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2019 (12) TMI 153

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..... essee in consonance with the APA with the CBDT. The second component for magnetizing the proviso is that the `total income of the assessee is enhanced’. An enhancement of income in this context pre-supposes some action of the authorities after the filing of the return of income by the assessee, which has the consequence of increasing the total income from the one declared by the assessee. Filing of the modified return u/s 92CD of the Act with the income as agreed between the assessee and the CBDT under the APA is an act of the assessee in offering the additional income and not an act of the AO in making the enhancement of the total income. Instantly, we are dealing with a situation in which the assessee itself has filed a modified return of income at the mutually agreed rate of 17% under the APA. As such, there cannot be any question of the AO making any enhancement in the income as a result of transfer pricing adjustment so as to attract the proviso to section 92C(4) of the Act. Assessment u/s 92CD provides for granting deduction u/s 10A - HELD THAT:- A careful circumspection of sub-section (2) deciphers and delineates that in the computation of total income by the AO pursua .....

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..... ucing the total income or increasing the total loss, as the case may be, of the applicant as already declared in the return of income of the said year”. Assessee declared total income in the original return. After the increase in the income due to the APA and with the simultaneous claim of deduction u/s.10A, the total income of the assessee as declared in the modified return remained at the same level. Thus, it is neither a case of reducing the total income nor increasing the total loss. Ex consequenti, it is held that the assessee has satisfied the condition of deduction u/s 10A(3) read with section 92CD(2) of the Act. Proviso to section 92C(4) does not debar deduction u/s 10A on additional income in assessment u/s 92CD; assessment u/s 92CD provides for granting deduction u/s 10A; and the assessee has satisfied the requirement of section 10A(3) read with section 92CD(2), thereby entitling it to deduction u/s.10A on the additional. The impugned order is overturned and deduction is granted. - ITA No.1413/PUN/2019 - Dated:- 2-12-2019 - Shri R.S. Syal, Vice President And Shri Partha Sarathi Chaudhury, Judicial Member For the Assessee : Shri Rajendra Agiwal For the Revenue : Shri .....

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..... such deduction. He further took note of the mandate of section 10A(3) of the Act which provides that the sale proceeds in respect of export of software should be brought into India in convertible foreign exchange within a period of six months from the end of the relevant previous year. Since the enhancement in the amount of sale value was brought into India in convertible foreign exchange after such period, the AO held that the assessee was not entitled to further deduction u/s.10A to the tune of ₹ 20,36,023/-. The ld. CIT(A) scanned the reasons ascribed by the AO and accorded his imprimatur to the view so canvassed. This has brought the assessee before the Tribunal. 3. We have heard the rival submissions and gone through the relevant material on record. The undisputed facts are that the APA settled the arm s length margin at not less than 17% covering the APA years and the rollback years including the one under consideration. In consonance with the APA, the assessee filed its modified return for the year under consideration with 17% Operating Profit margin and raised further invoice amounting to ₹ 20,36,023/- on its Associated Enterprise (AE) on 07-12-2015. It brought .....

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..... APA. Sub-section (3) states that if the assessment etc. for an assessment year relevant to a previous year to which the agreement applies has been completed before the expiry of period allowed for furnishing of modified return under sub-section (1), which is a case under consideration, the Assessing Officer shall: proceed to assess or reassess or recompute the total income of the relevant assessment year having regard to and in accordance with the agreement. Sub-section (4) deals with a situation in which the assessment etc. for an assessment year relevant to the previous year to which the APA applies are pending on the date of filing of modified return. It lays down that : the Assessing Officer shall proceed to complete the assessment or reassessment proceedings in accordance with the agreement taking into consideration the modified return so furnished. On going through the prescription of sub-sections (3) and (4) of section 92CD, it becomes explicitly clear once an assessee has filed modified returns under sub-section (1) of section 92CD, the AO is obliged to make/complete the already completed or pending assessments u/s.92CD itself afresh having regard to or in accordance with t .....

