2020 (10) TMI 605 - AT - Income Tax

Tribunal rules in favor of taxpayer on various tax issues, directs reexamination by AO

The tribunal ruled in favor of the taxpayer on various issues including setting off losses of STPI/SEZ units against non-STPI/non-SEZ unit income, ... Set off of losses of SEZ/STPI undertakings against income of non SEZ/non STPI undertakings - scope and computation of deduction under section 10A/10AA/10B (profits and gains of eligible undertakings) - treatment of miscellaneous receipts (sale of scrap, rental, interest, other receipts) for computing deduction under section 10A/10AA/10B and 10B - nexus test for interest income to qualify as business income of an eligible undertaking - treatment of deemed exports and inclusion of foreign VAT/GST in export turnover for deduction under section 10A/10AA/10B - effect of delayed realisation of export proceeds where application made to RBI for extension - foreign tax credit under sections 90 and 91 and treatment of state/local taxes of foreign jurisdictions - disallowance under section 40(a)(ia) vis a vis depreciation on capitalised software - allocation of corporate/head office overheads to units claiming tax incentives - treatment of interest on income tax refunds under section 244A and approach to assessment where refunds may be withdrawn - application of transfer pricing regime to specified domestic transactions (sec. 92BA/80IA(8)/10AA) and method of recomputation - allowability of loss on revaluation of outstanding forward contracts entered to hedge revenue exposuresSet off of losses of SEZ/STPI undertakings against income of non SEZ/non STPI undertakings - Whether losses of eligible SEZ/STPI undertakings can be set off against business income of non SEZ/non STPI undertakings. - HELD THAT: - The Tribunal examined earlier coordinate Bench and jurisdictional High Court decisions in the assessee's own case and held that losses of eligible SEZ/STPI undertakings are not required to be confined within other SEZ/STPI undertakings. Following the Karnataka High Court authority cited in the record, the Tribunal concluded that such losses can be adjusted against profits of non SEZ/non STPI units and therefore the Assessing Officer's denial of set off was incorrect.Allowed the assessee's claim; losses of eligible SEZ/STPI undertakings may be set off against income of non SEZ/non STPI undertakings.Treatment of miscellaneous receipts for computing deduction under section 10A/10AA/10B - Whether various items disclosed as miscellaneous income (sale of scrap/newspaper, rental, interest, other income) of eligible undertakings qualify for deduction under section 10A/10AA/10B. - HELD THAT: - Following the binding decisions of the jurisdictional High Court in the assessee's own case, the Tribunal directed inclusion of receipts from sale of scrap/newspaper and rental receipts as part of profits of eligible undertakings for deduction purposes. Dividend from mutual funds (exempt) was excluded. For 'other income' the Tribunal found insufficient details and remitted that head to the Assessing Officer to examine nature and decide on merits. The interest head was treated separately (see next issue) because its qualification depends on nexus and assessment head under which it was taxed.Allowed deduction in respect of sale of scrap/newspaper and rental income; 'other income' remitted to AO for enquiry and decision.Nexus test for interest income to qualify as business income of an eligible undertaking - Whether interest income earned by SEZ/STPI units is eligible for deduction under section 10A/10AA/10B. - HELD THAT: - The Tribunal applied the principle from the jurisdictional High Court: interest qualifies if assessed as business income or if there is a direct nexus between the interest and the business of the eligible undertaking. Two categories were identified - interest on deposits arising from packing credit (loan) funds and interest on surplus funds of SEZ units. If AO has assessed interest as business income it is eligible; otherwise the assessee must prove direct nexus. The Tribunal remitted the issue to the Assessing Officer to verify whether interest was assessed as business income and, if not, to allow interest income deduction to the extent the assessee can establish nexus.Remitted to AO to examine head under which interest was assessed and, if not business income, to verify nexus; interest eligible to the extent nexus found.Treatment of deemed exports for deduction under section 10A/10AA/10B - Whether receipts from supplies to SEZ/STPI units in India (deemed exports) that yield foreign exchange can be counted as export turnover for deduction under section 10A/10AA/10B. - HELD THAT: - Following the jurisdictional High Court decisions (including Tata Elxsi precedent extracted in the record), the Tribunal held that where export is effected through another unit (including STP/SEZ) in the chain and foreign exchange is attributable to such export, the receipts qualify as export turnover. The AO was directed to include deemed exports in export turnover