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2018 (4) TMI 1722 - AT - Income TaxDeduction u/s. 10A - adjustment of amount on account of Transfer Pricing - HELD THAT - 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. 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 2007 (11) TMI 444 - ITAT BANGALORE . Therefore the Ld. CIT (A) 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 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.
Issues:
- Allowance of deduction under section 10A - Treatment of Transfer Pricing adjustment in computing taxable income - Applicability of Arm's Length Price in determining deduction under section 10A Analysis: - The appeal was filed by the Revenue against the Order of the Ld. CIT (A) allowing the claim of deduction under section 10A amounting to ?4,32,49,245 for the assessment year 2009-10. The assessee, engaged in engineering and construction activities, claimed the deduction under section 10A for an undertaking, which was disputed by the Revenue. - The Revenue contended that the Transfer Pricing adjustment of ?10,75,80,929 made by the assessee should not be considered as part of the export turnover for claiming deduction under section 10A. The AO observed that the adjustment was not recorded in the financial statements and not considered for calculating book profit under Minimum Alternative Tax provisions. The AO concluded that the deduction under section 10A was not applicable to the Transfer Pricing adjustment amount. - The Tribunal examined the facts and submissions, noting that the assessee had voluntarily made the Transfer Pricing adjustment for international transactions involving export of services, excluding it from the export turnover. The Tribunal observed that the assessee had determined its income based on Arm's Length Price and had disclosed it in the return of income. Citing precedents, including the ITAT Bangalore decision, the Tribunal held that the assessee was entitled to the deduction under section 10A for income declared based on Arm's Length Price. - Relying on the decision in a similar case, the Tribunal upheld the Ld. CIT (A)'s order allowing the deduction of ?4,32,49,245 under section 10A. The Tribunal found the facts analogous to the precedent case and concluded that the Revenue's grounds for appeal lacked merit, dismissing the appeal filed by the Revenue. This detailed analysis highlights the key issues of allowance of deduction under section 10A, treatment of Transfer Pricing adjustment, and the significance of Arm's Length Price in determining the eligibility for deduction under section 10A as addressed in the judgment by the Appellate Tribunal ITAT Delhi.
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