IT/ILT: Jurisdiction of Assessing Officer to determine ALP does not get excluded on reference being made to TPO
IT/ILT: Where assessee failed to justify non-recovery of indirect cost from AE, adjustment made on said account was justified
IT/ILT: Payment made to non-resident in respect of providing technical service was not taxable in his hands in absence of PE in India
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[2013] 39 taxmann.com 164 (Delhi - Trib.)
IN THE ITAT DELHI BENCH 'H'
Uem India Ltd.
v.
Assistant Commissioner of Income-tax*
S.V. MEHROTRA, ACCOUNTANT MEMBER
AND C.M. GARG, JUDICIAL MEMBER
AND C.M. GARG, JUDICIAL MEMBER
IT APPEAL NO. 4285 (DELHI) OF 2009
[ASSESSMENT YEAR 2003-04]
[ASSESSMENT YEAR 2003-04]
FEBRUARY 22, 2013
I. Section 92C, read with section 92CA, of the Income-tax Act, 1961 - Transfer pricing - Computation of arm's length price [Power of Assessing Officer] - Assessment year 2003-04 - Whether statute has primarily conferred certain functions of Assessing Officer to Transfer Pricing Officer (TPO) but that does not imply that jurisdiction of Assessing Officer to determine ALP gets excluded on reference being made by him to TPO for determining ALP - Held, yes - Whether, therefore, there is nothing wrong in ALP being determined by Assessing Officer as per section 92C(3) even after making a reference to TPO under section 92CA which is returned by TPO without determining ALP - Held, yes [Para 15] [In favour of revenue]
II. Section 92C of the Income-tax Act, 1961 - Transfer pricing - Computation of arm's length price [Comparables and adjustments] - Assessment year 2003-04 - Assessing Officer made adjustment to ALP determined by assessee on account of non-recovery of salary of 'S' and indirect cost attributable to foreign projects from AE - Whether since assessee could not justify non-recovery of expenses in question, adjustment made in ALP was valid - Held, yes [Paras 18 & 20] [In favour of revenue]
III. Section 9, read with section 195, of the Income-tax Act, 1961 - Income - Deemed to accrue or arise in India [Permanent establishment] - Assessment year 2003-04 - Whether where assessee made payment to a non-resident towards rendering technical service but such non-resident had no PE in India, amount being not taxable in his hands, TDS was not required to be made - Held, yes [Para 33] [In favour of assessee]
IV. Section 234D of the Income-tax Act, 1961 - Interest on excess refund - [Scope of provision] - Assessment year 2003-04 - Whether in view of Explanation 2 to section 234D, interest is chargeable under section 234D in respect of assessment year 2003-04 also -Held, yes [Para 39] [In favour of revenue]
Circulars & Notifications : Instruction No. 3 of 2003 dated 20-5-2003
FACTS-I
| ■ | The assessee entered into international transactions with its AEs in respect of sale of goods and providing certain services. | |
| ■ | The Assessing Officer found that the assessee had not recovered following costs from AEs, namely foreign travelling expenses, salary of 'S', indirect cost attributable to foreign projects and mark-up thereon. He accordingly made addition of a sum being difference in ALP including relating to technical service charges by the assessee. | |
| ■ | The Commissioner (Appeals) rejected the contention of the assessee that the determination of ALP under section 92C(3) was wrong. As regards the merits of addition, addition with regard to foreign travel expenses was deleted by Commissioner (Appeals). However, he had sustained the addition in regard to salary of 'S' being not recovered by the assessee and also partly in regard to non-recovery of indirect cost attributable to foreign projects and mark-up thereon. | |
| ■ | On second appeal: |
HELD-I
