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TMI Blog2020 (11) TMI 819X X X X Extracts X X X X X X X X Extracts X X X X ..... ound No.2 and hence, the same is dismissed as not pressed. Ground No.3 relates to levy of interest u/s 234B of the Income-tax Act,1961 ['the Act' for short] and the same is consequential in nature. The remaining ground relate to denial of claim of deduction u/s 10AA of the Act on transfer pricing adjustment made by the assessee voluntarily. 2. The Ld. A.R. submitted that the assessee is 100% subsidiary of EYGI B.V., Netherlands. It is engaged in the business of providing back office support services, which are in the nature of Information Technology Enabled Services (ITES). The nature of services provided by the assessee to its Associated Enterprises (AEs) includes financial analysis and reporting functions such as standard reporting/analysis, work-in-progress details, time sheet details etc., accounting centre processing activities/functions such as accounts receivable, accounts payable functions, billing analysis and invoice preparation etc and financial assistance/administration functions such as time and expenses review, helpdesk providing assistance on employee queries etc. The assessee is remunerated at cost plus basis for the services provided to its AEs. 3. The Ld. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry Transfer pricing adjustment, is attempting to avail deduction u/s 10AA of the Act and the same should not be permitted. The Ld DRP also held that the Transfer pricing adjustment determined by the TPO is added to the total income for tax purposes, irrespective of the profits/loss of 10A/10AA units and whether they are eligible for deduction under those sections or not. Further the Ld DRP also proceeded on the ground that the assessee did not determine the voluntary T.P adjustment in its Transfer Pricing Study. Accordingly, the Ld DRP held that the decision rendered by the co-ordinate bench in the case of I-Gate Global Solutions Ltd (2007)(112 TTJ 1002) is distinguishable. Accordingly the Ld DRP directed the AO to disallow the deduction claimed u/s 10AA in respect of Voluntary Transfer pricing adjustment. 18. We heard the parties on this issue and perused the record. The Ld A.R submitted that the Ld DRP was factually not correct in observing that the assessee did not furnish details of voluntary Transfer pricing adjustment. It has added the amount of voluntary TP adjustment while computing the revised margin of the assessee, which is placed at page 680 of the paper book. He furthe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a in time. In order to adjudicate the issue, we need to take into consideration the provisions of section starting with section 92(1) of the Act. The Chapter X of the Act lays down the special provisions relating to avoidance of tax. Under section 92 of the Act, any income arising from international transactions shall be computed having regard to the arm's length price. In other words, section provides computation of income from international transactions having regard to the arm's length price. The income which is so computed in respect of international transactions entered into by the assessee is notional income in the hands of assessee. This is the basic point which has to be kept in mind while adjudicating the issue raised in the present appeal. 16. Under section 92CA of the Act, where a person has entered into an international transaction in any previous year with its associated enterprises, then in order to benchmark the arm's length price of such an international transaction and to compute its arm's length price under section 92C of the Act, reference is to be made to the TPO by the Assessing Officer under the specified conditions, who in turn has to compute ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... export turnover in respect of such articles or things or computer software bears to the total turnover of the business carried on by the undertaking. 19. As per said sub-section, the profits derived from the export of articles or things or computer software, shall be the amount which bears to the profits of business of the undertaking, the same proportion as the export turnover in respect of such articles or things or computer software, bears to the total turnover of business carried on by the undertaking. Thus, the first step we have to look at the profits derived from export of articles or things of computer software and the profits of business of undertaking. The additional income is on the basis of artificial/notional income computed in the hands of assessee under the provisions of section 92(1) of the Act. The case of CIT(A) is that the assessee has failed to bring into country the export proceeds in foreign exchange in respect of such additional income offered and consequently, no deduction under section 10A of the Act is to be allowed. The connected aspect of the issue is that there is no dispute in the minds of authorities below that it is profits of business. Such profit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a special economic zone, by reason of conversion of such free trade zone por export processing zone into a special economic zone, the period of ten. consecutive assessment years referred to in this sub-section shall be reckoned from the assessment year relevant to the previous year in which the (undertaking began to. manufacture or produce such articles or things or computer software) in such free trade zone or export processing zone : Provided also that for the assessment year beginning on the 1-4-2003, the deduction under this sub-section shall be ninety per cent of the profits and gains derived by an undertaking from the export of such articles or things or computer software : Provided also that no deduction under this section shall be allowed to any undertaking for the assessment year beginning on the 1-4-2010 and subsequent years. 18. Section 10A(4) has also been amended with effect from 1-4-2001. Before amendment, the profit derived from export of articles or things was the amount which bears to the profit of the business, the same, proportion as the export turnover in respect of such article or thing or computer software, bears to the total turnover of the business. With eff ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or Chennai unit, then Pune unit will be considered as part of that undertaking. Hence, the issue of ascertaining as to whether Pune unit was an independent unit or a unit associated with activities of other two units is restored back on the file of the Assessing Officer. In case it is found that it is part of the other two units and is associated with the activities done in other two units, then it will be considered as part of the same undertaking and loss will be adjusted. However, in case, if it is found, it is an independent unit, then it will be treated as independent undertaking and the assessee cannot be forced to have exemption in respect of such independent undertaking. In that case the loss will (not) be adjusted against other income. 21. The last grievance is in respect of not allowing deduction under section 10A on the adjustment made by the assessee to the arm's length price. 22. In the instant case, the assessee company entered into transaction with associated enterprise. The assessee company determined arm's length price and accordingly made adjustment to the income because arm's length price determined was more than the consideration, at which the transa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble in respect of income computed on the arm's length price by ignoring the proviso to Section 92(4) of the Act 22. The Hon'ble High Court in paras 5 and 6 of its order held as under:- 5. In so far as substantial question of law No.4 is concerned, the error committed by the Assessing Officer was relying on Section 92(C)(4) to a case where Arm's Length Price was determined by the assessee, whereas the said provision applies to a case where Arm's Length Price was determined by the Assessing Officer. That mistake has been corrected by the Tribunal by setting aside the order passed by the Commissioner as well as the assessing authority. 6. In that view of the matter, we do not see any error committed by the Tribunal in the impugned order. Therefore, the said question is also answered in favour of the assessee and against the Revenue. 23. The issue thus, has been decided by the Hon'ble High Court of Karnataka in the case of iGate Global Solutions Ltd. (supra), wherein the assessee's claim for deduction under section 10A of the Act in respect of suo-moto TP adjustment made by the assessee, has been allowed. 24 . The Bangalore Bench of Tribunal in a later decision ..... 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