Assistant Commissioner of Income Tax Circle-2(1)(2), Bangalore V. M/s EYGBS India Pvt Ltd , Bangalore

ITA 2984/BANG/2018

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 7683 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 9 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-08-2020
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 20-08-2020
• Assessment Year: 2014-2015
• Appeal Filed On: 05-11-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: RAJAN VORA SR
• Keywords: Transfer pricing; International transaction; Wholly owned subsidiary
• Section: 10AA; 10B; 201; 92CA; 2; 92

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI N V VASUDEVAN, VICE PRESIDENT AND SHRI G MANJUNATHA , ACCOUNTANT MEMBER IT A NO. 2984/BANG/2018 ASSESSMENT YEAR: 2014 - 15 THE ASST. COMMISSIONER OF INCOME TAX, CIRCLE 2(1)(2), BANGALORE. VS. M/S. EYGBS INDIA PVT. LTD., RMZ INFINITY TOWER C, 3 RD FLOOR, OLD MADRAS ROAD, BENNIGANAHALLI, K R PURAM, BANGALORE 560 076, PAN: AABCE 6565A APPELLANT RESPONDENT APPELLANT BY : SHRI PRIYADARSHI MISHRA, JT.CIT(DR)(ITAT), BENG ALURU. RESPONDENT BY : SHRI RAJAN VORA, SR. COUNSEL DATE OF HEARING : 20 .0 8 .2020 DATE OF PRONOUNCEMENT : 31 .0 8 .2020 O R D E R PER N.V. VASUDEVAN, VICE PRESIDENT THIS APPEAL BY THE REVENUE IS AGAINST THE ORDER DATED 18.7.2018 OF THE CIT(APPEALS)-2, BENGALURU FOR THE ASSESSMENT YE AR 2014-15. 2. THE GROUNDS OF APPEAL RAISED BY THE REVENUE REA DS AS FOLLOWS:- CIT(A) HAS ERRED IN INTERPRETING THE 1ST PROVISO O F SECTION 92C(4) OF THE INCOME TAX ACT BY UNNECESSARILY INSER TING THE WARDS 'VOLUNTARY' BEFORE THE 'ENHANCEMENT OF INCOME ' AFTER THE COMPUTATION OF INCOME ULS 92C(4). CIT(A) HAS ERRED IN NOT REALIZING THAT THE 1ST PROV ISO OF SECTION 92C(4) IS TRIGGERED WHEN THE INCOME COMPUTATION FOR DEDUCTION ITA NO.2984/BANG/2018 PAGE 2 OF 8 U/S 10AA IS ENHANCED ONLY IN THE COMPUTATION OF INC OME AND NO SUCH ENTRIES ARE MADE IN THE BOOKS OF ACCOUNT. 3. THE ASSESSEE IS A WHOLLY OWNED SUBSIDIARY OF EYG I B.V., NETHERLANDS, ENGAGED IN THE BUSINESS OF PROVIDING B ACK OFFICE SUPPORT SERVICES IN THE NATURE OF INFORMATION TECHNOLOGY EN ABLED SERVICES (ITES) TO ITS ASSOCIATED ENTERPRISES ('AES'). 4. THE TRANSACTION OF PROVIDING ITES TO AE WAS AN I NTERNATIONAL TRANSACTION AND THE PRICE RECEIVED BY THE ASSESSEE FROM AE HAS TO PASS THE TEST OF ARMS LENGTH PRICE [ALP] AS LAID DOWN I N SECTION 92 OF THE INCOME-TAX ACT, 1961 [THE ACT]. THE ASSESSEE FILE D ITS ORIGINAL RETURN OF INCOME ON 27.11.2014 DECLARING INCOME OF RS.17,15,7 6,040 AFTER CLAIMING DEDUCTION UNDER CHAPTER VI-A OF RS.3,17,588 AND DED UCTION UNDER SECTION 10AA OF RS.2,83,77.353 OUT OF GROSS TOTAL INCOME OF RS.20,02,70,978. THE ASSESSEE HAD DECLARED VOLUNTARY TRANSFER PRICING AD JUSTMENT OF RS.7,15,00,000/- (RS.1.54.00,000/- PERTAINING TO TH E STPI UNIT AND RS.5,61,00,000/- PERTAINING TO THE SEZ UNIT). 