TMI Blog2021 (10) TMI 1053X X X X Extracts X X X X X X X X Extracts X X X X ..... ect the AO to allow assessee s claim of deduction under section 10A of the Act by including it both in the total turnover as well as export turnover. This ground is allowed. Facts being identical, respectfully following the decision of the co-ordinate Bench and the Hon ble jurisdictional High Court in assessee s own case, as referred to above, we direct the AO to allow assessee s claim of deduction under section 10A of the Act by including it both in the total turnover as well as export turnover. This ground is allowed. Deduction claimed under section 10A of the Act in respect of interest income - assessee had earned interest income on bank deposits, bonds, loans to employees, loans to subsidiary etc - HELD THAT:- Undisputedly, out of the total interest income earned, the assessee has apportioned an amount of ₹ 12,37,49,444/- to the 10A units. It is the stand of the assessee that the interest income on which deduction under section 10A of the Act was claimed was because of temporary parking of surplus funds available to the 10A units out of the export proceeds. Thus, it is closely related to the activity of the 10A units. A reading of section 10A of the Act would s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is fact. Thus, after taking into consideration the entire factual we are of the view that the adjustment made on account of delayed receivables has to be deleted. Transfer pricing adjustment on account of customization fee - CIT-A deleted the addition - HELD THAT:- As relying on assessee's own case [ 2010 (8) TMI 750 - ITAT MUMBAI ] though the subsidiaries are not directly involved in the customization work of the software but at the same time they are only authorized to collect the customization work in the market and other independent distributors are not doing said work. It is also seen that some of the independent distributors are paid higher commission then the subsidiaries without doing any job for collection of customization work. Moreover, the Learned D.R. could not controvert the findings of the Learned CIT (A) before us. TP adjustment made towards granting fee on loan extended by the assessee to the AE - HELD THAT:- As rightly observed by learned Commissioner (Appeals), question of providing a corporate guarantee will arise in a situation where the borrower has obtained debt from third party lender. In the facts of the present case, the assessee itself has a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bmitted, the training activity is connected to the core activity, hence, has to be treated as part of the eligible business carried on by the unit. The AO however, did not find merit in the submissions of the assessee. He observed, the training activity carried on by the assessee is not related to development of software but was done after the software is delivered to the customers. Thus, he held that the income derived from training activity would not qualify for deduction under section 10A of the Act. Learned Commissioner (Appeals) also upheld the aforesaid decision of the AO while deciding assessee s appeal. 5. Learned Counsel for the assessee submitted, the issue is squarely covered by the decision of the Tribunal in assessee s own case for assessment year 2002-03. Further, he submitted the aforesaid decision of the Tribunal has also been upheld by the Hon ble jurisdictional High Court. 6. Learned Departmental Representative, though, agreed that the issue is covered by the decision of the Tribunal. Nevertheless, he relied upon the observations of the AO and learned Commissioner (Appeals). 7. We have considered rival submissions and perused the materials on record. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no deduction under section 10A can be claimed, the AO disallowed assessee s claim of deduction under section 10A of the Act in respect of interest income. While doing so, he relied upon the following decisions:- 1. CIT vs. Sterling Foods (1999) 237 ITR 579 (SC). 2. Cambay Electronic Supply Industrial Pvt. Ltd. vs. CIT. 3. Accountancy Chemical Ltd. vs. CIT 129 taxmann.com 539 (SC). 10. Learned Commissioner (Appeals) also approved the aforesaid decision of the AO. 11. Learned Counsel for the assessee submitted, the interest income on which the assessee had claimed deduction under section 10A of the Act arose out of parking of temporary surplus funds, which was not immediately required for the business. He submitted, such interest income being earned in regular course of business activity carried on by the assessee, must form part of the profits and gains of the undertaking as contemplated under section 10A of the Act. He submitted, the decisions relied upon by the Departmental Authorities would not be applicable to assessee s case as those decisions are rendered in the context of deduction claimed under chapter VI-A. He submitted, the aforesaid difference in lega ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an undertaking from export of articles or things or computer software would be eligible for deduction. Whereas, in the decisions relied upon by the Departmental Authorities, the dispute related to claim of deduction under chapter VI-A of the Act. The Full Bench of the Hon ble Karnataka High Court in case of CIT vs. Hewlett Packard Global Ltd. (supra), while dealing with a dispute relating to deduction claimed under section 10A/10B of the Act in respect of interest income, had an occasion to examine the provisions contained under section 10A and 10B of the Act in contrast to the provisions contained in Chapter