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2019 (12) TMI 153

..... e itself in the modified return in accordance with the APA, it cannot be equated with the computation of income u/ss. 92C/92CA of the Act, as the later provisions talks of making some transfer pricing addition by the AO. The suo motu offering of additional income by the assessee pursuant to the APA is of the same nature as the assessee itself offering some transfer pricing adjustment in the original return of income. In that case also, deduction u/s 10A, if otherwise permissible, would be allowed and not curtailed as it will not be a case of transfer pricing addition made by the AO. In the same manner, deduction u/s 10A cannot be disallowed in respect of additional income offered in the modified return as it is not a transfer pricing addition made by the AO but the additional transfer pricing income offered by the assessee 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 .....

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..... n India within one month. But for granting the relevant deductions connected with the realization of convertible foreign exchange in India, there was no purpose to stipulate it in the APA. This stipulation is, thus, a direction to grant deduction u/s 10A only if the assessee succeeds in bringing in convertible foreign exchange in India within one month, bringing the case within the saving clause of sub-section (2) of section 92CD. As the assessee brought into India the convertible foreign exchange within the stipulated one month’s period, it became entitled to deduction u/s 10A. What is further pertinent to note from para 2 of the Clause 6 of the APA is that: “The determination of ALP for Rollback years is subject to the condition that the ALP 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”. 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 mod .....

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..... only change which occurred in the modified return was that the assessee increased the profit margin to 17%, in consonance with the APA, from the originally declared profit margin of 15%. This resulted into enhancement of income by a sum of ₹ 20,36,023/-. Simultaneously, the assessee claimed a further deduction u/s.10A of the Act for the amount equal to the enhanced income, as a result of which no further additional income was offered. The AO, in his order dated 30-03-2017 passed u/s.143(3) r.w.s. 92CD of the Act, did not accept the claim of the assessee for the enhanced deduction on the additional income of ₹ 20,36,023/- primarily on the ground that the modification in the return u/s.92CD(1) was permissible only to the extent of stipulation in the APA and the APA in question did not provide for any 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 for .....

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..... international transaction in respect of which the APA has been entered into: shall be determined in accordance with the advance pricing agreement so entered. The crux of the above referred provisions dealing with the advance pricing agreement is that the arm s length margin or price is settled as per the terms of the APA; the manner of determination of such ALP may be by any of the methods referred to in section 92C(1) or any method de hors the prescription of section 92C(1); and the provisions of section 92C (Computation of ALP) and section 92CA (Reference to the TPO) shall not apply in respect of the determination of the ALP under the APA. 6. Section 92CD deals with giving Effect to the advance pricing agreement . Sub-section (1) requires filing of the modified return by the assessee in accordance with the 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 .....

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..... r sub-section (3): the Assessing Officer may compute the total income of the assessee having regard to the arm s length price so determined . Proviso to this sub-section, which is the bedrock for the denial of the assessee s claim, states that .... no deduction u/s.10A . . . . . . shall be allowed in respect of the amount of income by which the total income of the assessee is enhanced after computation of income under this sub-section . Section 92CA, through which a reference is made by the AO to the TPO for determination of the ALP and thereafter the assessment is completed by the AO in terms of the TPO s order, provides through sub-section (4) that on receipt of order from the TPO, the Assessing Officer shall proceed to compute the total income of the assessee under sub-section (4) of section 92C in conformity 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 in .....

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..... me 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. 11. 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. 12. Thus the first sub-question is answered by holding that proviso to section 92C(4) does not per se debar deduction u/s 10A on additional income in assessment u/s 92CD. ii. 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 tha .....

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..... further period as the competent authority may allow in this behalf . In other words, if the competent authority has allowed further period for bringing into India the convertible foreign exchange, the assessee will be entitled to deduction u/s.10A. Explanation 1 to section 10A(3) states that: For the purposes of this sub-section, the expression "competent authority" means the Reserve Bank of India or such other authority as is authorised under any law for the time being in force for regulating payments and dealings in foreign exchange. 15. Sub-section (1) of section 92CC provides that The Board, with the approval of the Central Government, may enter into an advance pricing agreement with any person . . . . . . . . It is thus clear from the mandate of sub-section (1) of section 92CC that the CBDT enters 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 w .....

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..... ndatory for the assessee to bring in convertible foreign exchange in India within one month. But for granting the relevant deductions connected with the realization of convertible foreign exchange in India, there was no purpose to stipulate it in the APA. This stipulation is, thus, a direction to grant deduction u/s 10A only if the assessee succeeds in bringing in convertible foreign exchange in India within one month, bringing the case within the saving clause of sub-section (2) of section 92CD. As the assessee brought into India the convertible foreign exchange within the stipulated one month s period, it became entitled to deduction u/s 10A. 17. What is further pertinent to note from para 2 of the Clause 6 of the APA is that: The determination of ALP for Rollback years is subject to the condition that the ALP 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 t .....

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