CIT Vs GE India Technology Centre Pvt. Ltd. (Karnataka High Court)
The Karnataka High Court considered the Revenue’s appeal under Section 260A of the Income-tax Act, 1961 for Assessment Year 2006-07. The appeal raised three principal issues relating to the computation of deduction under Section 10A, the transfer pricing adjustment concerning interest on external commercial borrowings, and the determination of the arm’s length price for such borrowings.
Background of the case: The assessee, engaged in research and development in material sciences, process technology, and related software development services, filed its return of income for Assessment Year 2006-07. During scrutiny, it was found that the assessee had entered into international transactions exceeding Rs. 15 crore, following which a reference was made to the Transfer Pricing Officer (TPO) under Section 92CA. The TPO proposed an arm’s length price adjustment exceeding Rs. 1.04 crore. The Dispute Resolution Panel (DRP) upheld the adjustment relating to interest paid on external commercial borrowings. The Assessing Officer also recomputed the deduction under Section 10A by excluding communication expenses from export turnover. The Income Tax Appellate Tribunal (ITAT) subsequently held that communication and foreign travel expenses reduced from export turnover should also be reduced from total turnover while computing deduction under Section 10A. The ITAT further set aside the transfer pricing adjustment relating to interest on external commercial borrowings, leading to the Revenue’s appeal.
