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2024 (3) TMI 1256 - AT - Income TaxDisallowance of deduction u/s 10B - assessee has 100% export oriented undertakings ( EOUs ) in Bangalore and Noida with respect to which it has been claiming deduction u/s 10B - HELD THAT - So far as scrap sales are concerned as decided in in assessee s own case for AY 2004-05 2010 (6) TMI 904 - ITAT DELHI to hold that the impugned income on account of scrap sales earned by the assessee EOUs at Bangalore and Noida during AY 2010-11 is eligible for deduction u/s 10B of the Act. Accordingly, we direct the Ld. AO to recompute the deduction allowable to the assessee under section 10B in accordance with the applicable provisions contained therein. As regards tool development income and seating facility factual position is not controverted by the Ld. DR. Given the nature of these receipts / income, we tend to agree with the contention of the Ld. AR that these have been earned by the assessee in the process of manufacturing / production of goods at its EOUs. In our view, it thus arises in the ordinary course of the business carried out by the assessee i.e 100% export of goods manufactured by it in its export oriented undertaking at Bangalore, even though not as a direct result of export and is therefore eligible for 100% deduction under section 10B of the Act. Sundries written back represent expenses claimed in the earlier years and credited to the P L account in the relevant AY and thus reversal of the same should be treated as income of the EOU at Bangalore in the relevant AY. In our considered view the claim of the assessee is correct as these amounts represent expenses related to EOU which is credited to P L account and thus becomes part of income of the EOU eligible for deduction under section 10B of the Act. We have also perused various judicial precedents relied upon by the Ld. Representatives of both the parties. In the case of CIT vs. Hewlett Packard Global Soft Ltd. 2017 (11) TMI 205 - KARNATAKA HIGH COURT while deciding on the allowability of deduction under section 10A/10B discarded the reliance placed by the Ld. AO on the decision in the case of Liberty India and Sterling Foods 1999 (4) TMI 1 - SUPREME COURT holding that the analogy of Chapter VI deductions could not be telescoped or imported into section 10A or 10B of the Act. The words derived by an Undertaking as appearing in section 10A or 10B are different from derived from employed in section 80-HH etc. and therefore all profits and gains of the undertaking including any incidental income would be entitled to 100% exemption or deduction under section 10A and 10B. The Hon ble Karnataka High Court in Hewlett Packard Global Soft Ltd. supra has also affirmed the view expressed in the case of Motorola India Electronics (P.) Ltd. 2014 (1) TMI 1235 - KARNATAKA HIGH COURT wherein it was held that entire profits and gains of 100% Export Oriented Undertaking including any incidental income would be entitled to 100% exemption or deduction under sections 10A/10B and as such the entire profits derived from the business of the undertaking should be taken into consideration, while computing the eligible deduction under section 10B/10A of the Act, by applying the provisions of section 10B(4). Thus, we hold that the miscellaneous/other income in the form of scrap sales, tool development income, seating facility and sundries written back are eligible for claim of exemption under section 10B of the Act and direct the Ld. AO to re-compute the deduction in terms of section 10B(4) of the Act. Adjustment made to the international transaction of receipt of interest on loans - HELD THAT - Respectfully following the decision of the Tribunal s order for AY 2007- 08 and 2008-09 and the order giving effect to the Tribunal s order passed by the Ld. AO thereof, we are of the view that the interest rates arrived at by the assessee using EURIBOR is at arm s length and no further TP adjustment is required in respect of the impugned international transaction. Accordingly, the addition made by the Ld. AO pertaining to receipt of interest on the loans given to its AE is hereby deleted. The Ld. AO is directed to amend the assessment accordingly. Ground No. 3 to 3.7 are allowed.
Issues Involved:
1. Validity of the Assessment Order. 2. Reduction of Deduction u/s 10B. 3. Adjustment to Income for International Transactions. 4. Levy of Interest u/s 234B, 234C, and 234D. 5. Initiation of Penalty Proceedings u/s 271(1)(c). Summary: 1. Validity of the Assessment Order: The assessee argued that the Assessment Order passed pursuant to the directions of the DRP was vitiated as the DRP did not consider the submissions made by the appellant and confirmed the addition made by the AO/TPO to the appellant's income. 2. Reduction of Deduction u/s 10B: The AO reduced the eligible deduction u/s 10B by Rs. 56,13,895 based on the assumption that miscellaneous income/other income, including scrap sales, tool development income, seating facility, and sundry write-back, were not "derived from" the eligible undertakings. The Tribunal held that: - Scrap sales should be included in the total turnover for deduction purposes as per the Tribunal's earlier decision in the assessee's case for AY 2004-05. - Tool development income and seating facility income were derived from the ordinary course of business and were eligible for 100% deduction u/s 10B. - Sundries written back, representing expenses claimed in earlier years, should be treated as income of the EOU and eligible for deduction u/s 10B. 3. Adjustment to Income for International Transactions: The TPO made an adjustment of Rs. 8,09,277 to the income by substituting the arm's length rate of six months Euribor/LIBOR+205 bps with SBI prime lending rate + 300 basis points, resulting in an arm's length interest rate of 14.88%. The Tribunal observed that: - The issue was previously decided in favor of the assessee for AY 2007-08 and 2008-09, where the Tribunal set aside the matter to the TPO, who later accepted the assessee's benchmarking analysis. - The interest rates arrived at by the assessee using EURIBOR were at arm's length, and no further TP adjustment was required. The addition of Rs. 8,09,277 was deleted. 4. Levy of Interest u/s 234B, 234C, and 234D: The Tribunal noted that the levy of interest u/s 234B, 234C, and 234D was consequential in nature. 5. Initiation of Penalty Proceedings u/s 271(1)(c): The Tribunal found the initiation of penalty proceedings u/s 271(1)(c) to be premature and did not adjudicate on this ground. Conclusion: The appeal of the assessee was allowed for statistical purposes, with directions to the AO to recompute the deductions and make necessary amendments to the assessment.
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