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Income Tax Appellate Tribunal, ‘A’ BENCH, BENGALURU
Before: SHRI A.K. GARODIA & SHRI LALIET KUMAR
O R D E R Per SHRI A.K. GARODIA, AM : These are cross appeals filed by the assessee and the revenue and these are directed against the order of the
IT(TP)A Nos.12 & 756/Bang/2013 Page 2 of 11 CIT(A)-IV, Bengaluru dated 02/11/2012 for the assessment year 2008-09.
The grounds raised by the assessee in its appeal are as under:
IT(TP)A Nos.12 & 756/Bang/2013 Page 3 of 11
The grounds raised by the revenue in its appeal are as under:
IT(TP)A Nos.12 & 756/Bang/2013 Page 4 of 11
First we will take up the assessee’s appeal. It was submitted by the learned AR of the assessee that ground No.1 is general nature. Regarding ground No.2 it was submitted that this issue is covered in favour of the assessee by the Tribunal order rendered in the case of Bartronics India Ltd. vs. ACIT as reported in 22 taxman.com 5 (Hyd). He filed a copy of the Tribunal order and pointed out that as per the Tribunal order, it was held that if there is any disallowance u/s 40(a)(ia) of the Act, then benefit to consider such additions made and such recomputed profit shall be considered for the purpose of deduction u/s 10B of the IT Act. It was submitted that as per this Tribunal order, ground No.2 of the assessee should be allowed.
Regarding ground No.3, he submitted that it is consequential and ground No.4 it was submitted that the same is general.
Regarding remaining ground No.5 to 11, he submitted that as per Tribunal order in assessee’s own case for assessment year 2007-08 in dated 25/7/2016, this matter
IT(TP)A Nos.12 & 756/Bang/2013 Page 5 of 11 should go back to the file of the AO/TPO for fresh decision because the facts are identical. He submitted that in the Advance Pricing Agreement dated 28/3/2016, department has accepted international transaction including payment of management fees on the basis of TNMM along with other services instead of examining separate ALP for management fees.
Learned Departmental Representative supported the orders of the authorities below.
We have considered rival submissions. Ground No.1 is general for which no decision is called for.
Regarding ground No.2, we find that this issue is now covered in favour of the assessee by the judgment of the Hon’ble Karnataka High Court in the case of CIT vs. Tata Elxsi reported in 349 ITR 98. It was held by the Hon’ble High Court in that case that total turnover is sum total of export turnover and domestic turnover and therefore, if any amount is reduced from export turnover then the total turnover shall also goes down by the same amount. Respectfully following this judgment of the Hon'ble Karnataka High Court, we direct the AO to reduce total turnover also by the same amount by which export turnover was reduced and then compute the deduction allowable to the assessee u/s 10A. Accordingly, ground No.2 is allowed for statistical purposes.
IT(TP)A Nos.12 & 756/Bang/2013 Page 6 of 11 10. Ground No.3 is held to be consequential. Ground No.4 is general. Grounds Nos.5 to 11 involve transfer pricing issue. We first reproduce para.9 of the Tribunal order rendered in assessee’s own case in dated 25/07/2016: 9. We have considered the rival submissions as well as the relevant material on record. We find that the assessee bench marked its international transactions by computing the operating margin at entity level which is not as per the provisions of Transfer Pricing because the international transactions has to be tested by comparing with uncontrolled and unrelated price. When the assessee earns the revenue of more than 50% from the non-AE clients then the bench marking of the international transactions by taking the results at entity levels is not appropriate therefore we do not approve such methodology applied by the assessee in bench marking the international transactions. However the TPO has segregated the ITES from management fees and found that the international transactions of ITES exclusive of management fees at arm’s length. The action of the TPO in determining the ALP of management fees at NIL is not justified because the assessee has paid the management fees under the agreement wherein the services provided by the AE has been enlisted. Therefore, without giving a finding that the assessee has also incurred expenditure in respect of the same services over and above the management fees paid to the AE it cannot cannot be said that the assessee has not received the alleged management services. Thus only when it is found that the assessee has also incurred the expenditure on account of the same services and also paid the management fees to the AE then the TPO/A.O may come to the conclusion that the assessee has paid the management fees without availing the services from the AE. Even otherwise when the management fees paid under the agreement and there is no finding by the authorities below that the same services also availed by the assessee separately from 3rd party and booked the expenditure in the profit and loss account then determination of the ALP at NIL is not acceptable. The assessee has filed the agreement under which the management fees was paid to the AE along with the relevant record and the department has accepted the management fees along with ITES under the Advance Pricing Agreement dt.28.3.2016 then making a separate adjustment by the TPO by determining the ALP of management fees at Nil is contrary to the stand of the department itself while agreeing to the advance pricing agreement. We find in the Advance Pricing Agreement
IT(TP)A Nos.12 & 756/Bang/2013 Page 7 of 11 dt.28.3.2016, the department has accepted the international transactions recorded in Clause 3 at arm’s length as under : “3. Covered Transaction. The international transactions of provision of Information Technology Infrastructure and IT support services. Intercompany charges including - - Payment of management fees - Payment of business consultancy charges - Payment of guarantee commission - Payment of other expenses such as communication expenses, contractor expenses, repairs and maintenance and transversal charges - Payment towards people soft maintenance - Payments towards internet charges and software expenses - Training expenses - Software expenses - Payments towards service charges - Payments towards web hosting and maintenance - Any other inter-company charge of similar nature Between the appellant and its AEs, as described in Appendix I, shall be the covered transactions for the Agreement and the Agreement shall apply only to these international transactions.” Though the price accepted by the department under said agreement are not applicable for the year under consideration however, on principle the management fees is accepted along with the other service and the ALP for ITES as well as other services including the payment of management fees has to be determined on composite transaction basis. The TPO has not examined the matter by considering the management fees as part of the operating cost for the purpose of testing the ITES as per provisions of section 92 of the Act. Accordingly, we set aside the matter to the record of the TPO/A.O for reconsideration of the same afresh in terms of the above observations. Since no difference in facts were pointed out by the learned Departmental Representative in the present year, we, respectfully following this Tribunal order in assessee’s own case for assessment year 2007-08, set aside the order of the CIT(A) on TP issue and restore this matter back to the file of the AO/TPO for fresh decision with same direction as was given by the Tribunal in assessment year 2007-08 as reproduced above. These grounds are allowed for statistical purposes.
