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2020 (3) TMI 111 - AT - Income TaxTP Adjustment - international transactions of the assessee with its AE s - HELD THAT - We are of the considered view that the Ld.CIT(A) has rightly deleted additions made by the Ld. AO towards TPA, as suggest by the TPO u/s 92CA(3) of the Act, in respect of international transactions of the assessee with its AE s. Hence, we are inclined to uphold the findings of the Ld.CIT(A) and reject ground taken by the revenue. Notional interest charged on export receivables from AE s for extended credit period - HELD THAT - We find that the Tribunal had considered an identical issue for AY 2005-06 AY 2008-09, where under identical set of facts, it has been held that when, the assessee is not charging interest, either from the AE or from the third parties towards extended credit period, the Ld. AO/TPO was incorrect in charging notional interest on receivables from the AE s for extended credit period without considering the impact of payables to AE s, in respect of various services. In this year, the Ld.CIT(A) has recorded categorically finding that if, credit period extended to AE s for receivables and credit period taken by the assessee for making payments to AE s for payables is netted of then, the credit period allowed to AE is less than four days and which is less than the credit period allowed to non AE s. Therefore, no adjustment is required, in respect of interest on receivables from AE s. We, further noted that as a matter of fact, the assesse does not charged any interest, either from the AE, or from the non AE s towards extended credit period. CIT(A) was right in deleting additions made by the Ld. AO towards TPA on account of notional interest on receivables from AE s and hence, we are inclined to uphold the findings of the Ld.CIT(A) and reject ground taken by the revenue. Disallowances of deduction u/s 10A in respect of profits earned by the eligible units in view of erstwhile provisions of section 10A(9) - HELD THAT - We find that the Tribunal has considered an identical issue for AY 2005-06 2008-09 2019 (1) TMI 1128 - ITAT MUMBAI and after considering the amendment made by the Finance Act, 2003, provisions of section 10A of the Act, held that omission of sub-section (9) of section 10A by the Finance Act, 2003 would effectively meant that the provision never existed in the statute and consequently, the assessee is entitled for deduction towards profit derived from eligible units u/s 10A - we are of the considered view that the Ld.CIT(A) was right in deleting additions made by the Ld. AO towards disallowances of deductions claimed u/s 10A of the I.T.Act, 1961, in respect of profits earned by the eligible units and hence, we are inclined to uphold the findings of the Ld.CIT(A) and reject ground taken by the revenue. Disallowances of depreciation on intangibles representing acquisition of business contracts - HELD THAT - We find that the Tribunal has considered an identical issue for AY 2008-09 2019 (1) TMI 1128 - ITAT MUMBAI where under identical set of facts, it has bench held that the assessee has acquired contractual rights, which no doubt is a valuable commercial right and hence,it comes within the meaning of intangible assets, as per section 32(1)(ii) r.w. Explanation 3(b) of the Act and hence, the assessee is entitled for depreciation on said intangibles at the rate applicable to intangible assets. In view taken by the Tribunal in assessee own case, we are of the considered view that the Ld.CIT(A) was right in deleting additions made by the Ld. AO towards disallowances of depreciation on intangibles and hence, we are inclined to uphold the findings of the Ld.CIT(A) and reject ground taken by the revenue Restrict disallowances to 10% of total expenditure claimed under the head other expenses .
Issues Involved:
1. Aggregation of international transactions and consideration of AEs in the UK and US as the tested party. 2. Notional interest charged on export receivables from AEs for extended credit period. 3. Disallowance of deduction under section 10A of the IT Act, 1961, in respect of profits earned by eligible units. 4. Disallowance of depreciation on intangibles representing acquisition of business contracts. 5. Adhoc disallowance of administrative expenses. Detailed Analysis: 1. Aggregation of International Transactions and Consideration of AEs as the Tested Party: The revenue contested the CIT(A)'s decision to benchmark international transactions separately rather than aggregating them as done by the TPO. The Tribunal upheld the CIT(A)'s decision, referencing previous ITAT decisions in the assessee's favor for AY 2005-06 and 2008-09. The Tribunal noted that the department had accepted the AEs as the tested party and foreign comparables proposed by the assessee in subsequent years (AY 2011-12 to 2014-15). The Tribunal concluded that the TPO's approach of aggregating transactions was inappropriate, as the transactions did not form a single composite transaction and were agreed upon separately. The Tribunal cited relevant case laws and upheld the CIT(A)'s findings, rejecting the revenue's grounds. 2. Notional Interest Charged on Export Receivables from AEs: The revenue challenged the CIT(A)'s deletion of notional interest on export receivables for extended credit periods. The Tribunal referred to its decisions for AY 2005-06 and 2008-09, where it was held that no TPA could be made if the credit period allowed to AEs was netted off with the credit period taken by the assessee for making payments to AEs. The Tribunal noted that the CIT(A) had found the credit period allowed to AEs was less than that allowed to non-AEs. The Tribunal also referenced the Delhi High Court's decision in M/s Mckinsey Knowledge Center India Pvt. Ltd. and the Supreme Court's rejection of the SLP against it. The Tribunal upheld the CIT(A)'s decision, rejecting the revenue's grounds. 3. Disallowance of Deduction under Section 10A: The revenue disputed the CIT(A)'s decision to allow deduction under section 10A, arguing that the omission of sub-section 9 of section 10A should not have retrospective application. The Tribunal referred to its decisions for AY 2005-06 and 2008-09, where it was held that the omission of sub-section (9) by the Finance Act, 2003, meant the provision never existed in the statute. The Tribunal upheld the CIT(A)'s decision, rejecting the revenue's grounds. 4. Disallowance of Depreciation on Intangibles: The revenue contested the CIT(A)'s decision to allow depreciation on intangibles representing acquisition of business contracts. The Tribunal referred to its decision for AY 2008-09, where it was held that the assessee had acquired contractual rights, which were considered valuable commercial rights and thus eligible for depreciation as intangible assets under section 32(1)(ii) r/w Explanation 3(b) of the Act. The Tribunal upheld the CIT(A)'s decision, rejecting the revenue's grounds. 5. Adhoc Disallowance of Administrative Expenses: The assessee contested the CIT(A)'s decision to restrict the disallowance of administrative expenses to 50% of the total expenditure disallowed by the AO. The Tribunal referred to its decisions for AY 2005-06 and 2008-09, where it directed the AO to restrict the disallowance to 10% of the total expenditure claimed under the head "Other expenses." The Tribunal upheld the CIT(A)'s decision to restrict the disallowance to 10% of the total expenditure, partially allowing the assessee's cross-objection. Conclusion: The Tribunal dismissed the revenue's appeal and partly allowed the assessee's cross-objection, upholding the CIT(A)'s decisions on all contested issues. The Tribunal's decisions were consistent with previous rulings in the assessee's favor and relevant case laws.
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