TaxTMI 
TaxTMI 
2025 (10) TMI 477
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....referred the said appeals before the learned Tribunal assailing orders dated 27.05.2024 passed by the Commissioner of Income Tax (Appeals) [CIT(A)], in respect of the AYs 2015-16 and 2016-17. 4. The Assessee [EYGBS (India) Private Limited], had appealed the Assessment Orders passed by the learned Assessing Officer [AO], inter alia on account of denial of deduction under Section 10AA of the Act on the Arms Length Price [ALP] Adjustment made pursuant to the Advance Pricing Agreement [APA] and an adhoc disallowance of 10% of dividend income under Section 14A of the Act. 5. The Assessee is engaged in the business of providing back office support and data processing services to its customers. The Assessee had filed its return of income [ROI] for the AY 2015-16 and AY 2016-17 on 30.11.2015 and 14.10.2016 respectively. The Assessee had declared an income of Rs. 23,91,78,770/- in its return for AY 2015-16 and Rs. 52,84,99,480/- for its AY 2016-17. The assessee had also claimed a deduction of Rs. 5,60,58,819/- for AY 2015-16 and Rs. 62,67,14,829/- for AY 2016-17, under Section 10AA of the Act. In addition, the Assessee had also claimed deduction under Chapter VI-A of the Act. Immediat....
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....e necessary addition / disallowance on the said issue. 8. In addition to the above, the AO made a disallowance of Rs. 23,93,733/- for AY 2015-16 and Rs. 25,12,500/- in respect of the AY 2016-17, under Section 14A of the Act. The AO noted that the Assessee had earned income from dividends during the previous year relevant to the assessment years and is exempt from charge of tax. The Assessee had claimed that it had not incurred any expenditure for incurring exempt income and the investments made had been liquidated during the year. However, the AO made an adhoc disallowance of 10% of the exempt income under Section 14A of the Act. 9. The Assessee appealed the assessment orders before the CIT(A). 10. The learned CIT(A), allowed the appeal and found that the exemption under Section 10AA of the Act could not be denied on the enhanced income and the proviso to Section 92C(4) of the Act, was not a bar for allowing such a claim. The CIT(A) relied on the decision of the learned Tribunal in Assessee's own case for the earlier assessment years. 11. Insofar as the question of disallowance under Section 14A is concerned, the learned CIT(A) noted that there was no opening balanc....
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....ty and SLP is pending before Supreme Court"? (v) "Whether on facts and circumstances of the case, the Tribunal's order can be said as perverse in nature in setting aside disallowance made under Section 14A of the Act by holding that all the investments in mutual funds were made during the year and also redeemed during the year and there is no opening or closing balance of mutual funds/investments in the balance sheet which does not mean that assessee did not incur any expenditure with respect to exempt income"? (vi) "Whether on facts and circumstances of the case, the Tribunal's order can be said as perverse in nature not apricating that conditions for invoking Section 14A was fully satisfied in case of assessee"? 15. As apparent from the above, the first four questions of law relate to the disallowance of Section 10AA of the Act in respect of the TP adjustments made pursuant to the APA entered into by the assessee with the Central Board of Direct Taxes [CBDT]. The second set of questions - question nos. 5 and 6 - relate to the division of disallowance under Section 14A of the Act. 16. As noted above, the AO had denied the exemption under Section 10-....
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....(7) of Section 92CC of the Act provide for the same in unambiguous terms. The said Sub-sections are reproduced below: "(5) The advance pricing agreement entered into shall be binding- (a) on the person in whose case, and in respect of the transaction in relation to which, the agreement has been entered into; and (b) on the Principal Commissioner or Commissioner, and the income-tax authorities subordinate to him, in respect of the said person and the said transaction. (6) The agreement referred to in sub-section (1) shall not be binding if there is a change in law or facts having bearing on the agreement so entered. (7) The Board may, with the approval of the Central Government, by an order, declare an agreement to be void ab initio, if it finds that the agreement has been obtained by the person by fraud or misrepresentation of facts." 21. We also consider it apposite to set out Section 92C of the Act, in its entirety. "92C. (1) The arm's length price in relation to an international transaction [or specified domestic transaction] shall be determined by any of the following methods, being the most appropriate method, having....
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....assessee shall not be entitled to exercise the option as referred to in the said proviso. (2B) Nothing contained in sub-section (2A) shall empower the Assessing Officer either to assess or reassess under section 147 or pass an order enhancing the assessment or reducing a refund already made or otherwise increasing the liability of the assessee under section 154 for any assessment year the proceedings of which have been completed before the 1st day of October, 2009. (3) Where during the course of any proceeding for the assessment of income, the Assessing Officer is, on the basis of material or information or document in his possession, of the opinion that- (a) the price charged or paid in an international transaction or specified domestic transaction has not been determined in accordance with sub-sections (1) and (2); or (b) any information and document relating to an international transaction specified domestic transaction have not been kept and maintained by the assessee in accordance with the provisions contained in sub-section (1) of section 92D and the rules made in this behalf; or (c) the information or data used in computation of t....
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....nd (2) of Section 92-C; or b) that information and documentation relating to the international transaction has not been maintained as mandatorily required; or c) that the information or data for computing the ALP is unreliable; or there is failure on the part of the assessee to furnish any information or document required to be furnished along with the notice. 24. It is apparent that in a case where the assessee voluntarily computes the ALP pursuant to an APA entered into with CBDT, none of the conditions as set out in sub-section (3) of Section 92C are attracted. It follows that sub-section (4) of Section 92C is not attracted. 25. More importantly, the proviso to sub-section (4) of Section 92C also clearly states that no deduction under Section 10A or 10AA or 10B or under Chapter VI-A of the Act would be allowed in respect of the amount of income by which the total income of the assessee is enhanced after computation under the said section. Thus in a case where the assessee voluntarily declares his income based on the ALP determined on the basis of an APA, there would be no occasion for the AO to enhance the income of the assessee. 26. Absent any enhancement of income, the p....
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.... 92C has been amended so as to provide that no deduction under section 10AA 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 said sub-section." 31. The said circular also amply clarifies that the first proviso to sub-section (4) of Section 92C of the Act is applicable where the total income of the assessee as computed by the Assessing Officer is "higher than the income declared by the assessee". 32. In the present case, the AO has not enhanced the income declared by the assessee. The assessee had voluntarily factored in the ALP pursuant to the APA entered into with the CBDT, for computing the income as declared in its returns. 33. We may also refer to the following observations from the decision of a Co-ordinate Bench of this Court in Commissioner of Income Tax vs. iGate Global Solutions Limited : ITA No. 452/2008: "6. In so far as substantial question of law No.4 is concerned, the error committed by the Assessing Officer was relying on Section 92(C)(4) to a case where Arm's Length Price was determined by the assessee, whereas the said provision applies to a case where A....