(PER: HON'BLE MR. VIBHU BAKHRU, CHIEF JUSTICE)
1. For the reasons stated in the applications ― I.A.No.1/2025,
the same are allowed. The delay of 46 days in filing the above
2. The Revenue have filed the present appeals under Section
16 and in ITA No.1368/Bang/2024 in respect of AY 2016-17.
3. The Revenue had preferred the said appeals before the
AYs 2015-16 and 2016-17.
4. The Assessee [EYGBS (India) Private Limited], had
5. The Assessee is engaged in the business of providing back
office support and data processing services to its customers. The
and AY 2016-17 on 30.11.2015 and 14.10.2016 respectively. The
for AY 2015-16 and ₹52,84,99,480/- for its AY 2016-17. The
of the Act. In addition, the Assessee had also claimed deduction
under Chapter VI-A of the Act. Immediately after filing its original
account of APA. Similarly, the Assessee had along with his return,
6. The voluntary TP adjustment pursuant to the APA, included
and ₹36,90,62,637/- for AY 2016-17. Tabular statements setting
7. The AO had denied the exemption under Section 10AA on
the TP pricing adjustment made pursuant to the APA. The AO
reasoned that the assessee had declared the TP adjustments in
anticipation of such TP adjustments by the TPA and to avoid the
rigour of Section 92C(4) of the Act. The AO further observed that
the Assessee had failed to substantiate and furnish details as to
how the TP adjustments had arisen in order for the same to be
treated as eligible profits. Only the gains derived from exports were
allowed deduction. The AO noted that the issue was covered by a
decision of this Court in CIT vs. I Gate Global Solutions Private
Limited : ITA No.452/2008, as well as the decision of the CIT(A) in
Assessee's own case for AY 2014-15. Notwithstanding the same,
the AO held that since the Revenue had preferred a Special Leave
Petition before the Hon'ble Supreme Court, in CIT vs. IGate
Global Solutions Private Limited, it was compelled to make the
necessary addition / disallowance on the said issue.
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8. In addition to the above, the AO made a disallowance of
₹23,93,733/- for AY 2015-16 and ₹25,12,500/- in respect of the AY
2016-17, under Section 14A of the Act. The AO noted that the
Assessee had earned income from dividends during the previous
year relevant to the assessment years and is exempt from charge
of tax. The Assessee had claimed that it had not incurred any
expenditure for incurring exempt income and the investments made
had been liquidated during the year. However, the AO made an
adhoc disallowance of 10% of the exempt income under Section
14A of the Act.
9. The Assessee appealed the assessment orders before the
CIT(A).
10. The learned CIT(A), allowed the appeal and found that the
exemption under Section 10AA of the Act could not be denied on
the enhanced income and the proviso to Section 92C(4) of the Act,
was not a bar for allowing such a claim. The CIT(A) relied on the
decision of the learned Tribunal in Assessee's own case for the
earlier assessment years.
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11. Insofar as the question of disallowance under Section 14A is
concerned, the learned CIT(A) noted that there was no opening
balance or closing balance of investments made in mutual funds,
which had yielded in the exempt income. Thus, Rule 8D of the
Income Tax Rules, 1962, are not applicable.
12. The CIT(A), also found no basis for making a disallowance of
10% of the exempt income.
13. The Revenue appealed the said decisions before the learned
Tribunal, which were dismissed in terms of the impugned order.
14. The questions of law in the present appeals as projected by
the Revenue, are similarly worded. We consider it apposite to set
out the questions of law as projected in ITA No.106/2025. The
same are reproduced below:
"(1) "Whether on facts and circumstances of the case,
the Tribunal's order can be said as perverse in nature in
confirming the order of first appellate authority holding that
voluntary adjustment made to ALP pursuant to APA is
eligible for deduction under section 10AA of the Act without
appreciating that the assessee has declared TP adjustments
pursuant to APA in its computation of income only in
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anticipation of TP adjustments by the Transfer Pricing Officer
and to avoid rigors of Section 92C(4) of the Act and
consequently enhanced benefits under section 10AA of the
Act"?
(ii) "Whether on facts and circumstances of the case,
the Tribunal's order can be said as perverse in nature in not
appreciating that the assesee failed to substantiate an
furnish details as to how the income in form of TP
adjustments has arisen out of the eligible units and to be
treated as eligible profits"?
