M/s. EYGBS (India ) LLP (Earlier known as EYGBS (India) Private Limited), Bangalore V. Deputy Commissioner Of Income Tax, Circle- 3(1)(2), Bangalore

ITA 2342/BANG/2019

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 3020 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-11-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2011-2012
• Appeal Filed On: 11-11-2019
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SMR R PREMI
• Keywords: Business income; Transfer pricing; International transaction; Question of law; Avoidance of tax
• Section: 92C; 10AA; 234B; 10B; 201; 113; 92CA; 92

Judgement Text

IT(TP)A NO.2342/BANG/2019 M/S. EYGBS (INDIA) LLP, BENGALURU IN THE INCOME TAX APPELLATE TRIBUNAL CBENCH: BANGALORE BEFORE SHRI N.V. VASUDEVAN, VICE PRESIDENT AND SHRI B.R. BASKARAN, ACCOUNTANT MEMBER ITA NO.2342/BANG/2019 ASSESSMENTYEAR: 2011-12 EYGBS (INDIA) LLP (EARLIER KNOWN AS EYGBS (INDIA) PVT.LTD.) RMZ INFINITY TOWER C, 3 RD FLOOR OLD MADRAS ROAD K.R. PURAM BENGALURU-560 016. PAN NO :AAHFE0349K VS. DEPUTY COMMISSIONER OF INCOME-TAX CIRCLE-3(1)(2) BENGALURU APPELLANT RESPONDENT APPELLANT BY : SHRI RAJAN VORA, A.R. RESPONDENT BY : SMR. R. PREMI, D.R. DATE OF HEARING : 23.11.2020 DATE OF PRONOUNCEMENT : 23.11.2020 O R D E R PER B.R. BASKARAN, ACCOUNTANT MEMBER: THE ASSESSEE HAS FILED THIS APPEAL CHALLENGING THE ORDER DATED 13.9.2019 PASSED BY LD. CIT(A)-2, BENGALURU AND IT RELATES TO ASSESSMENT YEAR 2011-12. 2. AT THE TIME OF HEARING, THE LD. A.R. DID NOT PRE SS GROUND NO.2 AND HENCE, THE SAME IS DISMISSED AS NOT PRESSED. G ROUND 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 NA TURE. THE REMAINING GROUND RELATE TO DENIAL OF CLAIM OF DEDUC TION U/S 10AA OF IT(TP)A NO.2342/BANG/2019 M/S. EYGBS (INDIA) LLP, BENGALURU PAGE 2 OF 11 THE ACT ON TRANSFER PRICING ADJUSTMENT MADE BY THE ASSESSEE VOLUNTARILY. 2. THE LD. A.R. SUBMITTED THAT THE ASSESSEE IS 100% SU BSIDIARY OF EYGI B.V., NETHERLANDS. IT IS ENGAGED IN THE BU SINESS OF PROVIDING BACK OFFICE SUPPORT SERVICES, WHICH ARE I N 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 DETAI LS, TIME SHEET DETAILS ETC., ACCOUNTING CENTRE PROCESSING ACTIVITI ES/FUNCTIONS SUCH AS ACCOUNTS RECEIVABLE, ACCOUNTS PAYABLE FUNCTIONS, BILLING ANALYSIS AND INVOICE PREPARATION ETC AND FINANCIAL ASSISTANC E/ADMINISTRATION FUNCTIONS SUCH AS TIME AND EXPENSES REVIEW, HELPDES K PROVIDING ASSISTANCE ON EMPLOYEE QUERIES ETC. THE ASSESSEE IS REMUNERATED AT COST PLUS BASIS FOR THE SERVICES PROVIDED TO ITS AES. 3. THE LD. A.R. SUBMITTED THAT THE ONLY ISSUE CONTESTE D BEFORE THE TRIBUNAL RELATES TO ELIGIBILITY TO CLAIM DEDUCT ION U/S 10AA OF THE ACT ON TRANSFER PRICING ADJUSTMENT MADE BY THE ASSE SSEE VOLUNTARILY. HE SUBMITTED THAT THIS ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY THE BENGALURU BENCH OF TR IBUNAL, VIDE ITS ORDER DATED 20.5.2020 PASSED IN IT(TP)A NO.218/BANG /2015, PASSED IN THE ASSESSEES OWN CASE. 4. WE HEARD LD. D.R. AND PERUSED THE RECORD. WE NOTIC E THAT AN IDENTICAL ISSUE HAS BEEN EXAMINED BY THE BENGALURU BENCH OF TRIBUNAL IN THE ASSESSEES OWN CASE IN ASSESSMENT Y EAR 2010-11 AND IT HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE B Y FOLLOWING