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TMI Blog2020 (10) TMI 190X X X X Extracts X X X X X X X X Extracts X X X X ..... m Health Care Pvt. Ltd. [ 2017 (4) TMI 1254 - DELHI HIGH COURT] held that re-characterization of outstanding receivables as loan by the TPO and thereby imputing the interest on such outstanding receivables is not sustainable in the eyes of law Addition made by TPO/DRP on account of interest on outstanding receivable from AE is not sustainable, hence, order to be deleted. - Decided in favour of assessee. Deduction u/s 10AA on account of interest income and miscellaneous income - addition on the ground that the said income cannot be set to have any direct nexus with the assessee business because the assessee is not into the business of finance and investment - HELD THAT:- As relying on own case [ 2018 (2) TMI 1084 - ITAT DELHI] we are of the considered view that the taxpayer is entitled for deduction u/s 10A on the interest earned on the fixed income and miscellaneous income as Section 10A is a complete code providing the mechanism for computing profit of the business eligible for deduction and as such taxpayer is held to be entitled for deduction u/s 10AA. Approach adopted by AO/DRP is legally and factually misconceived that order of Tribunal has not yet attained finality, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the learned TPO/ Hon ble DRP has erred in re-characterizing the inter-company receivables as a separate international transaction of an unsecured loan and imputing interest on such transaction. 6. That on the facts of the case and in law, the learned TPO/ Hon ble DRP has erred in making a TP adjustment for intercompany receivables realization without appreciating the fact that Appellant follows a uniform policy of not charging any interest for delayed realizations from AE as well as Non- AEs. 7. That on the facts of the case and in law, the learned TPO/ Hon ble DRP has erred in making a TP adjustment for intercompany receivables realization despite the fact that the Appellant is a debt free company and no separate interest cost is paid by the Appellant to its creditors or suppliers on delayed payments (if any). 8. That on the facts of the case and in law, the learned TPO/ Hon ble DRP has erred in making a TP adjustment for intercompany receivables realization without appreciating the fact that the inter-company receivable days of 51 days and 48 days in relation to provision of IT and IT enabled services to AE respectively for FY 2012-13 was less than the rece ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... granted based on the above grounds of appeal and the facts and circumstances of the case. 2. Briefly stated the facts necessary for adjudication of the controversy at hand are : (M/s. OPTUM GLOBAL SOLUTIONS (INDIA) PVT. LTD.) Taxpayer is into providing IT enabled health care services and IT services primarily to its group companies. During FY 2012-13, the Company has expanded its operations by setting up two new sites at Hyderabad and Noida. Accordingly, UHG Indian Currently provides services through the following four units in India : A unit located in Gurgaon and registered under the STPI scheme of the Government of India; A unit set-up under SEZ in Noida in FY 2012-13 and eligible for tax holiday benefit under section 10AA of the Act; and two units set-up under SEZ in Hyderabad in FY 2009-10 and FY 2012-13 respectively and eligible for tax holiday benefit under section 10AA of the Act. 3. During the year under assessment taxpayer entered into International Transaction with its AE s as under :- S.No. Name of AE Nature of International Transaction Method ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... United Health Care Services, Inc. 5,43,68,348 The cumulative adjustment made in this case is tabulated below S. No. Nature of international transaction ALP determined by taxpayer (INR) ALP determined by the TPO (INR) Adjustment u/s 92CA (INR) 1. Receivables Nil 5,43,68,348 5,43,68,348 Total 5,43,68,348 Subsequently, Ld. TPO vide order dated 24.01.2017 passed u/s 154 of the Act made recitification and computed revised adjustment at ₹ 9,43,68,39/-. 4. Assessee carried the matter before the Ld. DRP by way of filing objections who has confirmed the addition by dismissing the objection. Feeling aggrieved the taxpayer has come up before the tribunal by filing the present appeal. 5. We have heard the ld. Authorized Representatives of the parties to the appeal, gone through the documents relied upon and orders passed by the revenue authorities b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emed to be advanced by the taxpayer to its AE. We are of the considered view that AO/DRP have erred in making addition of ₹ 19,79,520/- on account of interest on outstanding receivables from AE, hence ordered to be deleted. Ground No.1 is determined in favour of the taxpayer. 10. So in view of what has been discussed above, we are of the considered view that addition made by TPO/DRP on account of interest on outstanding receivable from AE is not sustainable, hence, order to be deleted. Ground no. 12 11. Assessing Officer has disallowed the deductions claimed by the taxpayer u/s 10AA on account of interest income of ₹ 7,57,24,178/- and miscellaneous income of ₹ 2, 90,63,825/-. On the ground that the said income cannot be set to have any direct nexus with the assessee business because the assessee is not into the business of finance and investment. 