Income Tax Appellate Tribunal - Ahmedabad
Qx Kpo Services Pvt. Ltd.,, Ahmedabad vs The Income Tax Officer, Ward-5(2),, ... on 3 December, 2018
आयकर अपील य अ धकरण, अहमदाबाद यायपीठ 'Mh* अहमदाबाद ।
IN THE INCOME TAX APPELLATE TRIBUNAL
" D " BENCH, AHMEDABAD
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BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER
And SMT MADHUMITA ROY, JUDICIAL MEMBER
आयकर अपील सं./I.T.A.
No. 2043/Ahd/2014
( नधा रण वष / Assessment Year : 2010-11)
QX KPO Services Pvt. Ltd., बनाम/ ITO,
401/404, GNFC Info Tower, Vs. Ward - 5(2),
S.G. Highway, Bodakdev, Ahmedabad.
Ahmedabad - 380 054.
थायी ले खा सं . /जीआइआर सं . / PAN/GIR No. : AAACQ 1087 G
(अपीलाथ /Appellant) .. ( यथ / Respondent)
अपीलाथ ओर से/ Appellant by : Shri Tushar P. Shah, A.R.
यथ क ओर से/Respondent by: Shri Lalit P. Jain, Sr. D.R.
ु वाई क तार ख/
सन Date of Heari ng 08/10/2018
घोषणा क तार ख /Date of Pronounce ment 03/12/2018
आदे श / O R D E R
PER WASEEM AHMED, ACCOUNTANT MEMBER:
The captioned appeal has been filed at the instance of the Assessee against the order of the Commissioner of Income Tax (Appeals)-XI, Ahmedabad [CIT(A) in short] vide appeal no.CIT(A)-XI/77/Wd-5(2)/13- 14 dated 05.05.2014 arising in the matter of assessment order passed under s.143(3) of the Income Tax Act, 1961(here-in-after referred to as "the Act") dated11.03.2013 relevant to Assessment Year (AY) 2010-11.
2. The grounds of appeal raised by the assessee are as under:-
ITA No.2043/Ahd/2014QX KPO Services Pvt. Ltd. vs ITO A.Y. 2010-11 -2- "1. Learned CIT (A) erred in law and on facts in confirming action of AO in restricting the claim of deduction u/s 10B of the Act to Rs. 24,98,330/- instead of Rs. 82,55,275/- as claimed by the appellant. Ld.. CIT (A) failed to appreciate that profit enhanced due to voluntary adjustment to ALP of export of services made to AE is eligible for deduction. Ld.. CIT (A) ought to have allowed deduction as claimed by the appellant. It be so held now.
2. Ld.. CIT (A) erred in law and on facts in confirming action of AO in not allowing deduction u/s 10B on adjustment to Arm's Length Price (ALP) of export of services to AE since no convertible foreign exchange relating to increased profit is brought to India.
Ld.. CIT (A) ought to have appreciated that the deduction u/s 10B was correctly worked out in the ratio of Export turnover to Total turnover as provided in the Act in compliance with the provisions of sec. 10B (3) of the Act. It be so held now.
3. Ld.. CIT (A) erred in law and on facts confirming reliance placed by AO on proviso to sec. 92C (4) for rejecting deduction claimed u/s 10B of the Act. Both the lower authorities erred in not appreciating the legal position that proviso to sec. 92C (4) is applicable only where income is enhanced by AO determining ALP and not to voluntary adjustment made by the appellant. Ld.. CIT (A) ought to have deleted disallowance. It be so held now.
4. Ld.. CIT (A) erred in law and on facts in wrongly distinguishing ratio of decision of Hon'ble Bangalore Tribunal squarely applicable to the facts of the case. Ld.. CIT (A) ought to have allowed deduction as claimed by the appellant following decision of higher judicial authority on identical facts. It be so held now.
5. Levy of interest u/s 234B & 234/C of the act is not justified.
6. Initiation of penalty u/s 271(1)(c) of the Act is not justified.
The appellant craves leave to add, amend, alter, edit, delete, modify or change all or any of the grounds of appeal at the time of or before the hearing of the appeal."
3. The only issue raised by the assessee in this appeal is that ld. CIT(A) erred in restricting the deduction u/s 10B of the Act to Rs. 24,98,330/- from Rs. 82,55,275/-.
ITA No.2043/Ahd/2014QX KPO Services Pvt. Ltd. vs ITO A.Y. 2010-11 -3-
4. Briefly stated facts are that the assessee is a private limited company and engaged in the activity of providing accountancy outsourcing and I.T. Infrastructure Management Services.