THE DECISION RENDERED BY THE PUNE BENCH OF TRIBUNAL IN THE CASE OF APOORVA SYSTEMS PVT. LTD. FOR THE SAKE OF CONVENIE NCE, WE EXTRACT BELOW THE RELEVANT PORTION OF THE ORDER OF THE TRIB UNAL PASSED IN ASSESSMENT YEAR 2010-11: IT(TP)A NO.2342/BANG/2019 M/S. EYGBS (INDIA) LLP, BENGALURU PAGE 3 OF 11 15. WE SHALL NOW TAKE UP THE APPEAL OF THE ASSESSEE. THE MAIN GROUND URGED BY THE ASSESSEE RELATES TO THE REJECTION OF CLAIM F OR DEDUCTION U/S 10AA OF THE ACT ON THE AMOUNT OF TRANSFER PRICING ADJUSTMENT VOLUNT ARILY MADE BY THE ASSESSEE. 16. THE ADDITIONAL GROUNDS RELATE TO THE INCLUSION/EXCL USION OF CERTAIN COMPARABLE COMPANIES. THE LD A.R SUBMITTED THAT TH E ASSESSEE MAY NOT PRESS THE ADDITIONAL GROUNDS, IF THE REVENUES APPEAL IS DISM ISSED. SINCE WE HAVE DISMISSED THE APPEAL OF THE REVENUE IN THE EARLIER PARAGRAPHS , THE ADDITIONAL GROUNDS URGED BY THE ASSESSEE ARE NOT ADJUDICATED, AS THE SAME WO ULD BE ACADEMIC IN NATURE. 17. WE HAVE NOTICED EARLIER THAT THE ASSESSEE HAD MADE TRANSFER PRICING ADJUSTMENT OF RS.8,11,70,000/- VOLUNTARILY AND ADDE D THE SAME TO THE TOTAL INCOME WHILE FILING RETURN OF INCOME. THE ASSESSEE ALSO C LAIMED DEDUCTION U/S 10AA OF THE ACT ON THE PROFITS OF BUSINESS ARRIVED AT AFTER INC LUSION OF ABOVE SAID AMOUNTS. THE LD DRP TOOK THE VIEW THAT THE ASSESSEE DID NOT FURN ISH THE DETAILS AS TO HOW THE ABOVE SAID FIGURE WAS ARRIVED AT BY THE ASSESSEE. IT FURTHER TOOK THE VIEW THAT THE ASSESSEE WILL NOT BE BRINGING THE ABOVE SAID AMOUNT IN FOREIGN EXCHANGE WITHIN THE PERIOD PRESCRIBED IN SEC.10AA OF THE ACT, WHICH IS ONE OF THE MANDATORY CONDITIONS FOR ALLOWING DEDUCTION UNDER THAT SECTION. THE LD DRP ALSO NOTICED THAT THE ELIGIBLE UNIT HAS ACTUALLY INCURRED LOSS AND HENCE THE ASSESSEE IS NOT ELIGIBLE TO CLAIM DEDUCTION U/S 10AA OF THE ACT. HOWEVER, THE ASSESSEE, BY MAKING VOLUNTARY TRANSFER PRICING ADJUSTMENT, IS ATTEMPTING TO AVAIL DEDUCTION U/S 10AA OF THE ACT AND THE SAME SHOULD NOT BE PERMITTED. THE LD DRP A LSO HELD THAT THE TRANSFER PRICING ADJUSTMENT DETERMINED BY THE TPO IS ADDED T O THE TOTAL INCOME FOR TAX PURPOSES, IRRESPECTIVE OF THE PROFITS/LOSS OF 10A/1 0AA 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 D ETERMINE THE VOLUNTARY T.P ADJUSTMENT IN ITS TRANSFER PRICING STUDY. ACCORDIN GLY, THE LD DRP HELD THAT THE DECISION RENDERED BY THE CO-ORDINATE BENCH IN THE C ASE OF I-GATE GLOBAL SOLUTIONS LTD (2007)(112 TTJ 1002) IS DISTINGUISHABLE. ACCO RDINGLY THE LD DRP DIRECTED THE AO TO DISALLOW THE DEDUCTION CLAIMED U/S 10AA I N 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 PRICI NG ADJUSTMENT. IT HAS ADDED THE AMOUNT OF VOLUNTARY TP ADJUSTMENT WHILE COMPUTING T HE REVISED MARGIN OF THE ASSESSEE, WHICH IS PLACED AT PAGE 680 OF THE PAPER BOOK. HE FURTHER SUBMITTED THAT THE ASSESSEE HAS ARRIVED AT THE AMOUNT OF VOLUNTARY T.P ADJUSTMENT IN A SCIENTIFIC MANNER BY COMPARING THE MARGINS OF COMPARABLE COMPA NIES SELECTED BY THE ASSESSEE. ACCORDINGLY HE SUBMITTED THAT THE LD DRP WAS NOT JUSTIFIED IN OBSERVING THAT THE SAME IS AN ADHOC AMOUNT. HE FURTHER SUBMI TTED THAT THE CO-ORDINATE BENCH HAS HELD IN THE CASE OF I-GATE GLOBAL SOLUTIONS LTD (SUPRA) HAS HELD THAT THE ASSESSEE IS ELIGIBLE