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Facts
The assessee, a private limited company, claimed deduction u/s.10AA for AY 2015-16 and 2016-17. The Assessing Officer (AO) denied the deduction and made a disallowance u/s.14A r.w. rule 8D. The assessee had entered into an Advance Pricing Agreement (APA) and offered additional income, but the AO denied the 10AA deduction based on section 92C(4).
Held
The Tribunal, following its own previous orders and various judicial precedents, held that voluntary adjustments made pursuant to an APA are eligible for deduction under section 10AA. The proviso to section 92C(4) was found not to be a bar to such claims. The Tribunal also found no infirmity in the CIT(A)'s order regarding the disallowance under section 14A.
Key Issues
Whether voluntary ALP adjustments pursuant to APA are eligible for deduction under Section 10AA, and whether the disallowance under Section 14A is justified.
Sections Cited
10AA, 14A, 8D, 92C(4), 92CA, 92CD
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, BANGALORE BENCHES “C”, BANGALORE
Before: Waseem Ahmed & Shri Prakash Chand Yadav
Asst.Year : 2016-2017 EYGBS (India) Pvt. Ltd. RMZ Infinity, Tower C, The Deputy Commissioner of 3rd Floor, Old Madras Road Income-tax, Circle 4(1)(1) Benniganahalli, KR Puram Bangalore. vs. Bangalore – 560 016. PAN: AABCE6565A. (Appellant) (Respondent) Appellant by: Ms.Neera Malhotra, CIT-DR Respondent by: Sri.Chavali Narayan & Sri.Keerthinarayan, ARs Date of Date of Hearing : 05.11.2024 Pronouncement: 08.11.2024 O R D E R Per Bench: - Both these appeals of the Revenue are arising from the orders of learned Commissioner of Income-tax (Appeals) [CIT(A)] dated 27th May, 2024 having DIN & Order No.ITBA/APL/S/250/2024-25/1065163627(1) & 1065164081(1), respectively, and relates to assessment years 2015-2016 and 2016-2017. Since the facts of the case and the issue involved are same, we are deciding these two appeals together by way of this consolidated order. For the sake of brevity are taking note of the facts of AY 2015-16.
The facts of the case are like that the assessee is a private limited company filed its income tax return on 30th November, 2015 claiming deduction u/s.10AA of the Income-tax Act, 1961 (“the Act”). Thereafter, the case of the assessee was selected for scrutiny and assessment u/s.143(3) of the Act has been framed. During the course of assessment proceedings, the learned Assessing Officer [AO] denied the deduction u/s.10AA and also made disallowance u/s.14A r.w.rule 8D and framed the assessment. It is pertinent to mention here that the assessee has entered into Advance Pricing Agreement [APA] proceedings and has offered some income and simultaneously claimed deduction u/s.10AA of the Act. However, the A.O. relying upon the provisions of section 92C (4) denied the claim of deduction u/s.10A vis-a-vis additional income offered by the assessee under APA proceedings. The also invoked the provisions of section 14A read with rule 8D and made a disallowance of Rs 23,93,733/-.
Aggrieved with the order of the A.O., the assessee preferred appeal and contended that the adjustments arising from APA proceedings are not covered by the provisions of sec.92C(4) and hence the assessee is entitled for deduction u/s.10AA as well as the disallowance of the amount made by the A.O. u/s.14A of the Act. The assessee further drawn the attention of first appellate authority towards the order of the co-ordinate Bench of the ITAT in assessee’s own case, wherein the ITAT has allowed the claim of the assessee by holding that the assessee is entitled for EYGBS (India) Private Limited. deduction u/s.10AA on the additional amount of income declared by the assessee under APA proceedings. The learned CIT(A) allowed the appeal of the assessee.
Aggrieved with the order of the learned CIT(A), now the Revenue has come up in appeal and has raised the following grounds:-
“Ground1. That the Ld. CIT(A) has erred in facts and in law by stating that following the decision of the Jurisdictional ITAT, the voluntarily adjustment made to ALP pursuant to APA is eligible for deduction u/s 10AA, though on the same issue, Revenue appeal is pending before apex court.
2. That the Ld.CIT(A) has erred in facts and in law by stating that all the investments in mutual funds were made during the year and also redeemed during the year and there is no opening balance or closing balance of mutual funds investments in the balance sheet which does not mean that the assessee did not incur any expenditure with respect to exempt income. Ld. CIT(A) has erred in deleting the addition made as per section 14A.”
At the outset, the learned Departmental Representative fairly agreed that the issues involved in the present case are squarely covered by the judgment of the co-ordinate bench in assessee’s own case.
