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2015 (4) TMI 716 - AT - Income TaxValidity of draft assessment order passed u/s 143(3) r.w.s. 144C - contention of the assessee that since there is no transfer pricing adjustment proposed by the Transfer Pricing Officer in his order, the Assessing Officer cannot pass draft assessment order u/s 143(3) r.w.s. 144C - Held that - This issue is covered against the assessee by the decision of Visual Graphics Computing Services (India) P. Ltd. v. Asst. CIT 2012 (5) TMI 147 - ITAT CHENNAI . Respectfully following the above order we dismiss grounds of the assessee challenging the validity of draft assessment order under section 143(3) read with section 144C of the Act. - Decided against assessee. Adjusting/restricting the claim of deduction u/s 10B on the basis of the arm's length price determined by the TPO - Held that - Ongoing through the order of the co-ordinate Bench of this Tribunal in the case of Visual Graphics Computing Services (India) P. Ltd. v. Asst. CIT supra we find that the issue is squarely covered in favour of the assessee. The coordinate Bench of this Tribunal held that it is not permissible for the Assessing Officer to work out deduction under section 10A on the basis of arm's length price profit generated out of the order of the Transfer Pricing Officer. - Decided in favour of the assessee Foreign exchange gain - whether it should be taken as part of export turnover or not? - Held that - As decided in the case of CIT v. Pentasoft Technologies Ltd. 2010 (7) TMI 75 - MADRAS HIGH COURT gains due to fluctuation in the foreign exchange is directly related to export sales of the assessee and therefore, it cannot be treated as other than part of profit from export. Similar view has been expressed by the hon'ble Bombay High Court in the case of CIT v. Gem Plus Jewellery India P. Ltd. 2010 (6) TMI 65 - BOMBAY HIGH COURT . Here in the case of the assessee the gain in foreign exchange is also in connection with the export sales, respectfully following the above decision of the hon'ble jurisdictional High Court, we hold that the foreign exchange gain has to be considered as part of the export turnover for the purpose of computing deduction under section 10B of the Act and at the same time following the same analogy, foreign exchange loss cannot be considered as part of the export turnover for the purpose of section 10B of the Act. - Decided in favour of assessee. Foreign exchange loss having excluded from export turnover it has to be excluded from the total turnover also - Held that - As applying the Special Bench decision of this Tribunal in the case of Sak Soft Ltd. 2009 (3) TMI 243 - ITAT MADRAS-D we are of the view that the ratio of the Special Bench decision has no application in respect of losses arising due to foreign exchange. The ratio of the said decision can be applied only in case where certain expenditures are incurred in foreign currency/Indian rupee and not for losses due to exchange fluctuation.- Decided against assessee Exclusion of unrealised export proceeds from the export turnover - Held that - Counsel for the assessee submits that the Assessing Officer excluded this amount from the export turnover ignoring the fact that the assessee has already excluded such unrealised export proceeds from the export turnover while computing deduction allowable under section 10B of the Act. We restore this issue back to the file of the Assessing Officer to examine whether the assessee has reduced such unrealised export proceeds of ₹ 17,21,397 from the export turnover or not as the contention of the assessee was that the same were already excluded by the assessee himself. - Decided in favour of assessee for statistical purposes. Non-consideration of correct quantum of profits and gains of business for the purpose of computing deduction under section 10B - Held that - On reading of the provisions of section 10B of the Act, prima facie, we feel that the deduction is allowable on the profits and gains of the undertaking and not on the profits as per the profit and loss account, as rightly contended by counsel for the assessee. Therefore, we remit this issue back to the file of the Assessing Officer to examine this issue and decide in accordance with law - Decided in favour of assessee for statistical purposes.
Issues Involved:
1. Validity of draft assessment order under section 143(3) read with section 144C. 2. Restriction of deduction under section 10B based on arm's length price. 3. Exclusion of foreign exchange loss and gain from export turnover. 4. Exclusion of unrealized export proceeds from export turnover. 5. Correct quantum of "profits and gains of business" for deduction under section 10B. Issue-wise Detailed Analysis: 1. Validity of Draft Assessment Order: The first issue (grounds 2.1 to 2.4) concerns the validity of the draft assessment order passed under section 143(3) read with section 144C. The assessee contended that since no transfer pricing adjustment was proposed by the Transfer Pricing Officer (TPO), the Assessing Officer (AO) could not pass a draft assessment order. However, this issue was dismissed as it was covered against the assessee by the Tribunal's decision in Visual Graphics Computing Services (India) P. Ltd. v. Asst. CIT. 2. Restriction of Deduction under Section 10B Based on Arm's Length Price: Grounds 3.1 to 3.2 and 3.3.1 to 3.3.9 objected to the restriction of deduction under section 10B based on the arm's length price determined by the TPO. The assessee argued that the arm's length price cannot be a basis to invoke section 10B(7) read with section 80-IA(10). The Tribunal agreed, citing previous decisions, and held that the AO erred in reducing the eligible profits based on the arm's length price without establishing that the assessee had earned more than ordinary profits. The Tribunal followed the decision in Visual Graphics Computing Services (India) P. Ltd., allowing the assessee's grounds on this issue. 3. Exclusion of Foreign Exchange Loss and Gain from Export Turnover: Grounds 3.4.1 to 3.4.3 and 3.5.1 to 3.5.5 addressed the exclusion of foreign exchange loss and gain from export turnover. The AO excluded foreign exchange loss from export turnover but did not reduce it from total turnover. The Tribunal held that foreign exchange gain should be considered part of export turnover, following the jurisdictional High Court's decision in CIT v. Pentasoft Technologies Ltd. However, the Tribunal dismissed the grounds related to excluding foreign exchange loss from total turnover, stating that the Special Bench decision in Sak Soft Ltd. does not apply to losses due to exchange fluctuation. 4. Exclusion of Unrealized Export Proceeds from Export Turnover: Grounds 3.6.1 to 3.6.4 concerned the exclusion of unrealized export proceeds from export turnover. The assessee claimed that the AO excluded this amount without considering that it had already been excluded by the assessee. The Tribunal remitted the issue back to the AO to verify whether the unrealized export proceeds were already excluded by the assessee. 5. Correct Quantum of "Profits and Gains of Business" for Deduction under Section 10B: Ground 3.7.1 raised the issue of the correct quantum of "profits and gains of business" for computing deduction under section 10B. The assessee argued that the AO erroneously adopted the book profit instead of the "profits and gains of business" as required. The Tribunal agreed and remitted the issue back to the AO to rework the deduction based on the "profits and gains of business." Conclusion: The appeal was partly allowed for statistical purposes, with several issues remitted back to the AO for further examination and re-computation. The Tribunal's decisions were based on established precedents and interpretations of relevant sections of the Income-tax Act.
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