FOR DEDUCTION U/S 10AA ON THE AMOUNT OF VOLUNTARY TP ADJUSTMENT. HE SUBMITTED THAT THE DECISION OF THE TRIBUNAL IN THE ABOVE SAID CASE HAS SINCE BEEN UPHELD BY THE HONBLE HIGH COURT OF KARNATAKA. HE FURTHER SUBMITTED THAT THE PUNE BENCH OF TRIBUNAL HAS RENDE RED A DECISION IN FAVOUR OF THE IT(TP)A NO.2342/BANG/2019 M/S. EYGBS (INDIA) LLP, BENGALURU PAGE 4 OF 11 ASSESSEE IN THE CASE OF APOORVA SYSTEMS (P) LTD (20 18)(92 TAXMANN.COM 82) BY CONSIDERING THE DECISION RENDERED IN THE CASE OF I- GATE GLOBAL SOLUTIONS LTD. ON THE CONTRARY, THE LD D.R SUPPORTED THE ORDER PASSED BY LD DRP ON THIS ISSUE. 19. WE NOTICE THAT AN IDENTICAL ISSUE HAS BEEN EXA MINED BY THE PUNE BENCH OF TRIBUNAL IN THE CASE OF APOORVA SYSTEMS (P) LTD (SU PRA). FOR THE SAME OF CONVENIENCE, WE EXTRACT BELOW THE RELEVANT OBSERVAT IONS MADE BY THE PUNE BENCH IN THE ABOVE SAID CASE:- 15. NOW, COMING TO THE SECOND CLAIM OF DEDUCTION UNDE R SECTION 10B/10A OF THE ACT ON TP ADJUSTMENT OF RS. 64,07,39 9/-. THE ASSESSEE ON ITS OWN MOTION HAD OFFERED ADJUSTMENT ON ACCOUNT OF TRANSFER PRICING PROVISION TO THE EXTENT OF RS. 64,07,399/-. THE COMPUTATION OF INCOME IS PLACED AT PAGE 40 OF THE PAPER BOOK. THE ASSESSEE CLAIMS THAT ON THE AFORESAID ADDITIONAL INCOME OFFERED, IT IS ENTITLED TO CLAIM THE BENEFIT OF DEDUCTION UNDER SECTION 10B/10A OF T HE ACT. WE MAY POINT HEREIN ITSELF THAT IN THE RETURN OF INCOME, T HE ASSESSEE HAD CLAIMED THE SAID DEDUCTION UNDER SECTION 10B OF THE ACT. HOWEVER, DURING THE COURSE OF HEARING BEFORE THE AUTHORITIES BELOW, THE SAID CLAIM WAS REVISED TO 10A DEDUCTION. THE QUESTION TH US, WHICH ARISES BEFORE US IS WHETHER THE ASSESSEE IS ENTITLED TO CL AIM 10A DEDUCTION ON THE ADDITIONAL TP ADJUSTMENT OFFERED BY THE ASSESSE E ON ITS OWN MOTION IN THE RETURN OF INCOME. THE ASSESSEE WAS 100% EXPO RT ORIENTED UNIT WHICH WAS CAPTIVE SERVICE PROVIDER TO ITS ASSOCIATE D ENTERPRISES. THE TOTAL EXPORTS WERE TO THE ASSOCIATED ENTERPRISES AN D THE PLEA OF ASSESSEE IN THIS REGARD IS THAT FOREIGN EXCHANGE DU E ON EXPORTS HAS BEEN RECEIVED IN INDIA IN TIME. IN ORDER TO ADJUDIC ATE THE ISSUE, WE NEED TO TAKE INTO CONSIDERATION THE PROVISIONS OF S ECTION STARTING WITH SECTION 92(1) OF THE ACT. THE CHAPTER X OF THE ACT LAYS DOWN THE SPECIAL PROVISIONS RELATING TO AVOIDANCE OF TAX. UN DER SECTION 92 OF THE ACT, ANY INCOME ARISING FROM INTERNATIONAL TRANSACT IONS SHALL BE COMPUTED HAVING REGARD TO THE ARM'S LENGTH PRICE. I N OTHER WORDS, SECTION PROVIDES COMPUTATION OF INCOME FROM INTERNA TIONAL TRANSACTIONS HAVING REGARD TO THE ARM'S LENGTH PRIC E. THE INCOME WHICH IS SO COMPUTED IN RESPECT OF INTERNATIONAL TR ANSACTIONS ENTERED INTO BY THE ASSESSEE IS NOTIONAL INCOME IN THE HAND S 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 L ENGTH PRICE OF SUCH AN INTERNATIONAL TRANSACTION AND TO COMPUTE ITS ARM 'S LENGTH PRICE UNDER SECTION 92C OF THE ACT, REFERENCE IS TO BE MA DE TO THE TPO BY THE ASSESSING OFFICER UNDER THE SPECIFIED CONDITIONS, W HO IN TURN HAS TO COMPUTE THE SAID ARM'S LENGTH PRICE IN THE HANDS OF ASSESSEE. IT(TP)A NO.2342/BANG/2019 M/S. EYGBS (INDIA) LLP, BENGALURU PAGE 5 OF 11 17. SECTION 92C(4) OF THE ACT PROVIDES THAT WHERE AN A RM'S