4.1 The assessee in the year under consideration has claimed deduction u/s 10B of the Act amounting to Rs. 82,55,275/- and furnished the working for the same in form no. 56G as specified in Rule 16E of the Income Tax Rule. The necessary working for the deduction claimed by the assessee u/s 10B of the Act is extracted as under:
"Profit As per profit & Loss A/c Rs. 42,00,663/- Less: Income considered Separately a. Interest income Rs. 10,31,533 Rs. 10,31,533/-
Rs. 31,69,130/-
Add: Depreciation debited to P&L A/c included aboveRs. 37,77,940/-
Rs. 69,47,070/-
Less: Depreciation allowable u/s 32(1)(i) Rs. 47,08,740/-
Rs. 22,38,330/-
a. Donation Rs. 2,60,000 Rs. 2,60,000/-
Add: Disallowable/Considered Separately a. Voluntary Adjustment Rs. 63,14,578 Rs. 63,14,578/-
Less: Deduction u/s 35AC
Amount debited to P& L A/c Rs. 2,10,000
Amount allowable as deduction Rs. 2,10,000 0
Rs. 88,12,908/-
Less: Deduction u/s 10B
a. Deduction u/s 10B Rs. 82,55,275 Rs. 82,55,275/-
Rs. 5,57,633/-
Book profit as per companies A/c Rs. 42,00,663/"
ITA No.2043/Ahd/2014
QX KPO Services Pvt. Ltd. vs ITO
A.Y. 2010-11
-4-
4.2 The assessee in its income tax return has adjusted Rs. 63,14,578/- voluntarily on account of transaction made with its associated enterprises by the provisions of Section 92C of the Act.
However, the AO was of the view that the assessee cannot claim deduction u/s 10B of the Act in respect of adjustment made in the international transaction by the assessee voluntarily for Rs. 63,14,578/-. On confrontation to the assessee, it was submitted that the adjustment was not made in the transfer pricing by the AO rather it was voluntarily made by the assessee. Therefore, the provisions of Section 92C(4) of the Act cannot be applied while working out the deduction u/s 10B of the Act. The assessee in support of his claim relied on the order of ITAT Banglore in the case of I Gate Global Solutions Ltd. vs. ACIT reported in 112 TTJ 1002.
However, the AO disagreed with the contention of the assessee and held that the decision of ITAT had not considered the legislature intention for claiming the deduction u/s 10B of the Act. The AO further observed that the bills raised by the assessee to its associated enterprises do not take into account voluntarily adjustment made by the assessee as there was no export of the services. Similarly, there was no foreign exchange received in India. Accordingly, the AO disallowed the exemption claimed by the assessee on account of such voluntary adjustment and restricted the same ITA No.2043/Ahd/2014 QX KPO Services Pvt. Ltd. vs ITO A.Y. 2010-11 -5- at Rs. 24,98,330/-. Accordingly, the AO disallowed the excess deduction of Rs. 57,56,945/- and added to the total income of the assessee.
5. Aggrieved, assessee preferred an appeal to ld. CIT(A) who confirmed the order of the AO. Being aggrieved by the order of ld. CIT(A) assessee is in appeal before us.
6. The ld. AR before us submitted as under:
"The issue whether voluntary adjustment made by the assessee to arrive at arms length price u/s. 92C was not considered while granting deduction u/s. 10B of the Act. The said issue is decided in favour of the assessee in the case of I GATE GLOBAL SOLUTIONS LTD, vs. ACIT by Hon'ble ITAT, BANGALORE 'B' BENCH in ITA Nos. 248 & 249/Bang/2007.
The said judgement of the tribunal has been approved by hon'ble Karnataka High Court in ITA No. 452/2008.
The said decision of the Hon'ble High Court of Karnataka in the case of I GATE GLOBAL SOLUTIONS LTD. and the decision of the co- ordinate bench in the same case reported in (2008) 24 SOT 3(Bang) has been followed by Hon'ble ITAT Bangalore Bench 'A' in the case of M/s. Austin Medical Solutions Pvt. Ltd. vs. ITO, Bangalore in I.T. (T.P.) A. No. 542/Bang/2012, The said decision of the Hon'ble High Court of Karnataka in the case of I GATE GLOBAL SOLUTIONS LTD. and the decision of the co- ordinate bench in the same case reported in (2008) 24 SOT 3(Bang) has been followed by Hon'ble ITAT Hyderabad Bench 'B' in the case of Sum Total Systems India (P.) Ltd. vs. DCIT, Hyderabad in I.T. A. No. 255(HYD) of 2015.
