2022 (3) TMI 648 - AT - Income Tax

Disallowance u/s. 10A - excess deduction u/s. 10A - Revenue is against the deletion of disallowance u/s. 10A Bby CIT-A ignoring the connected provisions of section 80IA(10) of the Act - assessee is a 100% Export Oriented Unit under STPI scheme and a wholly owned subsidiary of Romax Technology Ltd., UK. - HELD THAT - AO's calculation of excess deduction u/s. 10A is based on the Arm's Length price based profit of the IT Enabled service rendered vis- -vis the assessee's actual profit from such services. It is pertinent to mention that the assessee's Associated Enterprises, namely, Romax Technology Ltd., UK is not chargeable to tax in India - assessee offered suo motu higher income in its hands, which was albeit deductible u/s. 10A, without conferring any corresponding benefit to its AEs in terms of higher deduction of expenditure. AR brought to our notice an order passed in Honeywell Automation India Limited. 2021 (6) TMI 172 - ITAT PUNE in which the case of excessive deduction made by the AO u/s. 10A(7) read with section 80IA(10), similar to the one under consideration, was disapproved. The ld. DR fairly conceded that the facts and circumstances of the instant case are mutatis mutandis similar to the Honeywell Automation India Limited and Another (supra). Respectfully following the precedent, accord my imprimatur to the order passed by the ld. CIT(A). - Decided against revenue.

Summary

Issues:
- Deletion of disallowance under section 10A of the Income-tax Act, 1961

Analysis:
The appeal before the Appellate Tribunal ITAT Pune was directed against the order passed by the CIT(A) concerning the assessment year 2009-10. The primary issue raised by the Revenue was the deletion of disallowance of ?35,27,217/- under section 10A of the Income-tax Act, 1961, disregarding the provisions of section 80IA(10) of the Act. The facts revealed that the assessee, a 100% Export Oriented Unit, provided IT Enabled services to its Associated Enterprises and claimed a deduction under section 10A. The Assessing Officer (AO) later contended that excess deduction was allowed under section 10A due to the Arm's Length Price calculation, resulting in the addition of ?35,27,217/-. However, the CIT(A) deleted this addition, leading to the Revenue's appeal before the Tribunal.

Upon hearing the submissions and reviewing the material, the Tribunal noted that the AO's calculation of excess deduction under section 10A was based on the Arm's Length price-based profit compared to the actual profit. It was highlighted that the assessee's Associated Enterprises were not taxable in India, and the higher income offered by the assessee was deductible under section 10A without benefiting the AEs. Reference was made to a precedent set by the Pune Bench of the Tribunal in a similar case, where excessive deduction under section 10A(7) was disapproved. The Tribunal, following this precedent, upheld the order of the CIT(A) and dismissed the appeal by the Revenue.

In conclusion, the Tribunal dismissed the appeal, emphasizing that the facts and circumstances of the case aligned with the precedent set by the Pune Bench, leading to the affirmation of the CIT(A)'s decision regarding the deletion of the disallowance under section 10A of the Income-tax Act, 1961.