TaxTMI 
TaxTMI 
2025 (4) TMI 848
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....ase. The detailed grounds of appeal, Including the position in law and facts is set out in the ensuing paragraphs. 2. Grounds relating to Transfer pricing - Adjustment of INR 5,21,07,179/- 2.1. The Hon'ble CIT(A) and the Learned TPO erred in law and on facts in disregarding the Transactional Net Margin Method adopted by the Appellant for determining the arm's length nature of the management support services received from its Associated Enterprises ('AEs') in its Transfer Pricing "documentation maintained under section 92D of the Act read with Rule 10D of the Income Tax Rules, 1962 ('Rules'). Further erred in not satisfying the conditions mentioned u/s. 92C(3) of the Act before making an adjustment to the income of the Appellant. 2.2. The Hon'ble CIT (A) and the Learned TPO erred in law and on facts in adopting the Comparable Uncontrolled Price method without bringing on record any comparable transaction I data to Justify the methodology adopted. 2.3. The Hon'ble CIT(A) and the Learned TPO erred in not following the directions of the Honorable Chennai Tribunal in the Appellant's own case for the AY 2010....
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....e Learned CIT(A) and AO erred in law and on facts by disallowing the deduction claimed under section 10AA of the Act amounting to INR 5,72,73,875/- on the ground that the Appellant has not rendered or provided services outside India and the services were rendered in India. The Learned CIT(A) and AO failed to appreciate that the Appellant rendered warehousing and logistics services to foreign customers located outside India. 3.2 The Learned CIT(A) and AO failed to appreciate that the agreement for provision of warehousing and logistics services was between the Appellant and the foreign customers and the said services were provided to the foreign customers and there was no delivery of services in India. 3.3 The Learned CIT(A) and AO erred in law and on facts in concluding that the business activity of the SEZ unit of the Appellant falls within the purview of section 2(m)(iii) of the Special Economic Zones Act, 2005 ('the SEZ Act'). 3.4 The Learned CIT(A) and AO erred in law in not appreciating that the services rendered by the Appellant to the foreign customers outside India falls within the purview of section 2(m)(i) of the SEZ Act. 3.5 Th....
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....ted by an unduly narrow interpretation of the language used in the statute. Further, the Learned CIT(A) and AO failed to appreciate that the object for granting concession/ exemption should not be lost sight of and a purposive interpretation must be adopted. 3.11 The Learned CIT(A) and AO erred in law and in principle by denying the claim of deduction under section 10AA of the Act, when the same was allowed for the earlier AYs by the Learned AO. The Learned CIT(A) and AO failed to follow the settled principle that positions which were sustained by the parties in a particular AY cannot be changed ln subsequent AYs, when there is no change in the fact pattern. 3.12 The Learned CIT(A} and AO erred in law In appreciating that the formative conditions for claim of deduction under section 10AA of the Act have to be satisfied in the year in which the unit begins to provide services and failed to appreciate that such conditions need not be tested year on year. 4. Initiation of Penalty Proceedings 4.1 The Learned CIT(A) erred on facts and in law in upholding the penalty proceedings initiated by the AO. 5. Consequential Relief 5.1 The App....
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....f the Revenue. Aggrieved by the aforementioned order, the assessee filed an appeal and brief submissions filed are reproduced as under: Brief submissions in relation to Ground no. 2 - Transfer Pricing adjustment: * The ld.AR for the assessee submitted that there is no separate adjustment warranted if Transactional Net Margin Method ('TNMM') is considered as the most appropriate method and the assessee has adopted an aggregated approach in its TP Study, which has been accepted by the TPO for other international transactions. * The payment for the support services are inextricably linked to the principal business of the assessee (warehousing, transportation, supply chain management and vendor managed inventory services) and are essential to maintain a continuing relationship with the assessee's vendors and customers. * The ld.AR submitted that the basis of cost allocation, email evidence to substantiate the receipt of services, inter-company agreement, etc. before the Ld. TPO and Ld. CIT(A). The email evidence submitted by the assessee are part of the Paperbook (Pages 104 to 428 of Paper Book). * The ld.AR submitted that nowhere does the law ....
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....as held that allocation of cost partly on the basis of turnover and net profit cannot be considered as a factor to propose transfer pricing adjustment. Further, it was held that where the PLI of the assessee under TNMM is at arm's length and it is not possible on the part of the department to identify a comparable, which is rendering similar services, the question of considering CUP method would not arise at all. Since the assessee has stated that all the relevant evidences were already available with the Assessing Officer/TPO and on that basis; it is required to be verified with regard to availing actual services and its allocation of cost to the assessee. Accordingly, this ground relating to Management fees is remitted to the file of the Assessing Officer for fresh consideration and the Assessing Officer after going through the evidences filed by the assessee decide the issue fresh as indicated above. This ground of appeal of the assessee is allowed for statistical purposes. 7. Therefore, in the present facts and circumstances of the case and relying on the decision of this Tribunal in assessee's own case for the A.Y. 2010-11, we are of the considered view that the lower autho....