The learned AR appearing on behalf of the assessee has placed the order of the co-ordinate bench in assessee’s own case in dated 31st August, 2020 and argued that the issue of 10AA deduction is squarely covered by the order of the coordinate Bench. The AR also pointed out that so far as the issue of 14A disallowance is concerned the CIT(A) in AY 2014-15 has allowed the appeal of the assessee and the revenue 3 EYGBS (India) Private Limited. has not challenged the deletion before the ITAT. The AR contended that since the facts are similar to that year the disallowance of 14A is not tenable.
After considering the submissions of both sides, we observe that similar issues have been considered by the co-ordinate bench in assessee’s own case vide order dated 31st August, 2020. The relevant observations made by the co-ordinate bench are as under:-
“17. The next aspect which requires consideration is as to, whether ALP adjustment pursuant to APA falls within the ambit of proviso to Section 92C(4) of the Act. Provisions of Section 92C(4) reads as follows:- "Where an arm's length price is determined by the Assessing Officer under sub-section (3). the Assessing Officer may compute the total income of the assessee having regard to the arm's length price so determined. Provided that no deduction under section 10A or section 10AA or section 10B or under Chapter Vl-A 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 this sub-section.”
On a reading of the above proviso to Section 92C(4) of the Act, it may be noted that the Act specifically denies claim of deduction under section 10AA of the Act on any adjustment made by the Transfer Pricing Officer under Section 92CA of the Act. Thus, the taxpayer is not eligible to claim the deduction under Sectionl0AA of the Act on the enhanced income on account of TP adjustment made by the TPO. However, on the contrary, increased income on account of voluntary transfer pricing adjustment or ALP adjustment pursuant to APA, made by the assessee would be eligible for claiming deduction under section 10AA of the Act.
The allowability of deduction under section 10AA in respect of Voluntary transfer pricing adjustment in the case of assessee for AY 2013- 14 came up for consideration before CIT(A) and it was held as follows:- “…… It is seen that appellant as well as the AO have accepted in principle that the issue has been dealt with by the Jurisdictional High Court in the case of l-gate Global Solutions Pvt Ltd in order dated 17.6.2014 in ITA 453/2008 holding that the benefit of section 4 EYGBS (India) Private Limited. 10AA is to be allowed in respect of Voluntary Transfer Pricing adjustment. following the order of Jurisdictional High Court in the case (supra). in the case of appellant also. the appellant is entitled to benefit under section 10AA in respect of Voluntary Transfer Pricing adjustment which stand on different footing as compared to the Transfer Pricing adjustment made by the TPO. It is held accordingly.”
The aforesaid order of the CIT(Appeals) for AY 2013-14 on the said issue has been accepted by the department and no further appeal before the Tribunal has been filed by department.
Further, the ITAT Bangalore in assessee’s own case for AY 2010-11 (ITA 199/Bang/2015) dated 20 May, 2020 relying on the decision of Hon'ble Karnataka High Court in case of I-Gate Global Solutions Ltd (supra), Pune Tribunal decision in case of Apoorva Systems (P) Ltd (92 Taxmann.com 82) and Delhi Tribunal in case of AT Kearney India Private Limited (ITA No 2623/De1/2015) dated 21 June 2019 held that assessee was eligible to claim deduction under section 10AA in respect of voluntary transfer pricing adjustment made on scientific basis in the computation of income in respect of Gurqaon SEZ unit as same was not hit by proviso to section 92C(4) of the Act.
The ITAT Bangalore in case of IBM India Pvt Ltd (59 CCH 260) dated 31 July 2020 , following the decision of Pune Tribunal in case of DAR AL Handasah Consultants (Shair & partners) India Pvt Ltd (2020) 203 TTJ 0218 (Pune), has held that deduction under section 10AA of the Act has to be allowed on incremental income arisen pursuant to APA as per modified return filed under section 92CD of the Act as same is not hit by proviso to section 92C(4) of the Act.
Accordingly, in light of the above judicial precedents, we hold that the ALP adjustment made pursuant to APA by the assessee in respect of Gurqaon SEZ unit results in increase in profits of the business of the undertaking/unit, the increased profits of the assessee being eligible for deduction under section 10AA of the Act given the wide nature of the expression used in section 10AA i.e. 'Profits of the business of the undertaking/unit' and that the proviso to section 92C(4) is not a bar to allowing such a claim.”
Following the view of the co-ordinate bench in assessee’s own case we are of the view that the revenue has no case. Further so far as the issue of 14A is concerned we note that the Ld CIT(A) has categorically noted that the investments made by the assessee were already redeemed in the impunged year and 5 EYGBS (India) Private Limited. there was no opening or closing balance at the end of year. We don’t find any infirmity in the order of the Ld CIT(A). Therefore we dismiss both the appeals of the Revenue with respect to the issue of disallowance of section 10AA. Before parting, we would like to mention that the facts of the assessment year 2016-2017 in 2015-2016 as discussed by us. Therefore, the decision rendered by us is equally applicable in also.
In the result, the appeals filed by the Revenue are dismissed.
Order pronounced on this 08th November, 2024.