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TMI Blog2013 (1) TMI 395X X X X Extracts X X X X X X X X Extracts X X X X ..... bed losses prior to calculating exemption u/s 10A - Held that:- The issue stands covered in favour of the assessee by the recent decision of The Commissioner of Income Tax-10 Versus Black & Veatch Consulting Pvt.Ltd. [2012 (4) TMI 450 - BOMBAY HIGH COURT] Section 10A is a provision which is in the nature of a deduction and not an exemption - the deduction under Section 10A has to be given effect to at the stage of computing the profits and gains of business - Section 80B(5) defines for the purposes of Chapter VI-A “gross total income” to mean the total income computed in accordance with the provisions of the Act, before making any deduction under the Chapter - against revenue. Disqualification of interest income, directly sprang from the business operations, from exemption u/s 10A - Held that:- Following the consistent view of the Tribunal as decided in Jewelex International (P.) Ltd.'s case (2010 (9) TMI 906 - ITAT MUMBAI), Greytrix (India) (P.) Ltd. case (2013 (1) TMI 381 - ITAT MUMBAI) & Tropicate Textiles (P.) Ltd. [2012 (7) TMI 57 - ITAT, MUMBAI] to hold that the assessee is entitled to deduction u/s 10A of the interest income of Rs. 25,002/- on the FD pledged with the b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ), pursuant to the order passed by the Transfer Pricing Officer, Jt. Commissioner of Income-tax, Transfer Pricing - 1(5) under the provisions of section 92CA(3) of the Act." 9. Brief facts of the above issue are that the A.O. made reference u/s 92CA(1) of the Act to the Transfer Pricing Officer (TPO) for computation of Arms Length Price (ALP) in respect of international transactions for the purpose of arriving at the Arms Length Price on account of delay in realizing the dues from Medusind Solutions Inc. (an Associate Enterprise). The assessee was asked by the TPO as to why interest should not be considered for determining the ALP as adopted in the A.Y. 2005-06. In response, the assessee submitted that as per the understanding between the assessee and the AE, the A.E has to remit the amount to the assessee only after it recovers from its (AE's) debtors. The assessee further submitted the details of average debtor days of the assessee and its AE. According to the assessee, the AE recovers the dues from its customers within 61 days whereas the assessee is realizing the dues from the AE within 127 days and the difference is only 66 days. It was further submitted that as a part of no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the said adjustment has also been upheld by the DRP. 10. At the time of hearing the ld. Counsel for the assessee while reiterating the same submissions as submitted before the TPO, A.O. and DRP submits that the assessee has not paid any interest to third parties for services, if any, availed and the payment has been made late i.e. beyond the normal credit period offered, therefore, no such addition is called for. He further submits that such adjustment in respect of interest not charged by the assessee on debit balance does not amount to an international transaction u/s 92B of the Act in respect of which ALP adjustment has been made and for this proposition the reliance was also placed on the decision in Nimbus Communications Ltd. v. Asstt. CIT [2012] 38 SOT 246 (Mum.) followed in Patni Computer Systems Ltd. v. Dy. CIT [2012] 135 ITD 398 and Dy. CIT v. Indo American Jewellery Ltd. [2012] 50 SOT 528. He, therefore, submits that the addition made by the A.O. be deleted. 11. On the other hand, the ld. D.R., at the outset, submits that charging of interest on delayed payment from the Associated Enterprises is an international transaction. The Finance Act 2012 has amended sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... servations hereinabove and according to law after providing reasonable opportunity of being heard to the assessee. The grounds taken by the assessee are, therefore, partly allowed for statistical purpose. 14. Ground No. 4.1 reads as under:- "That on the facts and in the circumstances of the case and in law, the Learned assessing Officer erred in setting off the past-unabsorbed losses prior to calculating exemption under section 10A." 15. Brief facts of the above issue are that on perusal of the computation of income, the A.O. observed that the assessee company has set off unabsorbed losses from earlier years after claiming the deduction u/s 10A of the Act amounting to Rs. 36,74,806/-. The assessee was asked to show cause as to why deduction u/s 10A of the Act should not be granted after set off of brought forward losses. The assessee furnished its reply vide letter dtd. 27-11-2009. The A.O. after considering the same observed that the deduction u/s 10A of the Act has to be allowed from the profits and gains as are derived by the undertaking from the export of article of things or computer software from the total income of the assessee. As section 2(45) of the Act total income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ailable on record. We find that the facts are not in dispute inasmuch as it is also not in dispute that the assessee has claimed deduction u/s 10A of the Act before set off of brought forward unabsorbed losses from earlier years against the current year profits of the unit eligible for deduction u/s 10A of the Act. We find merit in the plea of the ld. Counsel for the assessee that the issue stands covered in favour of the assessee by the recent decision of the Hon'ble Bombay High Court in Black Veatch Consulting (P.) Ltd.'s case (supra) wherein it has been held as under:- "Section 10A is a provision which is in the nature of a deduction and not an exemption. This was emphasised in a judgment of a Division Bench of this Court while construing the provisions of Section 10B in Hindustan Unilever Ltd. v . Dy. CIT [2010] 325 ITR 102. The submission of the Revenue placed its reliance on the literal reading of Section 10A under which a deduction of such profits and gains as are derived by an undertaking from the export of articles or things or computer software for a period of ten consecutive Assessment Years is to be allowed from the total income of the assessee. The deduction under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . observed that the assessee has received interest income of Rs. 2,20,958/- out of which only Rs. 60,126/- has been offered as income from other sources. However, the A.O. relying on the decision of the Hon'ble Supreme Court in Cambay Electric Supply Industrial Co. Ltd. v. CIT [1978] 113 ITR 84 treated the interest income of Rs. 1,60,832/- under the head 'income from other sources', not eligible for deduction u/s 10A of the Act. 21. At the time of hearing the ld. counsel for the assessee submits that the details of interest income of Rs. 2,20,959/- is as under:- S.No. Particulars Interest Amount Mumbai Undertaking(Rs) Interest Amount Chennai Undertaking(Rs) Total interest(Rs) 01 Interest on Fixed Deposits on Surplus Funds 60,126 60,126 02 Interest on NSC 248 248 03 Interest on Fixed deposits pledged with banks (on account of margin monies) 25,002 25,002 04 Interest on loans to Employees 109,931 25,652 135,583 TOTAL 195,307 25,652 220,959 He further submits that the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its with the banks for the purpose of borrowing monies for the business. The assessee's business is in the export of jewellery and in the first page of the assessment order it has been stated by the Assessing Officer that the assessee is a 100% export oriented undertaking within the meaning of section 10B. If that is the factual position, the interest has to be considered as having been derived from the export of the articles. Even if it is argued that the immediate source of the interest is the deposits with the banks and not the export of articles, in view of sub-section (4) of section 10B the assessee is entitled to succeed. The Assessing Officer has not assessed the interest under the head "Income from other sources". He has treated the interest as part of the profits of the assessee's business. Sub-section (4) of section 10B statutorily prescribes a formula as to what should be considered as profits derived from export of articles. The profits of the business of the undertaking are to be ascertained first and the next step is to bifurcate the same in the same proportion as the export turnover in respect of the articles bears to the total turnover of the business carried on by ..... X X X X Extracts X X X X X X X X Extracts X X X X
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