TaxTMI 
TaxTMI 
2019 (12) TMI 153
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....26.26%. This resulted into some transfer pricing adjustment. Pursuant to the directions given by the Dispute Resolution Panel (DRP), the AO in the final assessment order dated 30-01-2015 passed u/s.143(3) r.w.s. 144C(13) of the Income-tax Act, 1961 (hereinafter also called `the Act') made transfer pricing addition of Rs. 2,75,90,602/-. In the meantime, the assessee entered into an Advance Pricing Agreement (APA) with the CBDT on 24-11-2015, in which the Operating Profit margin of not less than 17% was agreed under the Transactional Net Margin method (TNMM). Pursuant to the APA, the assessee filed a modified return in terms of section 92CD(1) for the year under consideration, which is a part of rollback years, showing total income at Rs. 45,21,431/-, which is the same sum as was declared in the original return of income. The only change which occurred in the modified return was that the assessee increased the profit margin to 17%, in consonance with the APA, from the originally declared profit margin of 15%. This resulted into enhancement of income by a sum of Rs. 20,36,023/-. Simultaneously, the assessee claimed a further deduction u/s.10A of the Act for the amount equal to t....
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....hat. 5. In order to appreciate the rival contentions, it would be apposite to have a glance at the relevant provisions in this regard. Section 92CC with the caption "Advance Pricing Agreement" provides through sub-section (1): `The Board, with the approval of the Central Government, may enter into an advance pricing agreement with any person, determining the arm's length price ... in relation to an international transaction ...'. Sub-section (2) gives the manner of determination of the ALP referred to in sub-section (1) by stating that it: `may include the methods referred to in subsection (1) of section 92C or any other method, with such adjustments or variations, as may be necessary or expedient so to do.' Sub-section (3), which starts with the non obstante clause qua sections 92C/92CA, states that the ALP of any international transaction in respect of which the APA has been entered into: `shall be determined in accordance with the advance pricing agreement so entered.' The crux of the above referred provisions dealing with the advance pricing agreement is that the arm's length margin or price is settled as per the terms of the APA; the manner of determination of such A....
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.... can be found out by answering the following three sub-questions:- i. Whether proviso to 92C(4) debars deduction u/s 10A on additional income in assessment u/s 92CD? ii. If no, whether assessment u/s 92CD provides for granting deduction u/s 10A? iii. If yes, whether the assessee has satisfied the conditions of deduction u/s 10A? i. Whether proviso to 92C(4) debars deduction u/s10A on additional income in assessment u/s 92CD? 8. The case of the AO is that the assessee cannot be allowed deduction u/s 10A in respect of the incremental income offered in the modified return, which as per the AO, is eloquently proscribed by the proviso to sub-section (4) of sections 92C/92CA of the Act. In this regard, it is seen that 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 Assessing Officer may compute the total income of the assessee having regard to the arm's length price so determined". Proviso to this sub-section, which is the bedrock for the denial of the assessee's claim, states that ".... no deduction u/s.10A . . . . . . shall be allowed in respect of....
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....nt to the APA is of the same nature as the assessee itself offering some transfer pricing adjustment in the original return of income. In that case also, deduction u/s 10A, if otherwise permissible, would be allowed and not curtailed as it will not be a case of transfer pricing addition made by the AO. In the same manner, deduction u/s 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. 10. The second component for magnetizing the proviso is that the `total income of the assessee is enhanced'. An enhancement of income in this context pre-supposes some action of the authorities after the filing of the return of income by the assessee, which has the consequence of increasing the total income from the one declared by the assessee. Filing of the modified return u/s 92CD of the Act with the income as agreed between the assessee and the CBDT under the APA is an act of the assessee in offering the additional income and not an act of the AO in making the enhancement of the total income. ....
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....D provides for granting deduction u/s 10A of the Act. iii. Whether the assessee has satisfied the conditions of deduction u/s 10A? 14. Now we turn to the view canvassed by the AO that the assessee failed to comply with the mandate of sub-section (3) of section 10A, which provides that: "This section applies to the undertaking, if 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". A perusal of sub-section (3) of section 10A transpires that the condition for bringing into India the requisite convertible foreign exchange within a period of six months from the end of the previous year is not be all end all of the issue. It also extends to "such further period as the competent authority may allow in this behalf". In other words, if the competent authority has allowed further period for bringing into India the convertible foreign exchange, the assessee will be entitled to deduction u/s.10A. Explanation 1 to section 10....
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....invoice for the additional amount and also 'realise it' in the month following the month in which the APA is signed. To put it simply, the CBDT not only stipulated for raising of the invoice for the additional income but also for the realization of the additional amount within the month following the month in which the Agreement is signed. Thus, it is overt that the APA 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. There can be no other reason for mandating in the APA for bringing into India convertible foreign exchange within one month following the month in which the APA is signed except for the granting the consequential benefits of such realization, even though sub-section (1) of section 92CD gives time of three months for filing the modified return. The sequitur is that the APA has made it mandatory for the assessee to bring in convertible foreign exchange in India within one month. But for granting the relevant deductions connected with the realization of convertible foreign exchange in India, there was no purpose to stipulate it in the APA. This stipulation is, th....