2016 (2) TMI 293 - AT - Income Tax

Adjustment of total turnover while allowing deduction u/s. 10B - Held that - In light of the decisions in CIT v. Tata Elxsi Ltd., 2011 (8) TMI 782 - KARNATAKA HIGH COURT and CIT v. Samsung Electronics Co. Ltd. (2011 (11) TMI 429 - KARNATAKA HIGH COURT) it is very clear that, the deduction claimed u/s 10B should not be restricted by not reducing the freight and forwarding and insurance from total turnover. Hence we direct the AO to follow the decision of the Karnataka High Court in Tata Elxsi Ltd. supra and reduce the freight & forwarding and insurance expenses from total turnover. Set-off of losses other than EOU against profits of EOU - Held that - Following the decision of the Hon ble jurisdictional High Court in the case of CIT v. Yokogawa India Ltd., 2011 (8) TMI 845 - Karnataka High Court , the addition made by the AO in this regard and upheld by the DRP is deleted as setting off business loss and unabsorbed depreciation of other undertakings against profits of the EOU undertakings for the purpose of determining the deduction u/s. 10B of the I.T. Act is erroneous. Transfer Pricing adjustment in respect of interest on loan given to subsidiary company - Held that - Respectfully following the decision of this Tribunal in assessee s own case for the AY 2008-09, interest charged on loan given to Australian subsidiary is deleted. Relief u/s. 91 - Credit for Dividend Distribution Tax - rectification - Held that - We direct the Assessing Officer to consider this issue and pass appropriate orders on the rectification application filed by the assessee before him

Summary

Issues Involved:
1. Adjustment of total turnover while allowing deduction u/s. 10B.
2. Set-off of losses other than EOU against profits of EOU.
3. Transfer Pricing adjustment in respect of interest on loan given to subsidiary company.
4. Relief u/s. 91 of the Act.
5. Credit for Dividend Distribution Tax.

Detailed Analysis:

1. Adjustment of Total Turnover While Allowing Deduction u/s. 10B:
The assessee claimed exemption under section 10B for the profits earned from its 100% EOU unit at Nelamangala. The Assessing Officer (AO) reduced freight, forwarding expenses, and insurance expenses from the export turnover but did not make a corresponding reduction from the total turnover, reducing the deduction under section 10B. The assessee argued that the computation should be consistent with the decisions of the Karnataka High Court in CIT v. Tata Elxsi Ltd. and CIT v. Samsung Electronics Co. Ltd., which mandate uniformity in the components of both the numerator and the denominator of the formula. The Tribunal directed the AO to follow the Karnataka High Court's decision and reduce the expenses from the total turnover.

2. Set-off of Losses Other Than EOU Against Profits of EOU:
The AO reduced the loss incurred by non-EOU units from the profits of the EOU, restricting the deduction under section 10B and denying the carry-forward loss. The assessee contended that the deduction under section 10B is specific to the undertaking and should not be netted off against the losses of other undertakings. Reliance was placed on CIT vs. Yokogawa India Limited, which held that profits eligible for relief under section 10B should be excluded before applying set-off provisions. The Tribunal agreed with the assessee, noting that the AO's reliance on Himatsingke Seide Ltd. was misplaced, as it dealt with carried forward depreciation of the same EOU unit. The Tribunal deleted the addition made by the AO.

3. Transfer Pricing Adjustment in Respect of Interest on Loan Given to Subsidiary Company:
The AO did not accept the internal CUP method used by the assessee to determine the arm's length price (ALP) for interest on a loan given to its subsidiary, instead using the rate of interest prevailing in India for rupee borrowings. The assessee argued that the loan was given in foreign currency, and the interest rate should be compared to foreign currency borrowings. The Tribunal, following its decision in the assessee's own case for AY 2008-09, held that the interest rate charged, which was within +/- 5% of LIBOR, was at arm's length and deleted the addition.

4. Relief u/s. 91 of the Act:
The assessee received dividend income from a wholly-owned subsidiary in Japan and claimed relief under section 91 for the tax deducted at source by the payee. The AO did not give credit for this relief. The Tribunal directed the AO to consider the issue and pass appropriate orders on the rectification application filed by the assessee.

5. Credit for Dividend Distribution Tax:
The assessee paid Dividend Distribution Tax (DDT) but the AO failed to give credit for the same. The Tribunal directed the AO to consider this issue and pass appropriate orders on the rectification application filed by the assessee.

Conclusion:
The appeal by the assessee was partly allowed for statistical purposes, with directions to the AO to rectify the errors and reconsider the issues as per the Tribunal's findings.