2019 (12) TMI 153 - AT - Income Tax

Transfer Pricing (TP) adjustments - debar of deduction u/s 10A on addition income assessed u/s 92CD as per the Proviso to 92C(4) - HELD THAT - As the incremental income is offered by the assessee itself in the modified return in accordance with the APA, it cannot be equated with the computation of income u/ss. 92C/92CA of the Act, as the later provisions talks of making some transfer pricing addition by the AO. The suo motu offering of additional income by the assessee pursuant to the APA is of the same nature as the assessee itself offering some transfer pricing adjustment in the original return of income. In that case also, deduction u/s 10A, if otherwise permissible, would be allowed and not curtailed as it will not be a case of transfer pricing addition made by the AO. In the same manner, deduction u/s 10A cannot be disallowed in respect of additional income offered in the modified return as it is not a transfer pricing addition made by the AO but the additional transfer pricing income offered by the assessee in consonance with the APA with the CBDT. The second component for magnetizing the proviso is that the total income of the assessee is enhanced . An enhancement of income in this context pre-supposes some action of the authorities after the filing of the return of income by the assessee, which has the consequence of increasing the total income from the one declared by the assessee. Filing of the modified return u/s 92CD of the Act with the income as agreed between the assessee and the CBDT under the APA is an act of the assessee in offering the additional income and not an act of the AO in making the enhancement of the total income. Instantly, we are dealing with a situation in which the assessee itself has filed a modified return of income at the mutually agreed rate of 17% under the APA. As such, there cannot be any question of the AO making any enhancement in the income as a result of transfer pricing adjustment so as to attract the proviso to section 92C(4) of the Act. Assessment u/s 92CD provides for granting deduction u/s 10A - HELD THAT - A careful circumspection of sub-section (2) deciphers and delineates that in the computation of total income by the AO pursuant to the filing of the modified return by the assessee in terms of the APA, all other provisions of this Act shall apply accordingly. In other words, if an assessee is otherwise eligible for deduction under any other appropriate provision in respect of the income offered in the modified return, there cannot be any embargo on granting deduction under such relevant provision. The saving clause contained in sub-section (2), making all other provisions of the Act applicable in the assessment of the modified return, ostensibly includes the applicability of section 10A as well, of course, subject to the fulfillment of others conditions as set out in the section. It, therefore, follows that if an assessee is otherwise entitled to deduction u/s.10A, or for that matter under any other provision of the Act, in respect of the income offered in the modified return, the same cannot be denied. As such, the view of the authorities below that in the absence of any specific provision in section 92CD for granting of deduction u/s.10A, no deduction can be allowed, is sans merit. Such stipulation is contained in subsection (2) of 92CD itself. It is, ergo, held that the assessment u/s 92CD provides for granting deduction u/s 10A. First sub-question is answered by holding that proviso to section 92C(4) does not per se debar deduction u/s 10A on additional income in assessment u/s 92CD. Assessee has satisfied the conditions of deduction u/s 10A - HELD THAT - The sequitur is that the APA has made it mandatory for the assessee to bring in convertible foreign exchange in India within one month. But for granting the relevant deductions connected with the realization of convertible foreign exchange in India, there was no purpose to stipulate it in the APA. This stipulation is, thus, a direction to grant deduction u/s 10A only if the assessee succeeds in bringing in convertible foreign exchange in India within one month, bringing the case within the saving clause of sub-section (2) of section 92CD. As the assessee brought into India the convertible foreign exchange within the stipulated one month s period, it became entitled to deduction u/s 10A. What is further pertinent to note from para 2 of the Clause 6 of the APA is that The determination of ALP for Rollback years is subject to the condition that the ALP would get modified to the extent that it does not result in reducing the total income or increasing the total loss, as the case may be, of the applicant as already declared in the return of income of the said year . Assessee declared total income in the original return. After the increase in the income due to the APA and with the simultaneous claim of deduction u/s.10A, the total income of the assessee as declared in the modified return remained at the same level. Thus, it is neither a case of reducing the total income nor increasing the total loss. Ex consequenti, it is held that the assessee has satisfied the condition of deduction u/s 10A(3) read with section 92CD(2) of the Act. Proviso to section 92C(4) does not debar deduction u/s 10A on additional income in assessment u/s 92CD; assessment u/s 92CD provides for granting deduction u/s 10A; and the assessee has satisfied the requirement of section 10A(3) read with section 92CD(2), thereby entitling it to deduction u/s.10A on the additional. The impugned order is overturned and deduction is granted.

