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TMI Blog2016 (2) TMI 1165X X X X Extracts X X X X X X X X Extracts X X X X ..... ome. Accordingly, we direct the Assessing Officer to re-compute the deduction under section 10A of the Act. Adjustment with regard to the interest on loans to associate enterprises - Held that:- Hon’ble Bombay High Court in CIT Vs. Tata Autocomp Systems Ltd. (.2015 (4) TMI 681 - BOMBAY HIGH COURT) had also laid down similar proposition that the arm's length price in the case of loan advanced to associate enterprises would be determined on the basis of rate of interest being charged in the country where the loan is received / consumed - Also in Varroc Engineering Pvt. Ltd. Vs. ACIT (2015 (3) TMI 111 - ITAT PUNE) had also laid down similar proposition and directed the Assessing Officer/TPO to verify the claim of the assessee vis-à-vis the borrowals of loans, which in turn, were advanced at LIBOR + rate to the associate enterprises, in case the advancement of loan to the associate enterprises is on LIBOR+ / WIBOR+ rates, then the said transaction with the associate enterprises is within arm's length price, otherwise, the TPO may re-compute the arm's length price of international transactions. Following the same parity of reasoning, we direct the Assessing Officer to compute the adj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Provision for Bad Debts debited to P L account) while computing taxable book profit u/s 115JB of the Income Tax Act 1961. 8. The TPO, AO DRP erred in law and on facts in not granting benefit of proviso to section 92C(2) of the ITA, 1961 though specifically requested during the course of hearing. 9. The appellant craves leave to add, modify, alter, amend, or withdraw all or any of the Grounds of Appeal herein and to submit such statements, documents and papers as may be considered necessary either at or before the appeal hearing. 4. The issue in grounds of appeal No.1 and 2 raised by the assessee is in relation to the computation of deduction under section 10A of the Act. 5. The learned Authorized Representative for the assessee at the outset pointed out that the identical issue arose before the Tribunal in assessee s own case relating to assessment years 2005-06 and 2006-07 and the issue is squarely covered. 6. Briefly, in the facts of the present case, the assessee was engaged in the business of software development centers at various locations in India. The assessee had 10 software technology parks at various centers in Pune and Bangalore, which in turn, were reg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve profits shown by the units, ignoring the losses shown by the respective units. The Tribunal in assessee s own case in ITA No s.1508 1509/PN/2011, relating to assessment years 2005-06 and 2006-07, vide order dated 30.11.2015 held as under:- 12. We have heard the rival contentions and perused the record. The assessee is engaged in export of software and IT enabled services. During the year under consideration the assessee was running eight units at different places and five of which units had declared positive profits and the balance three units declared losses for the captioned assessment year. The assessee was entitled to claim deduction u/s. 10A of the Act in respect of export of software. The assessee computed the deduction u/s. 10A of the Act by treating each of the unit as separate unit/undertaking and claimed the deduction at ₹ 24,55,53,914/-. The losses from three units aggregating ₹ 4,55,31,667/- was carried forward to be adjusted in the succeeding years. On the other hand the Revenue authorities were of the view that the losses earned by the assessee from separate unit have to be adjusted against the profits earned by the assessee in separate units and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fit or gains as were derived by 100% EOU for the period prescribed under that section. The Hon'ble High Court thus held that the basis on which the assessment was sought to be reopened was belied by a plain reading of the provisions and the Assessing Officer was in error in proceeding on the basis that because the income was exempted, the loss was not allowable. The Hon'ble High Court further considered that all the four units of the assessee were eligible under section 10B, out of which three units had returned profits during the course of the assessment year, while the Crab stick Unit had returned a loss. The High Court further held that The assessee was entitled to a deduction in respect of the profits of the three eligible units while the loss sustained by the fourth unit could be set off against the normal business income. In these circumstances, the Hon'ble High Court held that the basis on which the assessment was sought to be reopened was contrary to the plain language of section 10B. 15. The Hon'ble Bombay High Court in CIT Vs. Black Veatch Consulting Pvt. Ltd. (supra) also observed that section 10A was a provision which was in the nature of a deduct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ratio to the facts of the present case we are of the view that the deduction u/s. 10A and 10B are units specific in contradiction to be assessee specific. The assessee while claiming the deduction u/s. 10A of the Act in respect of each of its unit has to satisfy the conditions viz-a-viz each unit/undertaking. Even the quantification of amount of deduction has to be worked out independently in each unit. The assessee before us has furnished on record the audit report in Form No. 56F in respect of each of the unit against which it has claimed the deduction under section 10A of the Act. The quantification of the deduction under section 10A of the Act is to be worked out independently for each eligible unit and in case after the deduction so claimed under section 10A of the Act, there are profits in the hands of the assessee for such unit then the same can be set off against the losses, if any, incurred by the assessee in any other unit. There is no merit in first aggregating the profits of each of the eligible unit and setting of the losses of other units and on the net profits, if any, the deduction under section 10A of the Act to be computed. We find support from the ratio laid dow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ered by the Tribunal in assessee s own case in ITA No.1736/PN/2012, relating to assessment year 2007-08, order dated 30.11.2015. 