while computing deduction under the relevant sections.Directed AO to include deemed exports as part of export turnover for computing deduction under section 10A/10AA/10B.Effect of delayed realisation of export proceeds where application made to RBI for extension - Whether export turnover should include receipts for which the assessee filed timely applications to RBI for extension of the six month realisation period but formal RBI approval was not on record at assessment time. - HELD THAT: - Relying on the jurisdictional High Court authority in the assessee's case, the Tribunal held that where (i) export was validly performed, (ii) application for RBI extension was filed through authorized dealer and (iii) foreign exchange was ultimately received through proper channel, the turnover should be treated as export turnover notwithstanding absence of express written RBI approval at assessment time. The AO was directed to include such receipts in export turnover where evidence of application and subsequent remittance exists.Allowed inclusion of such delayed realisations in export turnover where applications to RBI were made and foreign exchange was subsequently received.Foreign tax credit under sections 90 and 91 and treatment of state/local taxes of foreign jurisdictions - Whether foreign tax credit is allowable in respect of taxes paid abroad, including taxes at state/local levels, and whether credit is barred where Indian tax on the same income has been exempted under incentive provisions. - HELD THAT: - The Tribunal followed the Karnataka High Court exposition reproduced in the record: section 90(1)(a)(i) covers cases where tax has been paid both abroad and in India; clause (ii) covers income chargeable both in India and abroad - payment in India is not a prerequisite; section 91(1) (with its Explanation (iv)) permits credit for taxes paid to parts of a foreign country (state/local authorities). The Tribunal set aside AO's blanket refusals and directed allowance of foreign tax credit in accordance with the High Court's reasoning and the particular DTAA provisions applicable to each jurisdiction, subject to usual matching/computation rules.Foreign tax credit allowed in accordance with the Karnataka High Court analysis; AO to give effect consistent with DTAA and section 91 where applicable.Disallowance under section 40(a)(ia) vis a vis depreciation on capitalised software - Whether depreciation on capitalised software can be disallowed under section 40(a)(ia) for non deduction of TDS on payments for software. - HELD THAT: - Following consistent tribunal precedents cited in the order, the Tribunal reaffirmed that depreciation under section 32 is a statutory allowance, not an outgoing expenditure, and therefore cannot be disallowed by invoking section 40(a)(ia). The AO was directed to delete the disallowance; consequential claim for enhancement of section 10A/10AA/10B was held unnecessary on the primary finding.Depreciation on capitalised software cannot be disallowed under section 40(a)(ia); disallowance deleted.Allocation of corporate/head office overheads to units claiming tax incentives - Whether and how corporate overheads should be allocated to units claiming deductions under sections 10A/10AA/10B (and parallel incentive provisions). - HELD THAT: - The Tribunal recognised that head office costs are common costs and in principle require allocation to operating profit centres, including units claiming incentives, so that profits of those undertakings are correctly computed. However, factual and methodological disputes existed in the record (including prior HC/Tribunal directions and inconsistent treatment). The Tribunal therefore remitted the issue to the AO to examine and implement allocation in conformity with earlier Tribunal/High Court directions and on a reasonable, evidenced basis (not by mechanical ad hoc apportionment).Issue remitted to AO for fresh examination and allocation in accordance with earlier judicial directions and on a reasoned basis.Eligibility of STPI units as newly established undertakings for deduction - Whether STPI units at Bangalore constituted newly established undertakings eligible for deduction under section 10A. - HELD THAT: - Applying Supreme Court and High Court authorities reproduced in the record, the Tribunal held that 'newly established undertaking' does not require separate company or wholly separate accounts; the test is emergence of a new, identifiable, viable undertaking with new plant/machinery and distinct physical identity for the relevant activity. On the facts and following binding Karnataka High Court precedent in the assessee's case, the Bangalore STPI units met the test and the AO's denial was reversed.Assessee's STPI units held eligible for deduction; AO directed to allow the claim.Inclusion of foreign VAT/GST in export turnover for deduction computation - Whether foreign VAT/GST collected from customers abroad is to be included in export turnover for computing deductions under the incentive provisions. - HELD THAT: - Following the jurisdictional High