AO and DRP erred in law in holding that the eligible deduction u/s 10A should be allowed after set-off of losses of other business units I undertakings. 3. The learned AO and DRP erred in law and on facts in not allowing set off of unabsorbed depreciation loss of AY 05 -06 of Rs. 1,41,20,049 while computing total income. 4. The learned AO, TPO & the DRP erred in law and on facts in making addition of Rs. 32,99,487/- to the Arm's Length Price of international transaction related to Interest received I receivable on loans extended to AE company. 5. The learned AO and learned DRP erred in law and on facts m making an disallowance of Rs. 1,66,653 u/s 14A while computing Income under normal provision of the Income Tax Act 1 961. 6. The learned AO and learned DRP erred in law and on facts in making an addition of Rs. 1,66,653/- (disallowance U/S 14A) while computing taxable book profit u/s 115JB of the Income Tax Act 1961. 7. The learned AO and learned DRP erred in law and on facts in making an addition of Rs. 56,21,030 (Provision for Bad Debts debited to P&L account) whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s remaining after intra-head set off of losses as per provisions of section 70(1) of the Act and in view thereof, the computed available profits from eligible business at Rs. 65,04,43,280/- and the deduction under section 10A of the Act to the extent of Rs. 23,52,789/- was disallowed and added back to the total income of the assessee. 7. The assessee is in appeal against the order of Assessing Officer passed under section 143(3) r.w.s. 144C of the Act . 8. We find that identical issue of computation of deduction under section 10A of the Act, where the assessee had several units, out of which some of the units had declared positive profits and the balance units had declared losses for the respective units and the issue was the computation of deduction under section 10A of the Act and whether the same had to be computed after adjusting the losses of the units against the profits shown by the assessee in the respective units and on the balance profits, whether the assessee was eligible for deduction under section 10A of the Act or the assessee was eligible for the aforesaid deduction on the cumulative profits shown by the units, ignoring the losses shown by the respective units. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... view of the amended provisions of section 10A of the Act, under which deduction can be claimed by an enterprises, whether the intra head adjustment of losses of certain units is to be made against the profits of other units of the same assessee, before computing the deduction under section 10A of the Act. 14. The Hon'ble Bombay High Court in Hindustan Unilever Ltd. Vs. DCIT & Anr. (supra) in an appeal relating to assessment year 2004-05 where reassessment proceedings were initiated under section 147/148 of the Act on several issues, considered the reason to believe recorded by the Assessing Officer with regard to set off of loss incurred by unit eligible for deduction u/s. 10B of the Act. The Assessing Officer had reopened the assessment on the surmise that since the income of the Crab Stick Unit was exempted from tax under section 10B, the loss of that unit was wrongly set off against the normal business income. The Hon'ble High Court noted that after the substitution of section 10B of the Act by the Finance Act of 2000, the provisions provided for deduction of such profit or gains as were derived by 100% EOU for the period prescribed under that section. The Hon'ble ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w.s. 80-I and 80B of the Act. The Hon'ble Supreme Court held that while working out gross total income of the assessee, losses suffered by it in earlier years have to be adjusted and if gross total income of assessee is nil then the assessee would not be entitled to deduction under Chapter VI-A. 17. The authorities below have further placed reliance on the provisions of section 70(1) for the proposition of set off of loss from one source against income from another source under the same head of income. The provisions of section 10A and 10B of the Act are para materia. In such a situation the ratio laid down by the jurisdictional High Court in Hindustan Unilever Ltd. Vs. DCIT & Anr. (supra) are to be applied. The Hon'ble High Court had held that where three units of the assessee had returned profit during the course of assessment year and one unit had returned the loss, the assessee was entitled to deduction in respect of the profits of three eligible units, while the loss sustained by the fourth unit could be set off against normal business income. Applying the said ratio to the facts of the present case we are of the view that the deduction u/s. 10A and 10B are units spec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w the grounds of appeal No. 3 raised by the assessee in both the assessment years 2005-06 and 2006-07." 9. Following the above said parity of reasoning and in view of the ratio laid down by the Hon'ble Bombay High Court in CIT Vs. Black & Veatch Consulting Pvt. Ltd., ITA No. 1237 of 2011 (Bom.), we hold that the assessee is entitled to the deduction under section 10A of the Act at the stage when the profits and gains of each of the units are computed and there is no merit in adjusting the losses, if any, incurred by the assessee in any other unit, for computing the deduction under section 10A of the Act. The grounds of appeal No.1 and 2 raised by the assessee are thus, allowed. 