| ■ | The statute has primarily conferred certain functions of Assessing Officer on TPO but that does not imply that jurisdiction of Assessing Officer to determine ALP gets excluded on reference being made by him to TPO for determining ALP. The substantive power of determining ALP vests in Assessing Officer as per section 92C. The reference to TPO as per section 92CA is only to facilitate proper determination of ALP. TPO has to simply pass an order determining the ALP and send the same to Assessing Officer who is ultimately authorized to pass the assessment order though in conformity with ALP determined by TPO. Thus, primarily section 92CA has been incorporated in order to ensure proper determination of ALP. The TPO primarily performs the functions which are to be performed by the Assessing Officer only. As per CBDT Instruction No. 3 of 2003, the Assessing Officer can make a valid reference to the TPO only if the correct value of international transaction exceeds Rs. 5 crores. Thus, the services of office of TPO can be utilized by Assessing Officer in such cases where revenue effect is likely to be considerable. This is primarily a legislative in-built check on the quasi judicial functions to be performed by Assessing Officer. For the purposes of performance of all or any of the functions of an Assessing Officer, the TPO is considered at par with an Assessing Officer. But essentially it is the function of Assessing Officer only to determine the ALP. Therefore, there is no infirmity in the ALP being determined by the Assessing Officer as per section 92C(3) even after making a reference to TPO under section 92CA which was returned by TPO without determining the ALP. [Para 15] |
CASE REVIEW - III
Scientific Engg. House (P.) Ltd. v. CIT [1985] 23 Taxman 66 (SC) (para 28) distinguished.
Ranjan Chopra for the Appellant. Smt. Priya Sahu for the Respondent.
ORDER
S.V. Mehrotra, Accountant Member - This appeal filed by the assessee is directed against the order of learned CIT(A) dt. 28th Aug., 2009 for asst. yr. 2003-04.
2. The assessee company, in the relevant assessment year, was engaged in the business of execution of contracts to set up water, waste water, sewage plants and effluent treatment-cum-bio-gas generation plant on turnkey basis. The assessee had declared total income at Rs. 84,53,480. The assessment was completed at a total income of Rs. 1,36,63,350 detailed as under :
| Net profit as per P&L a/c | 84,53,479 | ||
| Add : (i) Deduction under s. 80HHB for separate consideration | 5,12,412 | ||
| (ii) Deduction under s. 80HHC for separate consideration | 31,58,524 | ||
| (iii) Addition on account of difference in ALP | 20,23,081 | ||
| (iv) Addition on account of s. 40(a)(i) | 1,41,520 | 58,35,537 | |
| Gross profit | 1,42,89,016 | ||
| Less : (i) Deduction under s. 80HHC as per para (I) | 2,09,066 | ||
| (ii) Deduction under s. 80HHB as per para (II) | 4,16,605 | 6,25,671 | |
| Total income | 1,36,63,345 | ||
| (Rounded off) | 1,36,63,350 |
3. Learned CIT(A) partly allowed the assessee's appeal.
4. Being aggrieved with the order of learned CIT(A), the assessee is in appeal before us and has taken following grounds of appeal :
| "1. | The learned CIT(A) has erred in not appreciating that having made a reference to the Transfer Pricing Officer (TPO) under s. 92CA of the IT Act (the Act) for determination of ALP in relation to an international transaction, it is the TPO and not the AO, who is competent to determine the ALP in relation thereto. | |
| 2. | The learned CIT(A) has erred in confirming the AO's view that while applying cost plus method for determining ALP of an international transaction, besides recovering all direct costs and 15 per cent mark-up thereon, the appellant should have also recovered proportionate indirect cost incurred in India and 15 per cent mark-up thereon and has wrongly upheld the addition to the extent of Rs. 7,55,481. | |
| 3. | The learned CIT(A) has erred in reversing the relief granted by the AO under s. 80HHC of the IT Act, 1961 on export of drawings and designs by wrongly concluding that the supply of complete drawings and designs of water treatment plants was merely rendering of professional services and not export of goods even after having specifically noted the finding that 'the appellant was not itself engaged in preparation of drawings and designs as agreed in the MoU but procured the same from outside consultant and merely furnished the same to its AE for agreed consideration' and failing to appreciate that the drawings and designs have been held to be goods and that the said export of drawings and designs was in fact trading of goods and not manufacturing of goods as contended by the AO. | |
