2020 (12) TMI 924 - AT - Income Tax

Eligibility for deduction u/s 10A - HELD THAT - In principle, the deduction u/s 10A is allowable because this is offered by the assessee itself as Voluntary T P Adjustment and therefore, this issue in principle is covered in favour of the assessee by the tribunal order cited by the learned AR of the assessee as noted above. But on this factual aspect about Prior Period Expenses for F. Y. 2008 09 reported by the assessee in Schedule 8 of the Audited Accounts for F. Y. 2009 10 this is not clear as to whether these expenses or any part of these expenses is related to Prior Period income of ₹ 5,42,11,607/- reported in same Schedule 8 of the Audited Accounts for F. Y. 2009 10 because if the same is related then the actual income on this account will be less and then only actual such income can be considered for deduction u/s 10A. On this aspect, neither any detail is made available before us nor there is any finding of AO or CIT (A). Hence, we restore this matter to AO for fresh decision.

Summary

Issues:
Disallowance of deduction u/s 10A for voluntary T P adjustment in revised return.

Analysis:
The appeal concerns the disallowance of the claim for deduction u/s 10A made by the assessee in the revised return of income. The primary grievance is related to the disallowance of an amount accounted for as prior period income in the relevant assessment year. The contention revolves around the voluntary Transfer Pricing (T P) Adjustment made by the assessee, reducing the total prior period income. The assessee argued that this amount should be eligible for deduction u/s 10A. However, during the hearing, questions arose regarding the relationship between the prior period income claimed for deduction and the prior period expenses reported by the assessee. The tribunal noted discrepancies in the reported figures and the lack of clarity on whether the expenses were related to the income claimed for deduction. The tribunal acknowledged the principle that the deduction u/s 10A should be allowable for voluntary T P adjustments, citing a previous tribunal order in favor of the assessee. However, due to the factual ambiguity regarding the relationship between the expenses and the income, the tribunal decided to remand the matter back to the Assessing Officer (AO) for further examination.

The tribunal emphasized the need for the AO to determine if any part of the reported prior period expenses was related to the prior period income claimed for deduction. If such a relationship exists, the actual income eligible for deduction u/s 10A should be recalculated after deducting the related expenses. This adjustment would prevent double benefit by disallowing the expenses in the subsequent assessment year. On the other hand, if no connection is found between the expenses and the income, the entire prior period income should be considered for deduction u/s 10A. The tribunal directed the AO to provide the assessee with a fair opportunity to present relevant material on this factual aspect before making a decision. Ultimately, the appeal was allowed for statistical purposes, with the matter remanded back to the AO for fresh consideration based on the clarification provided.