LENGTH PRICE IS DETERMINED UNDER SUB-SECTION (3), THEN THE ASSES SING OFFICER MAY COMPUTE TOTAL INCOME OF ASSESSEE HAVING REGARD TO T HE ARM'S LENGTH PRICE SO DETERMINED. IN OTHER WORDS, THE ASSESSING OFFICER IS EMPOWERED TO COMPUTE TOTAL INCOME OF ASSESSEE IN RE LATION TO INTERNATIONAL TRANSACTIONS UNDERTAKEN BY THE ASSESS EE WITH ITS ASSOCIATED ENTERPRISES. THE PROVISO THEREIN PROVIDE S THAT NO DEDUCTION UNDER SECTION 10A/10AA OR 10B OR CHAPTER VI-A OF TH E ACT SHALL BE ALLOWED IN RESPECT OF SUCH AMOUNT OF INCOME, BY WHI CH THE TOTAL INCOME OF ASSESSEE HAD BEEN ENHANCED AFTER COMPUTAT ION OF ARM'S LENGTH PRICE OF INTERNATIONAL TRANSACTIONS. THE INC OME SO DETERMINED BY THE ASSESSING OFFICER BY FOLLOWING THE PROCEDURE LAID DOWN IN CHAPTER IS TO BE ADDED AS ADDITIONAL INCOME OF ASSE SSEE, ON WHICH NO DEDUCTION UNDER SECTION 10A/10AA OR CHAPTER VI-A OF THE ACT IS TO BE ALLOWED. 18. HOWEVER, IN THE FACTS OF PRESENT CASE BEFORE US, I T IS NOT THE ASSESSING OFFICER OR TPO WHO HAS DETERMINED THE ADD ITIONAL INCOME ON ACCOUNT OF TRANSFER PRICING PROVISIONS. THE ASSE SSEE ON ITS OWN MOTION HAS OFFERED ADDITIONAL INCOME ON ACCOUNT OF TRANSFER PRICING PROVISIONS TO THE EXTENT OF RS. 64,07,399/-. THE SA ID INCOME WAS OFFERED AS PART OF BUSINESS PROFITS OF ASSESSEE AND WAS DECLARED AS INCOME FROM BUSINESS IN THE COMPUTATION OF INCOME F ILED BY THE ASSESSEE. THE ISSUE WHICH ARISES IS WHETHER ON SUCH ADDITIONAL INCOME, THE ASSESSEE IS ENTITLED TO CLAIM THE BENEFIT OF SE CTION 10B/10A OF THE ACT. IN THE FIRST INSTANCE, IN THE PARAS HEREINABOV E, THE ASSESSEE IS FOUND TO BE ENTITLED TO CLAIM THE DEDUCTION UNDER S ECTION 10A OF THE ACT, WHICH HAS ALSO BEEN ALLOWED TO THE ASSESSEE IN EARLIER YEARS. CONSEQUENTLY, WE RESTRICT OUR OBSERVATIONS TO THE A FORESAID CLAIM WHETHER TO BE ALLOWED OR NOT IN THE CASE OF ASSESSE E UNDER SECTION 10A OF THE ACT. IN THIS REGARD, THERE IS NEED TO LOOK A T THE COMPUTATION PROVISIONS PROVIDED IN SUB-SECTION (4) TO SECTION 1 0A OF THE ACT. THE SAID SUB-SECTION READS AS UNDER: '10(A)(1).. (2) & (3) ** ** ** (4) FOR THE PURPOSES OF SUB-SECTIONS (1) AND (1A), THE PROFITS DERIVED FROM EXPORT OF ARTICLES OR THINGS OR COMPUTER SOFTW ARE SHALL BE THE AMOUNT WHICH BEARS TO THE PROFITS OF THE BUSINESS O F THE UNDERTAKING, THE SAME PROPORTION AS THE EXPORT TURNOVER IN RESPE CT OF SUCH ARTICLES OR THINGS OR COMPUTER SOFTWARE BEARS TO THE TOTAL T URNOVER 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 T HE AMOUNT WHICH IT(TP)A NO.2342/BANG/2019 M/S. EYGBS (INDIA) LLP, BENGALURU PAGE 6 OF 11 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 C ARRIED ON BY THE UNDERTAKING. THUS, THE FIRST STEP WE HAVE TO LOOK A T THE PROFITS DERIVED FROM EXPORT OF ARTICLES OR THINGS OF COMPUTER SOFTW ARE AND THE PROFITS OF BUSINESS OF UNDERTAKING. THE ADDITIONAL INCOME I S 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 EXPOR T PROCEEDS IN FOREIGN EXCHANGE IN RESPECT OF SUCH ADDITIONAL INCOME OFFER ED 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 O F BUSINESS. SUCH PROFIT OF BUSINESS IS NEITHER EXPORT TURNOVER NOR THE TOTA L TURNOVER OF ASSESSEE BUT IS ARTIFICIAL INCOME WHICH NEEDS TO BE TAXED IN THE HANDS OF