Case Law Details
Section 92(1) clearly provides that any income arising from an international transaction is required to be computed having regard to its arm’s length price. There is no provision exempting the computation of total income arising from an international transaction having regard to its ALP‘ in the case of an assessee entitled to deduction u/s 8oIC or any other such relevant provision. Section 92C dealing with computation of ALP clearly provides that the ALP in relation to an international transaction shall be determined by one of the methods given in this provision. This section also does not immune an international transaction from the computation of its ALP when income is otherwise eligible for deduction. On the contrary‘ we find that sub- section (j) of section 92C plainly stipulates that where an ALP is determined‘ the AO may compute the total income of the assessee having regard to the ALP so determined. This shows that the total income of an assessee entering into an international transaction‘ is required to be necessarily computed having regard to its ALP without any exception. Thus‘ the ld. AR’s argument that since its income is subject to deduction u/s 8oIC the provisions of the Chapter-X of the Act should not be applied‘ in our considered opinion, has no force in view of the clear statutory mandate contained in proviso to section 92C(4).
RELEVANT EXTRACT OF THE JUDGMENT
3. The learned Counsel for the assessee submitted that the assessee is a concern which is eligible for claiming exemption u/s 10A of the Act and therefore, all of its income is exempt from tax in India and hence there is no intention to shift its profit outside India and more so, when the tax rates in USA, where the AEs are located, is higher than in India. In support of the contention that the AO as well as the CIT(A), have to apply their mind to the TP study before making a reference to the TPO u/s 92CA of the Act, the learned Counsel for the assessee has placed reliance on the decision of the Coordinate Bench of the Tribunal at Mumbai in the case of Tata Consultancy Services Ltd in ITA 75 13/Mum/20 10. Further, he also placed reliance upon the article on principles of natural justice by Shri Brijesh Kumar, Hon’ble Judge of the Hon’ble Allahabad High Court wherein it has been stated that the principles of natural justice requires that no man should be condemned unheard and that both the sides must be heard before passing any orders. Therefore, the opportunity of hearing before making any decisions, was considered to be a basic requirement. It was observed that the application of principles of natural justice varies from case to case depending upon the facts and circumstances of the case.
4. The learned DR, on the other hand, supported the orders of the AO and the DRP, on merits and as regards the additional grounds, the assessee’s reliance on the decision in the case of Tata Consultancy Services (cited Supra), she submitted that the decision of the Tata Consultancy Services (cited Supra) has been considered by the Coordinate Bench of the Tribunal at Delhi in the case of Gruner India Pvt. Ltd vs. DCIT in ITA 6794/Del/2015 dated 29.04.2016 and it has been held that the said decision is not applicable.
5. She also placed reliance upon the decision of the Hon’ble Punjab & Haryana High Court in the case of Coco Cola Ltd vs. ACIT reported in (2009) 309 ITR 0194 wherein it was held that it is sufficient if opportunity is given by the TPO before making any ALP adjustment and it is not necessary that the AO should give an opportunity before making reference to the TPO. As regards the assessee’s contention that the tax rates are very high in USA as compared to the tax rates in India, the learned DR has placed before us a document stating that in USA the statutory and corporate income tax rate is ranging from 15 to 35%. Therefore, according to her, the tax rates in US are not higher than in India and therefore, the assessee’s contention that it cannot have any intention to shift profit from India to US cannot be accepted. The learned DR also submitted that the decision in the case of Aztech Software & Technology Services Ltd & Anr. Vs. ACIT covers the issue as the Special Bench of the Tribunal at Bangalore, has clearly held that before referring to the TPO, the AO need not give any hearing to the assessee. She submitted that the decision of the Special Bench still holds the ground and therefore, the decision of the Income Tax Appellate Tribunal, Mumbai Bench, in the case of Tata Consultancy Services Ltd (cited Supra) is against the principles laid down by the Special Bench and hence is not to be applied to the facts of the case before us.
6. Having regard to the rival contentions and the material on record, we find that the Coordinate Bench of the Tribunal in the case of Tata Consultancy Services Ltd has held that the AO is required to give the assessee an opportunity of hearing before making any reference to the TPO. In the said case, we find that the facts and circumstances are distinguishable from the facts of the case before us. The Coordinate Bench of the Tribunal at Delhi in the case of Gruner India Pvt. Ltd vs. DCIT in ITA No.6794/Del/2015 has clearly brought out the distinction in Paras 9.1 to 9.5 of its order. For the sake of clarity and ready reference, the relevant portion is reproduced as under:
“V. Whether the TP provisions apply when deduction is available under the Act?
9.1. The ld. AR argued that its profit is deductible u/s 8oIC of the Act. He vehemently submitted that once the profit from rendering of software development services is deductible‘ then‘ no motive can be attributed for artificially reducing the profit by manipulating the price with its AE. It was elaborated that the profit of an assessee‘ eligible for deduction under section 8oIC‘ becomes tax neutral irrespective of its quantum. He‘ therefore‘ urged that either the international transaction should not be processed in terms of Chapter-X of the Act or higher amount of deduction should be allowed corresponding to the amount of addition on account of transfer pricing adjustment. This was forcefully contested by the ld. DR.