10. The issue raised vide ground of appeal No.3 is against the order of Assessing Officer and Dispute Resolution Panel (DRP) in not allowing set off of unabsorbed depreciation and losses for assessment year 2005-06 of Rs. 1,41,20,049/-, while computing the total income of the assessee. 11. The learned Authorized Representative for the assessee pointed out that this issue was also considered by the Tribunal in assessee's own case in ITA No.1736/PN/2012, relating to assessment year 2007-08, order dated 30.1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce income, if any, the deduction under section 10A of the Act was to be computed. 5. We find that identical issue of sequences of allowing the benefit of deduction under section 10B of the Act and the adjustment of brought forward losses / unabsorbed depreciation, arose before Pune Bench of Tribunal in M/s. Vishay Components India Pvt. Ltd. Vs. Addl.CIT & Anr. (supra). The Tribunal after considering the facts of the case, which are identical to the facts before us, observed as under:- "27. We have heard the rival contentions and perused the record. The issue arising vide ground of appeal No.3 is in relation to the computation of deduction under section 10B of the Act after the amendment to section w.e.f. 01.04.2001. The persons invoking the said provisions are entitled to a deduction under the Act, as compared to the pre-amended provisions of the section, under which the income comprising under the said section was exempt from the total income. The issue arising before us is whether while computing deduction under section 10B of the Act, in cases where the assessee has unabsorbed losses or depreciation, brought forward from earlier years, then whether the said unabsorbed busine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich is not eligible for deduction under s.10A of the Act cannot be set off against the current profit of the eligible unit for computing the deduction under s.10A of the IT Act." 28. The said proposition of law has further been applied by the Hon'ble Bombay High Court in CIT Vs. M/s. Ganesh Polychem Ltd. in Income Tax Appeal No.2083 of 2012, order dated 25.02.2013 and in CIT Vs. Schmetz India Pvt. Ltd. (2012) 79 DTR (Bom) 356 and also by the Hon'ble High Court of Gujarat in CIT Vs. Ace Software Exports Ltd. in Tax Appeal No.687 of 2012, order dated 18.02.2013. The Mumbai Bench of Tribunal has also applied the said proposition in various cases. 29. The learned Departmental Representative for the Revenue on the other hand, placed reliance on the ratio laid down by the Hon'ble Supreme Court in Synco Industries Ltd. Vs. AO, (2008) 299 ITR 444 (SC), wherein the issue was whether while computing the quantum of deduction under section 80I(6) of the Act, the Assessing Officer has to treat the profits derived from an industrial undertaking as only source of income in order to arrive at deduction under Chapter VI-A. The Hon'ble Supreme Court held that the gross total income under section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere are any leftover profits, then the same are to be adjusted against brought forward unabsorbed depreciation / loss as claimed by the assessee in its return of income. Accordingly, we direct the Assessing Officer to re-compute the deduction under section 10B of the Act in the hands of the assessee. The additional ground of appeal Nos.1 and 2 raised by the assessee are thus, allowed." 7. The issue arising before us is in relation to the computation of deduction under section 10A of the Act, which admittedly is paramatria to section 10B of the Act and hence, the ratio laid down by the Tribunal in M/s. Vishay Components India Pvt. Ltd., Vs. Addl.CIT (supra) and Precision Camshafts Limited Vs. ACIT (supra), is squarely applicable. 8. Another aspect to be considered in the present case is the arguments of the learned Departmental Representative for the Revenue that the ratio is covered by the decision of Hon'ble Karnataka High Court in CIT Vs. Himatsingka Seida Ltd. (supra), appeal against which, has been dismissed by the Hon'ble Supreme Court. Before the Hon'ble Karnataka High Court, the years involved were assessment years 1988- 89 to 1990-91 i.e. the year, where the benefit under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o., Poland, KPIT Infosystems Ltd., UK and KPIT Infosystems, France, SAS. The TPO proposed an adjustment in the aforesaid international transaction as the assessee had advanced the said loans at a rate which was less than base charge. The assessee had on its own motion made an adjustment of Rs. 20,41,738/-. The TPO proposed an adjustment of Rs. 32,99,487/- on account of difference between the rate charged by the assessee i.e. either LIBOR or WIBOR as against the Bank Prime Lending Rates of SBI at 12.25%. The adjustment was proposed by the TPO on account of difference between BPLR rates of 12.25% and the rate charged by the assessee under WIBOR / LIBOR. The case of the Assessing Officer was that since loan was given to the associate enterprises in the currency of that country, does not mean that the loan was in foreign currency for the associate enterprises. After considering