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..... ty with the ALP determined by the TPO. Thus, notwithstanding the ALP determination by the AO or the TPO, the assessment is finalized by the AO in terms of the mandate contained in sub-section (4) of section 92C, which specifically provides that no deduction u/s.10A shall be allowed in respect of the amount of income by which the total income is enhanced after computation of income under this sub-section. A close scrutiny of the crucial words in the proviso decodes that the denial of deduction is permissible only when, first there is computation of income under sub-section (4) of sections 92C/92CA of the Act and second, the total income is enhanced because of such computation, namely, by virtue of the transfer pricing adjustment. Thus, it is vivid that the proviso restricting the granting of deduction u/s.10A on enhanced income applies only where the computation of income is made under the sub-section (4) of sections 92C/92CA, which talks of making some transfer pricing addition by the AO. If the computation of income is neither u/s.92C nor 92CA, namely, no transfer pricing addition is made by the AO, then it is obvious that the proviso shall have no application and the fortiori is .....

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..... i. Whether assessment u/s 92CD provides for granting deduction u/s 10A? 13. Having answered the first question in negative, it remains to be decided as to whether the assessee is entitled to deduction u/s. 10A within the framework of the APA provisions. In this regard, it assumes significance to note the mandate of sub-section (2) of section 92CD of the Act, which provides that: Save as otherwise provided in this section, all other provisions of this Act shall apply accordingly as if the modified return is a return furnished under section 139 . A careful circumspection of sub-section (2) deciphers and delineates that in the computation of total income by the AO pursuant to the filing of the modified return by the assessee in terms of the APA, all other provisions of this Act shall apply accordingly. In other words, if an assessee is otherwise eligible for deduction under any other appropriate provision in respect of the income offered in the modified return, there cannot be any embargo on granting deduction under such relevant provision. The saving clause contained in sub-section (2), making all other provisions of the Act applicable in the assessment of the modified return, ostens .....

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..... rs into an APA with the approval of the Central Government. The APA is a package deal aimed at reducing litigation. If the APA contains some clause relaxing the rigor of any provision or to facilitate its workability, such a clause will prevail over the normal provisions of the Act. It is mandated by the legislature itself through sub-section (2) of section 92CD, which opens with a saving clause by providing: Save as otherwise provided in this section , all other provisions of the Act shall apply. Sub-section (1) of section 92CD provides that: …. such a person shall furnish …. a modified return in accordance with and limited to the agreement. A corollary which follows on a harmonious construction of sub-sections (1) and (2) of section 92CD is that if the APA contains a clause departing from the normal provisions, it is such clause which shall prevail upon the normal provision. 16. We have gone through the APA entered between the assessee and the CBDT. Clause 7 of the APA discusses the Critical assumptions . It provides that: the critical assumptions (as referred to in the Rules) shall, for the purposes of this Agreement, be as specified in Appendix II. Clause 5 of the .....

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..... LP would get modified to the extent that it does not result in reducing the total income or increasing the total loss, as the case may be, of the applicant as already declared in the return of income of the said year . Reverting to facts of the extant case, it is seen that the assessee declared total income of ₹ 45,21,431/- in the original return. After the increase in the income due to the APA and with the simultaneous claim of deduction u/s.10A, the total income of the assessee as declared in the modified return remained at the same level. Thus, it is neither a case of reducing the total income nor increasing the total loss. Ex consequenti, it is held that the assessee has satisfied the condition of deduction u/s 10A(3) read with section 92CD(2) of the Act. 18. To sum up, we hold that the proviso to section 92C(4) does not debar deduction u/s 10A on additional income in assessment u/s 92CD; assessment u/s 92CD provides for granting deduction u/s 10A; and the assessee has satisfied the requirement of section 10A(3) read with section 92CD(2), thereby entitling it to deduction u/s.10A on the additional amount of ₹ 20,36,023/-. The impugned order is overturned and deducti .....

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