PCIT Vs EYGBS (India) Pvt Ltd (Karnataka High Court)
Karnataka HC: 10AA Deduction Allowed on APA-Based TP Adjustments – Voluntary ALP Declaration Not Hit by Section 92C(4) Proviso
Facts
M/s EYGBS (India) Pvt. Ltd., engaged in back-office & data processing services, filed returns for AYs 2015-16 & 2016-17 claiming deduction u/s 10AA for its SEZ unit. After entering into an Advance Pricing Agreement (APA) with the CBDT, it voluntarily enhanced its income to reflect arm’s length pricing adjustments—₹11.96 crore (AY 2015-16) & ₹36.90 crore (AY 2016-17)—& claimed 10AA deduction on the enhanced profits.
AO denied the 10AA deduction on the APA-based transfer pricing (TP) adjustments, citing proviso to s.92C(4), & further made an ad-hoc disallowance of 10% of dividend income u/s 14A.
CIT(A) deleted both disallowances, holding that the 10AA claim on voluntarily declared APA income is valid & s.92C(4) applies only when AO enhances income. Tribunal upheld CIT(A). The Revenue appealed to the High Court.
Revenue’s Grounds
- Voluntary APA adjustments were made to avoid the rigour of s.92C(4), hence not eligible for 10AA deduction.
- Assessee failed to prove that the TP-adjusted income arose from SEZ operations.
- The issue of 10AA eligibility on TP income was sub-judice before the Supreme Court (in IGate case).
- Tribunal erred in deleting s.14A disallowance without appreciating that expenditure could still relate to exempt income.
Held
