TMI Blog2019 (6) TMI 1092X X X X Extracts X X X X X X X X Extracts X X X X ..... o to section 92C(4) is evidently applicable only to situations where adjustment to the ALP is made by the Assessing Officer/TPO/Ld. DRP and not to the voluntary adjustment made by the assessee itself. If the legislative intent was to treat the adjustments made by the Assessing Officer at par with the voluntary adjustment made by the assessee, the legislative intent would have been expressed in different words and section 92C(4) would not have referred to computation of income made by the AO in terms of the ALP determined u/s 92C(3) based enhanced income - Thus we direct the AO to delete this disallowance and grant benefit of deduction u/s 10A on the amount of voluntary TP adjustment made by the assessee. - Decided in favour of assessee. Transfer pricing adjustment in respect of notional interest on outstanding receivables - HELD THAT:- As in M/S COTTON NATURALS (I) PVT. LTD. [ 2015 (3) TMI 1031 - DELHI HIGH COURT] held that the interest rate should be market determined interest rate applicable to the currency concerned in which the loan has to be repaid and that the interest rate should not be computed on the basis of interest payable on the currency or legal tender of the pl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act. 2.1 The assessee had also entered into international transactions with its Associated Enterprises (AEs) and, therefore, in accordance with provisions of section 92CA of the Act, a reference was made to the Transfer Pricing Officer (TPO) for determining the Arm s Length Price (ALP) of the international transaction. 2.2 Since, while filing the return of income, the assessee had made a voluntary transfer pricing adjustment amounting to ₹ 1,96,45,478/- and, thereafter, had claimed a deduction of ₹ 1,69,61,565/- u/s 10A of the Act, the Assessing Officer, in his draft assessment order, held that the assessee had carried out a faulty calculation of the deduction u/s 10A of the Act. The Assessing Officer was of the opinion that suo moto transfer pricing adjustment of ₹ 1,96,45,478/- could not be included as part of the total turnover of the undertaking and resultantly could not also form part of the total profit of the undertaking. The Assessing Officer (AO) proceeded to reduce the quantum of deduction claimed u/s 10A from ₹ 1,69,61,565/- to ₹ 76,12,562/-. The Assessing Officer was of the opinion th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) 5% as provided in the proviso to Section 92C(2) of the Act. 2. On facts and in law, the Hon ble DRP and Ld. AO erred in disregarding the Appellant s use of multiple year/ prior years data in contravention of the provision of section 92C of the Act read with Rule 10B and Rule 10D of the Income Tax Rules, 1962 ( the Rules ). Addition on account of Transfer Pricing - Interest on outstanding receivables 3. On facts and in law, the Hon ble DRP / Ld. AO have erred in making an addition of INR 4,536,868 to the income of the Appellant, by making an impugned adjustment in lieu of interest on account of delayed payments from AE during the year. C. Corporate Tax Grounds B.1 Deduction u/s 10A is to be computed on taxable income determined under normal provisions of the Act and not on profits as per books of accounts. 1.1 On the facts and in the circumstances of the case, the learned AO has erred in proposing and the Hon'ble DRP has further erred in confirming the computation of deduction u/s 10A of the Act on the profits as per books of accounts instead of income under the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce to each other. The Appellant craves leave to add, withdraw, amend or vary the above grounds of appeal ' before or at the time of hearing. 3.0 At the outset, the Ld. Authorised Representative (AR) submitted that grounds B1 and B2 were not being pressed because the issue already stood resolved in favour of the assessee of virtue of the rectification order passed u/s 154 by the Assessing Officer vide order dated 16.7.2015. 3.1 With respect to ground no. C pertaining to disallowance in the deduction u/s 10A of the Act, the Ld. AR submitted that the Ld. DRP while upholding the disallowance had held that proviso to section 92C(4) is applicable because it has ordered certain adjustment to the ALP of the main ITES transaction in Para 7 of its directions. It was submitted that subsequently no adjustment to the ALP had survived as there was a computational error in this respect and the TPO had passed an order u/s 154 on 16.7.2015 deleting the adjustment ordered by the Ld. DRP. Our attention was drawn to the said rectification order u/s 154 of the Act which was placed at paper book pages 346 and 347. The Ld. AR further submitted th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urse of assessment. It was argued that if the deduction u/s 10A of the Act were to be only restricted to book profit, no revision of deduction u/s 10A would ever be possible. For this proposition, the Ld. AR placed reliance on the following judicial precedents:- i) PCIT vs. Oracle (OFSS) BPO Services Ltd. of the Hon ble High Court reported in 102 taxmann.com 396 ii) C.I.T. vs. Gem Plus Jewellery India Ltd. of the Hon ble Bombay High Court reported in 194 Taxman 192 iii) PCIT vs. Lionbridge Technologies Pvt. Ltd. of Hon ble Bombay High Court reported in 86 taxmann.com 101 iv) ITO vs. Cerner Healthcare Solutions