ASSESSEE. CONSEQUENTLY, WE HOLD THAT THE SAID ARTIFICIAL INCO ME CANNOT BE PART OF EXPORT TURNOVER OR TOTAL TURNOVER THOUGH IT WILL BE PART OF PROFITS OF BUSINESS. SIMILE WHICH FOLLOWS I S THAT IN THE ABSENCE OF IT BEING OFFERED AS EXPORT TURNOVER OR TOTAL TUR NOVER, THEN THERE COULD NOT BE ANY CONDITION FOR GETTING FOREIGN EXCH ANGE TO INDIA. THE ASSESSEE HAS COMPUTED THE ADDITIONAL INCOME BY FOLL OWING THE TRANSFER PRICING PROVISIONS AND HAS OFFERED THE SAME TO TAX AS ITS BUSINESS PROFITS. ONCE IT HAS BEEN SO OFFERED TO TAX, IT FOR MS PART OF PROFITS OF BUSINESS AND WHILE COMPUTING THE DEDUCTION UNDER SE CTION 10A(4) OF THE ACT, THE SAID PROFITS HAVE TO BE TAKEN INTO CON SIDERATION AND THE DEDUCTION SO COMPUTED. 20. WE FIND THAT ON SIMILAR FACTS THE BANGALORE BENCH OF TRIBUNAL IN THE CASE OF IGATE GLOBAL SOLUTIONS LTD. (SUPRA) HAD ALLOWED THE DEDUCTION UNDER SECTION 10A OF THE ACT IN RESPECT O F TRANSFER PRICING ADJUSTMENT SUO-MOTO OFFERED BY THE ASSESSEE. THE RE LEVANT FINDINGS OF TRIBUNAL ARE AS UNDER: '17. WE HAVE HEARD BOTH THE PARTIES. BEFORE PROCEED ING FURTHER, IT WILL BE RELEVANT TO REPRODUCE SECTION 10A(1). 'SECTION 10A. SPECIAL PROVISION IN RESPECT OF NEWLY ESTABLISHED UNDERTAKINGS IN FREE TRADE ZONE, ETC.(1) SUBJECT T O THE PROVISIONS OF THIS SECTION A DEDUCTION OF SUCH PROFITS AND GAINS AS ARE DERIVED BY AN UNDERTAKING FROM THE EXPORT OF ARTICLES OR THINGS O R COMPUTER SOFTWARE FOR A PERIOD OF TEN CONSECUTIVE ASSESSMENT YEARS BE GINNING WITH THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WH ICH THE UNDERTAKING BEGINS TO MANUFACTURE OR PRODUCE SUCH ARTICLES OR T HINGS OR COMPUTER SOFTWARE, AS THE CASE MAY BE, SHALL BE ALLOWED FROM THE TOTAL INCOME OF THE ASSESSEE : PROVIDED THAT WHERE IN COMPUTING THE TOTAL INCOME O F THE UNDERTAKING FOR ANY ASSESSMENT YEAR, ITS PROFITS AND GAINS HAD NOT BEEN INCLUDED BY IT(TP)A NO.2342/BANG/2019 M/S. EYGBS (INDIA) LLP, BENGALURU PAGE 7 OF 11 APPLICATION OF THE PROVISIONS OF THIS SECTION AS IT STOOD IMMEDIATELY BEFORE ITS SUBSTITUTION BY THE FINANCE ACT, 2000, T HE UNDERTAKING SHALL BE ENTITLED TO DEDUCTION REFERRED TO IN THIS SUB-SE CTION ONLY FOR THE UNEXPIRED PERIOD OF THE AFORESAID TEN CONSECUTIVE A SSESSMENT YEARS : PROVIDED FURTHER THAT WHERE AN UNDERTAKING INITIALL Y LOCATED IN ANY FREE TRADE ZONE OR EXPORT PROCESSING ZONE IS SUBSEQUENTL Y LOCATED IN A SPECIAL ECONOMIC ZONE, BY REASON OF CONVERSION OF S UCH FREE TRADE ZONE POR EXPORT PROCESSING ZONE INTO A SPECIAL ECONOMIC ZONE, THE PERIOD OF TEN. CONSECUTIVE ASSESSMENT YEARS REFERRED TO IN TH IS SUB-SECTION SHALL BE RECKONED FROM THE ASSESSMENT YEAR RELEVANT TO TH E PREVIOUS YEAR IN WHICH THE (UNDERTAKING BEGAN TO. MANUFACTURE OR PRO DUCE SUCH ARTICLES OR THINGS OR COMPUTER SOFTWARE) IN SUCH FREE TRADE ZONE OR EXPORT PROCESSING ZONE : PROVIDED ALSO THAT FOR THE ASSESSMENT YEAR BEGINNIN G ON THE 1-4-2003, THE DEDUCTION UNDER THIS SUB-SECTION SHALL BE NINET Y PER CENT OF THE PROFITS AND GAINS DERIVED BY AN UNDERTAKING FROM TH E 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 O N THE 1-4-2010 AND SUBSEQUENT YEARS.' 