TaxTMI 
TaxTMI 
2020 (10) TMI 190
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....44C of the Income Tax Act ('Act') and the order passed by Hon'ble Dispute Resolution Panel - II ('Hon'ble DRP') under Section 144C of the Act, is bad in law and void ab initio having been passed in the name of an entity UnitedHealth Group Information Services Pvt. Ltd. that was no longer in existence at the time of passing of such impugned orders. 2. That, without prejudice, the learned AO has grossly erred in making a transfer pricing addition of INR 5,43,68,348/- and a corporate tax addition of INR 55,73,134/- while computing the income of the Appellant. The addition made to the returned income is highly unjustified. Part I - Transfer Pricing ("TP") Grounds 3. That on the facts of the case and in law, the Deputy Commissioner of Income Tax, Transfer Pricing Officer- 3(3)(1), New Delhi ('learned TPO')/ AO has erred in making TP adjustment of INR 5,43,68,348/- instead of INR 94,36,839 as computed vide rectification order passed by the learned TPO under section 92CA(5) read with section 154 of the Act. 4. That on the facts of the case and in law, the learned TPO/ Hon'ble DRP has erred in making TP adjustment on account of notional interest on recei....
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....case and in law, the Hon'ble DRP has erred in upholding the TP adjustment made by the learned TPO without appreciating that inter-company receivable days for provision of IT and IT enabled services was 51 days and 48 days respectively which is less than the period of 90 days as prescribed under Section 92CE of the Act read with Rule 10CB of the Income Tax Rules, 1962 ('the Rules'). Part II - Corporate Tax Grounds 12. That on the facts of the case and in law, the learned AO/ Hon'ble DRP has erred in disallowing deduction under section 10AA of the Act on the interest income of INR 642,164 earned on Fixed Deposits placed with banks as per the mandate of statutory authorities, and miscellaneous income of INR 4,930,970. 12.1 That on the facts of the case and in law, the learned AO/ Hon'ble DRP failed to follow the order passed by the Hon'ble Jurisdictional ITAT in Appellant's own case for AY 2010-11 wherein the aforesaid issues of deduction u/s 10AA of the Act on Interest and Miscellaneous Incomes have been decided in favour of the Appellant. All the above grounds are without prejudice to each other. Appellant craves leave to add, amend, vary, omit or....
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....eclining the contentions raised by the taxpayer that arm's length price (ALP) of the international transaction qua receivable is nil, proceeded to compute the interest by applying 6 months LIBOR plus 400 basis points by applying CUP the most appropriate method. Ld. TPO also determined a mark up of 100 basis points towards the currency rates arising from fluctuations in the foreign exchange rate borne by the taxpayer. TPO determined the benchmarking rate of interest at 4.45690% and made the cumulative adjustment as under :- "The AE wise details of interest on receivables is as follows AE INTEREST United Health Care Services, Inc. 5,43,68,348 The cumulative adjustment made in this case is tabulated below S. No. Nature of international transaction ALP determined by taxpayer (INR) ALP determined by the TPO (INR) Adjustment u/s 92CA (INR) 1. Receivables Nil 5,43,68,348 5,43,68,348 Total 5,43,68,348 Subsequently, Ld. TPO vide order dated 24.01.2017 passed u/s 154 of the Act made recitification and computed revised adjustment at Rs. 9,43,68,39/-. 4. Assessee carried the matter before the Ld. DRP by way of filing objec....
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....s less than the working capital adjusted margin of the comparables any further adjustment on account of delayed payment of outstanding receivables from AE would distort the entire picture of recharacterization the transactions. In other words, transactions as to outstanding receivables cannot be re-characterized as loan deemed to be advanced by the taxpayer to its AE. We are of the considered view that AO/DRP have erred in making addition of Rs. 19,79,520/- on account of interest on outstanding receivables from AE, hence ordered to be deleted. Ground No.1 is determined in favour of the taxpayer." 10. So in view of what has been discussed above, we are of the considered view that addition made by TPO/DRP on account of interest on outstanding receivable from AE is not sustainable, hence, order to be deleted. Ground no. 12 11. Assessing Officer has disallowed the deductions claimed by the taxpayer u/s 10AA on account of interest income of Rs. 7,57,24,178/- and miscellaneous income of Rs. 2, 90,63,825/-. On the ground that the said income cannot be set to have any direct nexus with the assessee business because the assessee is not into the business of finance and investment. ....
