2018 (3) TMI 1031 - AT - Income Tax

Tribunal allows appeal for deduction under section 10A, dismisses other grounds

The Tribunal partially allowed the appeal by directing the Assessing Officer to verify the claim of deduction under section 10A and allowed the deduction ... Deduction claimed u/s 10B/10A both on regular income and on the additional income offered by way of TP adjustment by the assessee - Held that:- The assessee in the return of income had claimed the deduction under section 10B of the Act. During the course of assessment proceedings, the assessee filed an alternate claim that since the unit was registered under STPI, the assessee was entitled to claim the deduction under section 10A of the Act. Both the authorities below have denied the deduction under section 10B . Further, on one reason or the other had also denied the alternate claim of assessee under section 10A. We find that the Tribunal in assessee’s own case [2015 (3) TMI 151 - ITAT PUNE] had held that the assessee was not entitled to the claim of benefit under section 10B of the Act, but the assessee was held to be eligible to claim the deduction under section 10A of the Act, for which the matter was restored back to the file of Assessing Officer. The issue arising in the present appeal before us is identical and following the same parity of reasoning, we direct AO to verify the claim of deduction under section 10A Addition u/s 10B on the suo-moto transfer pricing adjustment as relying on case of M/s. iGate Global Solutions Ltd. [2014 (6) TMI 1007 - KARNATAKA HIGH COURT] the assessee is entitled to claim the aforesaid deduction under section 10A on additional income offered on account of suo-moto adjustment on account of transfer pricing provisions. The provisions of section 92C(4) of the Act are not attracted. The modified ground of appeal No.4 raised by the assessee is thus, allowed. Issues Involved:1. Disallowance of deduction under section 10B of the Income-tax Act, 1961.2. Rejection of alternate claim of deduction under section 10A of the Act.3. Disallowance of deduction under section 10B on suo-moto transfer pricing adjustment.4. Unjust rejection of Transfer Pricing documentation.5. Unjust rejection of functionally comparable companies.6. Not allowing use of multiple year data.7. Incorrect computation of Operating Profit/Total Cost (OP/TC) margin.8. Unjust selection of incomparable companies.9. Not allowing the Risk adjustment required to OP/TC margin of the selected comparable companies.10. No motive, circumstances, intention of tax evasion by the Appellant.11. Incorrect levy of interest under section 234B of the Act.Detailed Analysis:1. Disallowance of Deduction under Section 10B of the Act:The assessee's claim for deduction under section 10B was disallowed by the CIT(A) on the grounds that the necessary approval from the Development Commissioner was not obtained. The Tribunal noted that in earlier years, the Tribunal had already held that the assessee was not entitled to the deduction under section 10B but was eligible for deduction under section 10A, and the matter was remitted back to the Assessing Officer for verification. The Tribunal directed the Assessing Officer to verify the claim of deduction under section 10A for the current year as well.2. Rejection of Alternate Claim of Deduction under Section 10A of the Act:The CIT(A) rejected the alternate claim of deduction under section 10A on the grounds that the assessee was not located in a Free Trade Zone and had not claimed the deduction in the return of income. The Tribunal, following its earlier orders, directed the Assessing Officer to verify the claim under section 10A and decide accordingly.3. Disallowance of Deduction under Section 10B on Suo-moto Transfer Pricing Adjustment:The assessee had made a suo-moto transfer pricing adjustment and claimed deduction under section 10B for the additional income. The CIT(A) disallowed the deduction on the grounds that the increased value of international transactions was not brought into India in convertible foreign exchange. The Tribunal held that the additional income offered on account of transfer pricing adjustment is artificial/notional income and does not form part of export turnover or total turnover. Therefore, there is no requirement to bring the amount in convertible foreign exchange. The Tribunal allowed the deduction under section 10A for the additional income.4. Unjust Rejection of Transfer Pricing Documentation:The CIT(A) upheld the action of the Assessing Officer in rejecting the transfer pricing documentation maintained by the assessee. The Tribunal did not discuss this issue in detail as it was not pressed by the assessee.5. Unjust Rejection of Functionally Comparable Companies:The CIT(A) confirmed the action of the Assessing Officer in rejecting certain functionally comparable companies selected by the assessee. The Tribunal did not address this issue as it was not pressed by the assessee.6. Not Allowing Use of Multiple Year Data:The CIT(A) upheld the Assessing Officer's decision not to allow the use of multiple year data. The Tribunal did not discuss this issue as it was not pressed by the assessee.7. Incorrect Computation of Operating Profit/Total Cost (OP/TC) Margin:The CIT(A) and the Assessing Officer treated the loss/gain on account of foreign exchange fluctuations as non-operating in nature for calculating the OP/TC margin. The Tribunal did not address this issue as it was not pressed by the assessee.8. Unjust Selection of Incomparable Companies:The CIT(A) upheld the action of the Assessing Officer in selecting companies that were not comparable to the assessee. The Tribunal did not address this issue as it was not pressed by the assessee.9. Not Allowing the Risk Adjustment Required to OP/TC Margin of the Selected Comparable Companies:The CIT(A) and the Assessing Officer did not grant any adjustments for differences in functions, assets, or risks assumed by the comparable companies. The Tribunal did not address this issue as it was not pressed by the assessee.10. No Motive, Circumstances, Intention of Tax Evasion by the Appellant:The CIT(A) and the Assessing Officer made an addition on grounds of Transfer Pricing, ignoring the fact that the assessee had no malafide intention to shift profits. The Tribunal did not address this issue as it was not pressed by the assessee.11. Incorrect Levy of Interest under Section 234B of the Act:The CIT(A) confirmed the levy of interest under section 234B. The Tribunal did not address this issue as it was not pressed by the assessee.Conclusion:The Tribunal allowed the appeal partly, directing the Assessing Officer to verify the claim of deduction under section 10A and allowed the deduction on the additional income offered on account of suo-moto transfer pricing adjustment. The remaining grounds of appeal were dismissed as they were not pressed by the assessee.