| 4. | The learned CIT(A) has failed to appreciate that the appellant's eligibility, entitlement and quantum of deduction under s. 80HHC has been duly verified and certified by independent firm of chartered accountants, who, having examined the books of accounts and other relevant records have issued their report in Form No. 10CCAC certifying that the appellant was entitled to a deduction of Rs. 31,58,524 on account of export of trading goods. The AO has followed an altogether different conclusion without rejecting the said audit report or giving any sound basis for doing so. | |
| 5. | The learned CIT(A) has erred in confirming the AO's view that the payment of Rs. 1,41,520 made to Mr. Gary Prae for import of designs and drawings falls within the category of payment made for technical services and hence TDS as required under s. 195 should have been deducted and since it was not done therefore, it would be disallowable under s. 40(a)(i) of the Act. | |
| 6. | The learned CIT(A) has altogether omitted to interfere with the recomputation of deduction under s. 80HHB made by the AO on the basis of wrong assumptions that all expenses on foreign travel incurred by the company aggregating to Rs. 57,33,286 should have been taken as direct cost for the purposes of computation of deduction under s. 80HHB despite CIT having specifically noted and observed that 'it was found that a sum of Rs. 1,90,587 was spent on the travel of directors for appellant company's work other than the related party projects' and further failing to appreciate that an amount of Rs. 2,75,375 incurred on foreign travelling was incurred on providing other foreign services receipt wherefrom was not eligible for deduction under s. 80HHB. | |
| 7. | The learned CIT(A) has failed to appreciate that the appellant's eligibility, entitlement and quantum of deduction under s. 80HHB has been duly verified and certified by independent firm of chartered accountants, who, having examined the books of account and other relevant records have issued their certificate in Form No. 10CCAH certifying that the appellant was entitled to a deduction of Rs. 5,12,412 on account of income derived from execution of foreign projects (and not Rs. 4,16,605 as determined by the AO) and that the AO has interfered with the auditor's findings without any basis, based on surmises and conjectures, not based on any evidence, opposed to evidence on record and therefore, needs to be reversed. | |
| 8. | The learned CIT(A) has erred in not appreciating that interest of Rs. 1,02,444 computed under s. 234D was wrong as the provisions of s. 234D were inserted by the Finance Act, 2003, w.e.f. 1st June, 2003 and is therefore applicable w.e.f. the asst. yr. 2004-05 whereas the present matter relates to the asst. yr. 2003-04 and therefore, s. 234D is not applicable in the instant matter." |
5. Ground Nos. 1 and. 2 deal with the transfer pricing issue and other grounds relate to corporate tax issues.
6. First we will consider grounds relating to transfer pricing issues.
7. Brief facts apropos these grounds are that the assessee had entered into following international transactions with its AEs :
| Particulars | Details | Amount |
| 1. In respect of sale of goods to : | ||
| (a) UEM Inc, USA | 7,60,398 | |
| (b) UEM Group Europe GmbH | 79,72,247 | 87,32,645 |
| 2. In respect of providing services to : | ||
| (a) UEM Inc., USA | 68,45,786 | |
| (b) UEM Group Europe GmbH | 38,25,855 | |
| (c) GEM-UEM Inc., Guyana | 14,78,636 | 1,21,50,277 |
| Total | 2,08,82,922 |
8. The AO had made a reference under s. 92CA to the Transfer Pricing Officer ("TPO") to compute ALP in relation to the aforementioned international transactions. However, the said reference was returned back to the office of AO for determining the ALP at his end. The AO after issuing notices to assessee and after considering his reply, concluded that assessee had not recovered the following costs from the AEs as summarized below :
| Sl No. | Particulars | Amount |
| 1. | Foreign travelling expenses | 4,78,035 |
| 2. | Mr. Sanjay Aggarwal's salary | 20,667 |
| 3. | Technical services | 12,60,499 |
| Total | 17,59,201 | |
| 15% mark-up | 2,63,880 | |
| Total cost to be recovered | 20,23,081 |
9. He, accordingly, made an addition of Rs. 20,23,081 being difference in ALP including relating to technical service charges received by the assessee. No addition was made in respect of the ALP relating to export of goods which was found to be reasonable.
