2022 (4) TMI 32 - AT - Income Tax

Tribunal rules in favor of Assessee, setting aside Commissioner's order. Key issue: Section 92C(4) deduction under Section 10A

The Tribunal allowed the appeal in favor of the Assessee, setting aside the Principal Commissioner of Income-tax's order under Section 263. It held that ... Revision u/s 263 by CIT - as observed by the Ld. PCIT that as per proviso to Section 92C(4) of the Act no deduction u/s 10A or 10AA or under Chapter VI-A is to be allowed in respect of amount of income by which the total income of the Assessee is enhanced as a result of computation of arm”s length price - error of allowing deduction on addition of transfer pricing adjustment resulted into under assessment of income and such under assessment resulted into short levy of tax under normal provisions including interest u/s 234B - claim of the Assessee that the orders under Section 143(3) and 154 of the Act have been passed after holding appropriate verification and necessary enquiry and perusing the documents/details submitted before the AO during the assessment proceedings HELD THAT:- From the soft paper book it clearly reflects that the Assessee had claimed as deduction u/s 10A of the Act and also given details of the same. The said deduction was inquired by the Assessing Officer by issuing a questionnaire/notice u/s 142(1) of the Act whereby Assessee was asked to submit the documents in respect of the deduction and exemptions claimed and also to give a brief note as to why deduction/exemption claimed be accepted by the Department. Assessee in response to the said notice/ questionnaire replied and filed the details of exemption claimed u/s 10A. The Assessee also filed a letter of permission issued by Software Technologies Parks of India, whereby the Assessee”s unit was declared as hundred percent export oriented unit and permission was granted under the STP scheme for the development of computer software and IT enabled service. Assessee claimed that the Assessing Officer thoroughly considered the claim of the Assessee by perusing the details and documents submitted and “note” on justification of the deductions claimed u/s 10A of the Act and hence the order passed u/s 163 is liable to be set aside. Regarding the claim of the revenue that, no deduction is allowable u/s 92C(4) of the Act, we have perused the proviso again, wherefrom it is clear that no deduction 10A of the Act shall be allowed in respect of the amount of income by which the total income of the Assessee enhances after computation of income under this sub-section. The Assessee had claimed that it has not recomputed the claim of deduction u/s 10A, however just claimed the deduction of INR 317,480,850 which is same as that computed at the time of filing return of income as clearly reflects from Form 56F. The claim under Section 10A is not enhanced on account of transfer pricing addition and since the Assessee is not claimed deduction u/s 10A on enhanced assessed income and therefore the proviso to Section 92C(4) shall not apply. We have given out thoughtful consideration to the rival claims of the parties and came to the considered view that here the case is not of the enhancement of income as the deduction was not allowed against the enhanced assessed income and therefore the proviso to Section 92C(4) as specifically referred by the Ld. DR, at all is not applicable to the instant case. - Assessee appeal allowed. Issues:Assessment order challenged under Section 263 for underassessment due to transfer pricing adjustment and deduction claimed u/s 10A.Analysis:1. The appeal was against the order passed by the Ld. Principal Commissioner of Income-tax-5, New Delhi, under Section 263 of the Income-tax Act, 1961, for the assessment year 2011-12. The Assessee's return of income declared 'Nil' income, but the Assessing Officer made adjustments leading to an addition of Rs. 15,94,27,269 on transfer pricing and disallowance of Rs. 1,15,11,583 on market to market losses. An order u/s 154 restricted the deduction claimed u/s 10A, resulting in an underassessment of Rs. 14,38,31,829.2. The Ld. PCIT set aside the assessment orders as they were deemed erroneous and prejudicial to revenue's interests. The Assessee contended that the Assessing Officer had thoroughly examined the deduction claimed u/s 10A through inquiries and document submissions. The PCIT's assertion of lack of proper inquiry was disputed based on the documents provided by the Assessee during assessment proceedings.3. The key contention revolved around the applicability of Section 92C(4) regarding deduction under Section 10A. The Assessee argued that the deduction was not enhanced due to transfer pricing adjustments, hence the proviso did not apply. The Tribunal noted that the Assessing Officer had conducted necessary inquiries and allowed the deduction after due consideration, holding that the orders were not erroneous or prejudicial to revenue's interests.4. After considering the arguments, the Tribunal set aside the Ld. PCIT's order under Section 263, stating that the deduction claimed u/s 10A was not enhanced due to transfer pricing adjustments, and hence the proviso to Section 92C(4) did not apply. The appeal was allowed in favor of the Assessee.5. In conclusion, the Tribunal found in favor of the Assessee, holding that the orders passed by the Assessing Officer were not erroneous or prejudicial to the revenue's interests, thereby setting aside the Ld. PCIT's order under Section 263.