VI-A of the Act as well as various decisions of the different High Courts on the issue of allowability of deduction of interest income under various provisions of chapter VI-A. After examining the issue, the Hon ble Karnataka High Court held that those decisions would not cover the cases under sections 10A and 10B of the Act which are special provisions and complete code in themselves and deal with profits and gains derived by the assessees of special nature and character like 100% export oriented units in Special Economic Zones. The Hon ble High Court ultimately held that in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e dues from the end customers and remitted to the assessee, the TPO held that the subsidiaries having collected from the end customers have held on to the funds without remitting to the assessee in time. Having come to such conclusion, the TPO computed interest @ 8% on the period of delay in remitting the receivables and ultimately made an adjustment of ₹ 95,77,845/-. The assessee challenged the aforesaid adjustment before learned Commissioner (Appeals). Though, learned Commissioner (Appeals), to some extent, was convinced with the submissions of the assessee, however, ultimately he only reduced the rate of interest from 8% to 6.5%. 18. Learned counsel for the assessee submitted, the adjustment made on account of notional interest charged on the delayed receivables is unsustainable as it cannot be treated as international transaction under section 92B of the Act. Without prejudice, he submitted, the assessee is a debt free company. Therefore, there is no chance of assessee having passed on any benefit to the AEs because of borrowed funds. He submitted, the departmental authorities have failed to appreciate the fact that the services/products are not consumed by overseas su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers. In fact, learned Commissioner (Appeals) has also appreciated this fact. Thus, after taking into consideration the entire factual aspect, we are of the view that the adjustment made on account of delayed receivables has to be deleted. Accordingly, we do so. This ground is allowed. 22. In the result appeal is allowed. (ITA No. 4888/Mum/2007) (Departments appeal for Assessment year 2003-04) 23. In ground no. 1, the revenue has assailed the decision of learned Commissioner (Appeals) in directing the AO to include income from training activity in the total turnover for computing deduction under section 10A of the Act. This ground corresponds to ground no. 2 of assessee s appeal, being ITA No. 5023/Mum/2007, for the very same assessment year. While deciding the issue in the earlier part of the order, we have held that income derived from training activity would form part of both total turnover and export turnover for computing deduction under section 10A of the Act. In view of our aforesaid decision, this ground is dismissed. 24. In ground no. 2, the department has challenged the deletion of transfer pricing adjustment of ₹ 1,53,17,531/- on account of customiza ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubmissions, we find, identical issue arose in assessee s own case in assessment year 2002-03. While deciding the issue, the Tribunal in ITA No. 3699/Mum/2006 dated 31.08.2010 has held as under: 17. We have heard the rival submissions of the parties. The Learned D.R. vehemently argued that there is no reason to pay the additional commission to the subsidiaries then the independent local distributors. It is argued that entire customisation work is done by the assessee only and there is no contribution by the subsidiaries in the customization work entrusted by the users of the software manufactured by the assessee company. Per contra, the Learned Counsel argues that in addition to the sale of the software, the additional assignments or jobs for collection of customization work is done by the subsidiaries (A.Es.). Ld. Counsel also referred to the sample copy of the agreement, which is placed in the paper book and submits that so fare as the local independent distributors are concerned, some of them are paid between 15 to 20% only on the selling the products of the assessee. He submitted that though the entire customization work is done by the assessee but all the data collection w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act in respect of interest income. 35. The issue raised in this ground is identical to the issue raise in ground no. 3 of ITA No. 5023/Mum/2007 decided in the earlier part of this order. Following our detailed discussion and decision therein, we allow assessee s claim of deduction subject to factual verification by the AO. The ground is allowed. 36. In the result, appeal is allowed. (ITA No. 5078/Mum/2010) (Departments appeal for Assessment year 2004-05) 37. In ground no. 1, the revenue has challenged the deletion of transfer pricing adjustment made on account of customization fee. This ground is identical to ground no. 2 of ITA No. 4888/Mum/2007 decided in the earlier part of the order. Following our decision therein, we uphold the decision of learned Commissioner (Appeals) by dismissing ground. 38. In ground no. 2, revenue has challenged the partial relief granted by learned Commissioner (Appeals) in the matter of adjustment made towards interest on delayed receivables. This ground is identical to ground no. 5 of ITA No. 5023/Mum/2007 and ground no. 3 of ITA No. 4888/Mum/2007. Following our detailed discussion and decision therein, we dismiss this ground. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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