18. SECTION 10A(4) HAS ALSO BEEN AMENDED WITH EFFEC T 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 BUS INESS, THE SAME, PROPORTION AS THE EXPORT TURNOVER IN RESPECT OF SUC H ARTICLE OR THING OR COMPUTER SOFTWARE, BEARS TO THE TOTAL TURNOVER OF T HE BUSINESS. WITH EFFECT FROM 1-4-2001, INSTEAD OF PROFITS OF THE BUS INESS, THE WORDS 'PROFIT OF THE BUSINESS OF THE UNDERTAKING HAVE BEE N SUBSTITUTED. THE WORD 'UNDERTAKING' HAS NOT BEEN DEFINED UNDER SECTI ON 10A. THE WORDS 'INDUSTRIAL UNDERTAKING' HAVE BEEN DEFINED IN THE B OOK LAW LEXICON BY VENKATARAMIYA, AT P. 1133 IT HAS BEEN DEFINED AS UN DER : 'THE EXPRESSION 'INDUSTRIAL UNDERTAKING' MUST HAVE A TECHNICAL AND ECONOMIC CONTENT. AN INDUSTRIAL UNDERTAKING WOULD N ORMALLY BE IN ITS ORDINARY EXCITATION SOME INDUSTRIAL CONCERN OR ENTE RPRISE FOR ADVENTURE WHICH IS UNDERTAKING TO BE DONE BY THE PE RSON CONCERNED. THE DEFINITION OF 'INDUSTRIAL UNDERTAKING IN SECTIO N 3(D) OF THE INDUSTRIAL DEVELOPMENT AND REGULATION ACT. 1951, ME ANS ANY UNDERTAKING PERTAINING TO A SCHEDULED INDUSTRY CARR IED ON IN ONE OR MORE FACTORIES BY ANY PERSON OR AUTHORITY INCLUDING GOVERNMENT. CIT V. TEXTILE MACHINERY CORPN. LTD. [1 971] 11 ITJ 105 AT PP. 112, 113 (CAL.) 75 CWN 186 (CAL.): AIR 1971 CAL. 1, SEE ALSO UNION OF INDIA V. SAKSERIA COTTON MILLS LTD. [ 1973] 75 BOM. L.R. 100 AT P. 105.' IT(TP)A NO.2342/BANG/2019 M/S. EYGBS (INDIA) LLP, BENGALURU PAGE 8 OF 11 19. INDUSTRIAL UNDERTAKING HAS BEEN DEFINED IN SECT ION 33B OF THE INCOME-TAX ACT FOR THAT SECTION. AS PER THIS DEFINI TION, INDUSTRIAL UNDERTAKING' MEANS AN UNDERTAKING, WHICH IS MAINLY ENGAGED IN THE BUSINESS OF GENERATION OR DISTRIBUTION OF ELECTRICI TY OR ANOTHER FORM OF POWER OR IN THE CONSTRUCTION OF SHIPS OR IN THE MAN UFACTURE OR PROCESSING OF GOODS OR IN MINING. HENCE, THE MEANIN G OF 'INDUSTRIAL UNDERTAKING' IS NOT RESTRICTED TO ONE UNIT. THE UND ERTAKING IS TO BE CONSIDERED AS CONSISTING OF A NUMBER OF UNITS PROVI DED ALL THE UNITS ARE ENGAGED IN ANY OF THE ACTIVITIES MENTIONED IN EXPLA NATION TO SECTION 33B. INDUSTRIAL UNDERTAKING HAS ALSO BEEN DEFINED I N EXPLANATION TO SECTION 10(15). 20. BEFORE US, IT HAS NOT BEEN CLARIFIED THAT PUNE UNIT IS AN INDEPENDENT UNIT AND IS IN NO WAY RELATED WITH THE ACTIVITIES C ARRIED OUT AT BANGALORE OR CHENNAI UNIT. IN ABSENCE OF THE FACTS, IT IS NOT POSSIBLE TO SAY THAT PUNE UNIT WAS AN INDEPENDENT UNDERTAKING E NGAGED IN THE BUSINESS OF SOFTWARE DEVELOPMENT, WHICH WAS IN NO W AY RELATED TO THE SOFTWARE DEVELOPMENT DONE AT BANGALORE OR CHENNAI U NIT. IN CASE, THE PUNE UNIT IS FOUND TO BE INDEPENDENT, THEN LOSS FRO M SUCH UNIT IS TO BE INDEPENDENTLY CALCULATED. IN CASE SUCH UNIT IS ASSO CIATED WITH THE ACTIVITIES, WHICH ARE CARRIED OUT AT BANGALORE OR C HENNAI UNIT, THEN PUNE UNIT WILL BE CONSIDERED AS PART OF THAT UNDERT AKING. HENCE, THE ISSUE OF ASCERTAINING AS TO WHETHER PUNE UNIT WAS A N INDEPENDENT UNIT OR A UNIT ASSOCIATED WITH ACTIVITIES OF OTHER TWO U NITS 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 ACTI VITIES DONE IN OTHER TWO UNITS, THEN IT WILL BE CONSIDERED AS PART OF TH E 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 INDEPE NDENT 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 ALLOWIN G 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 ENTER