(iii) "Whether on facts and circumstances of the case,
the Tribunal's order can be said as perverse in nature not
apricating that the assessee hd not complied with conditions
set out in Section 10AA to get the deduction under said
section and further this amount being alleged as deemed
income for the purposes of being part of business of the
undertaking is clearly not allowable as per the provisions of
Section 2(24) of the Act and this Section defines profit and
gains of the undertaking and thus is not eligible for
computation under Section 10AA of the Act after the
enhancement of income on voluntary TP adjustments by the
assessee consequent to APA "?
(iv) "Whether on facts and circumstances of the case,
the Tribunal's order can be said as perverse in nature in not
appreciating that decision relied upon by assessee has not
reached finality and SLP is pending before Supreme Court"?
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(v) "Whether on facts and circumstances of the case,
the Tribunal's order can be said as perverse in nature in
setting aside disallowance made under Section 14A of the
Act by holding that all the investments in mutual funds were
made during the year and also redeemed during the year
and there is no opening or closing balance of mutual
funds/investments in the balance sheet which does not mean
that assessee did not incur any expenditure with respect to
exempt income"?
(vi) "Whether on facts and circumstances of the case,
the Tribunal's order can be said as perverse in nature not
apricating that conditions for invoking Section 14A was fully
satisfied in case of assessee"?
15. As apparent from the above, the first four questions of law
relate to the disallowance of Section 10AA of the Act in respect of
the TP adjustments made pursuant to the APA entered into by the
assessee with the Central Board of Direct Taxes [CBDT]. The
second set of questions - question nos. 5 and 6 - relate to the
division of disallowance under Section 14A of the Act.
16. As noted above, the AO had denied the exemption under
Section 10-AA of the Act on the ground that the same was
occasioned by TP adjustment. The said disallowance was founded
on the proviso to Section 92C(4) of the Act.
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17. It is material to note that the TP adjustments are made
pursuant to the APA entered into by the Assessee with CBDT.
Section 92CC of the Act empowers the CBDT (Central Board of
Direct Taxes) to enter into an APA (Advance Pricing Agreement)
with any person for determining an ALP or specify the manner in
which the ALP is to be determined, in relation to an international
transaction to be entered into by that person and income referred
to in Section 9(1)(i) of the Act or the manner in which said income
is to be determined as is reasonably attributable to the operations
carried out in India.
18. It is relevant to refer to Sub-sections (1) and (2) of Section
92CD of the Act. The same reads as under:
"92CD. (1) Notwithstanding anything to the contrary
contained in Section 139, where any person has
entered into an agreement and prior to the date of
entering into the agreement, any return of income has
been furnished under the provisions of Section 139 for
any assessment year relevant to a previous year to
which such agreement applies, such person shall
furnish, within a period of three months from the end of
the month in which the said agreement was entered
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into, a modified return in accordance with and limited to
the agreement.
(2) Save as otherwise provided in this section, all other
provisions of this Act shall apply accordingly as if the
modified return is a return furnished under Section 139."
19. The provisions of Sections 92CD(1) of the Act are
unambiguous and even if a return has been filed prior to an
Assessee entering into an APA, he is entitled to furnish a modified
return declaring his income in accordance with the terms of the
APA. Subject to certain exceptions, the APA is binding both on the
Assessee and the Revenue.
20. It is clear that the scheme of providing for an APA is to
remove any uncertainty as to the determination of an income of an
Assessee engaged in international transactions with associated
enterprises. The Assessee is required to declare his income in
accordance with the APA. Except in certain cases, where there is a
change in law and facts or the agreement is occasioned by fraud or
misrepresentation, the APA would be binding. Sub-sections (5), (6)
and (7) of Section 92CC of the Act provide for the same in
unambiguous terms. The said Sub-sections are reproduced below:
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"(5) The advance pricing agreement entered into shall
be binding--
(a) on the person in whose case, and in respect of
the transaction in relation to which, the agreement has
been entered into; and
(b) on the Principal Commissioner or
Commissioner, and the income-tax authorities
subordinate to him, in respect of the said person and
the said transaction.
(6) The agreement referred to in sub-section (1) shall
not be binding if there is a change in law or facts
having bearing on the agreement so entered.
(7) The Board may, with the approval of the Central
Government, by an order, declare an agreement to be
void ab initio, if it finds that the agreement has been
obtained by the person by fraud or misrepresentation of
facts."
21. We also consider it apposite to set out Section 92C of the Act,
in its entirety.