12. The issue arising vide ground of appeal No.3 is with regard to the computation of deduction under section 10A of the Act and whether the same is to be computed before set off of brought forward losses and unabsorbed depreciation relating to earlier years. Identical issue arose before the Tribunal in assessee s own case relating to assessment year 2007-08. The Tribunal while adjudicating the said issue, in turn, relied on the ratio laid down by the Pune Bench of Tribunal in M/s. Vishay Components India Pvt. Ltd., Vs. Addl.CIT in ITA No.551/PN/2014 and cross appeal in ITA No.736/PN/2014, o rder dated 08.10.2015. The Tribunal held as under:- 4. We have heard the rival contentions and perused the record. The issue arising in the present appeal is in relation to the computation of deduction under section 10A of the Act, whether the same is to be computed before set off of brought forward losses and unabsorbed depreciation relating to earlier years. The assessee had claimed 100% deduction under section 10A of the Act for the year under consideration ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cases where the assessee has unabsorbed losses or depreciation, brought forward from earlier years, then whether the said unabsorbed business losses / depreciation are to be adjusted from the gross total income before allowing the deduction under section 10B of the Act or the said losses or the deduction under section 10B of the Act is to be allowed in the hands of the assessee without considering the brought forward unabsorbed losses / depreciation, which can be set off against the other income of assessee. Both the authorities below had denied the claim to the assessee, in view of the ratio laid down by the Hon ble Supreme Court in Himasingka Seide Ltd. Vs. CIT (supra). The perusal of the judgment of Hon ble Karnataka High Court in the said case reflects that the years under appeal related to assessment years 1988-89 to 1990-91 i.e. the years where the benefit under section 10B of the Act was for being exempt from total income. However, the year under appeal before us is assessment year 2005-06, wherein the said section has been amended and the deduction now is allowable to the assessee as against the said income being exempt in the earlier years. The issue is settled by the Hon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y source of income in order to arrive at deduction under Chapter VI-A. The Hon ble Supreme Court held that the gross total income under section 80B(5) of the Act, which is also referred to in section 80I(1) of the Act, was required to be computed in manner provided under the Act, which presupposes that gross total income shall be arrived at after adjusting losses of other division against profits derived from an industrial undertaking. The issue before the Hon ble Supreme Court is at variance with the issue before us and the said ratio is not applicable to the facts of the present case. The issue in the present appeal is squarely covered by the ratio laid down by the Hon ble Bombay High Court in CIT Vs. Black Veatch Consulting Pvt. Ltd. (supra), wherein deduction under section 10A of the Act was to be computed in the hands of assessee and the same was whether the brought forward losses had to be adjusted before computing deduction under section 10A of the Act. It may be pointed out that the provisions of section 10A and 10B of the Act are at parametria. Following the ratio laid down by the Hon ble Bombay High Court, we hold that the deduction under section 10B of the Act is to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me Court. Before the Hon ble Karnataka High Court, the years involved were assessment years 1988- 89 to 1990-91 i.e. the year, where the benefit under section 10B of the Act was exempt. The Tribunal while deciding the issue in M/s. Vishay Components India Pvt. Ltd., Vs. Addl.CIT (supra) had taken note of the decision of the Hon ble Supreme Court and the Hon ble Karnataka High Court in Himatsingka Seida Ltd. (supra) in para 27 of the order and thereafter, applied the ratio laid down by the Hon ble Bombay High Court in CIT Vs. Black Veatch Consulting Pvt. Ltd. (supra) and para 27 of the order has already been reproduced hereinabove. In the totality of the above said facts and circumstances, we find no merit in the objections raised by the learned Departmental Representative for the Revenue. Following the ratio laid down by the Tribunal in M/s. Vishay Components India Pvt. Ltd., Vs. Addl.CIT (supra) and Precision Camshafts Limited Vs. ACIT (supra), we hold that the assessee is entitled to the claim of deduction under section 10A of the Act before setting up of brought forward losses and unabsorbed depreciation. The deduction under section 10A of the Act is first allowed against the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt on account of arm's length price of international transactions in