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TMI Blog2012 (8) TMI 736X X X X Extracts X X X X X X X X Extracts X X X X ..... - Held that:- Issue is covered in favour of the assessee in assessee’s own case for AY 2002-03 and 2003-04, wherein it was held that " a continuing debit balance, is not an international transaction per se, but is a result of international transaction". Residuary clause in the definition of ‘international transaction’ does not apply to a continuing debit balance, for the elementary reason that there is nothing on record to show that as a result of not realizing the debts from associated enterprises, there has been any impact on profits, incomes, losses or assets of the assessee - Decided in favor of assessee Deduction u/s 80HHE - exclusion of turnover of overseas branches from export turnover and not from the total turnover - Held that:- If turnover of overseas branches is excluded from export turnover, same needs to be reduced from total turnover - Decided in favor of assessee Computation of interest u/s 234B without considering credit available under DTAA for taxes paid in USA - Held that:- Issue has been decided in favor of assessee in earlier year wherein it was held that interest u/s 234B has to be computed after considering tax credit in respect of the taxes paid abroa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f its order by holding as follows: 27. We have carefully considered the rival submissions and also perused the decision of the Chennai Bench of the Tribunal in the case of Servion Global Solutions Ltd. (supra) relied upon by the assessee before us. In the case of Servion Global Solutions Ltd. (supra), the Tribunal has noted the definition of the expressions export turnover and total turnover as contained in section 80HHE of the Act. Further the Tribunal referred to the parity of reasoning laid down by the Hon ble Supreme Court in the case of CIT v. v Laxmi Works 290 ITR 667 (SC) and opined that for the purposes of section 10A of the Act, the expenditure incurred in foreign currency was liable to be excluded from the figure of export turnover as well as from the figure of total turnover although the exclusion from the total turnover was not specifically contained in section 10A of the Act. In coming to such conclusion, it took into consideration the definitions of export turnover and total turnover contained in section 80HHE and explained that the same provided that what is excluded from the export turnover is also liable to be excluded from the total turnover. The sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in holding that in computing the assessee s interest liability under section 234B of the Income-tax Act, 1961, the tax credit in respect of the taxes paid abroad has to be taken into consideration. The Hon ble High Court held that considering the fact that law has been amended to the effect that Explanation (1) to section 234B by the Finance Act 2006 for removal of the hardship caused to the assessees, and upheld the decision of the Tribunal by holding that the amendment is clarificatory and, therefore, has retrospective application. Respectfully following the judgment of the Hon ble High Court in assessee s own case, we allow the Ground of appeal of the assessee. 8. In the result, assessee s appeal in ITA No 476/PN/08 is partly allowed. 9. We shall now take up cross appeal of the Revenue, vide ITA No 1087/PN/08. 10. The first issue involved in Ground Nos. 1,2, 3 4 is in relation to the allowability of deduction under section 10A of the Act in respect of the three undertakings located at Chinchwad, Akruti and Millennium Business Park. During the course of assessment proceedings, in line with the decisions already taken by the Revenue in the preceding years, the Assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... chwad, Akruti and Millennium Business Park were not new units but only expansion of the existing units. As per the Assessing Officer, Chinchwad Unit was an expansion of Software and Conversion Unit; Akruti unit was considered as expansion of Sigma Unit and Millennium Business Park unit was considered as expansion of TTC unit. The Assessing Officer treated the aforesaid units as mere expansions of the existing units on the basis of the approval letters received from the Software Technology Park of India (in short STPI ). Accordingly, the Assessing Officer noted that the profitability of the aforesaid three units was liable to be combined with that of the corresponding old units. Similarly, the Assessing Officer also concluded that the eligible period for deduction under section 10A of the Act with respect to the said three units would also be reckoned from the first year of the eligibility of the corresponding old units. Aggrieved with the aforesaid stand of the Assessing Officer, assessee carried the matter in appeal before the Commissioner of Income-tax (Appeals). 