@JUDGMENTTAG-ORDER
1. In this appeal by the Revenue for assessment year 2002-03, following questions of law have been formulated for our consideration.
(a) Whether on the facts and circumstances of the case and in law, the Tribunal did not err in directing the AO to allow set off the Section 10A unit losses against its business profit ignoring the specific provision of sub-section (6) of section 10A which provides for set off of such losses only after the expiry of the last of the relevant assessment years ?
(b) Whether on the facts and circumstances of the case and in law, the Tribunal did not err in directing the AO to allow set off the Section 10A unit losses against its business profits even though the assessee had not exercised the option under sub-section (8) of Section 10A not to avail the benefit of Section 10A?
(c) Whether on the facts and circumstances of the case and in law, the Tribunal did not err in holding that the loss suffered by the assessee by allowing excess period of credit to the Associated Enterprises without charging any interest during such credit period would not amount to international transaction whereas Section 92B(1) of the income tax Act, 1961 refers to any other transaction having a bearing on the profits, income, losses or assets of such enterprises ?
(d) Whether on the facts and circumstances of the case and in law, the Tribunal did not err in deleting the adjustment made on allocation of the consultancy charges paid by the assessee to M/s. McKinsey & Co. on the ground that there was no mutual agreement between the assessee and the Associated Enterprise for incurring the cost and that no tangible or concrete benefit had accrued to the Associated Enterprises, without appreciating that given the facts and circumstances of the case, the existence of mutual agreement can be readily inferred ?
(e) Whether on the facts and circumstances of the case and in law, the Tribunal did not err in failing to appreciate that as admitted by the assessee, there was sharing of responsibilities and roles performed between the assessee and the Associated Enterprises and, moreover, the assessee had in its own alternative submission estimated the indirect benefit of the study to the Associated Enterprises at 25% to 30% of the cost, which would go to establish that arm''s length allocation of cost of consultancy expenses was required to be made ?
(f) Whether on the facts and circumstances of the case and in law, the Tribunal did not err in failing to appreciate that as per the provisions of Section 80HHE, profits of any branch, office, warehouse or any other establishment of the assessee situated outside India are to be reduced from ''export turnover of the business'' and not from ''total turnover''?
(g) Whether on the facts and circumstances of the case and in law, the Tribunal did not err in failing to appreciate that the approving authority i.e. Software Technology Park of India (STPI) itself had held that the assessee''s three units at Chinchwad, Akruti and Millennium Business Park as ''expansion of the existing units'' and, moreover, as can be seen from the approvals, the STPI had issued its no objection to expansion of operations from the existing units which makes it clear that the said units were mere expansion of the existing units, hence, not eligible for deduction u/s 10A ?
(h) Whether on the facts and circumstances of the case and in law, the Tribunal did not err in allowing the losses of the assessee''s Sweden branch to be set off against its other business income without appreciating that as per Article 7 of the Double Taxation Avoidance Agreement (DTAA) between India and Sweden, profits attributable to Sweden branch were taxable in Sweden and, therefore, the losses incurred by the Sweden branch could not be set off against the other income ?
(i) Whether on the facts and circumstances of the case and in law, the Tribunal did not err in deciding on the issue of set off of the loss of the Sweden branch against the assessee''s other business income and following the Tribunal''s decision for the AY 2001-02 without appreciating that the said earlier decision had been rendered in the context of the Double Taxation Avoidance Agreement (DTAA) between India and Japan which, therefore, would not apply, pari passu, to Sweden ?
So far as questions (a) and (b) are concerned, counsel for the parties that both the issues are covered against the Revenue and in favour of the assessee by the decision of this Court in the respondent-assessee''s own case being Income Tax Appeal No. 2177 of 2012 rendered on 1st July 2011. In view of the above, we see no reason to entertain questions (a) and (b).
2. So far as question (c) is concerned, counsel for the parties state that in view of the amendment to Section 92B(1) of the income tax Act, 1961 (''Act'' for short) by Finance Act, 2012 with retrospective effect from 1st April 2002, the question as framed may be restored to the file of the Tribunal for fresh decision in light on the amendment. Accordingly, this issue is restored to the file of the Tribunal for fresh decision on merits.
3. So far as question (d) is concerned, the dispute relates to allocation of consultancy charges paid by the respondent-assessee to M/s. McKinsey & Co. on the ground that there was an arrangement between the respondent-assessee and its Associated Enterprises and on that basis, the Revenue sought to justify the inclusion of consultancy charges paid to M/s. McKinsey & Co. as an international transaction. The Tribunal held that there was no material to support the conclusion that there was an arrangement between the respondent-assessee and its Associated Enterprises and the entire case is based on mere presumption. Therefore, the Tribunal concluded that the order of the Transfer Pricing Officer (TPO) is without any evidence. The Tribunal further held that even if any benefit accrued to the Associated Enterprises, it was merely incidental to the consultancy obtained by the respondent-assessee from M/s. McKinsey & Co. Besides, the Tribunal held that even if it is assumed that certain benefit accrued to the Associated Enterprises and they were to compensate the respondent-assessee, the ALP would have to be determined. This can only be determined on finding out the consultancy charges paid by similarly situated and comparable independent entities. In the absence of any comparison, the Tribunal held that the action of the TPO cannot be upheld. In these circumstances, since the decision of the Tribunal is based on finding of fact, we see no reason to entertain question (d).
4. So far as question (e) is concerned, same is not pressed by the senior counsel for the Revenue.
5. So far question (g) is concerned, the respondent-assessee established three units at Chinchwad, Ackruti and Millennium. The Revenue denied the benefit of Section 10A of the said Act in respect of three units on the basis of the approval letter issued by Software Technology Park in India that the three units are to be considered as part of the existing unit. The Tribunal has recorded a finding of fact that all the three units fulfil the conditions prescribed u/s 10A(2) of the Act. The three units were separate and independent production units and the same cannot treated as mere expansion of the existing units. Thus, the respondent-assessee is entitled to its claim for deduction u/s 10A of the Act. In these circumstances, since the decision of the Tribunal is based on finding of fact, we see no reason to entertain question (g).
6. So far as questions (h) and (i) are concerned, the Tribunal by the impugned order allowed the respondent-assessee to set off losses incurred by its branch offices in Sweden against its profits. The Tribunal allowed the claim of the respondent-assessee by following its decision rendered in earlier assessment years with respect of India. Japan Double Taxation Avoidance Agreement (DTAA). The case of the Revenue is that in the present case, we are concerned with India-Sweden DTAA. However, nothing has been brought on record to show that the clauses of the DTAA dealing with this aspect of the matter are different in India-Sweden DTAA from that in the India-Japan DTAA. In this view of the matter, we see no reason to entertain questions (h) and (i) as framed. The appeal is admitted on question (f).