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.... providing services, from one unit to another unit or developer, in the same or different Special Economic Zone ('SEZ') and the same is not covered in the scope of export under section 10AA of the Act. A wrong view taken in the Company's own case for the AY 2010- 11 allowing deduction under section 10AA of the Act on similar grounds cannot be allowed to perpetuate on the basis of principle of consistency. 10. The Learned CIT(A) vide order dated 22.09.2023 confirmed the disallowance u/s. 10AA of the Act made by the AO. The ld.AR submitted that the AO and the ld.CIT(A) had not denied the fact that the assessee renders services from the SEZ to foreign parties / customers. Before us the ld.AR submitted that the Export has been defined in the SEZ Act as detailed below: * The ld.AR submitted that section 10AA of the Act was inserted by virtue of enactment of the Special Economic Zones Act, 2005 ('SEZ Act') by the Parliament (Refer section 27 of the SEZ Act). * As per section 2(m) of the SEZ Act, the term 'export' is defined as under: "export means - (i) Taking goods, or providing services, out of India, from a Special Economic Zone,....
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.... 11. It is also highlighted that the definition of 'export' under section 10AA of the Act refers to 'providing services out of India' and not 'rendering service out of India.' Thus, service rendered in SEZ to a non-resident falls within the meaning of 'export' of 'providing services out of India'. There is no requirement of rendering service outside India under section 10AA of the Act. Similarly, circular No.700 dated March 23, 1995, 213 ITR (St) 78, in the context of section 80-O of the Act, states that the deduction will be available even where the foreign recipient of the services utilizes the benefits of such services in India as held by the Authority for Advance Ruling in the case of A.S. Mani v CIT (227 ITR 380). Therefore, the provision of service by the assessee to a non-resident foreign customer outside India from SEZ is export of service and eligible for deduction under section 10AA of the Act. Further, the ld. AR stated that the SEZ Act to have an overriding effect: Section 51 of the SEZ Act reads as follows: "The provisions of this Act shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in fo....
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....ade thereunder shall have effect notwithstanding anything inconsistent therewith contained in any other law except the provisions of the Foreign Exchange Regulation Act, 1973 (46 of 1973) and the Urban Land (Ceiling and Regulation) Act, 1976 (33 of 1976) for the time being in force or in the memorandum or articles of association of an industrial company or in any other instrument having effect by virtue of any law other than this Act.." The above view has been inter-alia upheld by the Madras High Court in the case of Tube Investments of India Ltd. vs. CIT [2012] 341 ITR 199. "Services" in relation to SEZ * The term 'services' has not been defined in the Act. In this regard, the ld.AR submitted when the provisions of section 10AA of the Act owes its genesis to the SEZ Act, a reference could be drawn to the definition of the term 'services' as defined in the SEZ Act. * The extract of the definition of the term 'services' as per section 2(z) of the SEZ Act is reproduced below: "services means such tradable services which, (i) are covered under the General Agreement on Trade in Services annexed as IB to the Agreement establishing th....
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....ther, during the course of assessment proceedings for the AY 2017-18, the AO had sought for details pertaining to the deduction claimed under section 10AA of the Act, inter-alia including eligibility of the claim (refer question 1(e) and 1(f) of the notice issued under section 142(1) of the Act dated 08 November 2019). A copy of the aforementioned notice issued under section 142(1) of the Act and submissions made during assessment proceedings, including the Form 56F is enclosed as Annexure 5. After verification of the details furnished by the assessee, the AO did not record any adverse findings with respect to the eligibility of the claim. The assessment order for the AY 2017-18 has been enclosed as Annexure 6. 13. In light of the above arguments and submissions the ld.AR prayed for setting aside the order of the ld.CIT (A) by allowing the grounds of appeal of the assessee. 14. Per contra the ld.DR for the revenue supported the orders of the AO and the Ld.CIT(A) by submitting as under on the issue of disallowance of deduction u/s. 10AA of the Act: i) The assessee entered into agreements with foreign customers for providing supply chain management and vendor managed i....
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.... (P) Ltd v. ITO [2011] 336 ITR 0189, in which it was held that the intention of the Parliament, in granting benefits to the units in free trade zones, special economic zones and EOUs, is to allow the benefit of deduction only when the articles or things or computer software are actually and factually exported out of India to a foreign country. iii) When the profits from exports were allowed as deduction, the Parliament intended the actual export out of India of the articles of things. The intention was never to consider the delivery of goods to a foreign buyer in India as amounting to export. iv) Further, the ld.DR submitted that the section 10AA which deals with special provisions in respect of newly established Units in Special Economic Zones was inserted by the Special Economic Zone Act, 2005 w.e.f. 10.02.2006. Thus, it can be clearly seen that the provision itself was introduced through SEZ Act, 2005 and not vide Finance Act unlike all other amendments. v). The definition for the term "export" as provided in both the SEZ Act, 2005 and the Income Tax Act, 1961 are as follows: AS PER SPECIAL ECONOMIC ZONE ACT, 2005: Sec 2(m): "export" ....