ED INTO TRANSACTION WITH ASSOCIATED ENTERPRISE. THE ASSESSEE COMPANY DE TERMINED ARM'S LENGTH PRICE AND ACCORDINGLY MADE ADJUSTMENT TO THE INCOME BECAUSE ARM'S LENGTH PRICE DETERMINED WAS MORE THAN THE CON SIDERATION, AT WHICH THE TRANSACTIONS WERE SHOWN IN THE BOOKS OF A CCOUNT. THE DEDUCTION UNDER SECTION 10A HAS NOT BEEN ALLOWED AS PER PROVISO TO SECTION 92C(4). AS PER THIS PROVISO, NO DEDUCTION U NDER SECTION 10A OR 10B OR UNDER CHAPTER VI-A IS TO BE ALLOWED IN RESPE CT OF AMOUNT OF INCOME, BY WHICH THE TOTAL INCOME OF THE ASSESSEE I S ENHANCED AFTER COMPUTATION OF INCOME UNDER THE SUB-SECTION. THE. L EARNED AUTHORISED REPRESENTATIVE DURING THE COURSE OF PROCEEDINGS HAS REFERRED TO THE IT(TP)A NO.2342/BANG/2019 M/S. EYGBS (INDIA) LLP, BENGALURU PAGE 9 OF 11 WORD 'ENHANCED'. IN CASE THE INCOME IS ENHANCED, TH EN DEDUCTION IS NOT PERMISSIBLE. HOWEVER, IN THE INSTANT CASE, INCOME H AS NOT BEEN ENHANCED BECAUSE THE SAME WAS ALREADY RETURNED BY T HE ASSESSEE. IN THE MEMO EXPLAINING THE PROVISIONS OF FINANCE BILL, 2006, IT HAS BEEN MENTIONED AS UNDER : [2006] 201 CTR (ST) 147 : [2006] 281 ITR (ST) 196 'UNDER SUB-SECTION (4), IT HAS BEEN PROVIDED THAT O N THE BASIS OF ARM'S LENGTH PRICE SO DETERMINED, THE ASSESSING OFFICER M AY COMPUTE THE TOTAL INCOME OF AN ASSESSEE. THE FIRST PROVISO TO S UB-SECTION (4) PROVIDES THAT WHERE THE TOTAL INCOME OF THE ASSESSE E AS COMPUTED BY ASSESSING OFFICER IS HIGHER THAN THE INCOME DECLARE D BY THE ASSESSEE, NO DEDUCTION UNDER SECTION 10A OR SECTION 10B OR UN DER CHAPTER VI-A WILL BE ALLOWED IN RESPECT OF THE AMOUNT OF INCOME, BY WHICH THE TOTAL INCOME OF THE ASSESSEE IS ENHANCED AFTER COMPUTATIO N OF INCOME UNDER SUB-SECTION.' 23. FROM THE MEMO EXPLAINING THE PROVISIONS OF FINA NCE BILL, 2006 AS WELL AS FROM THE LITERAL MEANING OF THE WORD 'ENHAN CED', IT IS CLEAR THAT IF INCOME INCREASED, AS A RESULT OF COMPUTATION OF AIM'S LENGTH PRICE, THEN SUCH INCREASE IS NOT TO BE CONSIDERED FOR DEDU CTION UNDER SECTION 10A.IN THE INSTANT CASE, THE ASSESSEE HIMSELF HAS C OMPUTED THE ARM'S LENGTH PRICES AND HAS DISCLOSED THE INCOME ON THE B ASIS OF ARM'S LENGTH PRICES. IT IS NOT A CASE, WHERE THERE IS AN ENHANCE MENT OF INCOME DUE TO DETERMINATION OF ARM'S LENGTH PRICE. HENCE, IT IS H ELD THAT ASSESSEE WAS ENTITLED TO DEDUCTION UNDER SECTION 10A IN RESPECT OF INCOME DECLARED IN THE RETURN OF INCOME ON THE BASIS OF COMPUTATION OF ARM'S LENGTH PRICE.' 21. THE HON'BLE HIGH COURT OF KARNATAKA IN ITS ORDER I N THE CASE OF IGATE GLOBAL SOLUTIONS LTD. (SUPRA) CONSIDERED T HE FOLLOWING SUBSTANTIAL QUESTION OF LAW RAISED BY THE REVENUE. '(4) WHETHER THE TRIBUNAL WAS CORRECT IN HOLDING TH AT DEDUCTION U/S. 10A OF THE ACT IS ALLOWABLE IN RESPECT OF INCOME CO MPUTED 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 ORD ER HELD AS UNDER: '5. IN SO FAR AS SUBSTANTIAL QUESTION OF LAW NO.4 I S CONCERNED, THE ERROR COMMITTED BY THE ASSESSING OFFICER WAS RELYING ON S ECTION 92(C)(4) TO A CASE WHERE ARM'S LENGTH PRICE WAS DETERMINED BY T HE ASSESSEE, WHEREAS THE SAID PROVISION APPLIES TO A CASE WHERE ARM'S LENGTH PRICE WAS DETERMINED BY THE ASSESSING OFFICER. THAT MISTA KE HAS BEEN CORRECTED BY THE TRIBUNAL BY