Court authority in the assessee's case, the Tribunal held that foreign VAT/GST collected as part of the sale price and remitted to the foreign government forms part of the export proceeds for the statutory purpose and must be included in export turnover unless specifically excluded by the definition. AO was directed to include foreign VAT/GST in export turnover.Directed AO to include foreign VAT/GST in export turnover for computing deduction.Taxability and assessment approach to interest received under section 244A on refunds - When interest received under section 244A on income tax refunds is to be taxed and how to treat amounts subsequently recovered by the department. - HELD THAT: - While the Tribunal accepted that interest under section 244A is taxable, it followed the High Court's guidance that AO must first compute interest refunded and then account for any amounts subsequently withdrawn or recovered from the assessee before determining the taxable interest; where matters remain subject to appellate challenge the AO should not treat the whole receipt as finally taxable without adjusting for subsequent withdrawals. Accordingly the Tribunal remitted to AO to quantify interest received and any amounts subsequently withdrawn and to tax the net.Remitted to AO to compute interest taxable under section 244A after accounting for any subsequent withdrawals/recoveries; interest is taxable but computation to be done per directions.Application of transfer pricing rules to specified domestic transactions and recomputation of incentive deductions - Approach to ALP determination and consequential effect on deductions (sec.92BA, 92C, 80IA(8)/10AA) where inter unit transactions exist between eligible and non eligible units (and between eligible units). - HELD THAT: - The Tribunal analysed the statutory scheme: (i) sec.80IA(8) requires substitution of market value for inter unit transfers between eligible and other businesses when computing deduction; (ii) the Explanation equates 'market value' with ALP defined for transfer pricing purposes; and (iii) sec.92BA extends transfer pricing to specified domestic transactions. The Tribunal held that ALP adjustments under sec.92 must be recognised in both sides of an inter unit transaction for computation of total income (i.e. AO must apply ALP to both service provider and receiver when determining total income under sec.92/92C), and that the correct exercise for incentive computation is to recompute the eligible unit's profits (and hence deduction) by replacing actual consideration with ALP as mandated by sec.80IA(8)/10AA. The Tribunal found the TPO had not undertaken the recomputation in accordance with these principles and had applied a mechanical entity level addition; accordingly the matter was remitted to AO/TPO for fresh examination and recomputation in line with the statutory scheme and earlier judicial guidance.Set aside TPO/AO approach; remitted for recomputation of ALP and of the deduction under 10AA/80IA(8) applying ALP consistently to provider and receiver as required by law.Allowability of loss on revaluation of outstanding forward contracts entered to hedge revenue exposures - Whether loss on revaluation of outstanding forward contracts (hedges) is a notional/non allowable item or an allowable business deduction. - HELD THAT: - Tribunal noted consistent tribunal authorities holding that revaluation loss on forward contracts which hedge revenue exposures is not merely notional/speculative and can represent real loss; but recorded that AO had not verified whether the fair value of underlying revenue assets exceeded forward contract exposures on the balance sheet date. Accordingly, the Tribunal directed the AO to verify (on production of details) whether the value of underlying revenue assets exceeded forward obligations; if so, the revaluation loss would be allowable. The issue was therefore remitted to the AO for limited verification and fact based determination.Remitted to AO for verification of underlying asset coverage; if underlying assets exceed forward exposure, revaluation loss to be allowed.Treatment of payments characterised as royalty and applicability of section 40(a)(ia) / section 195 - Whether payments to a foreign information/database provider (Gartner) were royalty attracting TDS obligation under section 195 and disallowance under section 40(a)(ia). - HELD THAT: - On facts and following jurisdictional High Court precedents in the assessee's own case, the Tribunal accepted AO's view that payments were in the nature of royalty within section 9(1)(vi) and therefore attract TDS obligations under section 195; in default, disallowance under section 40(a)(ia) was justified. The Tribunal, however, remitted to AO the assessee's alternative contention that any disallowance may increase the eligible deduction under incentive provisions and therefore required corollary examination under the CBDT circular; that alternative point was sent back for AO's consideration.Payment to Gartner treated as royalty; disallowance under section 40(a)(ia) sustained