2012 (7) TMI 432 - AT - Income Tax

Appeal partly allowed, remitted for reconsideration on transfer pricing, disallowance, set-off issues.

The appeal was partly allowed, with various issues remitted back to the Assessing Officer or CIT(A) for reconsideration following the Tribunal's ... International transactions with AE - case referred to (TPO) - addition of interest on the advances of the appellant to AE, being wholly-owned subsidiaries of the appellant - Held that:- The authorities below overlooked the fact that these interest free advances were given to its overseas subsidiaries out of commercial expediency from out of surplus funds available with it - TP adjustment is possible only in cases where comparable uncontrolled transactions entered into between two enterprises are established unless such an uncontrolled transaction is identified, no ALP adjustment is possible - in favour of assessee. Disallowance under section 14A r.w.r. 8D - Held that:- As the provisions of rule 8D it would apply with effect from assessment year 2008-09 and prior to when rule 8D was not applicable, AO had to adopt a reasonable basis or method consistent with all the relevant facts and circumstances after furnishing a reasonable opportunity to the assessee to place all germane material on the record - remitted the matter to the file of the AO with a direction to follow the decision. Dis allowance of Set-off of loss of STP undertakings - Held that:- Deduction allowed u/s 10A in respect of undertaking is to be allowed after setting off of brought forward loss of that undertaking - allow set off of loss from 10A units against the other business income of the assessee or income from other sources. Dis allowance of Expenditure on software imports - Held that:- This issue has been held in favour of the that the software purchased by it is in the nature of goods and the provisions of section 40(a)(ia) were not applicable to Allocation of Corporate Expenses - Held that:- No specific finds that exemption/deduction in an artificial way of allocating the expenses and that too on surmises is not justifiable – in favour of assessee. Rates and taxes - Held that:- That assessee himself has agreed to allocation of 20% of such expenditure no further disallowance warranted Software development centers outside India - Held that:- As assessee company in foreign countries also paying foreign taxes but had not recorded a finding that such goods or services have been transferred at the market value. In absence of such a finding case is remitted back to AO. “Other Income” not considered as part income eligible under Section 10A - Held that:- In respect of Scrap sale amount, it is clear that the sale of scrap reduced the quantum of expenditure debited for that purpose cannot be excluded for deduction u/s 10A and exclusion of exchange rate fluctuation foreign exchange gain due to fluctuation in the rate of rupee is to be included in the profit of the undertaking and is to be considered as eligible for deduction u/s 10A. Deemed Exports not eligible for deduction u/s 10A - Held that:- As deemed exports are obviously not on account of export of software and not should be included as part of ‘'export turnover' of the undertakings eligible for deduction under section 10A / 10AA - against assessee. Exclusion of VAT/ GST from export and total turnover - Held that:- Once this sum is not included in 'export turnover', then the same cannot be included in the 'total turnover' - against assessee. Communication link and other reimbursements - Held that:- Issue is remitted back to the file of the AO as excluding an aggregate sum incurred by the appellant towards telecommunication expenses for delivery of computer software outside India - AO committed an error of excluding something which is not originally included. Collections beyond 30th September 2007 - Held that:- AO erred in excluding the aggregate sum from the export turnover of the undertakings eligible for deduction u/s 10A on the premise that the sale proceeds were not remitted into India within 6 months from the end of the previous year as provided in section 10 A(3). The learned AO overlooked the fact that the application for extension of time was filed with the competent authority. Issue of denial of deduction under Section 10A for undertakings at Bangalore - Held that:- Tribunal has decided this issue in favour of the assessee company holding that the assessee is entitled for deduction under section 10A - AO erred in refusing to recognize that each of the new undertakings were different from one another and exist independently and are eligible for deduction under Section10A. That establishing each new undertaking is an expansion of business could not be held against the appellant. Deduction under Section 80IB - Held that:- The assesse himself has allocated the overheads and such allocation has been made on the basis of sales turnover, then it was the duty of AO to