the objections of the assessee, the TPO proposed the aforesaid adjustment, which was upheld by the DRP. 16. We find that similar issue of adjustment on account of arm's length price of international transactions in relation to interest charged by the lender to its associate enterprises, arose before the Tri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d / Balance of loan at the year ending 31.03.2008 Rs.59.43 Crs. (figures as per the financials) [B] Base charge adopted by the assessee LIBOR [C] Base charge adopted by the assessee to benchmark the transaction However, rate charged by the assessee = 4.75% [D] Bank Prime lending rate (BPLR) of SBI as on 31.03.2008 12.25% [E] RATE CHARGED BY THE ASSESSEE 4.75% [F] Interest charged by the assessee Rs.2,86,27,089 [G] The rate prevailing as per 6 months LIBOR for the year ended 31.03.2008 was 6.79% Rs.4,03,52,970 [H] Interest @ 12.25% as per BPLR of SBI Rs.7,28,00,000 [I] Difference in BPLR and assessee's amount Rs.4,41,74,661 [J] Proposed adjustment Rs.4,41,74,661 14. The assessee had benchmarked its international transactions taking the interest rate charged at international rates of the disbursing bank i.e. Citi Bank. However, the TPO was of the view that loan given to the associated enterprises in the currency of that country was not a foreign currency deposit with associated enterprises. On the other hand, the assessee had borrowed the money on banking prime lending rates and was show caused by the TPO as to why lending rate for the purpose of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee has further explained that it had raised the loan from Citi Bank on international rates for the purpose of investment in the share application money of its associated enterprises, which in turn was partly converted from capital into loan. Where the assessee had a comparable of borrowing loan on international rates and advancing to its associated enterprises, then the said comparable was to be applied for benchmarking the transaction of advancing the loan on interest to its associated enterprises. The assessee had charged interest rate of 4.75% on the loan advanced to the associated enterprises. The assessee on the other hand, claims that it had borrowed the money on LIBOR+ rates i.e. international rates, which were Japanes based LIBOR+ rates which were lower than the US based LIBOR+ rates. The plea of the assessee before us was that it had advanced the loan to its associated enterprises on LIBOR+ rates i.e. 4.75%. In the totality of the facts and circumstances where the assessee has the internal CUP of operating at international rates available and since the said loan raised by the assessee at international rates was advanced to its associated enterprises, we find no merit in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... principle has been laid down by the Mumbai Bench of the Tribunal in Hinduja Global Solutions Ltd. Vs. ACIT (2013) 35 taxmann.com 348 (Mumbai - Trib.). 19. In the entirety of the above facts and circumstances, we hold that where the assessee had entered into a transaction with its associated enterprises in foreign currency, and the transactions were international transactions, then the same had to be looked into by applying commercial principle in regard to international transactions. In the facts of present case, the assessee had borrowed the loan from Citi Bank and advanced the same on LIBOR+ rates to its associated enterprises, then the said transaction with its associated enterprises is within arm's length price. The TPO / AO thus, directed to recompute the arm's length price of the international transactions. Another aspect to be kept in mind is the plea of the assessee with regard to the interest receivable. The assessee had also raised the issue that the TPO had adopted the interest receivable from associated enterprise company at Rs. 2,86,27,089/- instead of Rs. 2,91,82,060/- which is disclosed in the audit report in Form No.3CEB. The Assessing Officer is also dire ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the learned Departmental Representative for the Revenue. The Tribunal while deciding the issue in para 42 had held as under:- "42. The issue before us is identical to the issue before the Chandigarh Bench of the Tribunal in Nahar Industrial Enterprises Ltd., Vs. DCIT (supra) and following the same parity of reasoning we direct the Assessing Officer to exclude the disallowance made under section 14A of the Act, while computing the book profits u/s 115JB of the Act. Accordingly, we direct the Assessing Officer to re-compute the book profits under section 115JB of the Act. The ground of appeal No.5 is thus, allowed." 22. In respect of ground of appeal No.6, the learned Departmental Representative for the Revenue pointed out that the issue was decided against the assessee by the Mumbai Bench of Tribunal in Dabur India Ltd. Vs. ACIT (2013) 37 taxmann.com 289 (Mumbai - Trib). However, the issue is covered in favour of the assessee by the decision of Pune Bench of Tribunal. 23. Accordingly, we hold that in view of the issue being squarely covered by the orders of Pune Bench of Tribunal, the Assessing Officer is directed to exclude the disallowance made under section 14A of the Act, w ..... X X X X Extracts X X X X X X X X Extracts X X X X
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