Following section 92CE shall be inserted after section 92CD by the Finance Act, 2017, w.e.f.1-4-2018:ITA No.2043/Ahd/2014
QX KPO Services Pvt. Ltd. vs ITO A.Y. 2010-11 -6- Secondary adjustment In certain cases.
92CE .(1) Where a primary adjustment to transfer price -
i) has been made suo motu by the assessee in his return of income ;
ii) made by the Assessing Officer has been accepted by the assessee;
iii) is determined by an advance pricing agreement entered into by the assessee under section 92CC;
iv) is made as per the safe harbour rules framed under section 92CB;or
v) is arising as a result of resolution of an assessment by way of the mutual agreement procedure under an agreement entered Into under section 90or section 90Afor avoidance of double taxation, the assessee shall make a secondary adjustment Provided that nothing contained in this section shall apply, if,-
i) the amount of primary adjustment made in any previous year does not exceed one crore rupees; and
ii) the primary adjustment is made in respect of an assessment year commencing on or before the 1st day ofApril,2016 (2) Where, as a result of primary adjustment to the transfer price, there is an increase in the total income or reduction in the loss, as the case may be, of the assessee, the excess money which is available with its associated enterprise, if not repatriated to India within the time as may be prescribed, shall be deemed to be an advance made by the assessee to such associated enterprise and the interest on such advance shall be computed in such manner as may be prescribed (3) For the purposes of this section, -
i) ''associated enterprise" shall have the meaning assigned to it in sub-section(1)and sub section (2) of section 92A;
ii) "arm's length price" shall have the meaning assigned to it in clause (ii)of section 92F;ITA No.2043/Ahd/2014
QX KPO Services Pvt. Ltd. vs ITO A.Y. 2010-11 -7-
iii) "excess money "means the difference between the arm's length price determined in primary adjustment and the price at which the international transaction has been actually undertaken ;
iv) ''primary adjustment" to a transfer price means the determination of transfer price in accordance with the arm's length principle resulting in an increase in the total income or reduction in the loss, as the case may be, of the assessee;
v) "secondary adjustment" means an adjustment in the books of account of the assessee and its associated enterprise to reflect that the actual '' allocation of profits between the assessee and its associated enterprise are consistent with the transfer price determined as a result of primary adjustment, thereby removing the imbalance between cash account and actual profit of the assessee."
6.1 The ld. DR before us submitted as under:
2. It is respectfully submitted that this office could. not trace any TP order for AY 2010-11. The already scarce staff attached with this office was deputed for days to locate this file but failed to locate the file and reported that the same is unavailable.
3.1 Your abovementioned letter has stated that Hon'ble members have shown displeasure. Therefore, undersigned took the issue with highest seriousness and brought it in notice of higher authorities.
3.2 NJRS website (https://njrs-itd.gov.in/NJRS/) was thoroughly browsed to ascertain case status (copy enclosed). It was found that following grounds of appeal are mentioned by the assessee for AY 2010-
11:
"1. Learned CIT {A} erred in law and on facts in confirming action of AO in restricting the claim of deduction u/s 10B of the Act to Rs. 24,98,330/- instead of Rs. 82,55,275/- as claimed by the appellant, ld.. CIT(A) failed to appreciate that profit enhanced due to voluntary adjustment to ALP of export of services made to AE is eligible fur deduction. Ld.. CIT (A) ought to have allowed deduction as claimed by the appellant. It be so held now.ITA No.2043/Ahd/2014
QX KPO Services Pvt. Ltd. vs ITO A.Y. 2010-11 -8-
2. ld.. CIT (A) erred in low and on/acts in confirming action of AO is not allowing deduction u/s 10B on adjustment to Arm's Length Price (ALP) of export of services to AE since no convertible foreign exchange relating to increased profit is brought to India, ld.. CIT (A) ought to have appreciated that the deduction u/s 108 was correctly worked out in the ratio of Export turnover to Total turnover as provided in the Act in compliance with the provisions of sec. 10B (3) of the Act. It be so held now.
3. Ld.. CIT (A) erred in taw and on facts confirming reliance placed by AO on proviso to sec. 92C (4) for rejecting deduction Claimed u/s10B, of the Act. Both the lower authorities erred in not appreciating the legal position that proviso to sec. 92C(4) is applicable only where income is enhanced by AO determining ALP and not to voluntary adjustment made by the appellant. Ld.. CIT (A) ought to have deleted disallowance. It be so held now.
