2017 (5) TMI 66 - AT - Income Tax

Assessment against non-existing entity - amalgamated company - Held that - The assessment for the A.Y 2008-09 in respect of the amalgamating company and also the amalgamated companies have been completed separately, but in the name of the amalgamating company only. The only difference is in the PAN Nos. mentioned in the assessment years. As rightly held by the CIT (A), the amalgamating company was in existence for the A.Y 2008-09, though by the time of the assessment, it had amalgamated with the amalgamated company. On bringing the factum of amalgamation to the notice of the AO, the case has been transferred to the jurisdiction of the AO under whom, the amalgamated company s registered office was located and the assessment is also made in the name of the amalgamated company. The mention of the PAN No. of the amalgamating company is only to differentiate between the amalgamated and amalgamating companies. Therefore, we see no reason to interfere with the order of the CIT (A) and the assessee s ground of appeal No.1 is thus rejected. Computing deduction u/s 10A - treating the forex fluctuation gain as export turnover as well as total turnover - Held that - We find that the forex gain is on account of the export turnover of the assessee and therefore, it is to be part of the export and total turnover as rightly held by the CIT (A). The CIT (A) had followed the decisions of various High Courts and the Tribunal which are reproduced at Para 6.4 of the CIT (A) s order. The CIT (A) has also brought out the distinguishing facts in the case of Shah Originals (2010 (4) TMI 216 - BOMBAY HIGH COURT) that in that case the forex gain or loss was on account of re-statement of EEFC account and not as to whether it pertains to difference in billed amount as per the invoices and realized amount. Therefore, we see no reason to interfere with this finding of the CIT (A). However, as regards the miscellaneous income of ₹ 32,65,209 is concerned, there is no breakup of the income and as to the exact nature of such income. Therefore, we are of the opinion that the same is to be excluded both from the export turnover as well as the total turnover for computing the deduction u/s 10A of the Act. The profits and gains of each of the eligible unit is to be computed independently for allowing deduction u/s 10A of the Act with regard to an undertaking. The foreign exchange gain is part of the operating income of the assessee and therefore, to be included both in export as well as total turnover for computing deduction u/s 10A of the Act.

Issues Involved:
1. Validity of assessment proceedings in the name of a non-existing entity.
2. Inclusion of foreign exchange fluctuation gain and miscellaneous income in 'total turnover' for deduction u/s 10A.
3. Computation of deduction u/s 10A for each STPI unit separately.
4. Transfer Pricing (TP) adjustment on ITES provided to Associated Enterprises (AEs).
5. Exclusion of certain companies as comparables in TP analysis.
6. Allowing working capital adjustment to the mark-up of comparable companies.
7. Exclusion of communication charges from export turnover and total turnover.

Detailed Analysis:

1. Validity of Assessment Proceedings in the Name of a Non-Existing Entity:
The assessee argued that the assessment proceedings were invalid as they were conducted in the name of a non-existing entity, CFC India Services Pvt. Ltd., which had merged with BA Continuum India Pvt. Ltd. The CIT (A) upheld the assessment, noting that the merger was effective from 1.4.2008, during which the entity was in existence. The Tribunal found that assessments for the A.Y 2008-09 were completed separately for both the amalgamating and amalgamated companies, with the PAN of the amalgamating company used to differentiate between them. Thus, the Tribunal saw no reason to interfere with the CIT (A)'s order, rejecting the assessee’s ground of appeal.

2. Inclusion of Foreign Exchange Fluctuation Gain and Miscellaneous Income in 'Total Turnover' for Deduction u/s 10A:
The AO excluded the foreign exchange fluctuation gain and miscellaneous income from export turnover but included them in total turnover. The CIT (A) held that the forex gain should be part of both export and total turnover, following various High Court and Tribunal decisions. However, the miscellaneous income lacked a specific breakup, so it was excluded from both export and total turnover for computing the deduction u/s 10A. The Tribunal upheld these findings, allowing the assessee’s appeal for statistical purposes.

3. Computation of Deduction u/s 10A for Each STPI Unit Separately:
The AO set off the loss of one STPI unit against the profits of other units for computing the deduction u/s 10A. The CIT (A) upheld this approach. The Tribunal, however, followed the Supreme Court's decision in CIT vs. Yokogawa India Ltd., which mandated that the profits of each eligible unit be computed independently. Consequently, the Tribunal allowed the assessee’s appeal, directing the AO to allow the carry forward of losses.

4. Transfer Pricing (TP) Adjustment on ITES Provided to Associated Enterprises (AEs):
The TPO made a TP adjustment of ?13,06,52,257, which the CIT (A) upheld. The Tribunal found that the comparability of certain companies (Accentia Technologies Ltd., Mold-tek Solutions Ltd., Eclerx Services Ltd., Coral Hub Ltd., and Genesys International Corporation Ltd.) had already been rejected in the assessee’s own case for previous years. Thus, the Tribunal directed the exclusion of these companies from the final list of comparables.

5. Exclusion of Certain Companies as Comparables in TP Analysis:
The Tribunal reiterated that companies such as Accentia Technologies Ltd., Coral Hub Ltd., Eclerx Services Ltd., Mold-tek Technologies Ltd., and Genesys International Corporation Ltd. were not comparable to the assessee due to functional differences and extraordinary events. These companies were excluded from the final list of comparables.

6. Allowing Working Capital Adjustment to the Mark-Up of Comparable Companies:
The Tribunal noted an arithmetical error in calculating the average receivables for working capital adjustment. It directed the AO/TPO to verify the correctness of the working capital adjustment claimed by the assessee and decide accordingly.

7. Exclusion of Communication Charges from Export Turnover and Total Turnover:
The Revenue's appeal argued that communication charges should only be excluded from export turnover and not from total turnover. The Tribunal dismissed this ground, consistent with its earlier finding that foreign exchange gain should be included in both export and total turnover for computing deduction u/s 10A.

Conclusion:
The assessee’s appeal was partly allowed for statistical purposes, with specific directions for re-computation and verification. The Revenue’s appeal was dismissed. The Tribunal upheld the principles of independent computation for each STPI unit and the exclusion of certain companies from the list of comparables in TP analysis.

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