10. Before learned CIT(A), the assessee had taken following grounds of appeal:
"6. The determination of ALP under s. 92C(3) of the IT Act is wrong and is contrary to CBDT Instruction No. 3 of 2003 vide F. No. 500/19/2003 FTD, dt. 20th May, 2003.
7. It is contended that the income earned and admitted by the assessee on the basis of 'cost plus method' is an appropriate method as provided under the relevant provisions of the IT Act.
8. The conclusion of the AO that certain foreign travel expenses, salary, technical services etc. not recovered by the assessee should be taken into account for determining the ALP, is opposed to evidence on record, is based on surmises and conjectures and such addition may kindly be deleted.
9. The addition of Rs. 12,60,499 and 15 per cent profit thereon made by the AO on account of proportionate indirect cost for determining ALP is wrong, unjust and opposed to the evidence on record and is based on surmises and conjectures and such addition may kindly be deleted."
11. As regards the first issue regarding determination of ALP under s. 92C(3) being contrary to CBDT Instruction No. 3 of 2003 vide F. No. 500/19/2003 FTD, dt. 20th May, 2003, learned CIT(A) held that since the said instructions are applicable only if the aggregate value of international transactions exceeds Rs. 5 crores and since in the present case the international transactions were less than Rs. 5 crores, therefore, the reference made by the AO was not correct and hence, TPO was right in referring the matter back to the AO.
12. Learned counsel for the assessee referred to s. 92CA and submitted that the ALP determined by the TPO, on reference being made by the AO, has to be followed by AO, as per the mandate of s. 92CA(4). He submitted that once the AO has made a reference to TPO, the TPO is required to determine the ALP in relation to the international transaction. Learned counsel's submission is that after the reference being made by AO, he cannot determine the ALP as per s. 92C(3).
13. Learned Departmental Representative submitted that s. 92CA(4) comes into play only when AO receives the order from TPO. He submitted that merely because the reference was made by AO contrary to the Instructions, it would not take away his power of determining the ALP as per s. 92C(3).
14. We have considered the submissions of both the parties and have perused the record of the case.
15. The cardinal principle is that presumption is in favour of jurisdiction unless specifically excluded. (The statute has primarily conferred certain functions of AO on TPO but that does not imply that jurisdiction of AO to determine ALP gets excluded on reference being made by him to TPO for determining ALP. The substantive power of determining ALP vests in AO as per s. 92C. The reference to TPO as per s. 92CA is only to facilitate proper determination of ALP. TPO has to simply pass an order determining the ALP and send the same to AO who is ultimately authorized to pass the assessment order though in conformity with ALP determined by TPO. Thus, primarily s. 92CA has been incorporated in )order to ensure proper determination of ALP. The TPO primarily performs the functions which are to be performed by the AO only. As per CBDT instruction No. 3 of 2003, the AO can make a valid reference to the TPO only if the correct value of international transaction exceeds Rs. 5 crores.
Thus, the services of office of TPO can be utilized by AO in such cases where revenue effect is likely to be considerable. This is primarily a legislative in-built check on the quasi judicial functions to be performed AO. For the purposes of performance of all or any of the functions of an AO, the TPO is considered at par with an AO. But essentially it is the function of AO only to determine the ALP. We therefore,-do not find any infirmity in the ALP being determined by the AO as per s. 92C(3) even after making a reference to TPO under s. 92 CA which was returned by TPO without determining the ALP