36. In appeal, assessee contended that the action of the Assessing Officer was bad in law and on facts. It was po ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n in the present case is whether the three units can be said to be formed by splitting up or reconstruction of business already in existence and in this regard respectfully following the ratio decidendi of Hon ble Supreme Court decision in the case of Textile Machinery Corporation Ltd v CIT quoted supra, I am of the considered view that it cannot be said that the three units are formed by the splitting up or reconstruction of business already in existence. It may also be mentioned that the Hon ble Supreme Court held that benefit of section 15C shall be applicable even in case of expansion of business and the relevant portion of decision of Hon ble Supreme Court in the case of Textile Machinery Corporation as contained in page 203 204 in 107 ITR is reproduced as under: There is great scope of expansion of trade industry. The fact that an assessee by establishment of new industrial undertaking expands his existing business, which he certainly does, would not, on that score, deprive him of the benefit u/s 15C. Every new creation in business is some kind of expansion and advancement. The true test is not whether the new industrial undertaking connotes expansion of the existing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Mumbai Bench of the Tribunal in the case of Jayant Agro Organics Ltd Akhandanad, Mumbai v Jt.CIT in ITA No 5439/Mum/01 dated 3.3.2006 wherein similar argument set up by the Revenue was not found cogent to deny the claim of deduction under section 10A of the Act. 39. In the above background, we have carefully considered the rival submissions. Notably, the assessee is a company engaged in the business of development and export of computer software. It has been explained before the lower authorities that the business of the assessee is on an increasing scale. It has expanded its business by establishing new undertakings at different locations. It is explained that the turnover of the company has substantially increased over a period of time with the increase in the number of employees, etc. as also number of locations at which it operates through different units. In this context, the Assessing Officer noted that the assessee had treated three units, namely, Chinchwad Unit, Akruti Unit and Millennium Business Park unit as separate independent units for the purposes of deduction under section 10A of the Act. The Assessing Officer noted that approval received from STPL for Chinc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plea of the Revenue is that in the approvals granted by the STPI, the three units have been referred to as an expansion of the corresponding old units. The moot question is as to whether such a plea of the Revenue is potent to effect the assessee s entitlement for deduction under section 10A of the Act. Similar plea of the Revenue in the context of section 10B of the Act was a subject matter of consideration by our co-ordinate Bench in the case of Jayant Agro Organics Ltd. Akhandanad, (supra) wherein following discussion is worthy of notice: 8. Revenue has vehemently contended that there is no independent Government approval of the new unit and all that the Government has permitted is enhancement in capacity of the existing unit. As evident from the land allotment letter dated 19th July, 1995 issued by the Gujarat Industrial Development Corp. Ltd. it is clear that the land allotted for the new unit is plot #624/1 and 2, and 625 to 627 whereas the existing plant was in plot 3 602. The production of 12 Hydroxy Stearic Acid is authorized by the letter dt 27th January 1995 which states that the Government has taken note of assessee s wish to manufacture Hydroxy Stearic Acid also by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tter, we find no error in the approach of the Commissioner of Income-tax (Appeals) in having allowed the claim of assessee for the benefits under section 10A of the Act on the three units treating the same as independent units. Thus, Ground Nos 1 2 of the appeal of the Revenue are dismissed. 13. There being no change in the facts and circumstances of the case, on the above parity of reasoning, we find no error in the approach of the Commissioner of Income-tax (Appeals) in having allowed the claim of assessee for the benefits under section 10A of the Act on the three units treating the same as independent units. Thus, Ground Nos 1 to 4 of the appeal of the Revenue are dismissed. 14. In Ground No. 5, the dispute relates to the action of the Assessing Officer in adding back losses suffered by the section 10A eligible units while computing income of the assessee under the normal provisions of the Act. Similar issue has been considered by our co-ordinate Bench in assessee s own case for assessment years 2002-03 and 2003-04 (supra), wherein the order of the Commissioner of Income-tax (Appeals) has been set aside with directions to the Assessing Officer to allow set-off of the loss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... siness income. In this view of the matter, we therefore find no reason to uphold the orders of the authorities below on the impugned aspect. As a result, we set aside the order of the Commissioner of Income-tax (Appeals) and direct the Assessing Officer to allow set-off of the losses of the section 10A eligible units against the normal business income of the assessee while computing income as per normal provisions of the Act. As a result thereof, Ground of appeal No .1 raised by the assessee stands allowed. The learned Counsel for the assessee also filed a copy of the judgment of the Hon ble Bombay High Court in assessee s own case (supra) for the assessment year 2001-02 wherein the claim of the assessee relating to the set off of the losses against the other business profits was approved by the Hon ble High Court. In view of this, we accordingly affirm the order of the Commissioner of Income-tax (Appeals) and thus dismiss the Ground of appeal of the Revenue. 