2013 (8) TMI 1137 - AT - Income Tax

Summary

Issues Involved:
1. Deletion of addition towards consultancy charges.
2. Set-off of losses from Non-EOUs against profits of EOUs before computing deduction u/s 10B.
3. Adjustment of interest income earned from Associated Enterprise (AE) on funds advanced to AE.

Summary:

Issue 1: Deletion of Addition towards Consultancy Charges
The Revenue contested the deletion of Rs. 14,60,477/- made towards consultancy charges. The Assessing Officer disallowed the claim, asserting the expenditure pertained to a joint venture company. The ld. CIT(A) found that the consultancy agreement and invoices were verified, confirming the payment was made by the assessee for legitimate business expenditure and not to a joint venture partner. The Tribunal upheld the ld. CIT(A)'s decision, noting no evidence from the Revenue to dispute the consultancy charges' relation to the assessee's export business.

Issue 2: Set-off of Losses from Non-EOUs against Profits of EOUs before Computing Deduction u/s 10B
The Revenue challenged the ld. CIT(A)'s decision that losses from Non-EOUs need not be set off against profits of EOUs before computing deduction u/s 10B. The Assessing Officer argued that deduction u/s 10B should be on total income, not individual units' profits. The ld. CIT(A) observed that separate books were maintained for EOU and Non-EOU units, and the transfer cost of materials was wrongly recorded. The Tribunal, referencing the Special Bench decision in Scientific Atlanta India Technology Pvt. Ltd, confirmed that losses from non-eligible units need not be set off against eligible units' profits before computing deduction, dismissing the Revenue's appeal.

Issue 3: Adjustment of Interest Income Earned from AE on Funds Advanced to AE
The Revenue disputed the deletion of Rs. 39,18,508/- towards adjustment of interest income from AE. The TPO had adjusted the interest by applying the PLR, while the assessee charged interest at LIBOR plus 1%. The ld. CIT(A) held that the assessee's interest rate was in line with international market practices. The Tribunal, agreeing with the ld. CIT(A) and referencing various Tribunal decisions, dismissed the Revenue's appeal, confirming the interest rate charged by the assessee was appropriate for an international transaction.

Conclusion:
The Tribunal dismissed the Revenue's appeal on all grounds, upholding the ld. CIT(A)'s decisions regarding consultancy charges, set-off of losses for deduction u/s 10B, and adjustment of interest income from AE.