9911796707
TMI Blog2016 (2) TMI 293X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee on 15.11.2007 declaring total income as NIL after claiming exemption u/s 10B. The draft assessment order was issued by the AO on 10.12.2010 making 3 adjustments aggregating to Rs. 31,15,400 including transfer pricing adjustment of Rs. 11,69,820. The DRP upheld the draft order of the AO. Accordingly, the AO issued the final assessment order dated 29-09- 2011 and raised a demand of Rs. 38,50,642/- including interest. In this order, the TP adjustment was reduced to Rs. 10,65,962/- based on a rectification order passed by the TPO dated 17-06-2011 rectifying mistakes apparent on record in the order u/s 92CA of the Act dated 28-10-2010. Against this order, the assessee has filed an appeal before this Tribunal. 4. The first ground of appeal relates to adjustment of total turnover while allowing deduction u/s. 10B. For the AY 2007-08, the assessee had claimed exemption of Rs. 14,39,90,733 in respect of the profits earned from its Nelamangala unit which is 100% EOU u/s. 10B of the Act. Since that unit was in the 8th year of its operations during the FY ended 31.3.2007, the Assessing Officer granted deduction after reducing certain expenses like freight and forwarding expenses of R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the freight & forwarding and insurance expenses from total turnover. 8. The next ground relates to set-off of losses other than EOU against profits of EOU. The AO has reduced the loss incurred by non-EOU of the assessee company from the amount of profits of the EOU and restricted the deduction u/s.10B to the net amount. This has resulted in denying carry forward loss of Rs. 11,64,32,457/- and reduction in the deduction claimed u/s 10B to Rs. 2,56,12,695/- as against Rs. 14,39,90,733/- claimed by the assessee. 9. The ld. counsel for the assessee submitted that deduction u/s. 10B is in respect of an undertaking and loss of other undertakings cannot be netted off against the profits of the EOU for determination of deduction u/s. 10B as the deduction is attached to the profits of the undertaking and travels with the undertaking as mentioned in the section. The benefit provided to an assessee to whom section 10B is applicable is in the form of an exemption and this exemption is not considered as income in the course of arriving at the Gross Total Income. 10. It was submitted that deduction u/s. 10B is undertaking specific and hence is to be calculated on the basis of profits and ga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eduction under s. 10A is not an exemption but only a deduction under Chapter III of the IT Act and the provisions of s. 80AB of Chapter VI-A would not be applicable to such deduction under s. 10A, and also that the deduction under s. 10A is undertaking specific, we have to answer the question posed before us by holding that the business losses of a non-eligible unit, whose income is not eligible for deduction under s. 10A of the Act, cannot be set off against the profits of the undertaking eligible for deduction under s. 10A for the purpose of determining the allowable deduction under s. 10A of the Act. Of course, if there are more than one undertaking which are eligible for deduction under s. 10A and if some of the units have profit and other units have loss, it would be an entirely different case which is before us. Hence, the decision rendered in this appeal would not be applicable to such cases where there are more than one eligible undertaking claiming deduction under s. 10A. In this case, there is only one eligible unit claiming deduction under s. 10A and hence, the loss from non-eligible unit cannot be set off against the profits of the eligible unit while determining deduct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rowed from SBI at LIBOR + 50 basis points and by comparing interest rates applicable to Rupee borrowings to those for borrowing in foreign currency. The TPO accordingly computed arm's length interest at Rs. 18,17,244 and after reducing Rs. 7,51,282 already charged and added Rs.l0,65,962 as ALP adjustment which was followed by the AO and upheld by the DRP. 17. Before us, it was submitted by the ld. counsel for the assessee that on the given facts, it would be appropriate to accept internal CUP method i.e., the rate at which the assessee had actually resorted to foreign exchange borrowings from SBI as arm's length price under CUP method. It cannot be anybody's case that a wholly owned subsidiary has a credit rating that is different from the holding company. 18. It was also submitted that the rate of 14% arrived at by the TPO is higher than the rate applicable for even a Rupee loan and definitely not for lending in USD which is the currency used in the case of the assessee. The method of arriving at the said 14% by the TPO by arriving at 12.4% as LIBOR + 300 basis points and increasing this rate by a further 1.6% on the claim that unsecured loans warrant a higher rate is not concei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the transaction is an international transaction, then the transaction would have to be looked upon by applying the commercial principles in regard to international transaction. If this is so, then the domestic prime lending rate would have no applicability and the international rate fixed being LIBOR would come into play. In the circumstances, we are of the view that it LIBOR rate which has to be considered while determining the arm's length interest rate in respect of the transaction between the assessee and the Associated Enterprises. As it is noticed that the average of the LIBOR rate for 1.4./2005 to 31.3.2006 is 4.42% and the assessee has charged interest at 6% which is higher than the LIBOR rate, we are of the view that no addition on this count is liable to be made in the hands of the assessee. In the circumstances, the addition as made by the Assessing Officer on this count is deleted." We are, therefore, of the opinion that assessee's receipt of interest which was within + / - 5% of libor did not require any ALP adjustment. Addition of Rs. 10,77,990/- made on this count stands deleted. ..........." 20. Respectfully following the decision of this Tribunal in assessee's ..... X X X X Extracts X X X X X X X X Extracts X X X X
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