15. The next Ground relates to the adjustments made under section 92CA on account of non charging of interest chargeable on excess period of credit allowed to Associated concerns under Transfer Pricing. In this regard, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pensation receivable by the assessee on account of interest chargeable on the amounts due from the Associated Enterprises, beyond the stipulated period of credit. 8. In appeal before the Commissioner of Income-tax (Appeals), assessee, inter alia, challenged the adjustment both on facts and in law. The first plea of the assessee was that providing of favourable credit terms to an Associated Enterprise is outside the purview of adjustment envisaged in Chapter-X since the same could not be construed as an international transaction within the meaning of section 92B(1) of the Act. The said plea has been negated by the Commissioner of Income-tax (Appeals) by relying upon the presence of the words ---- any other transaction having a bearing on the profits, income, losses or assets of such enterprises--- in section 92B(1) of the Act. The second plea set up by the assessee was that the adjustment has been made by calculating a notional interest, which was impermissible in the scheme of Chapter-X of the Act. This aspect has also been negated by the Commissioner of Income-tax (Appeals) on the plea that the concept of real income theory is not applicable in the context of the Scheme of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vices. It is pointed out that the Hon ble Supreme Court in the case of Bombay Steam Navigation Co (1953) P. Ltd v CIT 56 ITR 52 (SC) has appreciated that every indebtedness cannot be construed to have arisen out of a loan transaction and interest is involved only in relation to a debt created out of a loan transaction. Therefore, according to the learned counsel there was no justification for making the impugned adjustment. Factually speaking, it has also been submitted that the profit margin with respect to the international transaction with the Associated Enterprises are much higher than those of the comparable cases and, therefore, if the element of cost relatable to the extended credit period allowed to the Associated Enterprises is considered, even then the profit margins of the assessee remain higher in comparison to other cases and, therefore, no adjustment is called for. For all the above reasons, it has been submitted that the Commissioner of Income-tax (Appeals) ought to have deleted the entire addition instead of allowing a partial relief. 10. On the other hand, the learned Departmental Representative, appearing for the Revenue, has defended the order of the Assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es was 90 days, and to the other similarly placed customers the credit period allowed was 30 to 45 days. The fundamental question raised by the assessee is as to whether such an arrangement is amenable to be considered as falling within the meaning of the expression international transaction contained in section 92B(1) of the Act. Before us, the learned Counsel for the assessee has relied upon the decision of the Mumbai bench of the Tribunal in the case of Nimbus Communications Ltd. (supra) wherein an identical issue has been considered. The following discussion made by our co-ordinate Bench is worthy of notice: 5. A continuing debit balance, in our humble understanding, is not an international transaction per se, but is a result of international transaction. In plain words, a continuing debit balance only reflects that the payment, even though due, has not been made by the debtor. It is not, however, necessary that a payment is to be made as soon as it becomes due. Many factors, including terms of payment and normal business practices, influence the fact of payment in independent transaction which can be viewed on standalone basis. What can be examined on the touchstone o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enterprises (external CUP). No such exercise has been carried out in this case, nor is it shown, as is the condition precedent for bringing this continuing debit balance in the ambit of international transaction , that as a result of not realizing the debts from associated enterprises, there has been any impact on profits, incomes, losses or assets of the assessee. 13. Following the afore-stated reasoning stated by our co-ordinate Bench, as the facts and circumstances are similar in the instant case, we hold that the extension of credit to the Associated Enterprises beyond the stipulated credit period cannot be construed as an international transaction for the purposes of section 92B(1) of the Act so as to require adjustment for ascertaining the ALP. Therefore, the consequential addition by the Assessing Officer is untenable. As a result thereof, the assessee succeeds in its Ground of appeal and the addition partially sustained by the Commissioner of Income-tax (Appeals) is liable to be deleted in toto, albeit on a different ground. In the result, the order of the Commissioner of Income-tax (Appeals) is set aside and the Assessing Officer is directed to delete the entire addi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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