point out that why the allocation is not correct - assessing officer was not justified in disturbing the allocation. Trading Activity of monitors & Printers - Held that:- Monitors have been sold as part of the computer without making any value addition by the industrial undertaking, then the profit derived from sale of such monitors cannot be considered as profit derived from the industrial undertaking - not to be included for the purpose of computing deduction u/s 80IB. Other Income’ not considered as income eligible for deduction u/s.10A- Held that:- Unless rental income represents a recovery of the rent paid by the undertaking, it cannot be regarded as profit derived by the industrial undertaking. Since the rental income in the assessee company’s case does not meet this requirement, we confirm the order of the Assessing Officer that rental income should be excluded in computing the deduction u/s. 80 IB Deduction under Section 80IC/80-IAB – Held that:- An identical issue of allocation of corporate over heads to various business units / undertakings for determining the profits for computing the deduction u/s. 80IB/IAB has already been considered by the Tribunal in an earlier year in the assessee’s own case thereof and has deleted the allocation of corporate overheads made by the Assessing Officer - following the same decision deletion of the allocation of corporate overheads is deleted. Credit for Foreign taxes paid – Held that:- Credit for income-tax paid in other country in relation to income u/s 10A will not be available u/s 90(1)(a) - direct AO to examine and verify the TDS claims of the assessee for the applicability of section 90(1)(b), and to go through the DTAA agreements Interest u/s 234B/234D – Held that:- The charging of interest is consequential and mandatory and is to be charged in accordance with the provisions of the Act. AO having no discretion in the matter, his action in charging the same is held to be in order Issues Involved:1. General Grounds of Appeal2. Transfer Pricing Adjustments3. Disallowance under Section 14A4. Set-off of Loss of STP Undertakings5. Expenditure on Software Imports6. Allocation of Corporate Expenses7. Software Development Centres Outside India8. Exclusion of Other Income from Profits of 10A Units9. Exclusion of VAT/GST from Export and Total Turnover10. Exclusion of Communication Link and Other Reimbursements11. Exclusion of Expenditure in Foreign Currency from Export Turnover12. Collections Beyond 30th September 200713. Deduction under Section 10A for Undertakings at Bangalore14. Deduction under Section 80IB (Allocation of Corporate Overheads to 80 IB Unit)15. Trading Activity of Monitors & Printers16. Exclusion of Other Income from Profits of 80-IB Units17. Deduction under Section 80IC18. Exclusion of Other Income from Profits of 80-IC Units19. Deduction under Section 80-IAB20. Credit for Foreign Taxes Paid21. Credit for TDS22. Interest under Sections 234B and 234DDetailed Analysis:1. General Grounds of Appeal:The grounds raised at S.Nos.1 to 4 are general in nature and no separate adjudication is called for thereon.2. Transfer Pricing Adjustments:The grounds of appeal at S.Nos.5 to 10 relate to the transfer pricing adjustments. The assessee contested the TPO's order suggesting a transfer pricing adjustment of Rs. 9,67,89,370 on the issue of interest chargeable to its associated enterprises. The Tribunal found that a similar issue was considered in the assessee's own case for Assessment Year 2004-05, where it was held that TP adjustment is possible only if comparable uncontrolled transactions are established. The Tribunal directed the Assessing Officer to follow the directions given in the orders for earlier years.3. Disallowance under Section 14A:The grounds raised at S.Nos.11 to 14 pertain to disallowance under section 14A. The assessee argued that the AO erred in not accepting the actual expenditure incurred in relation to exempt income and instead made an adhoc disallowance. The Tribunal restored this issue back to the file of the AO with a direction to decide the issue afresh by applying the ratio of the judgment of the Hon'ble High Court of Bombay in the case of Godrej & Boyce Mfg. Co. Ltd.4. Set-off of Loss of STP Undertakings:The grounds raised at S.Nos.15 to 20 concern the set-off of losses of STP undertakings against other business income. The Tribunal directed the AO to set off brought forward losses of the units for which the assessee has disclosed positive income for the purpose of claiming deduction under section 10A.5. Expenditure on Software Imports:The grounds of appeal at S.Nos.21 to 25 relate to the disallowance of depreciation on imported software products. The Tribunal, following its earlier decision in the assessee's own case, decided this issue in favor of the assessee.6. Allocation of Corporate Expenses:The grounds of appeal at S.Nos.26 to 29 pertain to the allocation of corporate expenses to undertakings