for TDS default; AO to examine any consequential recomputation of incentive deductions as claimed by assessee.TDS credit where deductor's statements do not match centralised records and AO's duty to verify - Whether the assessee is entitled to claim TDS credit where deductor's uploaded details do not match centralised records but assessee produces TDS certificates. - HELD THAT: - The Tribunal followed judicial guidance and CBDT instructions that where the assessee furnishes TDS certificates and proves payment by the deductor to the government account, the AO should verify with the TDS assessing officer and, if payment was made, allow credit rather than penalise the assessee for deductor's failure to upload correct data. The Tribunal remitted these claims to the AO for verification and decision in accordance with the authorities and CBDT instruction.Remitted to AO to verify deductor's payment and grant TDS credit where payment is established; assessee not to be prejudiced by deductor's mismatches.Allowability of educational cess as deduction - Whether education cess and similar cesses paid alongside income tax are deductible business expenses or are to be treated as non deductible tax under section 40(a)(ii). - HELD THAT: - Having examined legislative history and CBDT circular reproduced in the record, the Tribunal adopted the reasoning of High Courts cited therein: the word 'cess' was deliberately omitted from the provision's predecessor during passage and CBDT clarified that cess is not intended to be disallowed under section 40(a)(ii). On that basis the Tribunal held education cess allowable as deduction.Education cess held deductible; AO directed to allow deduction.ROC fees for increasing authorised capital - capital expenditure - Whether fees paid to Registrar of Companies for increasing authorised capital are revenue or capital in nature. - HELD THAT: - The Tribunal followed Supreme Court authority cited by the AO and held that ROC fees for increasing authorised capital are capital in nature. There is no provision permitting amortisation; therefore the payment was not deductible as revenue expenditure.Disallowance by AO confirmed; ROC fees are capital expenditure.Advertising and brand building expenses - revenue v. capital - Whether a portion of advertising, publicity and sales promotion expense could be treated as capital expenditure on 'brand building' and disallowed. - HELD THAT: - Applying High Court authority and examining facts, the Tribunal found AO's ad hoc 25% capitalisation unsupported by evidence and precedent showing advertising is ordinarily revenue in nature and recurring; absent cogent material that expenditure created enduring capital asset, AO's disallowance was unjustified. The Tribunal directed allowance of the full expense.Advertising and promotion expenses held revenue and allowable; AO's ad hoc capitalisation deleted.ESIC / PF late employee contribution - admission of fresh claim before appellate forum - Whether belated claim for deduction of employees' ESIC contributions paid before filing the return but not claimed in original return can be examined. - HELD THAT: - The Tribunal noted Karnataka High Court authority accepting similar claims and observed that appellate authorities can admit a fresh claim when facts are on record (citing Goetze). It remitted the matter to the AO to examine the assessee's claim in light of the High Court decision.Issue remitted to AO for examination and decision in accordance with the Karnataka High Court precedent.Final Conclusion: The Tribunal allowed several key claims of the assessee (set off of SEZ/STPI losses against non SEZ income; inclusion of sale of scrap and rental in eligible profits; deemed exports and foreign VAT/GST to be included in export turnover; eligibility of the Bangalore STPI units; depreciation on capitalised software not disallowable under section 40(a)(ia); education cess deductible; ROC fee capital), directed AO to allow foreign tax credit in accordance with Karnataka High Court guidance, and directed multiple matters for fresh verification or recomputation by the Assessing Officer/TPO (interest nexus, 'other income', allocation of head office overheads, section 244A interest computation, SDT/transfer pricing recomputation under sec.92BA/80IA(8)/10AA, forward contract revaluation, TDS credit verification, ESIC/PF late contribution claim and specified consequential points), giving the AO/TPO opportunity to apply the legal principles stated in this order and earlier binding authorities. ISSUES PRESENTED AND CONSIDERED 1. Whether losses of SEZ/STPI undertakings may be set off against business income of non-SEZ/non-STPI undertakings for computing taxable income and effect of sec.10A/10AA as a 'deduction'/'exemption' code. 2. Whether various items of miscellaneous receipts of eligible undertakings (sale of scrap/newspaper, rental, interest, dividend, profit on sale of assets, 'other income') form part of 'profits and gains derived from the eligible undertaking' for deduction under sec.10A/10AA/10B. 3. Whether interest income (including interest earned on deposits from packing credit or surplus SEZ funds) is eligible for deduction under sec.10A/10AA/10B - tests of classification as business income and nexus with the eligible undertaking. 