Tribunal Allows Deduction Under Section 10A on Additional Income

The Tribunal held that the proviso to Section 92C(4) does not debar deduction under Section 10A on additional income in assessment under Section 92CD. Assessment under Section 92CD provides for granting deduction under Section 10A. The assessee satisfied the conditions of deduction under Section 10A, entitling it to a deduction of Rs. 20,36,023. The impugned order was overturned, and the appeal was allowed.

---

---

Issues Involved:
1. Whether proviso to Section 92C(4) debars deduction under Section 10A on additional income in assessment under Section 92CDRs.
2. Whether assessment under Section 92CD provides for granting deduction under Section 10ARs.
3. Whether the assessee has satisfied the conditions of deduction under Section 10ARs.

Detailed Analysis:

i. Whether proviso to Section 92C(4) debars deduction under Section 10A on additional income in assessment under Section 92CDRs.

The case of the AO is that the assessee cannot be allowed deduction under Section 10A in respect of the incremental income offered in the modified return, which as per the AO, is proscribed by the proviso to sub-section (4) of Sections 92C/92CA of the Act. Section 92C deals with the computation of ALP by the AO. Sub-section (4) provides that where an ALP is determined by the AO under sub-section (3), the AO may compute the total income of the assessee having regard to the ALP so determined. The proviso to this sub-section states that no deduction under Section 10A shall be allowed in respect of the amount of income by which the total income of the assessee is enhanced after computation of income under this sub-section.

However, the Tribunal noted that the proviso restricting the granting of deduction under Section 10A on enhanced income applies only where the computation of income is made under sub-section (4) of Sections 92C/92CA, which talks of making some transfer pricing addition by the AO. If the computation of income is neither under Section 92C nor 92CA, then the proviso shall have no application. The Tribunal observed that the suo motu offering of additional income by the assessee pursuant to the APA is of the same nature as the assessee itself offering some transfer pricing adjustment in the original return of income. Hence, deduction under Section 10A cannot be disallowed in respect of additional income offered in the modified return as it is not a transfer pricing addition made by the AO but the additional transfer pricing income offered by the assessee in consonance with the APA with the CBDT.

Therefore, the Tribunal concluded that the proviso to Section 92C(4) does not per se debar deduction under Section 10A on additional income in assessment under Section 92CD.

ii. Whether assessment under Section 92CD provides for granting deduction under Section 10ARs.

The Tribunal noted that sub-section (2) of Section 92CD provides that all other provisions of this Act shall apply accordingly as if the modified return is a return furnished under Section 139. This means that in the computation of total income by the AO pursuant to the filing of the modified return by the assessee in terms of the APA, all other provisions of this Act shall apply accordingly. Therefore, if an assessee is otherwise eligible for deduction under any other appropriate provision in respect of the income offered in the modified return, there cannot be any embargo on granting deduction under such relevant provision.

The Tribunal held that the assessment under Section 92CD provides for granting deduction under Section 10A of the Act.

iii. Whether the assessee has satisfied the conditions of deduction under Section 10ARs.

The AO contended that the assessee failed to comply with the mandate of sub-section (3) of Section 10A, which provides that the sale proceeds of articles or things or computer software exported out of India are received in, or brought into India, by the assessee in convertible foreign exchange, within a period of six months from the end of the previous year or within such further period as the competent authority may allow in this behalf.

The Tribunal observed that the APA entered between the assessee and the CBDT contains a clause for realizing the amount or bringing into India convertible foreign exchange for the additional amount of invoice within one month’s period. As the assessee brought into India the convertible foreign exchange within the stipulated one month’s period, it became entitled to deduction under Section 10A.

Furthermore, the Tribunal noted that the assessee declared total income of Rs. 45,21,431/- in the original return. After the increase in the income due to the APA and with the simultaneous claim of deduction under Section 10A, the total income of the assessee as declared in the modified return remained at the same level. Thus, it is neither a case of reducing the total income nor increasing the total loss.

The Tribunal concluded that the assessee has satisfied the condition of deduction under Section 10A(3) read with Section 92CD(2) of the Act.

Conclusion:
The Tribunal held that the proviso to Section 92C(4) does not debar deduction under Section 10A on additional income in assessment under Section 92CD; assessment under Section 92CD provides for granting deduction under Section 10A; and the assessee has satisfied the requirement of Section 10A(3) read with Section 92CD(2), thereby entitling it to deduction under Section 10A on the additional amount of Rs. 20,36,023/-. The impugned order was overturned and deduction was granted. The appeal was allowed.

---