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Income Tax Appellate Tribunal, DELHI BENCH ‘A’ : NEW DELHI
Before: SHRI R.K. PANDA & SHRI KULDIP SINGH
PER KULDIP SINGH, JUDICIAL MEMBER :
The appellant, DCIT, Circle 10 (1), New Delhi (hereinafter referred to as ‘the Revenue’) by filing the present appeal, sought to set aside the impugned order dated 31.03.2015 passed by Ld. CIT (Appeals)-44, New Delhi qua the assessment year 2010-11 on the ground that :-
“Whether on the facts and circumstances of the case & in law, the ld. CIT (A) erred in deleting the addition of Rs.12,84,15,358/- made on account of exclusion of TP adjustment for claiming deduction u/s 10A.” 2. Briefly stated the facts necessary for adjudication of the controversy at hand are : Assessee is into the business of rendering engineering design services to its parent company i.e. GS Engineering & Construction Co. Ltd., Korea and entered into international transactions for provision of engineering services with its Associated Enterprises, GS Engineering & Construction Co.
Ltd., Korea. The assessee has voluntarily made TP adjustment of Rs.12,84,15,358/- to the value of international transactions of provision of engineering services and towards reimbursement of cost of assets. But no corresponding adjustment was made with the financial statements of assessee since the books of account are prepared on receipt or accrual basis and not on any deeming fiction provided under the Act. The assessee has included amount of voluntary TP adjustment in the profit of the undertaking as well as the total turnover of the undertaking for the purpose of section 10A calculation as the proceeds were not received in terms of foreign exchange. AO denied the benefit of section 10A on the ground that TP adjustment does not have direct nexus with the income of the assessee and only the income arising from main business of the undertaking of the assessee are to be exempted under section 10A and thereby made addition of Rs.12,84,15,358/-.
Assessee carried the matter by way of appeal before the ld. CIT (A) who has deleted the addition now under challenged by partly allowing the appeal. Feeling aggrieved, the Revenue has come up before the Tribunal by way of filing the present appeal.
We have heard the ld. Authorized Representatives of the parties to the appeal, gone through the documents relied upon and orders passed by the revenue authorities below in the light of the facts and circumstances of the case.
Undisputedly, assessee has entered into international transactions with its AE during the year under assessment and has suo motu made TP adjustment of confirmed the addition by dismissing the appeal to the value of international transactions of provisions of engineering services and towards reimbursement of cost of assets. It is also not in dispute that assessee has suo motu included amount of voluntary TP adjustment in the profit of undertaking and also in the turnover but has not included the same in export turnover for the purpose of section 10A calculation as the sale proceeds were not received in terms of the foreign exchange.
It is also not in dispute that the assessee is not having any other unit eligible for exemption u/s 10A.
The ld. AR for the assessee contended that the issue in controversy is squarely covered in its favour in its own case for AY 2009-10 decided by the coordinate Bench of the Tribunal in order dated 05.04.2018. However, on the other hand, ld. DR for the Revenue relied upon the assessment order passed by the AO.
Coordinate Bench of the Tribunal in assessee’s own case for AY 2009-10 (supra), by relying upon the decision in iGate Global Solutions Ltd. vs. ACIT (2008) 24 SOT 3 (Bang.) rendered by ITAT Bench of Bangalore and confirmed by Hon’ble High Court of Karnataka, decided the issue in controversy in favour of the assessee by returning following findings :-
“6. We have heard both the parties and perused the relevant records, especially the impugned order. We find that the assessee has clarified that (i) it does not have any business other than the unit which is eligible for exemption u/s. 10A, (ii) the voluntary TP adjustment has been made in respect of international transaction involving export of engineering design services and (iii) the voluntary TP adjustment has been made through a disclosure in Form 3CEB and is not an ad-hoc addition in the income tax return. The assessee has excluded voluntary TP adjustment from 'export turnover' in line with the computation mechanism prescribed in section 10A. The TPO has not made any adjustment in his order dated 10/09/20012 passed u/s 92CA(3). The assessee has explained that the proviso to section 92C(4) is not applicable in its case as the assessee has on its own determined its total income in the return of income having regard to the arm's length price. The assessee has relied on the decision of the ITAT, 'B" Bench Pune decision dated 12.03.2018 in the case of Approva Systems Pvt. Ltd. vs. DCIT passed in (AY 2011-12) wherein on similar facts and by respectfully following the ITAT, Bangalore in the case of iGate Global Solutions Ltd. vs. ACIT (2008) 24 SOT 3 (Bang.) and Hon'ble High Court of Karnataka decision in the case of CIT & Anr. Vs. iGate Global Solutions Ltd., the claim for deduction u/s.10A of the Act in respect of suo-moto TP adjustment made by the assessee, was allowed. It was also noted that ITAT Bangalore in the case of iGate Global Solutions Ltd(supra) has held that "From the Memo Explaining the Provisions of Finance Bill, 2006 as well as from the literal meaning of the word 'enhanced', it is clear that if income increased, as a result of computation of aim's length price, then such increase is not to be considered for deduction under section 10A. In the instant case, the assessee himself has computed the arm's length prices and has disclosed the income on the basis of arm's length prices. It is not a case, where there is an enhancement of income due to determination of arm's length price. Hence, it was rightly held that assessee was entitled to deduction under section 10A in respect of income declared in the return of income on the basis of computation of arm's length price. We are of the considered view that the facts in the present case are exactly similar to the facts as in the case of iGate Global Solutions Ltd(supra). Therefore, the Ld. CIT(A) respectfully following the decision of the ITAT Bangalore in the case of iGate Global Solutions Ltd(supra), has held that the assessee is eligible for deduction u/s 10A in respect of income declared in the return of income on the basis of computation of arm's length price. Accordingly, he directed the A.O. to allow the claim for deduction of Rs. 4,32,49,245/- u/s 10A in the instant case, which does not need any interference on our part, hence, we uphold the action of the Ld. CIT(A) and reject the grounds raised by the Revenue.”
Keeping in view the fact that during the year under assessment, the assessee has made voluntary TP adjustment qua its international transaction for providing engineering design services to its AE, having been disclosed in Form 3CEB, and has excluded the same from export turnover in accordance with a computation mechanism provided in section 10A suo motu TP adjustment made by the assessee is liable to be allowed u/s 10A of the Act. When the TPO has not made TP adjustment u/s 92CA(3), proviso to section 92C(4) is not applicable in case of the assessee because the assessee has determined its total income in accordance with the arm’s length price.
So, following the decision rendered by the ITAT, Bangalore Bench in case of iGate Global Solutions Ltd. vs. ACIT (supra) and decision rendered by the Delhi Bench of the Tribunal in assessee’s own case for AY 2009-10 which are squarely applicable to the issue in controversy and in view of the fact that the assessee has himself determined its arm’s length price and has disclosed its income on the basis of arm’s length price, the assessee is entitled to deduction u/s 10A qua the income declared in the return of income on the basis of computation of arm’s length price. So, the ld. CIT (A) has rightly directed AO to allow the claim of the assessee suo motu TP adjustment made by the assessee qua its international transactions u/s 10A of the Act. So, finding no illegality or perversity in the impugned order passed by the ld. CIT (A), present appeal filed by the Revenue is hereby dismissed. Order pronounced in open court on this 29th day of October, 2018.