Pvt. Ltd. of the Bangalore Tribunal 83 taxmann.com 62 3.4 The ld. AR further argued that the voluntary transfer pricing adjustment made by the assessee will essentially have to form part of the profits of the business for the purposes of claiming deduction u/s 10 of the Income Tax Act. It was submitted that the assessee is engaged in the business of providing information technology enabled services to its overseas group entities and the very basis of the voluntary transfer pricing adjustment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 4 of section 10A. Ld. AR submitted that this distinction has been dealt in great detail by the Hon ble Delhi High Court and other High Courts in various decisions like Hritnik Exports (supra) and Riviera Home Furnishings vs. ACIT of the Hon ble Delhi High Court reported in 237 Taxman 520. 3.6 With respect to ground no. B2, challenging the action of the Assessing Officer in not allowing the set off of brought forward loss of ₹ 53,89,388/-, it was submitted that suitable directions may be given in this regard. 3.7 Similarly with respect to ground no. B3 challenging the action of the Assessing Officer in not allowing the set off of available MAT credit, it was prayed that suitable directions may be given in this regard. 3.8 On the transfer pricing ground B3 challenging the upward addition of ₹ 45,36,868/- on account of notional interest on delayed payments from the AE, the Ld. AR submitted that during the year under consideration, the assessee had compared its operating margin (OP/OC) with its comparable companies. It was submitted that the TPO made an adjustment on account of delayed payment of outstanding receivables ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respect to the case laws relied upon by the assessee, Ld. Sr. DR submitted that all these cases were distinguishable on the facts as the facts were not identical in any of the cases. 4.1 With respect to the assessee s ground challenging transfer pricing adjustment pertaining to interest on delayed payments, reliance was placed on the findings and observations of the Assessing Officer/TPO in this regard. 5.0 We have heard the rival submissions and perused the material available on record. The first issue for determination before us is whether the assessee will be eligible for claim of deduction u/s 10A of the Act with respect to suo moto transfer pricing adjustment made by the assessee. Both the parties have argued at length on the issue. On one hand, it is the assessee s contention that provisions of section 92(4) will not be applicable in this case as the transfer pricing adjustment has been made voluntarily by the assessee and once the income has been offered to tax, it forms part of the profit of the business and the deduction u/s 10A cannot be denied. The Ld. AR has also cited a number of judicial precedents in support of his contention. On th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as not been allowed as per proviso to s. 92C(4). As per this proviso, no deduction under s. 10A or 10B or under Chapter VI-A is to be allowed in respect of amount of income, by which the total income of the assessee is enhanced after computation of income under the sub-section. The learned Authorized Representative during the course of proceedings has referred to the word 'enhanced'. In case the income is enhanced, then deduction is not permissible. However, in the instant case, income has not been enhanced because the same was already returned by the assessee. In the Memo Explaining the Provisions of Finance Bill, 2006, it has been mentioned as under: Under sub-s. (4), it has been provided that on the basis of arm's length price so determined, the A.O. may compute the total income of an assessee. The first proviso to sub-s. (4) provides that where the total income of the assessee as computed by AO is higher than the income declared by the assessee, no deduction under s. 10A or s. 10B or under Chapter VI-A will be allowed in respect of the amount of income, by which the total income of the assessee is enhanced after computation of income under subsec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ibunal, which we are bound to follow, is that the first proviso to section 92C(4) of the Act is evidently applicable only to situations where adjustment to the ALP is made by the Assessing Officer/TPO/Ld. DRP and not to the voluntary adjustment made by the assessee itself. If the legislative intent was to treat the adjustments made by the Assessing Officer at par with the voluntary adjustment made by the assessee, the legislative intent would have been expressed in different words and section 92C(4) would not have referred to computation of income made by the Assessing Officer in terms of the ALP determined u/s 92C(3) based enhanced income. We also note that the Ld. Sr. DR has placed reliance on the ratio laid down in the case of Deloitte Consulting India (P) Ltd.(2012) 22 taxmann.com 107 (Mumbai). However, the same does not stand because of the ratio of the judgment of the Hon ble High Court of Karnataka on the same issue. Though the said judgment is of the non-jurisdictional High Court, the same is binding on this Tribunal in absence of any contrary decision of the Jurisdictional High Court. Therefore, respectfully following the ratio of the decision of the Coordinate Benches a ..... 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