4. Whether supplies to SEZ/STP units (deemed exports) and foreign-currency receipts from customers in SEZs qualify as export turnover for sec.10A/10AA/10B. 5. Whether export turnover may include export proceeds received after prescribed period where extension to realise foreign exchange was applied to Reserve Bank - effect of applications to RBI on eligibility for deduction. 6. Whether foreign taxes (including federal, state/local taxes) paid on foreign-sourced profits are creditable against Indian tax under secs.90/91 when those profits are exempted in India under sec.10A/10AA (interaction of sec.90(1)(a)(i)/(ii) and sec.91). 7. Whether depreciation on capitalised software can be disallowed under sec.40(a)(ia) for failure to deduct TDS on payments for software procurement. 8. Whether corporate/head-office overheads must be allocated to units claiming deductions under sec.10A/10AA/10B/80IB/80IAB/80IC and correct methodology for such allocation. 9. Whether STPI units established as expansions (same building/floors) qualify as newly established undertakings for sec.10A (tests of separate identifiable undertaking, new plant/machinery, physical separateness). 10. Whether foreign VAT/GST collected and remitted forms part of export turnover for sec.10A/10AA/10B. 11. Whether interest received under sec.244A (interest on income-tax refunds) is taxable on accrual or only to the extent it becomes irrevocably retained (directions for netting against interest payable u/s234D and treatment where refunds are subsequently withdrawn). 12-19 (grouped): Whether various deductions/exclusions (80IB/80IC eligibility for trading components and 'other income', exclusion of miscellaneous income for those incentives, deduction of employees' contributions to ESIC, educational cess, ROC fees, brand-building advertising, mark-to-market forex/forward losses, 14A disallowance and book-profit treatment) are allowable under applicable statutory provisions and precedent. 20-37 (grouped transfer-pricing and related issues): Whether specified domestic transactions (SDTs) between group units (including SEZ/ STPI units), allocation of ALP, treatment of inter-SEZ transactions, corresponding adjustments, TP adjustments for interest on intra-group advances (LIBOR + mark-up), guarantee fees, software services pricing (internal CUP v. TNMM), liquidated damages reimbursements, and related TP methodology issues are to be sustained. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Set-off of SEZ/STPI losses against non-SEZ income Legal framework: Sec.10A/10AA provides deduction of profits derived by eligible undertaking; post-2001 amendments recharacterised the provision and introduced limited regimes. Precedent treatment: Coordinate Tribunal and Karnataka High Court decisions in the assessee's own earlier years held that income of each undertaking is to be computed independently and losses of a 10A/10AA unit, if not absorbed, may be set off against other business income - binding on the Tribunal. Interpretation/reasoning: The Court examined statutory purpose and earlier High Court/Supreme Court guidance (Canara Workshops principle) and concluded sec.10A/10AA does not mandate grouping SEZ/STPI units such as to preclude set-off of their losses against non-SEZ profits; deduction under sec.10A arises only when an eligible undertaking earns profits but losses do not become a fetter on set-off against other business income for tax computation. Ratio vs. Obiter: Ratio - SEZ/STPI losses need not be restricted to set-off only against other SEZ/STPI profits; they can be set off against non-SEZ business income. Conclusion: Claim for such set-off allowed. Issues 2 & 3 - Miscellaneous income and interest: inclusion for sec.10A/10AA/10B Legal framework: Definitions of 'export turnover' and the meaning of 'profits and gains derived by an undertaking'; sec.10B jurisprudence parimateria for interest; Explanation in sec.10A/10B and judicial interpretation of nexus test. Precedent treatment: Karnataka High Court decisions in assessee's own case and Motorola/others held that items like sale of scrap, rental, interest and gains on forex/other receipts, if directly related to business of the eligible undertaking or assessed as business income, qualify for deduction; on interest, nexus with business or assessment head as business income is decisive. Interpretation/reasoning: Tribunal follows High Court precedents: (a) exempt dividend/mutual fund income excluded; (b) sale of scrap and rental qualify as part of business profits where nexus exists; (c) 'other income' lacked detail - remitted for AO examination; (d) interest income: where AO assessed interest as business income or a demonstrable direct nexus exists (e.g., fixed deposits from packing credit or identifiable SEZ surplus), interest may be included in eligible undertaking