Transfer pricing adjustment not required for 10A unit where exempt income declared is lower than ALP – Ahmd ITAT

Motif India Infotech (P.) Ltd. v  ACIT [IT APPEAL NO. 3043 (AHD.) OF 2010 dated 25.03.2014] – Ahmedabad ITAT


Assessee is an offshore business process outsourcing service provider whereby it renders data support services. Before the Transfer Pricing Officer (“TPO”), the assessee submitted that Transfer Pricing Laws are not applicable to the assessee as its income was exempt under section 10A. The assessee relied on the decision of the Bangalore Tribunal in the case of Philips Software Centre (P.) Ltd. v. Asstt. CIT [2008] 26 SOT 226. TPO did not accept the contention of the assessee stating that proviso to section 92C clearly provides that no deduction u/s 10A or section 10AA or sec 10B or Chapter VI A shall be allowed in respect of the amount of income by which total income of the assessee is enhanced after computation of ALP. TPO held that The TPO held that the assessee had disclosed its profit derived from the said business at the rate 17.89%, whereas on the basis of some comparable cases TPO determined the same at 34.26%

Assessee’s contentions:

  • Assessee is eligible for the tax holiday under section 10A of the Act, hence it would be devoid of logic to argue that it had manipulated prices and shifted profits to an overseas jurisdiction for avoiding taxes in India. 
  • Hence, transfer pricing provisions should not be applicable to the assessee. 
  • Further the parent company, to whom the services are rendered is based in USA where the tax rate is more than 30%. Hence there cannot be any intention to shift profits.
  • The assessee relied on the ruling of Mastek Ltd. v. Addl. CIT [2012] 53 SOT 111 (Ahd.) and  CBDT Circular No.14 of 2001 dated 09.11.2001


  • The provisions of the Transfer Pricing were introduced in the Statute to ensure that due to any arrangement made by the assessee with its AE in the course of an international transaction, income taxable in India is not reduced for any reason
  • Further in a case where the income derived from an international transaction is exempt from tax in India because of provisions of Section 10A, then it cannot be held that because of an arrangement between the assessee and its AE any income taxable in India had been under reported.
  • There is no provision in the Statute to show that in case of an assessee whose income is exempt u/s 10A and international transaction made with an AE should not be benchmarked with ALP determined on the basis of the provisions of Transfer Pricing.
  • Where the income derived from international transactions is exempt from tax in India, it cannot be alleged that the assessee had arranged its affairs in such a manner so as to show lesser taxable income in India but it can be alleged that the assessee has arranged its affairs in such a manner so as to reflect more exempt income in India.
  • As per the decisions of the lower authorities, the assessee has not reported any excess exempt income from its international transactions with AE. On the other hand as per the opinion of the lower authorities in the instant case exempt income declared by the assessee when benchmarked with the ALP determined in accordance with the provisions of Transfer Pricing, the assessee has declared lesser exempt income and thereby no taxable base in India was eroded. Therefore, no adjustment with the exempt income of the assessee was required to be made as per provisions contained in Chapter X of the Act.

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