5. THE ASSESSEE ENTERED INTO AN ADVANCE PRICING AGR EEMENT (APA) WITH THE CBDT ON 16.03 2016 AS PER SECTION 92CD(1) OF ACT. THE ASSESSEE FILED A MODIFIED RETURN OF INCOME ON 29.06 2016. IN THE APA SIGNED WITH THE CBDT, THE ASSESSEE HAD AGREED TO RE COVER PROFIT MARGIN AT 17.5% [GROSSED UP WITH INCOME TAX AND DIVIDEND DIST RIBUTION TAX WHICH AGGREGATES TO 20.58% FOR AY 2014-15] FOR SERVICES R ENDERED TO ITS AES. 6. IN THE MODIFIED RETURN FILED IN COMPLIANCE TO SE CTION 92CD OF THE ACT. THE ASSESSEE DECLARED A TAXABLE INCOME OF RS.20.36. 52,110 AFTER CLAIMING DEDUCTION OF RS. 3,95,10.280 UNDER SECTION 10AA OF THE ACT ON THE INCOME FROM GURGAON SEZ UNIT. THE TOTAL ALP ADJUSTMENT DON E BY THE ASSESSEE PURSUANT TO APA IN THE MODIFIED RETURN WAS RS.11,47 ,09,000 ITA NO.2984/BANG/2018 PAGE 3 OF 8 (RS.2,80,29.000 PERTAINING TO THE STPI UNIT AND RS. 8,66,80,000 PERTAINING TO THE SEZ UNIT). 7. DURING THE ASSESSMENT PROCEEDINGS, THE AO REFERR ED THE MATTER TO THE TRANSFER PRICING OFFICER [TPO] FOR DETERMINATIO N OF ALP OF INTERNATIONAL TRANSACTIONS ENTERED INTO BY THE ASSESSEE. IN COM PLIANCE WITH APA TERMS, THE ASSESSEE HAD FILED THE ANNUAL COMPLIANCE REPORT WITH THE TPO ON 14.06.2016, PURSUANT TO WHICH THE TPO VIDE ORDER DA TED 25.04.2017 ACCEPTED THE INTERNATIONAL TRANSACTION ENTERED BY THE ASSESSEE, AS AT ARM'S LENGTH. 8. THE ASSESSEE CLAIMED DEDUCTION U/S. 10AA OF THE ACT IN RESPECT OF THE VOLUNTARY TP ADJUSTMENT MADE IN THE REVISED RET URN OF INCOME IN RESPECT OF TP ADJUSTMENT VOLUNTARILY MADE OF THE SE Z UNIT AT GURGAON WHICH UNIT WAS ELIGIBLE FOR DEDUCTION U/S. 10AA OF THE ACT. THE AO DENIED THE REVISED CLAIM OF DEDUCTION U/S. 10AA. 9. THE AO GAVE THE FOLLOWING REASONS FOR HIS ACTION :- IT APPEARS THAT THE ASSESSEE HAS DECLARED VOLUNTARY TRANSFER PRICING ADJUSTMENT ONLY IN ANTICIPATION OF TP ADJUS TMENTS BY THE TPO AND TO AVOID RIGORS OF SECTION 92C(4) OF THE ACT; ASSESSEE HAS FAILED TO SUBSTANTIATE AND FURNISH AS TO HOW THE AMOUNT OF RS.8,66,80,000 BEING TP ADJUSTMENT HA S ARISEN OUT OF THE ELIGIBLE UNIT AND TO BE TREATED A S ELIGIBLE UNIT: AND THAT THE CLAIM OF ENHANCED DEDUCTION ON T HE BASIS OF THE APA IS NOT ARISING OUT OF THE PROFITS OF THE ELIGIBLE UNIT: AND THE AMOUNT OF TP ADJUSTMENT ALLEGED AS DEEMED INCOM E FOR THE PURPOSE OF BEING PART OF PROFITS OF BUSINES S OF THE UNDERTAKING IS CLEARLY NOT ALLOWABLE AS PER PROVISI ONS OF SECTION 2(24) OF THE ACT. ITA NO.2984/BANG/2018 PAGE 4 OF 8 10. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE PREFERRED AN APPEAL BEFORE CIT(A). 