16. In the result, Ground No. 1 raised by the assessee is dismissed.
17. As regards the merits of addition, we find that addition with regard tc foreign travel expenses had been deleted by learned- CIT(A). However, he had sustained the addition in regard to salary of Rs. 20,667 of Mr. Sanjay Aggarwal being not recovered by the assessee and also partly in regard tc non-recovery of indirect cost attributable to foreign projects and mark-up thereon) He did not accept the assessee's contention that no indirect expenditure or administrative and selling expenses were recoverable from the AEs. After examining the details furnished by the assessee, the learned CIT(A) noticed that the expenses aggregating to Rs. 20,56,996 related to both Indian as well as the overseas projects and held that they should also be considered for determining the ALP based on cost plus method basis for related party transaction. He determined proportionate indirect cost for determination of ALP for recovery of cost on related party transaction at Rs. 6,36,273 in the ratio of export turnover to total turnover. He, accordingly, sustained an addition of Rs. 7,55,481 as under :
| (i) Salary of Sanjay Aggarwal | 20,667 |
| (ii) Recovery of indirect cost relatable to overseas project | 6,36,273 |
| 6,56,940 | |
| (iii) 15% mark-up | 98,541 |
| Amount of adjustment | 7,55,481 |
18. We have considered the submissions of both the parties and have perused the record of the case. As far as addition of Rs. 20,667 relating to salary of Sanjay Aggarwal is concerned, the AO has observed that Shri Sanjay Aggarwal visited China in respect of work related to AEs. He further observed that the cost of foreign travelling had been recovered but the proportionate salary for ten days amounting to Rs. 20,667 had not been recovered. He did not accept the assessee's contention that the visit of Mr. Sanjay Aggarwal was for the purpose of business activities of UEM India Ltd. We find that no evidence has been brought on record to establish that visit of Mr. Sanjay Aggarwal was also for the business activities of UEM India Ltd. It is not disputed that he had gone to China in connection with the business activities relating to M/s UEM Inc., USA. We, therefore, do not find any reason to interfere with the order of learned CIT{A) on this ground. Coming to the next issue regarding non-recovery of indirect cost attributable to foreign projects and mark-up thereon by the assessee, the contention of the assessee is that the services provided to the associated parties were in respect of specific projects situated out of India and as such only the direct costs attributable for execution of such projects were to be considered as per the terms of agreement and there was no question of allocation of overall administrative cost incurred in India. It is further submitted that the 15 per cent margin aggrieve [sic- agreed) between the two parties covered the portion relating to allocable indirect cost as well as the profits. The AO noted that as per the auditor's report, the eligible profit for deduction under s. 80HHB had been computed at Rs. 25,62,059 by considering indirect cost attributable to execution of foreign project at Rs. 12,60,499. He, accordingly, took the indirect cost at Rs. 12,60,499. Learned CIT(A) had specifically examined the indirect cost incurred by the assessee in relation to both Indian as well as the overseas projects which was as under :
| (i) Vehicle expense | 5,65,068 |
| (ii) Legal profession | 3,81,010 |
| (iii) Postage | 73,646 |
| (iv) Bank charges | 8,67,148 |
| (v) Advertisement | 43,200 |
| (vi) Business promotion | 1,26,924 |
| 20,56,996 |
19. Learned counsel referred to p. 68 of paper book, wherein the reply dt. 23rd June, 2009 of the assessee is contained in which he had submitted the details regarding various expenses incurred by it. He also referred to p. 5 of CIT(A)'s order, wherein the assessee's submissions before learned CIT(A) are contained and pointed out that the assessee's export turnover was only 13 per cent of the total turnover and, therefore, the indirect costs that comprises selling and administrative overheads of the assessee company were neither relevant nor correlatable to the assessee' rendering of technical services on overseas projects of its associated concerns.
20. Having heard both the parties, we find that assessee has merely stated that various expenses were incurred in relation to domestic projects but it could not be denied that the various items of expenses, noted earlier, as considered by learned CIT(A), did not contribute in getting the overseas projects properly executed. We, therefore, do not find any reason to interfere with the order of learned CIT(A) on this issue.
