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TMI Blog2019 (12) TMI 153X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee in consonance with the APA with the CBDT. The second component for magnetizing the proviso is that the `total income of the assessee is enhanced . An enhancement of income in this context pre-supposes some action of the authorities after the filing of the return of income by the assessee, which has the consequence of increasing the total income from the one declared by the assessee. Filing of the modified return u/s 92CD of the Act with the income as agreed between the assessee and the CBDT under the APA is an act of the assessee in offering the additional income and not an act of the AO in making the enhancement of the total income. Instantly, we are dealing with a situation in which the assessee itself has filed a modified return of income at the mutually agreed rate of 17% under the APA. As such, there cannot be any question of the AO making any enhancement in the income as a result of transfer pricing adjustment so as to attract the proviso to section 92C(4) of the Act. Assessment u/s 92CD provides for granting deduction u/s 10A - HELD THAT:- A careful circumspection of sub-section (2) deciphers and delineates that in the computation of total income by the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t result in reducing the total income or increasing the total loss, as the case may be, of the applicant as already declared in the return of income of the said year . Assessee declared total income in the original return. After the increase in the income due to the APA and with the simultaneous claim of deduction u/s.10A, the total income of the assessee as declared in the modified return remained at the same level. Thus, it is neither a case of reducing the total income nor increasing the total loss. Ex consequenti, it is held that the assessee has satisfied the condition of deduction u/s 10A(3) read with section 92CD(2) of the Act. Proviso to section 92C(4) does not debar deduction u/s 10A on additional income in assessment u/s 92CD; assessment u/s 92CD provides for granting deduction u/s 10A; and the assessee has satisfied the requirement of section 10A(3) read with section 92CD(2), thereby entitling it to deduction u/s.10A on the additional. The impugned order is overturned and deduction is granted. - ITA No.1413/PUN/2019 - - - Dated:- 2-12-2019 - Shri R.S. Syal, Vice President And Shri Partha Sarathi Chaudhury, Judicial Member For the Asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 377; 20,36,023/- primarily on the ground that the modification in the return u/s.92CD(1) was permissible only to the extent of stipulation in the APA and the APA in question did not provide for any such deduction. He further took note of the mandate of section 10A(3) of the Act which provides that the sale proceeds in respect of export of software should be brought into India in convertible foreign exchange within a period of six months from the end of the relevant previous year. Since the enhancement in the amount of sale value was brought into India in convertible foreign exchange after such period, the AO held that the assessee was not entitled to further deduction u/s.10A to the tune of ₹ 20,36,023/-. The ld. CIT(A) scanned the reasons ascribed by the AO and accorded his imprimatur to the view so canvassed. This has brought the assessee before the Tribunal. 3. We have heard the rival submissions and gone through the relevant material on record. The undisputed facts are that the APA settled the arm s length margin at not less than 17% covering the APA years and the rollback years including the one under consideration. In consonance with the APA, the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 92CA (Reference to the TPO) shall not apply in respect of the determination of the ALP under the APA. 6. Section 92CD deals with giving ` Effect to the advance pricing agreement . Sub-section (1) requires filing of the modified return by the assessee in accordance with the APA. Sub-section (3) states that if the assessment etc. for an assessment year relevant to a previous year to which the agreement applies has been completed before the expiry of period allowed for furnishing of modified return under sub-section (1), which is a case under consideration, the Assessing Officer shall: `proceed to assess or reassess or recompute the total income of the relevant assessment year having regard to and in accordance with the agreement. Sub-section (4) deals with a situation in which the assessment etc. for an assessment year relevant to the previous year to which the APA applies are pending on the date of filing of modified return. It lays down that : `the Assessing Officer shall proceed to complete the assessment or reassessment proceedings in accordance with the agreement taking into consideration the modified return so furnished. On going through the prescrip ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... computation of income under this sub-section . Section 92CA, through which a reference is made by the AO to the TPO for determination of the ALP and thereafter the assessment is completed by the AO in terms of the TPO s order, provides through sub-section (4) that on receipt of order from the TPO, `the Assessing Officer shall proceed to compute the total income of the assessee under sub-section (4) of section 92C in conformity with the ALP determined by the TPO. Thus, notwithstanding the ALP determination by the AO or the TPO, the assessment is finalized by the AO in terms of the mandate contained in sub-section (4) of section 92C, which specifically provides that no deduction u/s.10A shall be allowed in respect of the amount of income by which the total income is enhanced after computation of income under this sub-section . A close scrutiny of the crucial words in the proviso decodes that the denial of deduction is permissible only when, first there is computation of income under sub-section (4) of sections 92C/92CA of the Act and second, the total income is enhanced because of such computation, namely, by virtue of the transfer pricing adjustment. Thus, it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are dealing with a situation in which the assessee itself has filed a modified return of income at the mutually agreed rate of 17% under the APA. As such, there cannot be any question of the AO making any enhancement in the income as a result of transfer pricing adjustment so as to attract the proviso to section 92C(4) of the Act. 12. Thus the first sub-question is answered by holding that proviso to section 92C(4) does not per se debar deduction u/s 10A on additional income in assessment u/s 92CD. ii. Whether assessment u/s 92CD provides for granting deduction u/s 10A? 13. Having answered the first question in negative, it remains to be decided as to whether the assessee is entitled to deduction u/s. 10A within the framework of the APA provisions. In this regard, it assumes significance to note the mandate of sub-section (2) of section 92CD of the Act, which provides that: Save as otherwise provided in this section, all other provisions of this Act shall apply accordingly as if the modified return is a return furnished under section 139 . A careful circumspection of sub-section (2) deciphers and delineates that in the comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, the assessee will be entitled to deduction u/s.10A. Explanation 1 to section 10A(3) states that: `For the purposes of this sub-section, the expression competent authority means the Reserve Bank of India or such other authority as is authorised under any law for the time being in force for regulating payments and dealings in foreign exchange. 15. Sub-section (1) of section 92CC provides that The Board, with the approval of the Central Government, may enter into an advance pricing agreement with any person . . . . . . . . It is thus clear from the mandate of sub-section (1) of section 92CC that the CBDT enters into an APA with the approval of the Central Government. The APA is a package deal aimed at reducing litigation. If the APA contains some clause relaxing the rigor of any provision or to facilitate its workability, such a clause will prevail over the normal provisions of the Act. It is mandated by the legislature itself through sub-section (2) of section 92CD, which opens with a saving clause by providing: `Save as otherwise provided in this section , all other provisions of the Act shall apply. Sub-section (1) of section 92CD provides t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alization of convertible foreign exchange in India, there was no purpose to stipulate it in the APA. This stipulation is, thus, a direction to grant deduction u/s 10A only if the assessee succeeds in bringing in convertible foreign exchange in India within one month, bringing the case within the saving clause of sub-section (2) of section 92CD. As the assessee brought into India the convertible foreign exchange within the stipulated one month s period, it became entitled to deduction u/s 10A. 17. What is further pertinent to note from para 2 of the Clause 6 of the APA is that: The determination of ALP for Rollback years is subject to the condition that the ALP would get modified to the extent that it does not result in reducing the total income or increasing the total loss, as the case may be, of the applicant as already declared in the return of income of the said year . Reverting to facts of the extant case, it is seen that the assessee declared total income of ₹ 45,21,431/- in the original return. After the increase in the income due to the APA and with the simultaneous claim of deduction u/s.10A, the total income of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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