Assessee wins on transfer pricing credit adjustment and Section 10A deduction for foreign currency expenses

ITAT Mumbai ruled in favor of the assessee on two issues. First, regarding TP adjustment for extended credit periods to associated enterprises without interest charges, the tribunal held that since the assessee also extended similar credit to non-associated enterprises without charging interest, no notional adjustment was required by AO/TPO, following Bombay HC precedents. Second, on Section 10A deduction computation, the tribunal allowed the assessee's appeal regarding foreign currency expenses on telecommunication and technical services, ruling these should not be excluded from export turnover since they were never recovered from customers and not part of total turnover.

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Issues:
The judgment involves issues related to transfer pricing adjustment for charging interest on extended credit period to associated enterprises and the claim of deduction under section 10A of the Income Tax Act.

Transfer Pricing Adjustment Issue:
The Appellate Tribunal ITAT Mumbai addressed appeals by the assessee and the revenue arising from the order of CIT(A)-15, Mumbai. The assessee filed a miscellaneous application on the transfer pricing adjustment issue, citing relevant legal precedents. The ITAT recalled the earlier order to adjudicate the issues raised by the assessee. The revenue challenged the CIT(A)'s decision on the adjustment to arm's length price and exclusion of certain expenditures from export turnover for computing deduction under section 10A.

Transfer Pricing Adjustment Decision:
The Transfer Pricing Officer (TPO) had made adjustments regarding extended credit periods to associated enterprises without charging interest. The ITAT considered the uniformity in the assessee's practice of not charging interest to non-associated enterprises and ruled in favor of the assessee. Citing legal precedents, the ITAT concluded that no adjustment should be made on a notional basis for extended credit periods to associated enterprises.

Deduction under Section 10A Issue:
The assessee contested the assessing officer's reduction of foreign currency expenditures from export turnover for computing deduction under section 10A. The ITAT examined the submissions and legal references provided by the assessee, emphasizing that the foreign currency expenses were not recovered from customers and thus should not be part of turnover calculations. Relying on relevant court decisions, the ITAT allowed the appeal of the assessee and dismissed the revenue's appeal on this issue.

Conclusion:
The ITAT Mumbai, in the judgment dated 20.06.2023, addressed the transfer pricing adjustment issue and the deduction under section 10A raised by the assessee and the revenue. The decision favored the assessee on both issues, emphasizing the non-recovery of foreign currency expenses and the uniformity in not charging interest to associated and non-associated enterprises. The judgment provides clarity on transfer pricing practices and deduction calculations under the Income Tax Act.

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