Summary

Issues Involved:
1. Whether proviso to Section 92C(4) debars deduction under Section 10A on additional income in assessment under Section 92CD?
2. Whether assessment under Section 92CD provides for granting deduction under Section 10A?
3. Whether the assessee has satisfied the conditions of deduction under Section 10A?

Detailed Analysis:

i. Whether proviso to Section 92C(4) debars deduction under Section 10A on additional income in assessment under Section 92CD?

The case of the AO is that the assessee cannot be allowed deduction under Section 10A in respect of the incremental income offered in the modified return, which as per the AO, is proscribed by the proviso to sub-section (4) of Sections 92C/92CA of the Act. Section 92C deals with the computation of ALP by the AO. Sub-section (4) provides that where an ALP is determined by the AO under sub-section (3), the AO may compute the total income of the assessee having regard to the ALP so determined. The proviso to this sub-section states that no deduction under Section 10A shall be allowed in respect of the amount of income by which the total income of the assessee is enhanced after computation of income under this sub-section.

However, the Tribunal noted that the proviso restricting the granting of deduction under Section 10A on enhanced income applies only where the computation of income is made under sub-section (4) of Sections 92C/92CA, which talks of making some transfer pricing addition by the AO. If the computation of income is neither under Section 92C nor 92CA, then the proviso shall have no application. The Tribunal observed that the suo motu offering of additional income by the assessee pursuant to the APA is of the same nature as the assessee itself offering some transfer pricing adjustment in the original return of income. Hence, deduction under Section 10A cannot be disallowed in respect of additional income offered in the modified return as it is not a transfer pricing addition made by the AO but the additional transfer pricing income offered by the assessee in consonance with the APA with the CBDT.

Therefore, the Tribunal concluded that the proviso to Section 92C(4) does not per se debar deduction under Section 10A on additional income in assessment under Section 92CD.

ii. Whether assessment under Section 92CD provides for granting deduction under Section 10A?

The Tribunal noted that sub-section (2) of Section 92CD provides that all other provisions of this Act shall apply accordingly as if the modified return is a return furnished under Section 139. This means that in the computation of total income by the AO pursuant to the filing of the modified return by the assessee in terms of the APA, all other provisions of this Act shall apply accordingly. Therefore, if an assessee is otherwise eligible for deduction under any other appropriate provision in respect of the income offered in the modified return, there cannot be any embargo on granting deduction under such relevant provision.

The Tribunal held that the assessment under Section 92CD provides for granting deduction under Section 10A of the Act.

iii. Whether the assessee has satisfied the conditions of deduction under Section 10A?

The AO contended that the assessee failed to comply with the mandate of sub-section (3) of Section 10A, which provides that the sale proceeds of articles or things or computer software exported out of India are received in, or brought into India, by the assessee in convertible foreign exchange, within a period of six months from the end of the previous year or within such further period as the competent authority may allow in this behalf.

The Tribunal observed that the APA entered between the assessee and the CBDT contains a clause for realizing the amount or bringing into India convertible foreign exchange for the additional amount of invoice within one month’s period. As the assessee brought into India the convertible foreign exchange within the stipulated one month’s period, it became entitled to deduction under Section 10A.

Furthermore, the Tribunal noted that the assessee declared total income of ?45,21,431/- in the original return. After the increase in the income due to the APA and with the simultaneous claim of deduction under Section 10A, the total income of the assessee as declared in the modified return remained at the same level. Thus, it is neither a case of reducing the total income nor increasing the total loss.

The Tribunal concluded that the assessee has satisfied the condition of deduction under Section 10A(3) read with Section 92CD(2) of the Act.

Conclusion:
The Tribunal held that the proviso to Section 92C(4) does not debar deduction under Section 10A on additional income in assessment under Section 92CD; assessment under Section 92CD provides for granting deduction under Section 10A; and the assessee has satisfied the requirement of Section 10A(3) read with Section 92CD(2), thereby entitling it to deduction under Section 10A on the additional amount of ?20,36,023/-. The impugned order was overturned and deduction was granted. The appeal was allowed.