21. Now, we will proceed to adjudicate the corporate tax issues.
22. Brief facts apropos Ground Nos. 3 and 4 are that the assessee had claimed deduction of Rs. 31,58,524 under s. 80HHC. The AO noticed that the deduction had been claimed based on export in respect of trading goods. He noticed that the major trading of goods was on account of export of purported goods representing design/drawing for automatic water treatment plant. The AO examined the assessee's explanation and concluded that in view of the various services required to be performed in respect of drawing and design, it was more, than evident that the assessee was required to develop the design and get it approved which required it to undergo various manufacturing processes. He, therefore, held that the sale proceeds of Rs. 77,04,000 being export of drawing and design constituted sale proceeds of manufactured goods and not the receipts from export trading.
23. Learned CIT(A) while enhancing the assessment, inter alia, concluded as under :
"9.5.4 On perusal of the above, it becomes abundantly clear that the overseas AE engaged the appellant to provide services in relation to preparation and compilation of specified designs and drawings, review of such drawings by nominated consultants, and making necessary corrections/modifications as suggested by the consultant. As per submissions furnished during the course of assessment proceedings, the appellant has not itself engaged in preparation of drawings and designs as agreed in the MoU but procured the same from outside consultant and merely furnished the same to its AE for agreed consideration.
9.5.5 On a perusal of above arrangement, agreement and submissions furnished by the appellant, I am of the view that the transaction between the appellant and its AE at best relates to rendering of professional services in facilitating the procurement of certain designs and drawings from a consultant and by no stretch of imagination can be construed as export of any computer software by the appellant. The professional services, if any, rendered by the appellant on providing certain clarifications to UGE were undertaken after supply of designs and hence in no way furthers the claim of the appellant.
9.5.6 In above background, the appellant's claim of deduction under s. 80HHC is hereby disallowed, and the AO is redirected to compute the income of the appellant accordingly."
24. Learned counsel submitted that learned ClT(A) is finding that assessee was at best rendering professional services to its AE in facilitating the procurement of certain designs and drawings was not correct. He submitted that learned CIT(A) has enhanced the assessment by completely denying deduction under s. 80HHC in respect of export of drawings and designs by the assessee. He submitted that drawings and designs are to be treated as plant/goods in view of the decision of Hon'ble Supreme Court in the case of Scientific Engg. House (P.) Ltd. v. CIT [1985] 23 Taxman 66 and, therefore, the assessee was entitled for deduction under s. 80HHC as exporter of trading goods or as held by AO the export of designs and drawings as export of manufactured goods.
25. Learned Departmental Representative relied on the order of learned CIT(A).
26. We have considered the submissions of both the parties and have perused the record of the case.
27. The assessee company was engaged in the business of execution of contracts to set up water, waste water, sewage plants and effluent treatment-cum-bio-gas generation plant on turnkey basis. During the relevant assessment year, based On the requirement of an overseas party, the assessee had engaged Gary Prae to develop and prepare designs and drawings and had supplied technical drawings/designs, documentation of plant layout in respect of water treatment plant to be installed in Iran. The drawings/designs plant layout was developed by M/s Gary Prae which were ultimately supplied by the assessee company.
28. As per the decision of Hon'ble Supreme Court in Scientific Engg. House (P.) Ltd. (supra), the drawings and designs are to be treated as plants in the hands of receiver of such drawings and designs because the same constituted tool by using which the manufacturing activity was performed. Therefore, this decision is of no assistance to assessee in the present context where assessee has supplied the designs and drawings and not received the same. Learned CIT(A) has held that the transaction between the assessee and its AE at best relates to rendering of professional services in facilitating the procurement of certain designs and drawings from a consultant and by no stretch of imagination can be construed as export of any computer software by the assessee. He has further held that the professional services, if any, rendered by the assessee on providing certain clarifications to UGE were undertaken after supply of designs. We are unable to agree with this finding of learned CIT(A). Before AO, the assessee vide its letter dt. 17th March, 2006 had explained that it was, inter alia, in designs of water treatment plants etc. Designs were supplied by assessee to overseas parties. Based on the requirement of an overseas party, the company had engaged Mr. Gary Prae to develop and prepare designs and drawings which were sold by assessee. The AO had examined Shri B.J.S. Kahhlon, VP (F & AO) on 23rd March, 2006 who explained how this work got executed. He explained how the drawing was finally provided to client after various improvements for which eight persons were employed for three months. The realization from the client was based on the agreement. The (supplying of drawings and designs for carrying out such activity was incidental to assessee's business and, therefore, in our opinion it cannot be held that the assessee was rendering professional services only. It was primarily part of assessee's business activity and, therefore/deduction under s, 80HHC was to be allowed by treating it as supply of manufactured goods.
