2012 (8) TMI 736 - AT - Income Tax

Deduction u/s 10A - dis-allowance in respect of three undertaking located at Chinchwad, Akruti and Millennium Business Park - assumption of them being mere expansion of the existing units - Held that - Issue stands fully covered in favor of the assessee in assessee s own case for the AY 2002-03 and 2003-04 wherein it was held that merely because the approval letter received from STPI stated the setting up of the three units as an expansion of the corresponding units, cannot be fatal to the plea set up by the assessee that the three units in question are independent and distinct units liable for an independent claim of deduction u/s 10A, since all the prescribed conditions have been fulfilled - Decided in favor of assessee. It is also directed to allow set-off of the losses of the section 10A eligible units against the normal business income of the assessee while computing income as per normal provisions of the Act. Transfer pricing - adjustments u/s 92CA on account of non charging of interest chargeable on excess period of credit allowed to Associated concerns - Held that - Issue is covered in favour of the assessee in assessee s own case for AY 2002-03 and 2003-04, wherein it was held that a continuing debit balance, is not an international transaction per se, but is a result of international transaction . Residuary clause in the definition of international transaction does not apply to a continuing debit balance, for the elementary reason that there is nothing on record to show that as a result of not realizing the debts from associated enterprises, there has been any impact on profits, incomes, losses or assets of the assessee - Decided in favor of assessee Deduction u/s 80HHE - exclusion of turnover of overseas branches from export turnover and not from the total turnover - Held that - If turnover of overseas branches is excluded from export turnover, same needs to be reduced from total turnover - Decided in favor of assessee Computation of interest u/s 234B without considering credit available under DTAA for taxes paid in USA - Held that - Issue has been decided in favor of assessee in earlier year wherein it was held that interest u/s 234B has to be computed after considering tax credit in respect of the taxes paid abroad. Also, law has been amended to the effect that Explanation (1) to section 234B by the Finance Act 2006 is clarificatory and, therefore, has retrospective application - Decided in favor of assessee.

Summary

Issues Involved:
1. Deduction under section 80HHE.
2. Computation of interest under section 234B.
3. Allowability of deduction under section 10A for three units.
4. Set-off of losses of section 10A units against normal business income.
5. Adjustment under section 92CA for non-charging of interest on extended credit to associated enterprises.

Issue-wise Detailed Analysis:

1. Deduction under section 80HHE:
- Ground 1a: The assessee did not press this ground; hence, it was dismissed.
- Ground 1b: The issue was about the computation of deduction under section 80HHE, specifically whether the turnover of overseas branches should be excluded from both the export turnover and the total turnover. The Tribunal referred to its previous decision in the assessee's own case and other judicial precedents, concluding that the turnover of overseas branches should be excluded from both the export turnover and the total turnover for computing the deduction under section 80HHE. The Tribunal directed the Assessing Officer to recompute the deduction accordingly.

2. Computation of interest under section 234B:
- The issue was whether the tax credit for taxes paid in the USA under the Double Taxation Avoidance Agreement (DTAA) should be considered while computing interest under section 234B. The Tribunal followed the judgment of the Bombay High Court in the assessee's own case, which held that the tax credit must be considered for computing interest under section 234B. The amendment to the law was deemed clarificatory and retrospective. The Tribunal allowed the assessee's ground.

3. Allowability of deduction under section 10A for three units:
- The issue was whether the units at Chinchwad, Akruti, and Millennium Business Park were new units eligible for deduction under section 10A or merely expansions of existing units. The Tribunal referred to its earlier decision and the Supreme Court's judgment in the case of Textile Machinery Corporation Ltd., concluding that the units were independent and not mere expansions. The Tribunal upheld the Commissioner of Income-tax (Appeals)'s decision allowing the deduction under section 10A for these units.

4. Set-off of losses of section 10A units against normal business income:
- The issue was whether the losses of section 10A eligible units could be set off against the normal business income. The Tribunal followed its earlier decision and the Bombay High Court's judgment in the assessee's own case, which allowed the set-off of such losses. The Tribunal directed the Assessing Officer to allow the set-off of losses of section 10A units against the normal business income.

5. Adjustment under section 92CA for non-charging of interest on extended credit to associated enterprises:
- The issue was whether the extended credit period allowed to associated enterprises constituted an international transaction requiring an arm's length price adjustment. The Tribunal referred to its earlier decision and the Mumbai Bench's decision in the case of Nimbus Communications Ltd., concluding that the extended credit period did not constitute an international transaction under section 92B. The Tribunal held that the adjustment made by the Assessing Officer was untenable and directed the deletion of the entire addition.

Conclusion:
- The assessee's appeal was partly allowed, and the Revenue's appeal was dismissed. The Tribunal directed the Assessing Officer to recompute deductions and set-offs as per the Tribunal's directions and judicial precedents. The decision was pronounced on June 12, 2012.