TMI Blog2023 (9) TMI 1307X X X X Extracts X X X X X X X X Extracts X X X X ..... A of the Act is a deduction section and not an exemption section. Further it was held that the deduction has to be computed undertaking-wise . The Hon ble Supreme Court has held in the case of CIT vs. Yokogawa India Ltd [ 2016 (12) TMI 881 - SUPREME COURT ] that the deduction u/s 10A of the Act should be computed at the stage before arriving at the Gross total income of the eligible undertaking. Thus we are of the view that the Ld CIT(A) was justified in holding that the losses incurred in other eligible units are not required to be set off against the profits of the undertaking against which the deduction u/s 10A was allowed. Computation of deduction u/s 10A - whether the telecommunication charges are required to be deducted from the Export turnover while computing deduction u/s 10A of the Act or not? - HELD THAT:- As relying on HCL Technologies Ltd [ 2018 (5) TMI 357 - SUPREME COURT ] we direct the AO to compute the deduction u/s 10A of the Act by excluding telecommunication charges both from export turnover and total turnover while computing deduction u/s 10A of the Act. TP adjustment in respect of income - assessee selected itself as tested party and adopted TNM m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elay and accordingly made transfer pricing adjustment of Rs. 3.80 crores on account of delayed receivable by adopting interest at 6.87% on average quarterly balance due from AEs - HELD THAT:- We noticed that the AEs have remitted money to the assessee with delay ranging from 1 day to a period exceeding 1 year, after realization from their debtors. Hence the reasoning given by the Tribunal, as rightly pointed by Ld D.R, would not apply to the facts of the year under consideration. We also noticed that the TPO has computed the interest by taking average quarterly balances. In our view, the same is not correct method of computing interest on delayed receivables. Since the details of realization of individual bills are available, it will be possible for the assessee/TPO to compute interest individually after allowing accepted credit period. Thus we are of the view that this issue requires fresh examination at the end of the Assessing Officer/TPO. Accordingly we set aside the order passed by the learned CIT(A) on this issue and restore the same to this file for examining this issue afresh in the light of discussions made supra. TP Adjustment - loan given to AEs - TPO has arri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... banks and financial institutions worldwide. 5. Certain common issues are urged in these appeals. We shall first take up the common issues urged by both the parties. The first common issue urged by the parties relates to deduction under section 10A of the Act. 5.1 The assessee is aggrieved on the decision of tax authorities in denying deduction u/s 10A of the Act in respect of interest income earned by the assessee. 5.2 We heard the parties and perused the record. We noticed that the identical issue has been considered by the Tribunal in the assessee s own case in A.Y. 2003-04 in ITA No. 5023/Mum/2007 and the Tribunal vide its order dated 12.10.2021 has held that the assessee is eligible for deduction under section 10A in respect of interest income earned on temporary parking of surplus funds in the ordinary course of business. We notice that in support of this proposition, the Tribunal has followed the decision rendered by Hon'ble Karnataka High Court in the case of CIT Vs. Hewlett Packard Global Ltd. (2017) 87 taxman.com 182. In this year also, it is stated that the interest income was earned from deposit of surplus funds with banks. Since there is no change in facts, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have any material relationship with the other business of the assessee outside these zones or units for the purposes of this provision. Accordingly, we are of the view that the Ld CIT(A) was justified in holding that the losses incurred in other eligible units are not required to be set off against the profits of the undertaking against which the deduction u/s 10A was allowed. 5.5 One more issue urged by the revenue with regard to the computation of deduction u/s 10A is whether the telecommunication charges are required to be deducted from the Export turnover while computing deduction u/s 10A of the Act or not?. 5.6 While the AO held that the telecommunication charges are required to be deducted from the Export turnover , the Ld CIT(A) reversed the same. Before us, the Ld A.R submitted that the telecommunication charges may be directed to be deducted from both Export turnover and Total turnover while computing deduction u/s 10A of the Act as held by Hon ble Supreme Court in the case of CIT vs. HCL Technologies Ltd (2018)(404 ITR 719)(SC). We agree with the submissions of the Ld A.R. Accordingly, we direct the AO to compute the deduction u/s 10A of the Act by exclu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held that the Associated Enterprises (AEs) should have been remunerated by the assessee @ cost plus 10% margin only. We noticed that the overseas subsidiaries retained earning of 15%/20%. Accordingly, the TPO proposed transfer pricing adjustment of Rs. 31.93 crores. 6.3 Before Ld CIT(A), the assessee made detailed submissions and hence the Ld CIT(A) called for a remand report. However, the TPO did not furnish the report despite several reminders issued by Ld CIT(A). Hence the Ld CIT(A) proceeded to decide the issue on the basis of available materials. The ld CIT(A) rejected the approach of the TPO in selecting foreign AEs as tested parties. The Ld CIT(A) examined the comparable companies selected by the assessee and held that only 11 companies (out of 43 companies) selected by the assessee are comparable with the assessee. The average margin of the those 11 companies was 22.53% and accordingly, the Ld CIT(A) reduced the transfer pricing adjustment to Rs. 7,88,14,000/-. 6.4 We heard the parties and perused the record. We noticed that the TPO, after holding that the foreign AEs should be taken as tested parties have selected three unknown Indian comparable companies. Accordi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT(A) would stands modify accordingly. 8. We shall take up the individual issues urged in the appeal filed by the Revenue. 9. First individual issue contested by the Revenue relates to transfer pricing adjustment made in respect of delayed receivable from the AEs. The Transfer Pricing Officer (TPO) noticed that the assessee has received money from its AEs with considerable delay and accordingly made transfer pricing adjustment of Rs. 3.80 crores on account of delayed receivable by adopting interest at 6.87% on average quarterly balance due from AEs. The learned CIT(A) deleted the same following the decision rendered by him in AY 2005- 06. He also further held that the AEs are not charging interests from their customers and the delay is on account of delayed collection by AEs from their customers. 9.1 The learned AR submitted that an identical issue has been decided by the Coordinate Bench in assessee s own case in A.Y. 2003-04 in ITA No. 5023/Mum/2007 and the adjustment made by the TPO was deleted on the reasoning that the AEs are realizing amounts from its debtors with delay. The Learned AR submitted that the said order passed by the Tribunal in A.Y. 2003-04 followed A. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the view that the assessee has undercharged interest and accordingly made transfer pricing adjustment of Rs. 2.29 crores. The learned CIT(A) however deleted the addition by following the decision rendered by the Tribunal in assessee s own case in A.Y. 2004-05 in ITA No. 5078/Mum/2010. 11. We heard the parties and perused the record. We noticed that the TPO has arrived at ALP rate of interest for i flex America at 8.37% and for ISE Mauritius Company Mauritius at 11.75%. For this purpose, the TPO had adopted prime lending rate at which AEs could have obtained loan in respective jurisdiction and then added 1.75%, being the rate charged for giving bank guarantee. The TPO added the bank guarantee rate on the reasoning that the AEs could be able to obtain loan, only if the assessee gives corporate guarantee to the financial institutions. Accordingly the TPO has arrived transfer pricing adjustment at 2.29 crores. 11.1 We notice that the assessee has furnished a letter obtained from HDFC bank, wherein the bank has quoted rate of interest on the query raised by the assessee in respect of loan to be taken by its American Subsidiary. The Ld D.R submitted that the above said letter is a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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