1. TS-116-ITAT-2018(PUN)
Approva Systems Pvt. Ltd vs. DCIT
ITA No.1051/PUN/2015
A.Y.: 2011-12
Date of Order: 12th March,
2018
Facts
Taxpayer, an Indian company
was a 100% export oriented unit engaged in the business of providing software
development service to its US affiliate (FCo), as a captive service provider.
Taxpayer was also eligible to claim deduction u/s. 10A 1.
For the relevant year under
consideration, Taxpayer voluntarily offered additional income to tax in respect
of its services to FCo, basis its transfer pricing (TP) documentation and claimed
a deduction u/s 10A on such additional income.
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1 There was litigation on the
issue of whether the Taxpayer was eligible to claim
deduction u/s 10A or 10B. The Tribunal in this decision held that the Taxpayer
was eligible to claim deduction u/s 10B.
AO contended that proviso
to section 92C(4) will apply to such income and no deduction can be allowed
u/s.10A. Without prejudice, since the Taxpayer failed to bring into India the
export proceeds in relation to the voluntary adjustment, it was not eligible to
claim deduction u/s. 10A in respect of such income.
Taxpayer contended that
such additional income represented the TP adjustment made to the profits of the
business and not the turnover and hence there was no requirement to realise the
same in convertible foreign exchange in India. Further Taxpayer contended that
the additional income was not determined by AO, but by itself on a voluntary
basis and hence proviso to section 92C(4) is not applicable in respect of such
income.
On appeal, the CIT(A) upheld
the order of AO. Aggrieved the Taxpayer appealed before the Tribunal.
Held
– The income which is
computed u/s. 92(1) in respect of an international transaction is a notional
income in the hands of Taxpayer.
– Section 92C(4) of the Act
requires the AO to compute the income of the Taxpayer as per the arm’s length
price (ALP) determined u/s. 92C(3). The proviso, to section 92C(4) further
provides that no deduction will be allowed to a Taxpayer u/s. 10A in respect of
such amount of income which is enhanced by AO having regard to the ALP u/s.
92C(3).
– In the present case, the
additional income was determined by the Taxpayer and not the AO. The Taxpayer
voluntarily offered an additional income to tax. Hence proviso to section 92C
(4) does not apply to such income. Reliance in this regard was placed on Austin
Medical Solutions Pvt. Ltd. vs. ITO (I.T. (TP) A. No.542/Bang/2012) and
IGate Global Solutions Ltd. vs. ACIT (2008) 24 SOT 3.
– As per section 10A
deduction is allowed on the profits derived from export of articles or things
or computer software upto an amount which bears to the profits of the Taxpayer,
the same proportion as the export turnover bears to the total turnover of the
Taxpayer. Once the additional notional income has been so offered to tax, it
forms part of profits of business.
Thus, the additional income notionally
computed u/s. 92(1) would form part of the profits of the Taxpayer for the
purpose of section 10A, however, such notional income does not qualify as
export turnover or total turnover. Hence there is no requirement to realis e
such income in the form of convertible foreign exchange in India. Hence
Taxpayer is eligible to claim deduction on such additional income.