12. However, the ld. AR for the assessee contended that this issue has already been decided in favour of the taxpayer in its own case in AY 2010-11 and 2011-12 by the tribunal. However, Ld. AO/DRP declined to follow the order passed by the tribunal by recording reasons :- 1. Though the assessee has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... external commercial borrowings ('ECB'). It could repay only to the extent of 10% of the outstanding loan in a year. This made the Assessee temporarily park the balance funds as deposits or with various sister concerns as inter corporate deposits until the date of repayment. The Assessee contended that the interest derived from the business of the industrial undertaking was eligible for exemption within the meaning of Section 10B and applied the formula under Section 10B(4) of the Act for determining the profits from exports. The Assessee's contention that the expression profits of the business of the undertaking in Section 10B(4) was wider than the expression profits and gains derived by the Assessee from a 100% EOU occurring in Section 10B(1) was accepted by the ITAT. The ITAT noticed that unlike Section 80HHC, where there was an express exclusion of the interest earned from the 'profits of business of undertaking', there was no similar provision as far as Sections 10A and 10B were concerned. 10. In Motorola India Electronics (P.) Ltd. (supra) reference was made to the decision of the Supreme Court in Pandian Chemicals Ltd. v. CIT [2003] 262 I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt turnover to the total turnover of the business. Sub-section (4) does not require an assessee to establish a direct nexus with the business of the undertaking and once an income forms part of the business of the undertaking, the same would be included in the profits of the business of the undertaking. Thus, once an income forms part of the business of the eligible undertaking, there is no further mandate in the provisions of section 10B to exclude the same from the eligible profits. The mode of determining the eligible deduction u/s 10B is similar to the provisions of section 80HHC inasmuch as both the sections mandates determination of eligible profits as per the formula contained therein. The only difference is that section 80HHC contains a further mandate in terms of Explanation (baa) for exclusion of certain income from the profits of the business which is, however, conspicuous by its absence in section 10B. On the basis of the aforesaid distinction, subsection (4) of section 10A/10B of the Act is a complete code providing the mechanism for computing the profits of the business eligible for deduction u/s 10B of the Act. Once an income forms part of the business of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 219 239 of 2014), Section 10B(4) mandates the application of the formula for determining the profits derived from exports for the purposes of Section 10B(1). In other words, the formula would read thus: Profits derived from export = Profits of the business of the undertaking 9A. In terms of the above formula, the question that would arise is whether the interest on the FDRs could form part of the 'profits of the business of the undertaking'. The attention of the Court has been drawn to the decision of the Karnataka High Court in CIT v. Motorola India Electronics Pvt. Ltd. (2014) 46 Taxmann.com 167 (Kar.) which held that there was a direct nexus between the interest received from the FDRs created by a similarly placed Assessee from the amounts borrowed by it. The High Court approved the order of the ITAT in that case which held that the entire profits of the business of the undertaking should be taken into consideration while computing the eligible deduction under Section 10B of the Act by ITA 392/2015 applying the mandatory formula. 10. In the present case, the Assessee has stated that the interest on FDRs was received on margin kept in the bank for utiliza ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Del/2014 (supra) might require to be reconsidered. When a question was posed to him as to whether the Revenue had challenge the aforementioned decisions of this Court, and of the ITAT in the present case to the extent it has allowed the plea of the Assessee as regards 'deemed export drawback', Mr. Manchanda stated that the Revenue ought to have challenged the above decisions as well as the impugned order of the ITAT in the present case and perhaps he would advise it to do so hereafter. He has also handed over a written note of submissions, reiterating the above submissions. 15. In the considered view of the Court, the submissions made on behalf of the Revenue proceed on the basic misconception regarding the true purport of the provisions of Chapter VIA of the Act and on an incorrect understanding of Section 80A(4) of the Act. The opening words of Section 80A(4) read Notwithstanding anything to the contrary contained in section 10A or section 10AA or section 10B or section 10BA or in any provisions of this Chapter . . . . . . What is sought to be underscored, therefore, is that Section 80A, and the other provisions in Chapter VIA, are independent of Sections 10A and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of the business carried on and the said subsidy was part of the profit of the business of the undertaking. If the ITAT was prepared to consider the deemed export draw back as eligible for deduction then there was no justification for excluding the freight subsidy. Even as regards the interest on FDR, the Court has been shown a note of the balance sheet of the Assessee [which was placed before the AO] which clearly states that fixed deposit receipts (including accrued interest) valuing ₹ 15,05,875 are under lien with Bank of India for facilitating the letter of credit and bank guarantee facilities. In terms of the ratio of the decisions of this Court both in Hritnik Exports (P.) Ltd. (supra) and Universal Precision Screws (supra), the interest earned on such FDR ought to qualify for deduction under Section 10B of the Act. 68. So, following the findings returned by the coordinate Bench of the Tribunal in taxpayer's own case for AY 2010-11 based on the decision of Hon'ble High Court in Riviera Home Furnishing (supra), we are of the considered view that the taxpayer is entitled for deduction u/s 10A on the interest earned on fixed deposit receipts to the tune ..... X X X X Extracts X X X X X X X X Extracts X X X X
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