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2013 (11) TMI 901 - AT - Income TaxTransfer pricing adjustments - selection of comparable - ALP Held that - matter remanded back to AO to again refer the matter to the TPO for determining the arm s length price afresh in the light of his order for AY 2008-09 after verifying whether the assessee was carrying on same functions in the year under consideration as in AY 2008-09. In case he finds that there is no change in functional profile then the assesse company should be treated as involved in the business of engineering, design and drawing and accordingly, arm s length price is to be determined. Regarding deduction u/s 80HHE - Held that - The proviso to sec. 92C(4) prohibits any deduction under Chapter VI-A to be allowed on the enhancement made as per the TPO s order. Therefore, the only logical conclusion that can be drawn is that no effect is to be given to the addition made by the Assessing Officer as per the TPO s order while computing deduction under Chapter VI-A. The Assessing Officer s view cannot be accepted that by the enhancement of income as per the TPO s order, only the total turnover would be increased and not the export turnover or the total income - If at all the effect is to be given to the enhancement of income made by the TPO, it will have the impact of increasing the assessee s export turnover, then total turnover and finally, the total income. If all three are increased, obviously, the deduction claimed by the assessee under Chapter VI-A would increase Matter remanded to the file of A.O. to decide the issue in the light of the above observation. Interest on delayed payment to be treated as income derived from activities contemplated u/s 80HHE - Whether in view of Explanation (d) to sec. 80HHE, which defines the profits of the business , 90% of the impugned amount is to be reduced or not as it is in the form of interest on delayed payment Held that - As per Govinda Chaudhary & Sons 1992 (4) TMI 8 - SUPREME Court , wherein it was held that interest awarded to assessee by arbitrator in respect of a contract was assessable as business income - In the present case also there is no dispute that the impugned amount was business income. However, for the purposes of claiming deduction u/s 80HHE, the profits of the business have been specifically defined in Explanation (d) to sec. 80HHE Relying upon the judgment in the case of Liberty India vs. CIT, 2009 (8) TMI 63 - SUPREME COURT , it has been held that interest on delayed payment cannot be treated as income derived from activities contemplated u/s 80HHE. Amount written back u/s 41(1) to be included in total turnover for computation of deduction u/s 80HHE Held that - There was no effect on turnover of the respective years because these amounts were claimed only as expenditure and did not affect the turnover of the respective year. Therefore, in the current assessment year when these amounts are written back then they cannot form part of total turnover Decided against the Assessee.
Issues Involved:
1. Deletion of addition on account of Arm's Length Price (ALP). 2. Deletion of addition for computing deduction u/s 80HHE. 3. Deletion of addition of interest from bank. 4. Deletion of addition of interest from customers. 5. Deletion of addition of sale of scrap. 6. Deletion of addition of liabilities written back. 7. Deletion of addition of reimbursement of expenses. Issue-wise Detailed Analysis: 1. Deletion of Addition on Account of Arm's Length Price (ALP): The assessee had entered into international transactions, including services rendered and reimbursement of expenses. The Transfer Pricing Officer (TPO) used the Transactional Net Margin Method (TNMM) to determine the ALP, resulting in an addition of Rs. 8,08,19,778. The CIT(A) accepted the assessee's contention that it was engaged in engineering, design, and drawing services, not ITES. The Tribunal set aside the orders of the lower authorities and directed the AO/TPO to re-adjudicate the issue in light of the Tribunal's order for AY 2008-09, treating the assessee as involved in engineering, design, and drawing if the functional profile remained unchanged. 2. Deletion of Addition for Computing Deduction u/s 80HHE: The AO denied the deduction u/s 80HHE for the addition made by the TPO. The CIT(A) deleted the addition, stating it was consequential to the deletion of the transfer pricing addition and against the first proviso to sec. 92C(4). The Tribunal restored the issue to the AO to decide afresh in light of the Tribunal's observations. 3. Deletion of Addition of Interest from Bank: The AO excluded interest on FDR from profits and gains of business, treating it as income from other sources, thus denying deduction u/s 80HHE. The CIT(A) allowed the assessee's appeal, but the Tribunal set aside the CIT(A)'s order, agreeing with the AO that the interest on FDR was taxable as income from other sources and not eligible for deduction u/s 80HHE. 4. Deletion of Addition of Interest from Customers: The AO reduced 90% of interest from customers to arrive at 'profit of business' as per Explanation (d) to sec. 80HHE. The CIT(A) accepted the assessee's contention that the interest was a trading receipt with a direct nexus to the business. The Tribunal, however, held that interest on delayed payment could not be treated as income derived from export activities under sec. 80HHE, following the Supreme Court's decision in Liberty India vs. CIT. 5. Deletion of Addition of Sale of Scrap: The AO included the sale of PC/server scrap in the total turnover for computing deduction u/s 80HHE. The CIT(A) excluded it, stating it had no profit element. The Tribunal upheld the CIT(A)'s order, agreeing that the receipts from the sale of scrap could not form part of the total turnover for computing deduction u/s 80HHE. 6. Deletion of Addition of Liabilities Written Back: The AO included liabilities written back in the total turnover for computing deduction u/s 80HHE. The CIT(A) excluded it, stating it had no link with the turnover of the assessee for the year under consideration. The Tribunal upheld the CIT(A)'s order, agreeing that the written-back liabilities could not form part of the total turnover as they were claimed as revenue expenditure in earlier years. 7. Deletion of Addition of Reimbursement of Expenses: The AO included reimbursements in the total turnover but not in the export turnover. The CIT(A) excluded it, following the Tribunal's decision for earlier years. The Tribunal upheld the CIT(A)'s order, agreeing that reimbursements without profit elements should not be included in the total turnover for computing deduction u/s 80HHE. Conclusion: The Tribunal partly allowed the Department's appeal and the assessee's cross-objection for statistical purposes, directing re-adjudication on specific issues. The orders of the lower authorities were set aside on certain points, and the matters were restored to the AO/TPO for fresh determination in light of the Tribunal's observations and previous orders.
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