11. THE LEARNED CIT(A) AFTER CONSIDERING THE SUBMIS SIONS FILED BY THE ASSESSEE AND RELYING ON THE ORDER OF HON'BLE KARNAT AKA HIGH COURT IN CASE OF I-GATE GLOBAL SOLUTION LTD (SUPRA) AND ORDER OF PRE DECESSOR CIT(A) FOR AY 2013-14 , ITA NO.453 OF 2008 DATED 17.07.2014 ALLOWED THE C LAIM OF DEDUCTION UNDER SECTION 10AA IN RESPECT OF ALP ADJU STMENT PURSUANT TO APA OF RS.8,66,80,000/- IN RESPECT OF GURGAON SEZ U NIT TERMING IT AS VOLUNTARY ADJUSTMENT NOT HIT BY PROVISIONS OF SECTI ON 92C(4). 12. AGGRIEVED BY THE ORDER OF THE CIT(A), DEPARTME NT HAS PREFERRED AN APPEAL BEFORE THE TRIBUNAL. THE LD. DR RELIED ON T HE ORDER OF THE AO, WHILE THE LD. COUNSEL FOR THE ASSESSEE RELIED ON THE ORDE R OF THE CIT(APPEALS). 13. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. THE FIRST ASPECT WHICH WE NOTICE IS THAT ACCORDING TO THE COMPUTATION MECH ANISM PROVIDED UNDER THE APA AGREEMENT, THE ASSESSEE WORKED OUT THE ALP ADJUSTMENT OF RS.11,47,09.000/- (RS.2.80.29.000 PERTAINING TO THE STPI UNIT AND RS.8,66.80,000 PERTAINING TO THE GURGAON SEZ UNIT), WHICH HAS BEEN OFFERED TO TAX IN MODIFIED RETURN FILED IN ACCORDAN CE WITH APA TERMS. THE ALP ADJUSTMENT MADE BY THE ASSESSEE PURSUANT TO APA IS A VOLUNTARY TRANSFER PRICING ADJUSTMENT AND IS THEREFORE ELIGIB LE FOR DEDUCTION UNDER SECTION 10AA OF THE ACT, AS SECTION 10AA(1) READ WI TH 10AA(7) OF THE ACT USES THE EXPRESSION PROFITS AND GAINS DERIVED FROM THE EXPORT OF THE UNIT WHICH IS WIDE IN NATURE AND COVERS THE INCREASED PR OFITS OF THE COMPANY AFTER MAKING THE ALP ADJUSTMENT PURSUANT TO APA. 14. SECTION 10AA(1) OF THE ACT PROVIDES FOR DEDUCTI ON OF SUCH PROFITS AND GAINS AS ARE DERIVED BY A UNIT FROM EXPORTS. IN THI S REGARD. SECTION 10AA(7) OF THE ACT PROVIDES THAT FOR THE PURPOSE OF SECTION 10AA(1), PROFITS DERIVED ITA NO.2984/BANG/2018 PAGE 5 OF 8 FROM EXPORT OF ARTICLES OR THINGS OR SERVICES (INCL UDING COMPUTER SOFTWARE) SHALL BE THE AMOUNT WHICH BEARS TO THE 'PROFITS OF THE BUSINESS OF THE UNDERTAKING. BEING THE UNIT', THE SAME PROPORTION A S THE EXPORT TURNOVER BEARS TO THE TOTAL TURNOVER OF THE BUSINESS CARRIED ON BY THE UNDERTAKING. ACCORDINGLY, SECTION 10AA SPECIFICALLY PROVIDES A F ORMULA FOR COMPUTATION OF 'PROFITS DERIVED FROM EXPORT OF ARTICLES OR THIN GS OR COMPUTER SOFTWARE' AND SECTION 10AA(7) OF THE ACT, USES THE EXPRESSION 'PR OFITS OF THE BUSINESS OF THE UNDERTAKING. BEING THE UNIT' WHICH IS UNLIKE TH E DEDUCTIONS SPECIFIED IN SECTIONS 801, 80IA, 80IB. ETC WHICH DO NOT PROVIDE FOR A SPECIFIC FORMULA TO ARRIVE AT THE QUALIFYING PROFITS I.E. 'PROFITS AND GAINS DERIVED BY/FROM AN UNDERTAKING'. FURTHER, THE TERM ' PROFITS OF THE BUSINESS OF THE UNDERTAKING ' IS FAR WIDER IN ITS SCOPE THAN ' PROFITS AND GAINS DERIVED BY/FROM AN UNDERTAKING '. ACCORDINGLY. ALP ADJUSTMENT MADE PURSUANT TO APA WOULD FALL WITHIN AMBIT OF SCOPE OF DEDUCTION. 