under section 10A. The Tribunal, following its earlier decision, held that no artificial allocation of expenses should be made and decided the issue in favor of the assessee.7. Software Development Centres Outside India:The grounds of appeal at S.Nos.30 to 32 concern the exclusion of profits from software development centers outside India from the deduction under section 10A. The Tribunal remitted this issue back to the AO for necessary action as per its earlier decision.8. Exclusion of Other Income from Profits of 10A Units:The grounds raised at S.Nos.33 to 38 relate to the exclusion of other income from the profits of 10A units. The Tribunal, following its earlier decision, held that interest income and income from the sale of scrap should be included in the profits of the undertaking eligible for deduction under section 10A.9. Exclusion of VAT/GST from Export and Total Turnover:The ground raised at S.No.42 pertains to the exclusion of foreign taxes (VAT/GST) from export turnover. The Tribunal, following its earlier decision, dismissed the assessee's ground.10. Exclusion of Communication Link and Other Reimbursements:The grounds of appeal at S.Nos.43 to 48 and 57 to 58 concern the exclusion of reimbursements and telecommunication expenses from export turnover. The Tribunal remitted this issue back to the AO for fresh examination.11. Exclusion of Expenditure in Foreign Currency from Export Turnover:The grounds raised at S.Nos.49 to 56 relate to the exclusion of expenditure in foreign currency from export turnover. The Tribunal, following its earlier decision, directed the AO to follow the findings of the Tribunal.12. Collections Beyond 30th September 2007:The grounds of appeal at S.Nos.59 to 62 concern the exclusion of collections beyond 30th September 2007 from export turnover. The Tribunal directed the AO to include in export turnover the collections made after the expiry of six months.13. Deduction under Section 10A for Undertakings at Bangalore:The grounds raised at S.Nos.63 to 74 pertain to the denial of deduction under section 10A for undertakings at Bangalore. The Tribunal, following its earlier decision, directed the AO to allow the deduction under section 10A.14. Deduction under Section 80IB (Allocation of Corporate Overheads to 80 IB Unit):The grounds of appeal at S.Nos.75 to 77 concern the allocation of corporate overheads to the 80 IB unit. The Tribunal, following its earlier decision, directed the AO not to allocate any corporate overheads to the 80 IB unit.15. Trading Activity of Monitors & Printers:The grounds raised at S.Nos.78 to 80 relate to the treatment of the sale of monitors and printers as a trading activity. The Tribunal, following its earlier decision, held that the profit from the sale of monitors and printers is not to be included in the computation of deduction under section 80 IB.16. Exclusion of Other Income from Profits of 80-IB Units:The ground raised at S.No.81 concerns the exclusion of other income from the profits of 80-IB units. The Tribunal held that rental income and provision no longer required should not be included in the profits eligible for deduction under section 80 IB.17. Deduction under Section 80IC:The grounds raised at S.Nos.82 to 84 pertain to the allocation of corporate overheads to units eligible for deduction under section 80 IC. The Tribunal, following its earlier decision, deleted the allocation of corporate overheads made by the AO.18. Exclusion of Other Income from Profits of 80-IC Units:The ground raised at S.No.85 concerns the exclusion of other income from profits of 80-IC units. The Tribunal found this ground to be infructuous as no dispute on this issue arises from the order of the DRP.19. Deduction under Section 80-IAB:The grounds raised at S.Nos.86 to 89 relate to the allocation of corporate overheads to SEZ units and the exclusion of other income while computing the deduction under section 80-IAB. The Tribunal, following its earlier decision, directed the AO not to allocate corporate expenditure to the SEZ unit.20. Credit for Foreign Taxes Paid:The ground raised at S.No.90 concerns the credit for foreign taxes paid. The Tribunal, following its earlier decision, restored the matter to the file of the CIT(A) for reconsideration.21. Credit for TDS:The ground raised at S.No.92 pertains to the credit for TDS. The Tribunal directed the AO to examine and verify the TDS claims of the assessee and to allow eligible TDS.22. Interest under Sections 234B and 234D:The grounds raised at S.Nos.93 to 96 concern the levy of interest under sections 234B and 234D. The Tribunal held that the charging of interest is consequential and mandatory, and directed the AO to recompute the interest chargeable while giving effect to its order.Conclusion:The appeal is partly allowed, with various issues remitted back to the Assessing Officer or CIT(A) for reconsideration in light of the Tribunal's directions and earlier decisions.