9.2. Having heard the rival submissions and perused the relevant material‘ we find ourselves unable to accept both the submissions advanced by the ld. AR on this aspect of the matter. In so far as the first submission for not carrying out any transfer pricing adjustment in view of the benefit enjoyed by it u/s 8oIC of the Act is concerned‘ we find that no exception has been carved out by the statute for non- determination of the ALP of an international transaction of an assessee who is eligible for the benefit of deduction section 10A/1oB or any other section of Chapter-VIA of the Act. Section 92(1) clearly provides that any income arising from an international transaction is required to be computed having regard to its arm’s length price. There is no provision exempting the computation of total income arising from an international transaction having regard to its ALP‘ in the case of an assessee entitled to deduction u/s 8oIC or any other such relevant provision. Section 92C dealing with computation of ALP clearly provides that the ALP in relation to an international transaction shall be determined by one of the methods given in this provision. This section also does not immune an international transaction from the computation of its ALP when income is otherwise eligible for deduction. On the contrary‘ we find that sub- section (j) of section 92C plainly stipulates that where an ALP is determined‘ the AO may compute the total income of the assessee having regard to the ALP so determined. This shows that the total income of an assessee entering into an international transaction‘ is required to be necessarily computed having regard to its ALP without any exception. Thus‘ the ld. AR’s argument that since its income is subject to deduction u/s 8oIC‘ the provisions of the Chapter-X of the Act should not be applied‘ in our considered opinion, has no force in view of the clear statutory mandate contained in proviso to section 92C(4)‘ which reads as under:-
‘ Provided that no deduction under section ioA or section ioAA or section loB or under Chapter VI-A shall be allowed in respect of the amount of income by which the total income of the assessee is enhanced after computation of income under this sub-section:’.
9.3. A circumspect perusal of this proviso read along with sub-section (4) of section 92C divulges that when the total income of an assessee from an international transaction is computed having regard to its ALP‘ then‘ no deduction u/s 1oA or any other section including those covered under Chapter VIA of the Act shall be allowed in respect of the amount of income by which the total income of the assessee has been enhanced after computation of income determined on the basis of the ALP of an international transaction. The legislature has unconditionally provided for not allowing the benefit of deduction under any section in respect of the addition made on account of transfer pricing adjustment. Not allowing of any benefit u/s 8oIC in respect of an addition on account of transfer pricing adjustment pre-supposes the existence of transfer pricing addition in the first instance to an assessee who is otherwise eligible to the benefit of deduction under this section. If one was to presume that no addition towards transfer pricing adjustment is comprehensible in the case of an assessee enjoying the benefit of deduction u/s 8oIC‘ then there was no need to enshrine an express provision forbidding the grant of deduction under this section in respect of enhancement of income due to transfer pricing adjustment. Once the legislature has engrafted an unambiguous provision explicitly spelling out the non-granting of deduction u/s 8oIC on the enhanced income due to transfer pricing addition‘ we are afraid to accept the assessee’s contention‘ which runs diagonally opposite to the unequivocal language of proviso to section 92C(4). This contention‘ if taken to a logical conclusion‘ would amount to obliterating the provisio itself‘ which is patently incorrect. 9.4. Our view is fortified by the Special Bench order in the case ofAztech Software and Technology Services Ltd. vs. ACIT (2007) 107 ITD 141 (SB) (Bangalore) in which similar issue has been decided by the Special Bench by holding that availability of exemption u/s 1oA to the assessee is no bar to applicability of sections 92C and 92CA. Similar view has been taken by Pune Bench of the Tribunal in the case of ACIT vs. MSS India (P) Ltd. (2009) 123 TTJ 657 (Pune) and several other orders. The reliance of the ld. AR on the order of the Mumbai Bench of the Tribunal in the case of DCIT vs. Tata Consultants Services Ltd. (ITA No. 7513/M/2010) dated 4.11.201 5‘ in our considered opinion is misconceived‘ because‘ in that case‘ the Tribunal primarily found that the AO erred in not himself examining the issue of TP and failed to apply his mind to the TP report filed by the assessee. The last sentence in para 54 of the order upholding the assessee’s contention that no TP adjustment can be made where the assessee enjoys benefit of deduction u/s 10A or 80HHE‘ etc.‘ is only obiter dicta inasmuch as the addition was found to be not sustainable on the other main grounds as discussed in the body of the order. On the contrary‘ we find that the decision of the Special bench in Aztech Software (supra) permitting the applicability of sections 92C and 92CA to an assessee availing the benefit of section 80IC etc. of the Act is its ratio decidendi. The ld. AR has not pointed out any judgment of some Hon’ble High Court deciding this point either way. In view of the fact that there is already a Special Bench decision in the case of Aztech Software (supra) which supports the making of transfer pricing adjustment notwithstanding the availability of deduction under such sections to the assessee‘ apart from clear statutory mandate contained in proviso to section 92C(4)‘ we are more inclined to go with the view of the Special Bench.
9.5. It is‘ therefore‘ held that the eligibility of the assessee to deduction u/s 80IC of the Act does not operate as a bar on determining the ALP of international transaction undertaken by it and further the enhancement of income due to such transfer pricing addition cannot be considered for allowing the benefit of deduction under this section. Similar view has been taken by the Delhi bench of the tribunal in Headstrong Services India Pvt. Ltd. VS. DCIT (in ITA No. 6200/Del/2012) vide its order dated 11.2 .2016. This contention is‘ therefore‘ jettisoned”
7. Facts and circumstances in the case before us are similar to the above and respectfully following the decision of the Coordinate Bench at Delhi, we dismiss the additional ground of appeal raised by the assessee.