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....61 at least with regard to the definition of the term export. viii) The activity undertaken in the instant case does not fit into the definition of export as provided under the Income Tax Act, 1961 as there is no taking of goods or provision of services out of India from the SEZ, the service provided fails to satisfy the condition laid down under the Income Tax Act, 1961. ix) It is the contention of the Assessee that the goods are in SEZ which does not form part of the India and has thus complied with the definition provided under the Income Tax Act, 1961. This argument is not tenable for the following 2 reasons namely: i. The term India used here denotes territorial demarcation and not tax-based demarcation wherein SEZ area does not form part of Indian territory. ii. The word out of India is followed by the words "from a Special Economic Zone". In the instant case, the goods still lie in SEZ only. x) The service though has been provided to a foreign party, the goods still lay in India and thus has not moved out of the territory of India. Since the deduction has been provided under the Act, the definition provided under the Income Tax Ac....
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..... CIT [(Mad) 244 ITR 166] * M.M. lpoh &Ors. v. CIT [(SC) 67 ITR 106] * New Jehangir Vakil Mills Co. Ltdv. CIT[(SC) 49 ITR 137] * Bharat Sanchar Nijam Ltd &Ors v. UOI &Ors. [(SC) 282 ITR 273] 15. Thus, the ld.DR submitted that the claim of the assessee for deduction under Sec 10AA of the Act, is not tenable based on the arguments advanced, authorities cited and submissions made since it does not fall under the definition of the term "Export" to claim deduction. 16. We have heard the rival contentions perused the material available on record and gone through the orders of authorities along with the paper book filed and case laws relied. Admittedly, the assessee is engaged in the business of providing warehousing, transportation, supply chain management and vendor managed inventory services from a unit set up in the Special Economic Zone(SEZ) with the following modus operandi. * Under the terms of such agreement the assessee stores the goods in its warehouse on behalf of such foreign parties. * The goods are subsequently supplied by the assessee to parties in India, as designated by the foreign parties. * The ownership / titl....
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....19. The assessee has claimed that the warehousing and handling services are provided by the assessee to foreign parties / customers out of India from its unit in SEZ which falls within the realm of section 2(m)(i) of the SEZ Act which is identical to the definition of the term 'export' as defined in the Act and not under section 2(m)(iii) of the SEZ Act as contented by the AO. 20. It is pertinent to note the judicial precedents of Kolkata ITAT's decision in the case of M/s.Midas DFS (P) Ltd. vs. ITO (ITA No. 2666/Kol/2013), wherein it has been held that : * Exemption provided under section 10AA of the Act, which are special provision in respect of newly established units in SEZ, are for income received by providing any services. * The provisions as specified in the SEZ Act would have an overriding effect on the Act, because the SEZ Act is a special Act and a later Act of the Parliament. * Where an activity has been permitted by the Competent Authority under the SEZ Act, there can be no question of denial of exemption under section 10AA of the Act. * Assessee was eligible to claim a deduction under section 10AA of the Act as the term 'services'....
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....a) * Solitare Diamonds Exports (182 ITD 474) * ACIT vs. M/s Goenka Diamonds & Jewellers Ltd. (ITA No. 509/JP/2011 & ITA No. 645/JP/2012) * M/s Gitanjali Exports Corporation Limited vs. ADCIT (ITA No. 6947 & 6948/Mum/2011) * M/s. Diamonds 'R' US vs. CIT (ITA No. 276/Mum/2014) * M/s. Ossian Exports vs. ITO (ITA No. 2024/Mum/2015) * DCIT vs. M/s Gia Exports (ITA No. 6350/Mum/2016) * Zaveri & Co Pvt. Ltd. vs. CIT [2014] 32 ITR(T) 250 24. It is relevant to note that in the case of Surya Roshni Ltd. vs. Commissioner of Central Excise, Rohtak 2012 (285) ELT 518 (Tri. - Delhi),the CESTATPrincipal Bench, New Delhi while deciding as to whether the goods supplied to SEZ as well as SEZ Developers by a DTA unit would be treated as exports for the purpose of Cenvat Credit Rules, 2004, held that section 51 of the SEZ Act shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force or in any instrument having effect by virtue of any law other than the SEZ Act. 25. Further, provision similar to section 51 of the SEZ Act, was enacted under the Sick Industrial Compa....