IT(TP)A Nos.12 & 756/Bang/2013 Page 8 of 11 11. In the result, appeal of the assessee stands allowed in the terms indicated above.
Now, we take up the appeal of the revenue. Learned Departmental Representative supported the assessment order whereas learned AR of the assessee supported the order of the CIT(A). It was also submitted that ground No.1 is general. Ground No.2, 3 and 4 are in respect of deduction issue i.e. regarding computation of deduction u/s 10A of the Act and this issue is now covered in favour of the assessee by the judgment of the Hon’ble Karnataka High Court in the case of CIT vs. Tata Elxsi as reported in 349 ITR 98. Regarding second issue, as per ground Nos.5 to 11 in respect of exchange fluctuation loss on account of ECB loan and consequent addition of Rs.122.58 lakhs deleted by the CIT(A), it is submitted that this issue is covered in favour of the assessee by the Tribunal order rendered in the case of Cooper Corporation (P) Ltd. vs. DCIT as reported in 69 taxman.com 244 (Pun). He filed a copy of the Tribunal order. He drawn our attention to paras.4 to 12 of this Tribunal order and submitted that facts are noted in para.4. Thereafter, he pointed out that in that case, facts were that loan was taken to take benefit of low rate of interest regime on foreign currency loan in India and for this reason, foreign currency loan was taken to repay rupee loan. He pointed out that it was held by the Tribunal in that case that as per provisions of section 43A of the Act, exchange fluctuation can be added to the cost of fixed assets if IT(TP)A Nos.12 & 756/Bang/2013 Page 9 of 11 such fixed assets are purchased from outside India but since assets in that case were purchased in India, it was held that section 43A is not applicable. It was submitted that in the present case, also assets were not purchased from outside India and therefore, loss cannot be added to the cost of asset. At this juncture, a query was raised by the bench as to whether details regarding manner in which foreign currency loan was used is available in the paper book and whether those details were examined by the authorities below. In reply, it was submitted by the learned AR of the assessee that those details are not readily available and the lower authorities did not go into those details because it was held by the lower authorities that such loss on account of fluctuation in foreign currency rate is a notional and contingent loss. Thereafter, this proposition was put forward by the bench that the matter will be restored back to the file of the AO for fresh decision and the assessee is at liberty to raise all arguments before him. In reply, learned AR of the assessee submitted that specific direction should be given to the AO to follow this decision of the Pune Bench of the Tribunal.
We have heard rival considerations. We find that ground No.1 is general for which no decision is called for. We hold accordingly.
In grounds Nos.2 ,3 and 4 the issue involved is regarding computation of deduction allowed to the assessee u/s 10A after
IT(TP)A Nos.12 & 756/Bang/2013 Page 10 of 11 reducing data link charges from total turnover as has been reduced from the export turnover. We have already held while deciding the appeal of the assessee that this issue is now covered in favour of the assessee by the judgment of the Hon’ble Karnataka High Court rendered in the case of Tata Elxsi (supra). Even if special leave is filed by the revenue before the Hon’ble Supreme Court against this judgment of the Hon’ble Karnataka High Court, the judgment of Hon’ble Karnataka High Court is binding on us because this is not the case of the revenue that stay has been granted by the Hon’ble Apex Court against the operation of the judgment of the Hon’ble Karnataka High Court. Hence, we see no merit in these grounds of revenue. Accordingly, ground Nos.2, 3 and 4 are rejected.
We have considered the rival submissions. We find that whether foreign exchange loss has to be considered as increase in value of assets is dependent on this fact as to whether foreign currency loan was used for purchasing fixed assets or whether it was used for current assets and whether such fixed assets were purchased within the country or from outside country. Since these facts regarding user of foreign currency loan are not available in paper book and these details were not examined and commented upon by the lower authorities, we feel it proper to restore back this matter to the file of the AO for fresh decision. Accordingly, we set aside the order of the CIT(A) and restore the matter back to the file of the AO for fresh decision after providing
IT(TP)A Nos.12 & 756/Bang/2013 Page 11 of 11 adequate opportunity of being heard to the assessee. In absence of necessary facts, we do not make any comment on the allowability of this claim of the assessee and the assessee is at liberty to make all arguments before the AO and the AO should pass necessary order as per law after providing adequate opportunity of being heard to the assessee. Accordingly, grounds No.5 to 10 of the revenue’s appeal are allowed for statistical purposes.