2015 (7) TMI 1273 - AT - Income Tax

Claim for deduction under Section 10A - suo moto adjustment made by the appellant under Section 92(1) - Held that - Respectfully following the decision of the Hon ble High Court of Karnataka in the case of iGate Global Solutions Ltd. (2007 (11) TMI 444 - ITAT BANGALORE) we hold that the assessee in the case on hand be allowed deduction claimed under Section 10A of the Act, in the return of income filed, in respect of Suo Moto T.P. Adjustment amounting to ₹ 28,61,352 while determining the Arm s Length Price of its international transactions. - Decided in favour of assessee

Summary

Issues:
1. Denial of deduction under Section 10A of the Income Tax Act in respect of suo moto transfer pricing adjustment.
2. Interpretation of the provisions of Section 92C(4) of the Income Tax Act regarding deduction under Section 10A.
3. Applicability and relevance of judicial precedents in determining the eligibility for deduction under Section 10A.

Analysis:

1. Denial of Deduction under Section 10A:
The case involved an Indian company engaged in software export filing its return for Assessment Year 2008-09 with a suo moto transfer pricing adjustment. The Assessing Officer disallowed the claim for deduction under Section 10A of the Act in respect of this adjustment. The CIT (Appeals) upheld this decision, citing the profit derived from the export of articles or software alone as eligible for Section 10A deduction. The assessee challenged this denial, leading to a detailed analysis by the Tribunal.

2. Interpretation of Section 92C(4) Proviso:
The Assessing Officer relied on the 2nd proviso to Section 92C(4) of the Act to disallow the deduction, stating that no deduction shall be allowed if the total income of the assessee is enhanced after computation under this sub-section. The Tribunal referred to the legislative intent behind this provision and analyzed the concept of 'enhanced income.' It emphasized that if the income is not enhanced due to the determination of arm's length prices, the deduction under Section 10A should be permissible. This interpretation was crucial in deciding the eligibility for the deduction.

3. Relevance of Judicial Precedents:
The Tribunal considered the decision of a co-ordinate bench in the case of iGate Global Solutions Ltd., which allowed deduction under Section 10A for a similar transfer pricing adjustment. The Tribunal also highlighted the subsequent ruling of the Hon'ble Karnataka High Court in the same case, which upheld the Tribunal's decision. This judicial precedent played a significant role in supporting the assessee's claim for deduction. The Tribunal distinguished other judgments cited by the authorities to emphasize the specific applicability of the iGate Global Solutions Ltd. case in the current scenario.

In conclusion, the Tribunal allowed the assessee's appeal, granting the deduction under Section 10A for the suo moto transfer pricing adjustment. The decision was based on a detailed analysis of the legislative provisions, judicial precedents, and the specific circumstances of the case. The judgment provided clarity on the interpretation of relevant sections of the Income Tax Act and highlighted the importance of consistent application of legal principles in tax assessments.