"92C. (1) The arm's length price in relation to an
international transaction [or specified domestic transaction]
shall be determined by any of the following methods, being
the most appropriate method, having regard to the nature of
transaction or class of transaction or class of associated
persons or functions performed by such persons or such
other relevant factors as the Board may prescribe, namely:--
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(a) comparable uncontrolled price method;
(b) resale price method;
(c) cost plus method;
(4) profit split method;
(e) transactional net margin method;
(f) such other method as may be prescribed by the
Board.
(2) The most appropriate method referred to in sub-
section (1) shall be applied for determination of arm's length
price, in the manner as may be prescribed:
Provided that where more than one price is
determined by the most appropriate method, the arm's length
price shall be taken to be the arithmetical mean of such
prices:
Provided further that if the variation between the
arm's length price so determined and price at which the
international transaction [or specified domestic transaction]
has actually been undertaken does not exceed such
percentage not exceeding three per cent of the latter, as may
be notified by the Central Government in the Official Gazette
in this behalf, the price at which the international transaction
or specified domestic transaction has actually been
undertaken shall be deemed to be the arm's length price :]
Provided also that where more than one price is
determined by the most appropriate method, the arm's length
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price in relation to an international transaction or specified
domestic transaction undertaken on or after the 1st day of
April, 2014, shall be computed in such manner as may be
prescribed and accordingly the first and second proviso shall
not apply.
Explanation-For the removal of doubts, it is hereby
clarified that the provisions of the second proviso shall also
be applicable to all assessment or reassessment
proceedings pending before an Assessing Officer as on the
1st day of October, 2009.
(2A) Where the first proviso to sub-section (2) as it
stood before its amendment by the Finance (No. 2) Act, 2009
(33 of 2009), is applicable in respect of an international
transaction for an assessment year and the variation
between the arithmetical mean referred to in the said proviso
and the price at which such transaction has actually been
undertaken exceeds five per cent of the arithmetical mean,
then, the assessee shall not be entitled to exercise the option
as referred to in the said proviso.
(2B) Nothing contained in sub-section (2A) shall
empower the Assessing Officer either to assess or reassess
under section 147 or pass an order enhancing the
assessment or reducing a refund already made or otherwise
increasing the liability of the assessee under section 154 for
any assessment year the proceedings of which have been
completed before the 1st day of October, 2009.
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(3) Where during the course of any proceeding for the
assessment of income, the Assessing Officer is, on the basis
of material or information or document in his possession, of
the opinion that-
(a) the price charged or paid in an international
transaction or specified domestic transaction has not been
determined in accordance with sub-sections (1) and (2); or
(b) any information and document relating to an
international transaction specified domestic transaction have
not been kept and maintained by the assessee in
accordance with the provisions contained in sub-section (1)
of section 92D and the rules made in this behalf; or
(c) the information or data used in computation of the
arm's length price is not reliable or correct; or
(d) the assessee has failed to furnish, within the
specified time, any information or document which he was
required to furnish by a notice issued under sub-section (3)
of section 92D,
the Assessing Officer may proceed to determine the arm's
length price in relation to the said international transaction or
specified domestic transaction in accordance with sub-
sections (1) and (2), on the basis of such material or
information or document available with him:
Provided that an opportunity shall be given by the
Assessing Officer by serving a notice calling upon the
assessee to show cause, on a date and time to be specified
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in the notice, why the arm's length price should not be so
determined on the basis of material or information or
document in the possession of the Assessing Officer.
(4) Where an arm's length price is determined by the
Assessing Officer under sub-section (3), the Assessing
Officer may compute the total income of the assessee having
regard to the arm's length price so determined:
Provided that no deduction under section 10A "or
section 10AA or section 10B 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:
Provided further that where the total income of an
associated enterprise is computed under this sub-section in
determination of the arm's length price paid to another
associated enterprise from which tax has been deducted or
was deductible under the provisions of Chapter XVIIB, the
income of the other associated enterprise shall not be
recomputed by reason of such determination of arm's length
price in the case of the first mentioned enterprise.
22. It is apparent from a plain reading of sub-section (4) of
Section 92C of the Act that the same is inapplicable. The said sub-
section requires the AO to compute the total income, having regard
to the ALP determined by the AO under sub-section (3) of Section
92-C of the Act.
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23. Sub-section (3) of Section 92C provides that the AO can
proceed to determine the ALP only in cases he is of the opinion on
the basis of material that (a) the price charged or paid in
international transaction, has not been determined in accordance
with sub-sections (1) and (2) of Section 92-C; or b) that information
and documentation relating to the international transaction has not
been maintained as mandatorily required; or c) that the information
or data for computing the ALP is unreliable; or there is failure on
the part of the assessee to furnish any information or document
required to be furnished along with the notice.
