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2019 (1) TMI 1707 - AT - Income TaxTP Adjustment - application of safe harbour rules under the 2nd proviso to section 902C(2) which provides for ( /-) 5% variation from the arm s length price - international transaction in dispute in the present case is the redemption of the preference shares at the rate of dollar 1. The said international transaction has been benchmarked by the Transfer Pricing Officer on the basis of valuation report submitted by the assessee wherein the same was valued at dollar 1.05 - HELD THAT - As relying on case Dy Director of IT vs. Development Bank of Singapore 2013 (8) TMI 175 - ITAT MUMBAI and DCIT vs. Begadiya Brothers Pvt. Ltd. 2018 (10) TMI 1793 - ITAT RAIPUR variation of ( /-) 5% have been accepted by the ITAT for the single rate used for bench marking the arm s length price of the international transaction. Hence in accordance with the ratio from the above cases, the relief for variation of 5% sought by the assessee is to be granted from the arm s length price accepted by the Transfer Pricing Officer is justified. The distinction brought about by the learned CIT(A) that when, one rate is considered then safe harbour rules do not apply, is not mentioned the statute books and the same cannot be sustained. Hence when the assessee is granted the benefit of safe harbour rules as mentioned in the 2nd proviso to section 92C(2) the price at which the international transaction has actually been undertaken is to be deemed to be the arm s length price. This is so because if the ( /-) 5% variation is granted from the arm s length price of international transaction determined at dollar 1.05 the price of dollar 1 at which redemption has been done by the assessee is to be accepted. - Decided in favour of assessee 10A deduction service charges recovered from its 100% subsidy - HELD THAT - We find that the issue is squarely covered in favour of the assessee by the decision of ITAT and Hon'ble High Court in assessee s own case.
Issues Involved:
1. Deduction under Section 10A for service charges recovered from a 100% subsidiary. 2. Deduction under Section 10A for deputation charges. 3. Deduction under Section 10A for unbilled software income. 4. Transfer pricing adjustment for redemption of preference shares of an associated enterprise. Issue-wise Detailed Analysis: 1. Deduction under Section 10A for Service Charges Recovered from a 100% Subsidiary: The Revenue argued that the service charges recovered from the assessee's 100% subsidiary were not eligible for deduction under Section 10A. The ITAT noted that this issue had been previously decided in favor of the assessee by both the ITAT and the Hon'ble High Court. The ITAT upheld the CIT(A)'s decision allowing the deduction, referencing the precedent in the assessee's own case for earlier assessment years. The ITAT found no infirmity in the CIT(A)'s order and dismissed the Revenue's appeal on this ground. 2. Deduction under Section 10A for Deputation Charges: The Revenue contended that deputation charges received from the assessee's 100% subsidiary were not eligible for deduction under Section 10A. The ITAT did not separately address this issue, implying that it was covered under the same reasoning and precedent as the service charges issue. Consequently, the ITAT upheld the CIT(A)'s decision, allowing the deduction for deputation charges as well. 3. Deduction under Section 10A for Unbilled Software Income: The Revenue challenged the CIT(A)'s decision to delete the addition made on account of unbilled software income, arguing it was not eligible for deduction under Section 10A. The ITAT did not provide a separate analysis for this issue, suggesting it was also resolved based on the same precedent as the service charges and deputation charges issues. The ITAT upheld the CIT(A)'s decision, allowing the deduction for unbilled software income. 4. Transfer Pricing Adjustment for Redemption of Preference Shares of an Associated Enterprise: The assessee appealed against the CIT(A)'s decision to uphold the Transfer Pricing Officer's (TPO) adjustment of ?57,82,500 for the arm's length price of redemption of preference shares. The TPO had determined the arm's length price based on a valuation report, which valued the shares at $1.05 each, whereas the assessee redeemed them at $1. The CIT(A) upheld the TPO's adjustment, stating that the second proviso to Section 92C(2) did not apply as only one price was considered. The ITAT, however, found merit in the assessee's argument that the safe harbour rules (+/- 5% variation) should apply. The ITAT referenced several decisions where the benefit of the 5% variation was granted even when a single rate was used for benchmarking. The ITAT concluded that the distinction made by the CIT(A) was not supported by the statute. Therefore, the ITAT allowed the assessee's appeal, granting the benefit of the safe harbour rules and accepting the redemption price of $1 as the arm's length price. Conclusion: The ITAT dismissed the Revenue's appeal and allowed the assessee's appeal. The ITAT upheld the CIT(A)'s decisions on the eligibility of deductions under Section 10A for service charges, deputation charges, and unbilled software income. Additionally, the ITAT granted the assessee's appeal regarding the transfer pricing adjustment for the redemption of preference shares, applying the safe harbour rules to accept the redemption price as the arm's length price. The order was pronounced in the open court on January 21, 2020.
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