SETTING ASIDE THE ORDE R PASSED BY THE COMMISSIONER AS WELL AS THE ASSESSING AUTHORITY. IT(TP)A NO.2342/BANG/2019 M/S. EYGBS (INDIA) LLP, BENGALURU PAGE 10 OF 11 6. IN THAT VIEW OF THE MATTER, WE DO NOT SEE ANY ER ROR 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 HI GH COURT OF KARNATAKA IN THE CASE OF IGATE GLOBAL SOLUTIONS LTD . (SUPRA), WHEREIN THE ASSESSEE'S CLAIM FOR DEDUCTION UNDER SECTION 10 A OF THE ACT IN RESPECT OF SUO-MOTO TP ADJUSTMENT MADE BY THE ASSES SEE, HAS BEEN ALLOWED. 24 . THE BANGALORE BENCH OF TRIBUNAL IN A LATER DECISI ON IN THE CASE OF AUSTIN MEDICAL SOLUTIONS (P.) LTD. (SUPRA) HAS A PPLIED THE SAID PROPOSITION OF THE HON'BLE HIGH COURT OF KARNATAKA (SUPRA) AND HAD ALLOWED THE DEDUCTION CLAIMED UNDER SECTION 10A OF THE ACT IN RESPECT OF SUO-MOTO TP ADJUSTMENT AMOUNTING TO RS. 28,61,35 2/- WHILE DETERMINING THE ARM'S LENGTH PRICE OF INTERNATIONAL TRANSACTIONS. 25. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE RE VENUE ON THE OTHER HAND, HAD PLACED RELIANCE ON THE RATIO LAID D OWN BY MUMBAI BENCH OF TRIBUNAL IN DELOITTE CONSULTING INDIA PVT. LTD.'S CASE (SUPRA), WHICH DOES NOT STAND BECAUSE OF THE RATIO LAID DOWN BY THE HON'BLE HIGH COURT OF KARNATAKA ON THE SAID ISSUE. THOUGH T HE SAID DECISION IS OF NON-JURISDICTIONAL HIGH COURT, BUT THE SAME IS B INDING ON THE TRIBUNAL IN THE ABSENCE OF ANY CONTRARY DECISION OF THE JURISDICTIONAL HIGH COURT AS HELD BY THE HON'BLE BOMBAY HIGH COURT IN SMT. GODAVARIDEVI SARAF 'S CASE (SUPRA). THE LEARNED AUT HORIZED REPRESENTATIVE FOR THE ASSESSEE HAS ALSO PLACED REL IANCE ON VARIOUS DECISIONS OF DIFFERENT BENCHES OF TRIBUNAL FOR THE PROPOSITION THAT THE DECISION OF NON-JURISDICTIONAL HIGH COURT IS BINDIN G ON THE TRIBUNAL. HOWEVER, THE ISSUE STANDS COVERED BY THE JURISDICTI ONAL HIGH COURT AND APPLYING THE SAID PROPOSITION AND IN VIEW OF OU R DECISIONS IN THE PARAS HEREINABOVE ON OTHER ISSUES RAISED IN THE PRE SENT APPEAL, WE HOLD THAT THE ASSESSEE IS ENTITLED TO CLAIM THE AFO RESAID DEDUCTION UNDER SECTION 10A OF THE AC ON ADDITIONAL INCOME OF FERED ON ACCOUNT OF SUO-MOTO ADJUSTMENT ON ACCOUNT OF TRANSFER PRICI NG PROVISIONS. THE PROVISIONS OF SECTION 92C(4) OF THE ACT ARE NOT ATT RACTED. THE MODIFIED GROUND OF APPEAL NO.4 RAISED BY THE ASSESSEE IS THU S, ALLOWED. IDENTICAL VIEW HAS BEEN EXPRESSED BY THE DELHI BENC H OF TRIBUNAL IN THE CASE OF AT KEARNEY INDIA P LTD (ITA NO.2623/DEL/2015 DATED 21. 06.2019). ACCORDINGLY WE HOLD THAT THE ASSESSEE IS ELIGIBLE FOR DEDUCTION U/ S 10AA OF THE ACT IN RESPECT OF VOLUNTARY TRANSFER PRICING ADJUSTMENT MADE BY IT. WE DIRECT ACCORDINGLY. 5. CONSISTENT WITH THE VIEW TAKEN IN THE ASSESSEES OWN CASE, WE HOLD THAT THE ASSESSEE IS ELIGIBLE FOR DEDUCTION U/ S 10AA OF THE ACT IT(TP)A NO.2342/BANG/2019 M/S. EYGBS (INDIA) LLP, BENGALURU PAGE 11 OF 11 IN RESPECT OF VOLUNTARY TRANSFER PRICING MADE BY IT . WE DIRECT ACCORDINGLY. 6. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 23 RD NOV, 2020. SD/- (N.V. VASUDEVAN) VICE PRESIDENT SD/- (B.R. BASKARAN) ACCOUNTANT MEMBER BANGALORE, DATED 23 RD NOV, 2020. VG/SPS COPY TO: 1. THE APPLICANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASST. REGISTRAR, ITAT, BANGALORE.