4. Ld.. CIT (A) erred in law and on facts in wrongly distinguishing ratio of decision of Hon'ble Bangalore Tribunal squarely applicable to the fact of the case. Ld..CIT (A) ought to have allowed deduction as claimed by the appellant following decision of higher judicial authority on identical facts. It be so held now.
5. Levy of interest u/s 234B & 234/C of the act is not justified.
6. Initiation of penalty u/s 271(1)(c) of the Act is not justified.
The appellant craves leave to add, amend, otter, edit, delete, modify or change all or any of the grounds of appeal at the time of or before the hearing of the appeal.
3.3 It is seen from the grounds of appeal for AY 2010-1 1 mentioned above that there was no reference to TPO's order.
3.4 Making further sincere efforts, in collaboration with the Assessing Officer of the assessee company, the assessment order was ITA No.2043/Ahd/2014 QX KPO Services Pvt. Ltd. vs ITO A.Y. 2010-11 -9- perused (attached as annexure to this letter). Again, no reference to 1'PO could. be traced in the said order of Assessing Officer for AY 2010-11.
4. In such circumstances, your good-self is kindly requested to direct specifically as to what brief on which specific issue is desired from the TPO. so that same may be submitted to your good-self without further delay.
5. Submitted for kind consideration, directions if any and necessary action as appropriate.
Yours faithfully.
Dy. Commissioner of income tax.
Transfer Pricing Officer-1, Ahmedabad
7. We have heard the rival contentions and perused the materials available on record. At the outset, we note that the Hon'ble ITAT, Bangalore Bench has decided the identical issue in the case of I Gate Global Solutions Ltd. (supra) in favor of the assessee. The relevant extract of the order is reproduced as under:
23. From the Memo Explaining the Provisions of Finance Bill, 2006 as well as from the literal meaning of the word 'enhanced', 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 deduction under section 10A.
In the instant case, the assessee himself has computed the arm's length prices and has disclosed the income on the basis of arm's length prices. It is not a case, where there is an enhancement of income due to determination of arm's length price. Hence, it is held 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."
ITA No.2043/Ahd/2014QX KPO Services Pvt. Ltd. vs ITO A.Y. 2010-11
- 10 -
7.1 The view taken by the ITAT was subsequently confirmed by the Hon'ble High Court of Karnataka in the above case I.T.A. NO.452/2008 by observing as under:
"6. In so far as substantial question of law No.4 is concerned, the error committed by the AO 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 AO, that mistake has been corrected by the tribunal, set aside the order passed by the commissioner as well as the assessing authority."
7.2 The ld. DR before us has not brought anything contrary to the judgments as discussed above. Therefore, we have no alternative except to reverse the order of authorities below. As the issue in hand is identical to the issue raised before the Hon'ble Karnataka High Court which has been adjudicated in favor of the assessee, therefore, we set aside the order of ld. CIT(A) and direct the AO to delete the addition made by the AO. Hence, the ground of appeal of the assessee is allowed.
8. In the result, the appeal of the assessee is allowed.
This Order pronounced in Open Court on 03/12/2018
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(MADHUMITA ROY) (WASEEM AHMED)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Ahmedabad; Dated 03/12/2018
Priti Yadav, Sr.PS
ITA No.2043/Ahd/2014
QX KPO Services Pvt. Ltd. vs ITO
A.Y. 2010-11
- 11 -
आदे श क त"ल#प अ$े#षत/Copy of the Order forwarded to :
1. अपीलाथ / The Appellant
2. यथ / The Respondent.
3. संबं'धत आयकर आयु)त / Concerned CIT
4. आयकर आय)
ु त(अपील) / The CIT(A)-XI, Ahmedabad.
5. ,वभागीय /त/न'ध, आयकर अपील य अ'धकरण, अहमदाबाद / DR, ITAT, Ahmedabad.
6. गाड4 फाईल / Guard file.
आदे शानुसार/BY ORDER, स या,पत /त //True Copy// उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील य अ धकरण, अहमदाबाद / ITAT, Ahmedabad
1. Date of dictation ...25/10/2018 (PAGE-4)
2. Date on which the typed draft is placed before the Dictating Member : .. 12/11/2018
3. Other Member...........
4. Date on which the approved draft comes to the Sr.P.S./P.S...15/11/2018
5. Date on which the fair order is placed before the Dictating Member for pronouncement..............
6. Date on which the fair order comes back to the Sr.P.S./P.S......
7. Date on which the file goes to the Bench Clerk.........
8. Date on which the file goes to the Head Clerk...
9. The date on which the file goes to the Assistant Registrar for signature on the order............
10. Date of Despatch of the Order..................