relation to interest charged by the lender to its associate enterprises, arose before the Tribunal in Varroc Engineering Pvt. Ltd. Vs. ACIT in ITA No.2482/PN/2012, relating to assessment year 2008 -09, order dated 30.12.2014. The Tribunal held as under:- 11. We have heard the rival contentions and perused the record. The first issue raised in the present appeal is against the transfer pricing adjustment made in the hands of the assessee. The assessee was engaged in the manufacture of polymer engineering and electric goods and wind power generation. The assessee was a part of Varroc group, catered to the needs of Indian Auto Component Industry. During the financial year, the assessee had undertaken the following international transactions with its associated enterprises:- Sr No. Nature of Transactions Amount of Transactions Method Adopted 1. Disbursement of loan 7,66,740 CUP 2. Repayment of loan 2,79,10,000 CU ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... RATE CHARGED BY THE ASSESSEE 4.75% [F] Interest charged by the assessee Rs.2,86,27,089 [G] The rate prevailing as per 6 months LIBOR for the year ended 31.03.2008 was 6.79% Rs.4,03,52,970 [H] Interest @ 12.25% as per BPLR of SBI Rs.7,28,00,000 [I] Difference in BPLR and assessee s amount Rs.4,41,74,661 [J] Proposed adjustment Rs.4,41,74,661 14. The assessee had benchmarked its international transactions taking the interest rate charged at international rates of the disbursing bank i.e. Citi Bank. However, the TPO was of the view that loan given to the associated enterprises in the currency of that country was not a foreign currency deposit with associated enterprises. On the other hand, the assessee had borrowed the money on banking prime lending rates and was show caused by the TPO as to why lending rate for the purpose of comparability following CUP method should not be taken. The T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed the loan from Citi Bank on international rates for the purpose of investment in the share application money of its associated enterprises, which in turn was partly converted from capital into loan. Where the assessee had a comparable of borrowing loan on international rates and advancing to its associated enterprises, then the said comparable was to be applied for benchmarking the transaction of advancing the loan on interest to its associated enterprises. The assessee had charged interest rate of 4.75% on the loan advanced to the associated enterprises. The assessee on the other hand, claims that it had borrowed the money on LIBOR+ rates i.e. international rates, which were Japanes based LIBOR+ rates which were lower than the US based LIBOR+ rates. The plea of the assessee before us was that it had advanced the loan to its associated enterprises on LIBOR+ rates i.e. 4.75%. In the totality of the facts and circumstances where the assessee has the internal CUP of operating at international rates available and since the said loan raised by the assessee at international rates was advanced to its associated enterprises, we find no merit in the order of the TPO in applying the domes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mumbai Bench of the Tribunal in Hinduja Global Solutions Ltd. Vs. ACIT (2013) 35 taxmann.com 348 (Mumbai Trib.). 19. In the entirety of the above facts and circumstances, we hold that where the assessee had entered into a transaction with its associated enterprises in foreign currency, and the transactions were international transactions, then the same had to be looked into by applying commercial principle in regard to international transactions. In the facts of present case, the assessee had borrowed the loan from Citi Bank and advanced the same on LIBOR+ rates to its associated enterprises, then the said transaction with its associated enterprises is within arm's length price. The TPO / AO thus, directed to recompute the arm's length price of the international transactions. Another aspect to be kept in mind is the plea of the assessee with regard to the interest receivable. The assessee had also raised the issue that the TPO had adopted the interest receivable from associated enterprise company at ₹ 2,86,27,089/- instead of ₹ 2,91,82,060/- which is disclosed in the audit report in Form No.3CEB. The Assessing Officer is also directed to verify the claim o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tal Representative for the Revenue. The Tribunal while deciding the issue in para 42 had held as under:- 42. The issue before us is identical to the issue before the Chandigarh Bench of the Tribunal in Nahar Industrial Enterprises Ltd., Vs. DCIT (supra) and following the same parity of reasoning we direct the Assessing Officer to exclude the disallowance made under section 14A of the Act, while computing the book profits u/s 115JB of the Act. Accordingly, we direct the Assessing Officer to re-compute the book profits under section 115JB of the Act. The ground of appeal No.5 is thus, allowed. 22. In respect of ground of appeal No.6, the learned Departmental Representative for the Revenue pointed out that the issue was decided against the assessee by the Mumbai Bench of Tribunal in Dabur India Ltd. Vs. ACIT (2013) 37 taxmann.com 289 (Mumbai Trib). However, the issue is covered in favour of the assessee by the decision of Pune Bench of Tribunal. 23. Accordingly, we hold that in view of the issue being squarely covered by the orders of Pune Bench of Tribunal, the Assessing Officer is directed to exclude the disallowance made under section 14A of the Act, while computing bo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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