profits; where nexus not shown, AO to examine. Ratio vs. Obiter: Ratio - items with direct nexus to export/business or assessed as business income are includible for deduction; interest requires nexus proof or prior AO classification. Conclusion: Sale of scrap and rental - allow sec.10A/10AA/10B; interest - remand to AO to examine nexus and classification; 'other income' - remit for factual inquiry. Issue 4 - Deemed exports (sales to SEZ/STP units) as export turnover Legal framework: Exim Policy and its incorporation in statutory scheme; sec.10A read with Exim Policy permitting export through others/status holders. Precedent treatment: Karnataka High Court (Tata Elxsi and assessee's own) held supplies to STP/SEZ units treated as 'deemed export' for sec.10A if conditions of Exim Policy met. Interpretation/reasoning: Where (i) software/services are exported out of India though another exporter/SEZ status holder, (ii) foreign exchange attributable to such export is realized, and (iii) statutory/Exim conditions are satisfied, such receipts are part of export turnover. Ratio vs. Obiter: Ratio - deemed exports to SEZ/STP units meeting Exim conditions are to be included in export turnover for incentive computation. Conclusion: Deemed exports included in export turnover; AO directed to follow High Court precedent. Issue 5 - Delayed collections and RBI extensions Legal framework: Sec.10A/10AA/10B require export proceeds to be received/brought into India within six months unless extended by competent authority (RBI). Precedent treatment: Karnataka High Court accepted that where assessee applied to RBI for extension and remittances were later received through proper channel without rejection, benefit should be allowed. Interpretation/reasoning: Mere filing of application to RBI, followed by ultimate receipt through proper channel and absence of RBI rejection, suffices; denial is not warranted solely for lack of express RBI approval at time of assessment. Ratio vs. Obiter: Ratio - where application to RBI for extension filed and funds eventually remitted through proper channel, export turnover can include such amounts. Conclusion: Allow inclusion where RBI extension applications filed and receipts subsequently received; remit to AO if facts disputed. Issue 6 - Foreign tax credit when Indian exemption under sec.10A/10AA applied Legal framework: Secs.90 and 91; distinction between sec.90(1)(a)(i) (tax actually paid in both jurisdictions) and sec.90(1)(a)(ii) (income chargeable in both jurisdictions even if exempt in India) and sec.91 inclusive definition of income-tax to include state/local taxes. Precedent treatment: Karnataka High Court in assessee's own case held that where DTAA contemplates tax being chargeable in both countries (sec.90(1)(a)(ii) type treaties - e.g., Indo-US), credit may be allowed even if Indian tax is suspended by exemption; sec.91 allows credit for state/local taxes. Interpretation/reasoning: Sec.90(1)(a)(ii) covers situations where income is chargeable under Indian law but exempted by statute - treaty may still entitle credit for foreign tax; sec.91 explicitly treats local/state taxes as 'income-tax' for credit where no treaty exists. Ratio vs. Obiter: Ratio - foreign tax credit allowable in accordance with the specific DTAA provision (whether clause (i) or (ii)) and sec.91 covers state/local taxes. Conclusion: Direct the AO to allow foreign tax credit in line with High Court reasoning and statutory provisions; adjust where later Indian tax liability arises. Issue 7 - Depreciation on capitalised software vis-à-vis sec.40(a)(ia) Legal framework: Sec.32 (depreciation statutory allowance); sec.40(a)(ia) disallows certain payments if TDS not deducted. Precedent treatment: Tribunal benches held depreciation is statutory allowance and not an outgoing expenditure covered by sec.40(a)(ia); appellate and High Court decisions support that capitalisation and subsequent depreciation cannot be disallowed under sec.40(a)(ia). Interpretation/reasoning: Sec.40(a)(ia) targets outgoing payments chargeable under the Act on which TDS should have been made; depreciation is not such an outgoing payment but a statutory computation; therefore sec.40(a)(ia) inapplicable to depreciation on capitalised software. Ratio vs. Obiter: Ratio - depreciation on capitalised software cannot be disallowed under sec.40(a)(ia) for non-deduction of TDS. Conclusion: Deletion of sec.40(a)(ia) disallowance and allow depreciation; alternate claim for enhanced deduction rendered infructuous. Issue 8 - Allocation of corporate overheads to incentive units Legal framework: Sec.10A/10AA/10B/80IB etc. require profit computation of eligible undertaking; sec.80IA(8) and explanations relevant for 'market value'. Precedent treatment: Karnataka High Court and Tribunal in earlier years held that head-office/corporate expenses that are common must be allocated; methodology must be reasonable and consistent. Interpretation/reasoning: Head office is a cost centre providing services to all units; where such costs are common they should be apportioned