15. IN THE FOLLOWING DECISIONS, IT HAS BEEN HELD TH AT THE WORD ' DERIVED BY AN UNDERTAKING OF THE BUSINESS ' IN SECTION 10A AND 10B ARE FAR WIDER TO INCLUDE ANCILLARY INCOME AS WELL WITHIN ITS AMBIT:- HEWLETT PACKARD GLOBAL SOFT LTD. [2018] 403 ITR 453 (KARNATAKA) (FB); MOTOROLA INDIA ELECTRONICS (P.) LTD. [2014] 265 CTR 94 (KARNATAKA) RIVIERA HOME FURNISHING [2016] 65 TAXMANN.COM 287 ( DELHI) MARAL OVERSEAS LIMITED [2012] 136 ITD 177 (INDORE - TRIB.) (SB) HRITHIK EXPORTS (P.) LTD. [IT APPEAL NO. 219 OF 201 4, DATED 13.11.2014 MERCER CONSULTING (INDIA) (P.) LTD. [2014] 150 ITD 1'(DELHI TRIB.) 16. WE THEREFOR HOLD THAT INCOME OFFERED TO TAX PU RSUANT TO VOLUNTARY TRANSFER PRICING ADJUSTMENT SHOULD BE REGARDED AS P ROFITS OF BUSINESS FOR THE PURPOSE OF COMPUTING DEDUCTION U/S. 10AA OF THE ACT. 17. THE NEXT ASPECT WHICH REQUIRES CONSIDERATION IS AS TO, WHETHER ALP ADJUSTMENT PURSUANT TO APA FALLS WITHIN THE AMBIT O F PROVISO TO SECTION 92C(4) OF THE ACT. PROVISIONS OF SECTION 92C(4) R EADS AS FOLLOWS:- ITA NO.2984/BANG/2018 PAGE 6 OF 8 'WHERE AN ARM'S LENGTH PRICE IS DETERMINED BY THE A SSESSING OFFICER UNDER SUB-SECTION (3). THE ASSESSING OFFICE R MAY COMPUTE THE TOTAL INCOME OF THE ASSESSEE HAVING REGARD TO T HE ARM'S LENGTH PRICE SO DETERMINED. PROVIDED THAT NO DEDUCTION UNDER SECTION 10A OR SEC TION 10AA OR SECTION 10B OR UNDER CHAPTER VL-A SHALL BE ALLOWED IN RESPECT OF THE AMOUNT OF INCOME BY WHICH THE TOTAL INCOME OF T HE ASSESSEE IS ENHANCED AFTER COMPUTATION OF INCOME UNDER THIS SUB-SECTION. 18. ON A READING OF THE ABOVE PROVISO TO SECTION 92 C(4) OF THE ACT, IT MAY BE NOTED THAT THE ACT SPECIFICALLY DENIES CLAIM OF DEDUCTION UNDER SECTION 10AA OF THE ACT ON ANY ADJUSTMENT MADE BY T HE TRANSFER PRICING OFFICER UNDER SECTION 92CA OF THE ACT. THUS, THE TA XPAYER IS NOT ELIGIBLE TO CLAIM THE DEDUCTION UNDER SECTIONL0AA OF THE ACT ON THE ENHANCED INCOME ON ACCOUNT OF TP ADJUSTMENT MADE BY THE TPO. HOWEV ER, ON THE CONTRARY, INCREASED INCOME ON ACCOUNT OF VOLUNTARY TRANSFER P RICING ADJUSTMENT OR ALP ADJUSTMENT PURSUANT TO APA, MADE BY THE ASSESSE E WOULD BE ELIGIBLE FOR CLAIMING DEDUCTION UNDER SECTION 10AA OF THE AC T. 19. THE ALLOWABILITY OF DEDUCTION UNDER SECTION 1 0AA IN RESPECT OF VOLUNTARY TRANSFER PRICING ADJUSTMENT IN THE CASE O F ASSESSEE FOR AY 2013- 14 CAME UP FOR CONSIDERATION BEFORE CIT(A) AND IT W AS HELD AS FOLLOWS:- IT IS SEEN THAT APPELLANT AS WELL AS THE AO HAV E ACCEPTED IN PRINCIPLE THAT THE ISSUE HAS BEEN DEALT WITH BY THE JURISDICTIONAL HIGH COURT IN THE CASE OF L-GATE GLOBAL SOLUTIONS P VT LTD IN ORDER DATED 17.6.2014 IN ITA 453/2008 HOLDING THAT