2025 (4) TMI 848 - AT - Income Tax

TP Adjustment - selection of MAM - TPO has accepted the TNMM method followed by the assessee in other 9 kinds of International transactions - HELD THAT - In the present facts and circumstances of the case and relying on the decision of this Tribunal in assessee s own case for the A.Y. 2010-11 2022 (9) TMI 242 - ITAT CHENNAI we are of the considered view that the lower authorities have erred in rejecting TNMM method as MAM relating to the support services payment made by the assessee to AE and hence we remit this issue to the file of the AO for fresh consideration. Disallowance of deduction u/s. 10AA - nature of services provided by the assessee from its SEZ unit - HELD THAT - Services provided to the foreign customers located outside India in the nature of warehousing logistics and handling services shall squarely fall within the ambit of services as defined under section 2(z) of the SEZ Act read with Rule76 of the SEZ Rules. We note that the assessment for the AY 2010-11 was concluded by allowing the deduction u/s. 10AA of the Act by disputing only the quantum of deduction. Further pursuant to the assessment order passed for the AY 2012-13 the eligibility to claim deduction under section 10AA of the Act for the AY 2010-11 was directed to be re-examined in the order passed under section 263 of the Act. Thereafter in the assessment order passed under section 143(3) r.w.s 263 of the Act the AO only disputed the quantum of deduction and the eligibility to claim deduction under section 10AA of the Act was accepted by the AO. Further during the course of assessment proceedings for the AY 2017-18 the AO had sought specifically for details pertaining to the deduction claimed under section 10AA of the Act inter-alia including eligibility of the claim and passed an order accepting the claim of deduction u/s. 10AA of the Act without recording any adverse findings. In light of the above discussions the deduction claimed by the assessee u/s. 10AA of the Act is allowable and hence we are of the opinion that the AO and that of the ld.CIT(A) have erred in disallowing the deduction. Therefore direct the AO to delete the disallowances made u/s. 10AA of the Act by allowing the grounds raised by the assessee in this regard.

2022 (9) TMI 242 - AT

ISSUES PRESENTED and CONSIDERED

The core legal issues considered in this judgment are:

Whether the Transfer Pricing adjustment made by the TPO and upheld by the CIT(A) was justified, specifically concerning the rejection of the Transactional Net Margin Method (TNMM) in favor of the Comparable Uncontrolled Price (CUP) method.
Whether the disallowance of the deduction under Section 10AA of the Income Tax Act, 1961, was appropriate, given the nature of services provided by the assessee from its SEZ unit.
The initiation of penalty proceedings and the potential for consequential relief.

ISSUE-WISE DETAILED ANALYSIS

Transfer Pricing Adjustment

Relevant legal framework and precedents: The legal framework involves the application of the Income Tax Act, 1961, particularly sections related to Transfer Pricing (Section 92C) and the methodologies prescribed therein. The Tribunal referenced its prior decision in the assessee's own case for AY 2010-11, where TNMM was accepted.
Court's interpretation and reasoning: The Tribunal noted that the TPO rejected the TNMM without providing comparable data to justify the CUP method. The Tribunal emphasized the principle of consistency, as TNMM was previously accepted for similar transactions.
Key evidence and findings: The Tribunal observed that the TPO accepted TNMM for other international transactions of the assessee, indicating inconsistency in the approach.
Application of law to facts: The Tribunal applied the principle of consistency and the lack of comparable data for CUP to conclude that TNMM should be the appropriate method.
Treatment of competing arguments: The Tribunal considered the DR's support for the TPO's order but found the lack of comparable data and inconsistency in methodology application compelling.
Conclusions: The Tribunal remitted the issue back to the AO for fresh consideration, directing the AO to verify the evidence and decide afresh.

Disallowance of Deduction under Section 10AA

Relevant legal framework and precedents: The legal framework involves Section 10AA of the Income Tax Act, 1961, and the definition of 'export' under the SEZ Act, 2005. The Tribunal referenced judicial precedents, including the Kolkata ITAT decision in M/s. Midas DFS (P) Ltd. vs. ITO.
Court's interpretation and reasoning: The Tribunal interpreted 'export' under the SEZ Act as including services provided from SEZ to foreign customers, aligning with the broader definition under SEZ Act rather than the narrower Income Tax Act definition.
Key evidence and findings: The Tribunal noted that the assessee provided services from its SEZ unit to foreign customers, invoicing in foreign currency, and these services should qualify as exports.
Application of law to facts: The Tribunal applied the SEZ Act's definition of 'export' to the assessee's activities, finding them consistent with the requirements for Section 10AA deduction.
Treatment of competing arguments: The Tribunal considered the DR's argument that the SEZ Act does not override the Income Tax Act but found the SEZ Act's overriding provision (Section 51) applicable.
Conclusions: The Tribunal concluded that the deduction under Section 10AA was allowable and directed the AO to delete the disallowance.

Initiation of Penalty Proceedings and Consequential Relief

The Tribunal did not provide a detailed analysis of the penalty proceedings, as the primary focus was on the substantive issues of Transfer Pricing adjustment and Section 10AA deduction.
The Tribunal granted consequential relief based on the findings on the primary issues.

SIGNIFICANT HOLDINGS

Transfer Pricing Methodology: The Tribunal held that the TNMM should be used as the most appropriate method for determining the arm's length price for the assessee's transactions, given the lack of comparable data for the CUP method and the principle of consistency.
Section 10AA Deduction: The Tribunal established that services provided from an SEZ unit to foreign customers qualify as 'export' under the SEZ Act, thus entitling the assessee to the deduction under Section 10AA of the Income Tax Act.
Overriding Effect of SEZ Act: The Tribunal emphasized the overriding effect of the SEZ Act over the Income Tax Act in cases of inconsistency, particularly concerning the definition of 'export' for SEZ units.
Final Determination: The Tribunal allowed the appeal partly for statistical purposes, remitting the Transfer Pricing issue to the AO and directing the deletion of the Section 10AA disallowance.