to obtain true profits of eligible units for deduction computation. However the allocation method must follow materials and prior judicial directions; indiscriminate turnover-based mechanical allocation without respecting earlier judicial findings is impermissible. Ratio vs. Obiter: Ratio - corporate overheads should be allocated to units claiming incentives on a reasonable basis and in compliance with earlier High Court/Tribunal directions. Conclusion: Remit to AO to re-examine allocation consistent with precedents and factual material. Issues 9-13, 15-18, 21 etc. (summary treatment of other incentive-related issues) Legal framework & precedent: Multiple issues (eligibility of STPI units as new undertakings; whether monitors sold as part of computers qualify for 80IB; treatment of miscellaneous income for 80IB/80IC; exclusion of expenses in foreign currency from export turnover; treatment of reimbursements; overseas development centres) were adjudicated by reference to statutory tests (physical separateness, new plant/machinery, nexus, Exim Policy) and to binding High Court and Tribunal precedents. Interpretation/reasoning: Where factual criteria for 'new undertaking' and separateness satisfied, deduction allowed; monitors forming integral part of manufactured computers qualify; foreign currency expenses that are direct onsite development costs are not 'technical services' excluded from export turnover; reimbursements require fact-specific examination - asset reimbursements netted, incentive awards treated as revenue; overseas development/ODCs remitted for AO to determine market value/transfer between units in light of comparability. Conclusion: Follow High Court/Tribunal precedents; several issues remitted to AO for factual determination where details lacking. Issues 20-37 - Transfer pricing / SDT and related TP matters Legal framework: Secs.92/92BA/92C/92F and related rules prescribe ALP computation and application to specified domestic transactions (SDT); sec.80IA(8)/10AA interaction with ALP; rules on TP methods (CUP, TNMM, etc.). Precedent treatment: Authorities and benches referenced contrast internal CUP v. external comparables, market realities and prior Tribunal decisions on acceptability of internal comparables and LIBOR-linked mark-ups; Supreme Court/HC guidance led to extension of TP to SDTs. Interpretation/reasoning: (a) Transactions between two eligible units fall outside sec.80IA(8)'s explicit ambit (which speaks of transfers between eligible and other business); (b) for purposes of sec.92, ALP must be applied to inter-unit transactions with corresponding adjustments in both payer and receiver for computing total income; (c) AO/TPO must carry out detailed comparability analysis before rejecting internal CUP; (d) where TPO failed to examine factual materials (contracts, mutual sub-contract agreements, invoices, nature of services), matter remitted for re-examination; (e) where independent precedent establishes LIBOR+150 bps or internal CUP/0.5% guarantee fees, those benchmarks to be considered unless contrary comparable evidence provided. Ratio vs. Obiter: Ratios - (i) inter-SEZ eligible-to-eligible transactions not caught by sec.80IA(8) on strict textual reading; (ii) ALP for SDT must be applied consistently and AO/TPO must perform full re-casting and corresponding adjustments rather than mechanical additions to total income; (iii) internal CUP may be appropriate where strong comparability exists. Conclusion: Set aside TPO/AO findings where comparability and statutory application not properly examined; many TP adjustments restored to AO/TPO for fresh examination applying proper methodology; specific directions given on adoption of LIBOR+150 bps for intra-group advances and rejection of bank-guarantee benchmark for corporate guarantee where unsupported. Other procedural/technical issues (14A, 244A interest, TDS credit, 115JB book profit, ESIC, educational cess, ROC fees, advertisement capitalisation, mark-to-market forex losses) Summary conclusions: (a) 14A disallowance: remitted to AO to verify allocation and actual expenditure; (b) sec.244A interest: taxable but assessable only after allowing for amounts subsequently withdrawn - AO directed to net amounts and compute taxable portion; (c) TDS credit: where mismatch with Form 26AS, AO to verify deductor payment and give credit if deductor deposited - follow CBDT instruction and judicial guidance; (d) book profit (sec.115JB) addition of sec.14A disallowance must be computed independently - remand; (e) ESIC contributions: allow where facts meet High Court tests; (f) educational cess: allowable (constructive legislative history and CBDT circular); (g) ROC fees for increasing authorised capital: capital in nature - disallow; (h) advertisement: revenue unless clear enduring asset/brand-building proven - disallowance not sustained; (i) MTM losses on forwards: notional only if underlying assets insufficient - AO to verify underlying asset coverage; (j) many items remitted for fact-finding and computation in light of controlling precedents.