THE BE NEFIT OF SECTION 10AA IS TO BE ALLOWED IN RESPECT OF VOLUNTA RY TRANSFER PRICING ADJUSTMENT. FOLLOWING THE ORDER OF JURISDIC TIONAL HIGH COURT IN THE CASE (SUPRA). IN THE CASE OF APPELLANT ALSO. THE APPELLANT IS ENTITLED TO BENEFIT UNDER SECTION 10AA IN RESPECT OF VOLUNTARY TRANSFER PRICING ADJUSTMENT WHICH STAND O N DIFFERENT FOOTING AS COMPARED TO THE TRANSFER PRICING ADJUSTM ENT MADE BY THE TPO. IT IS HELD ACCORDINGLY. ITA NO.2984/BANG/2018 PAGE 7 OF 8 20. THE AFORESAID ORDER OF THE CIT(APPEALS) FOR AY 2013-14 ON THE SAID ISSUE HAS BEEN ACCEPTED BY THE DEPARTMENT AND NO FU RTHER APPEAL BEFORE THE TRIBUNAL HAS BEEN FILED BY DEPARTMENT. 21. FURTHER, THE ITAT BANGALORE IN ASSESSEES OWN C ASE FOR AY 2010-11 (ITA 199/BANG/2015) DATED 20 MAY, 2020 RELYING ON T HE DECISION OF HON'BLE KARNATAKA HIGH COURT IN CASE OF I-GATE GLOBAL SOLUTIONS LTD (SUPRA) , PUNE TRIBUNAL DECISION IN CASE OF APOORVA SYSTEMS (P) LTD (92 TAXMANN.COM 82) AND DELHI TRIBUNAL IN CASE OF AT KEARNEY INDIA PRIVATE LIMITED (ITA NO 2623/DE1/2015) DATED 21 JUNE 2019 HELD THAT ASSESSE E WAS ELIGIBLE TO CLAIM DEDUCTION UNDER SECTION 10AA IN RESPECT OF VO LUNTARY TRANSFER PRICING ADJUSTMENT MADE ON SCIENTIFIC BASIS IN THE COMPUTAT ION OF INCOME IN RESPECT OF GURQAON SEZ UNIT AS SAME WAS NOT HIT BY PROVISO TO SECTION 92C(4) OF THE ACT. 22. THE ITAT BANGALORE IN CASE OF IBM INDIA PVT LTD (59 CCH 260) DATED 31 JULY 2020 , FOLLOWING THE DECISION OF PUNE TRIBUNAL IN CASE OF DAR AL HANDASAH CONSULTANTS (SHAIR & PARTNERS) INDIA PV T LTD (2020) 203 TTJ 0218 (PUNE) , HAS HELD THAT DEDUCTION UNDER SECTION 10AA OF THE ACT HAS TO BE ALLOWED ON INCREMENTAL INCOME ARISEN PURSUANT T O APA AS PER MODIFIED RETURN FILED UNDER SECTION 92CD OF THE ACT AS SAME IS NOT HIT BY PROVISO TO SECTION 92C(4) OF THE ACT. 23. ACCORDINGLY, IN LIGHT OF THE ABOVE JUDICIAL PRE CEDENTS, WE HOLD THAT THE ALP ADJUSTMENT MADE PURSUANT TO APA BY THE ASSE SSEE IN RESPECT OF GURQAON SEZ UNIT RESULTS IN INCREASE IN PROFITS OF THE BUSINESS OF THE UNDERTAKING/UNIT, THE INCREASED PROFITS OF THE ASS ESSEE BEING ELIGIBLE FOR DEDUCTION UNDER SECTION 10AA OF THE ACT GIVEN THE WIDE NATURE OF THE EXPRESSION USED IN SECTION 10AA I.E. 'PROFITS OF TH E BUSINESS OF THE UNDERTAKING/UNIT' AND THAT THE PROVISO TO SECTION 9 2C(4) IS NOT A BAR TO ALLOWING SUCH A CLAIM. ITA NO.2984/BANG/2018 PAGE 8 OF 8 24. IN THE RESULT, THE APPEAL BY THE REVENUE IS DIS MISSED. PRONOUNCED IN THE OPEN COURT ON THIS 31 ST DAY OF AUGUST, 2020. SD/- SD/- ( G MANJUNATHA ) ( N V VASUDEVAN ) ACCOUNTANT MEMBER VICE PRESIDENT BANGALORE, DATED, THE 31 ST AUGUST, 2020. / DESAI S MURTHY / COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. BY ORDER ASSISTANT REGISTRAR ITAT, BANGALORE.