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TMI Blog2016 (3) TMI 1396X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd. Vs. The Asstt. Commissioner of Income Tax [ 2015 (3) TMI 111 - ITAT PUNE ] In the said case the assessee had benchmarked its international transaction relating to interest rate charged at international rate. The benchmarking was adopting at foreign currency City Bank rates. The TPO rejected the benchmarking made by the assessee and adopted the BPLR. We hold that the DRP has erred in confirming the findings of the TPO in adopting BPLR rates. The TPO is directed to recompute the interest rate by adopting WIBOR + 1% in respect of the international transaction under appeal. Accordingly, ground no. 3 raised in the appeal is allowed. Claim of deduction u/s.10A - HELD THAT:- We find that identical issue had come up before the Tribunal in appeal of the assessee for the assessment years 2005-06 and 2006-07. The Tribunal decided the issue in favour of the assessee. The relevant extract of the order of the Tribunal [ 2015 (12) TMI 398 - ITAT PUNE ] held that the deduction under section 10A of the Act has to be given at the stage when the profits and gains of the business are computed in the first instance. - SHRI R.K. PANDA, AM AND SHRI VIKAS AWASTHY, JM For The Assessee : Shri Kishor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cerned. Accordingly, the TPO rejected the benchmarking adopted by the assessee. The TPO for benchmarking the transaction, proposed to adopt CUP method at Banking Prime Lending Rate (BPLR) of State Bank of India (SBI) @ 12.25%, the rate as was applicable on 31-03-2007. The assessee raised objection to the BPLR proposed by the TPO for benchmarking the transaction. The TPO rejected the contentions of the assessee and computed the Arm s Length Price (ALP) by considering the rate of BPLR (12.25%) as the benchmark rate and made an adjustment of ₹ 2,27,807/- in respect of international transaction towards interest receivable from its AE. 3. During the year, the assessee had declared turnover of ₹ 315.78 Crores. The assessee filed its return of income on 30-10-2007 declaring total income as NIL, after claiming the benefit of deduction u/s. 10A on the eligible STP units. The assessee computed deduction before setting off the profits of the eligible units with the losses of other eligible /non-eligible units and the brought forward losses from assessment year 2005-06. The Assessing Officer in draft assessment order dated 21-10-2010 disallowed the claim of deduction u/s. 10A. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssions placed reliance on the decision rendered by the Hon'ble Bombay High Court in the case of Commissioner of Income Tax Vs. Tata Autocomp Systems Ltd. reported as 276 CTR 481 (Bom) and the decision of Mumbai Bench of the Tribunal in the case of Deputy Commissioner of Income Tax Vs. Tech Mahindra Ltd. reported as 46 SOT 141 (Mumbai)(URO). The ld. AR also placed reliance on the decision of Co-ordinate Bench of the Tribunal in the case of Varroc Engineering Pvt. Ltd. Vs. The Asstt. Commissioner of Income Tax in ITA No. 2482/PN/2012 for the assessment year 2008-09 decided on 30-12-2014. The ld. AR submitted that the Co-ordinate Bench of the Tribunal after considering several decisions including the decision rendered in the case of Deputy Commissioner of Income Tax Vs. Tech Mahindra Ltd. (supra) has held that where the transaction is between the assessee and its associated enterprise in foreign currency then the same had to be looked into by applying commercial principle in regard to international transactions. 7. In respect of grounds of appeal no. 5 and 6, the ld. AR submitted that the similar issue had come up before the Co-ordinate Bench of the Tribunal in assessee s own case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The benchmarking was adopting at foreign currency City Bank rates. The TPO rejected the benchmarking made by the assessee and adopted the BPLR. The Co-ordinate Bench decided the issue by observing as under: 13. During the year under consideration, interest of ₹ 2,91,82,060/- had accrued as interest on loan granted to its associated enterprises. The assessee had granted loan to M/s. Varroc European Holding BV Netherlands Euro 1,00,00,000 and repayment of loan of Euro 5,00,000, hence during the year, the effective loan amounted to Euro 96,30,000 which was equivalent to ₹ 55,21,57,400/-. The assessee had charged interest @ 4.75% per annum. As per the TPO, the rate prevailing as per LIBOR +, for the year ending 31.03.2008 was 6.79%. The TPO tabulated the transactions of granting of loan and the interest charged by the assessee and computed the proposed adjustment as under:- (Amt. in Rs.) Description Varroc European Holding BV Netherlands [A] Loan advanced/Balance of loan at the year ending 31.03.2008 ₹ 59.43 Crs. (figures as per the financials) [B] Base charge adopted by the assessee LIBOR [C] Base charge adopted by the assessee to benchmark the transaction However, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... form of share application money which were later converted into loan on the advice of European Consultants. On such advance made to its associated enterprises, the assessee had charged interest @ 4.75%. While benchmarking the international transactions what has to be seen is the comparison between related transactions i.e. where the assessee has advanced money to its associated enterprises and charged interest then the said transaction is to be compared with a transaction as to what rate the assessee would have charged, if it had extended the loan to the third party in foreign country. Once there is a transaction between the assessee and its associated enterprises in foreign currency, then the transaction would have to be looked upon by applying the commercial principles with regard to the international transactions. In that case, the international rates fixed being LIBOR+ rates would have an application and the domestic prime lending rates would not be applicable. The assessee has further explained that it had raised 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 c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iced that the average of the LIBOR rate for 1-4-2005 to 31- 3-2006 is 4.42 per cent and the assessee had charged interest at 6 per cent which was higher than the LIBOR rate, no addition on this account was liable to be made in the hands of the assessee. In the circumstances, the addition made by the Assessing Officer on this count was deleted. 17. The Mumbai Bench of the Tribunal in DCIT Vs. Tech Mahindra Ltd. (2011) 12 taxmann.com 132 (Mum.) held that where there is a choice between the interest rate of currency other than the currency in which transaction had taken place and the interest rate in respect of the currency in which transaction has taken place, the latter should be adopted. Where the transaction is between the assessee and its associated enterprises in foreign currency and the transaction is international transaction, then the transaction would have to be looked upon by applying commercial principles in regard to international transactions. 18. Similar principle has been laid down by the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 after making this intrahead set off, the deduction under section 10A of the Act were to be allowed to the assessee. In this exercise the deduction under section 10A of the Act was reduced to ₹ 20,68,49,064/- and there were nil carry forward loss in the hands of the assessee. The reason for the said adjustment by the Assessing Officer and Commissioner of Income Tax (Appeals) was on the surmise that the amendment brought to section 10A of the Act w.e.f. 1st April, 2001 under which deduction from income was to be allowed to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urse 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 deduction and not an exemption. The Hon'ble High Court further held that the deduction under section 10A, in our view, was to be given effect to at the stage of computing the profits and gains of business. This is anterior to the application of the provisions of section 72 which deals with the carry forward and set off of business losses. The Hon'ble High Court held that the deduction under section 10A has to be given at the stage when the profits and gains of business are computed in the first instance. The issue before the Hon'ble High Cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 down by the Hon'ble Bombay High Court in CIT Vs. Black Veatch Consulting Pvt. Ltd. (supra) wherein it has been held that the deduction under section 10A of the Act has to be given at the stage when the profits and gains of the business are computed in the first instance. In view thereof we reverse the order of Commissioner of Income Tax (Appeals) in this regard. Since there has been no change in the facts and circumstances in the impugned assessment year, we respectfully follow the order of Coordinate Bench in earlier assessment years in the case of asse ..... X X X X Extracts X X X X X X X X Extracts X X X X
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