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....ons 10A and 10B of the Act. There the Assessee had earned interest on the deposits lying in the EEFC account as well as interest earned on inter-corporate loans given to sister concerns out of the funds of the undertaking. There was a restriction on the Assessee in that case from making prepayment of its external commercial borrowings ('ECB'). It could repay only to the extent of 10% of the outstanding loan in a year. This made the Assessee temporarily park the balance funds as deposits or with various sister concerns as inter corporate deposits until the date of repayment. The Assessee contended that the interest derived from the business of the industrial undertaking was eligible for exemption within the meaning of Section 10B and applied the formula under Section 10B(4) of the Act for determining the profits from exports. The Assessee's contention that the expression "profits of the business of the undertaking" in Section 10B(4) was wider than the expression "profits and gains derived by" the Assessee from a 100% EOU occurring in Section 10B(1) was accepted by the ITAT. The ITAT noticed that unlike Section 80HHC, where there was an express exclusion of the i....
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.... refers the profits and gains as are derived by a 100% EOU, yet the manner of determining such eligible profits has been statutorily defined in sub-section (4) of section 10B of the Act. As per the formula stated above, the entire profits of the business are to be taken which are multiplied by the ratio of the export turnover to the total turnover of the business. Sub-section (4) does not require an assessee to establish a direct nexus with the business of the undertaking and once an income forms part of the business of the undertaking, the same would be included in the profits of the business of the undertaking. Thus, once an income forms part of the business of the eligible undertaking, there is no further mandate in the provisions of section 10B to exclude the same from the eligible profits. The mode of determining the eligible deduction u/s 10B is similar to the provisions of section 80HHC inasmuch as both the sections mandates determination of eligible profits as per the formula contained therein. The only difference is that section 80HHC contains a further mandate in terms of Explanation (baa) for exclusion of certain income from the "profits of the business" which is, howeve....
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....the business of the undertaking", the same proportion as the export turnover in respect of such articles or things or computer software bears to the total turnover of the business carried on by the undertaking.' As noted by this Court in CIT v. Hritnik Exports Pvt. Ltd. (decision dated 13th November, 2014 in ITA No. 219 & 239 of 2014), Section 10B(4) mandates the application of the formula for determining the profits derived from exports for the purposes of Section 10B(1). In other words, the formula would read thus: Profits derived from export = Profits of the business of the undertaking 9A. In terms of the above formula, the question that would arise is whether the interest on the FDRs could form part of the 'profits of the business of the undertaking'. The attention of the Court has been drawn to the decision of the Karnataka High Court in CIT v. Motorola India Electronics Pvt. Ltd. (2014) 46 Taxmann.com 167 (Kar.) which held that there was a direct nexus between the interest received from the FDRs created by a similarly placed Assessee from the amounts borrowed by it. The High Court approved the order of the ITAT in that case which held that the entire prof....
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....ndertaking, not directly related to the activity of export, would not be eligible for such deduction. He also took the Court again through the decision of the Supreme Court in Liberty India (supra) and submitted that the earlier decisions of this Court in Hritnik Exports (P.) Ltd. (supra) and Universal Precision Screws ITA No.419/Del/2014 (supra) might require to be reconsidered. When a question was posed to him as to whether the Revenue had challenge the aforementioned decisions of this Court, and of the ITAT in the present case to the extent it has allowed the plea of the Assessee as regards 'deemed export drawback', Mr. Manchanda stated that the Revenue ought to have challenged the above decisions as well as the impugned order of the ITAT in the present case and perhaps he would advise it to do so hereafter. He has also handed over a written note of submissions, reiterating the above submissions. 15. In the considered view of the Court, the submissions made on behalf of the Revenue proceed on the basic misconception regarding the true purport of the provisions of Chapter VIA of the Act and on an incorrect understanding of Section 80A(4) of the Act. The opening w....
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....m the customer was nonseverable from the income of the business of the undertaking. The Court fails to appreciate as to how the ITAT could have held that this transaction did not arise from the business of the export of goods. Even as regards freight subsidy, the Assessee's contention was that it had received the subsidy in respect of the business carried on and the said subsidy was part of the profit of the business of the undertaking. If the ITAT was prepared to consider the deemed export draw back as eligible for deduction then there was no justification for excluding the freight subsidy. Even as regards the interest on FDR, the Court has been shown a note of the balance sheet of the Assessee [which was placed before the AO] which clearly states that "fixed deposit receipts (including accrued interest) valuing Rs. 15,05,875 are under lien with Bank of India for facilitating the letter of credit and bank guarantee facilities." In terms of the ratio of the decisions of this Court both in Hritnik Exports (P.) Ltd. (supra) and Universal Precision Screws (supra), the interest earned on such FDR ought to qualify for deduction under Section 10B of the Act." 68. So, followi....