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2022 (1) TMI 120 - AT - Income TaxDisallowance of deduction u/s 10A - profits earned by the eligible units in view of the erstwhile provisions of Section 10A(9) - HELD THAT - In view of the above, we hold that assessee s claim of deduction u/s.10A of the Act would not be hit by the provisions of Section 10A(9) of the Act. We find that in any case, the provisions of Section 10A(9) of the Act is not there for A.Y.2006-07 as it had already been omitted from 01/04/2004. Hence, for the year under consideration, the assessee would be governed by the provisions of Section 10A(1) of the Act. Accordingly, the ground No.1 raised by the assessee is allowed. Disallowance of depreciation on intangibles representing acquisition of business contracts - HELD THAT - As decided in own case 2019 (1) TMI 1128 - ITAT MUMBAI assessee's claim of depreciation in respect of intangible asset became final. In any case of the matter, there is no dispute that by acquiring M/s. Town and Country Assistance Ltd. the assessee has also acquired contractual rights which, no doubt, is a valuable commercial right. Therefore, it comes within the meaning of intangible asset as per section 32(1)(ii) r/w Explanation 3(b) of the Act. Hence, depreciation claimed by the assessee is allowable. The decisions relied upon by the learned Sr. Counsel for the assessee also supports our aforesaid view. Accordingly, we uphold the decision of the learned Commissioner (Appeals) by dismissing the grounds raised. Adhoc disallowance of professional expenses, electricity charges and miscellaneous expenses - HELD THAT - We find that this issue is covered by the Circular issued by the CBDT vide Circular No.37/2016 dated 02/11/2016 wherein it has been clarified that disallowance of certain expenses made on account of specific expenditure claimed in respect of eligible unit would only go to enhance the claim of deduction u/s.80IA of the Act. The said analogy would be very much applicable for the claim of deduction u/s.10A of the Act also. It is not in dispute that the aforesaid administrative expenses were incurred by the assessee company only in respect of its eligible units. Hence, there would be no purpose that would be served by making disallowance of certain expenses for want of evidences which were incurred in respect of eligible units. In view of the above, we direct the ld. AO to delete the disallowance of administrative expenses as it would be purely revenue neutral. TP adjustment DRP by computing arm s length price for interest on outstanding receivables - HELD THAT - As decided in own case 2019 (1) TMI 1128 - ITAT MUMBAI Tribunal while deciding the issue in the order referred to above, has held that the cost incurred by the assessee is purely in the nature of reimbursement without any mark-up. Hence, cannot be treated as part of operating cost. Thus, the Tribunal ultimately upheld the decision of the learned Commissioner (Appeals) on the issue. There being no difference in fact brought to our notice by the learned Departmental Representative in the impugned assessment year, respectfully following the decision of the Tribunal in assessee's own case as referred to above, we uphold the decision of the learned Commissioner (Appeals) on the issue. - Decided in favour of assessee. Disallowance of deduction u/s.10A of the Act in respect of profits earned by the eligible units in view of the erstwhile provisions of Section 10A(9) - HELD THAT - As decided in own case 2016 (3) TMI 24 - ITAT MUMBAI we hold that assessee s claim of deduction u/s.10A of the Act would not be hit by the provisions of Section 10A(9) of the Act. We find that in any case, the provisions of Section 10A(9) of the Act is not there for A.Y.2006-07 as it had already been omitted from 01/04/2004. Hence, for the year under consideration, the assessee would be governed by the provisions of Section 10A(1) of the Act. Accordingly, the ground raised by the assessee is allowed. TP Adjustment made by the ld. TPO and upheld by the ld. DRP by computing arm s length price for interest on outstanding receivables - HELD THAT - It is not in dispute that imputing interest cost on outstanding receivables would be construed as an international transaction within the meaning of Section 92B of the Act warranting benchmarking of the same. It is not in dispute that assessee has been making payment of marketing support services to its AEs with enormous delay. It is not in dispute that assessee has been receiving its dues from its two AEs with considerable delay. Hence, it would be just and fair to impute notional interest cost on net outstanding receivables (i.e. trade outstanding receivables from AEs Trade outstanding payables to AEs) and impute interest cost thereon. The interest rate to be adopted thereon would be only LIBOR without any basis points. Hence, the ld. TPO is directed to re-compute the notional interest on net outstanding receivables by applying LIBOR rates and make adjustment to ALP thereon accordingly. Hence, the ground No.12 raised by the assessee is allowed for statistical purposes.
Issues Involved:
1. Disallowance of deduction under Section 10A. 2. Disallowance of depreciation on intangible assets. 3. Ad hoc disallowance of professional expenses, electricity charges, and miscellaneous expenses. 4. Reference to Transfer Pricing Officer (TPO) and transfer pricing adjustments. Detailed Analysis: 1. Disallowance of Deduction under Section 10A: The primary issue was whether the deduction under Section 10A of the Income Tax Act, 1961, was correctly disallowed by the Assessing Officer (AO) and upheld by the Dispute Resolution Panel (DRP). The Tribunal referred to its earlier decision for the A.Y. 2003-04, where it was held that the omission of sub-section (9) of Section 10A by the Finance Act, 2003, should be read as if it never existed. This interpretation was supported by the legislative intent and judicial precedents, including the Karnataka High Court's decision in the case of GE Thermometrics India Pvt. Ltd. Consequently, the Tribunal directed the AO to allow the deduction under Section 10A for the A.Y. 2006-07, as the provisions of Section 10A(9) were not applicable for that year. 2. Disallowance of Depreciation on Intangible Assets: The issue involved the disallowance of depreciation on intangible assets representing the acquisition of business contracts. The Tribunal referred to its previous decisions for A.Y. 2005-06, 2007-08, and 2009-10, where it was consistently held that the acquisition of customer contracts constitutes a "commercial right" and falls within the definition of intangible assets under Section 32(1)(ii) of the Act. The Tribunal upheld the assessee's claim for depreciation on such intangible assets. 3. Ad Hoc Disallowance of Professional Expenses, Electricity Charges, and Miscellaneous Expenses: The AO made an ad hoc disallowance of ?6,57,078 due to the assessee's inability to furnish evidence for certain expenses. The Tribunal referred to its earlier decision for A.Y. 2005-06, where a similar disallowance was restricted to 10% of the expenditure. However, the Tribunal noted that any disallowance of these expenses would be revenue-neutral as they pertained to eligible units under Section 10A. Consequently, the Tribunal directed the AO to delete the disallowance, citing the CBDT Circular No. 37/2016, which clarified that disallowances related to eligible units would enhance the claim under Section 10A. 4. Reference to TPO and Transfer Pricing Adjustments: The Tribunal addressed multiple transfer pricing issues, including the benchmarking of international transactions, the selection of the tested party, and the aggregation of transactions. The Tribunal referred to its previous decisions and the Advance Pricing Agreement (APA) between the assessee and the CBDT, which covered most of the disputed transactions. The Tribunal upheld the APA's terms and the selection of the tested party as the associated enterprises (AEs). For the notional interest on outstanding receivables, the Tribunal directed the TPO to re-compute the interest on net outstanding receivables (receivables minus payables) using the LIBOR rate without additional basis points. This adjustment was to be made in line with the Tribunal's earlier decisions and the facts of the case. Conclusion: The Tribunal allowed the appeal for statistical purposes, directing the AO to grant the deduction under Section 10A, allow depreciation on intangible assets, delete the ad hoc disallowance of expenses, and re-compute the transfer pricing adjustment for notional interest on outstanding receivables.
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