24. It is apparent that in a case where the assessee voluntarily
computes the ALP pursuant to an APA entered into with CBDT,
none of the conditions as set out in sub-section (3) of Section 92C
are attracted. It follows that sub-section (4) of Section 92C is not
attracted.
25. More importantly, the proviso to sub-section (4) of Section
92C also clearly states that no deduction under Section 10A or
10AA or 10B or under Chapter VI-A of the Act would be allowed in
respect of the amount of income by which the total income of the
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assessee is enhanced after computation under the said section.
Thus in a case where the assessee voluntarily declares his income
based on the ALP determined on the basis of an APA, there would
be no occasion for the AO to enhance the income of the assessee.
26. Absent any enhancement of income, the proviso to sub-
section (4) of Section 92C is clearly inapplicable.
27. It is also necessary to bear in mind that in terms of Section
10AA (1) of the Act, the profits and gains of an enterprise, as
referred to in clause (j) of Section 2 of the Special Economic Zones
Act, 2005, from an eligible Unit, which is derived from export of
articles or things are exempt.
28. The ALP is imputed to transactions to determine the profits
and gains that are derived by the assessee from any international
transactions (or specified domestic transactions) in order to assess
the real income of the assessee after eliminating any bias or
element of transfer of profits.
29. Thus, indisputably, the income computed on the basis of ALP
would provide a measure of the profits or income derived by the
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activities carried on by an Assessee. The proviso to Section
92C(4) essentially limits exemption under Section 10AA in cases
where the income computed is enhanced by the AO under Section
92C of the Act.
30. It is also relevant to refer to the CBDT Circular No.14/2006.
Paragraphs 24.1 and 24.2 of the said circular, as quoted in the
assessment order, are reproduced below:
"24.1 The existing provisions of section
92C provide for computation of arm's length price.
Sub-section (4) of the said section provides that
the Assessing Officer may compute the total
income of an assessee on the basis of the arm's
length price. The first proviso to sub-section (4)
provides that where the total income of an
assessee as computed by the Assessing Officer is
higher than the income declared by the assessee,
no deduction under section 10A or section 10B 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.
24.2 Sections 10A and 10B provide
deductions in respect of profits and gains derived
from exports. Section 10AA also provides for
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deduction of profits and gains derived from
exports, in respect of newly established units in
Special Economic Zones. Provisions of sub-
section (4) of section 92C have been rationalized
so as to provide for similar treatment in respect of
deduction under section 10A, 10B and 10AA on
the income enhanced by way of computing the
income in accordance with Arm's length price.
Accordingly, the first proviso to sub-section 92C
has been amended so as to provide that no
deduction under section 10AA 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 said sub-section."
31. The said circular also amply clarifies that the first proviso to
sub-section (4) of Section 92C of the Act is applicable where the
total income of the assessee as computed by the Assessing Officer
is "higher than the income declared by the assessee".
32. In the present case, the AO has not enhanced the income
declared by the assessee. The assessee had voluntarily factored
in the ALP pursuant to the APA entered into with the CBDT, for
computing the income as declared in its returns.
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33. We may also refer to the following observations from the
decision of a Co-ordinate Bench of this Court in Commissioner of
Income Tax vs. iGate Global Solutions Limited : ITA
No.452/2008:
"6. In so far as substantial question of law No.4 is
concerned, the error committed by the Assessing Officer 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 Assessing authority, that mistake has
been corrected by the tribunal, set aside the order passed by
the Commissioner as well as the assessing authority."
34. In view of the above, we find no infirmity in the finding of the
learned CIT(A) as well as the learned Tribunal in rejecting the
Revenue's contention that exemption under Section 10AA of
Chapter VI-A of the Act, is not available in respect of declared
income of the assessee insofar as it relates to the TP adjustments
made pursuant to the APA.
35. Insofar as disallowance under Section 14A is concerned, we
note that the AO has not provided any tangible basis for making the
adhoc disallowance of 10% of the dividend income from mutual
funds. The Tribunal had also noted that in Assessee's own case
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for earlier assessment years, the Revenue had accepted the
deletion of such allowances as made by the CIT(A) and it had not
appealed against the said decision before the Tribunal. In the
given circumstances, we do not find any substantial question of law
arises for consideration in these appeals.
36. The appeals are, accordingly, dismissed.
Sd/-
(VIBHU BAKHRU)
CHIEF JUSTICE
Sd/-
(C M JOSHI)
JUDGE
KS