29. In the result, Ground Nos. 3 and 4 stand allowed.
30. Brief facts apropos Ground No. 5 are that assessee had made a payment to M/s Gary Prae of US $ 2,800 in connection with the purchase of CD/disk. The AO held it to be payment towards rendering technical services in connection with the development of the drawings and designs. He, accordingly, held that the assessee was required to deduct TDS and as it failed to do so, the expenditure was not allowable, in view of s. 40(a)(i). He, accordingly, made an addition of Rs. 1,41,520.
31. Learned CIT(A) confirmed the addition.
32. Learned counsel submitted that s. 195 is not attracted as designs and drawings amounted to goods. He further submitted that since there was no PE in India, therefore, the amount paid to Gray Prae was not taxable in his hands in India. Hence, TDS was not required to be made.
33. We have considered the submissions of both the parties and have perused the record of the case. We are in agreement with the findings of lower Revenue authorities that the payment to Mr. Gary Prae was in the nature of fee for technical services but since he had no PE in India, the amount was not taxable in his hands. Therefore, s. 195 could not be invoked.
34. In the result, this ground is allowed.
35. Brief facts apropos Ground Nos. 6 and 7 are that assessee had claimed deduction under s. 80HHB at Rs. 5,12,412. The AO, after considering the expenses directly related to the foreign projects carried out by the assessee, recomputed the deduction under s. 80HHB at Rs. 4,16,605 after adding the difference of Rs. 4,78,035 which was not considered by the assessee in the direct cost.
36. Learned CIT(A) while dealing with the grounds relating to transfer pricing addition, deleted the addition made by AO in regard to foreign travel expenses of Rs. 4,78,136 which amount has been considered by the AO while recomputing the deduction under s. 80HHB. We, therefore, restore this matter to the file of AO to recompute the allowable deduction under s. 80HHB in accordance with law.
37. In the result, both these grounds are allowed for statistical purposes.
38. Ground No. 8 is in regard to interest under s. 234D. We find that Expln. 2 to s. 234D reads as under :
"234D. Interest on excess refund — (1) Subject to the other provisions of this Act, where any refund is granted to the assessee under sub-s. (1) of s. 143, and—
| (a) | no refund is due on regular assessment; or | |
| (b) | the amount refunded under sub-s. (1) of s. 143 exceeds the amount refundable on regular assessment, |
the assessee shall be liable to pay simple interest at the rate of per cent on the whole or the excess amount so refunded, for every month or part of a month comprised in the period from the date of grant of refund to the date of such regular assessment.
(2) Where, as a result of an order under s. 154 or s. 155 or s. 250 or s. 254 or s. 260 or s. 263 or s. 264 or an order of the Settlement Commission under sub-s. (4) of s. 245D, the amount of refund granted under sub-s. (1) of s. 143 is held to be correctly allowed, either in whole or in part, as the case may be, then, the interest chargeable, if any, under sub-s. (1) shall be reduced accordingly.
Explanation 2.—For the removal of doubts, it is hereby declared that the provisions of this section shall also apply to an assessment year commencing before the 1st day of June, 2003 if the proceedings in respect of such assessment year is completed after the said date."
39. In view of the above Explanation, the interest is chargeable under s. 234D in respect of asst. yr. 2003-04 also.
40. In the result, this ground is dismissed.
41. In the result, the assessee's appeal is partly allowed for statistical purposes.
Regards
Prarthana Jalan
__._,_.___
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