You offered extra income to give effect to a MAP resolution. The officer says the proviso denying a Chapter III deduction on enhanced income applies. Does it?
No, on this Bench's view. The proviso applies only to a transfer pricing adjustment made by the Assessing Officer. It does not reach income enhanced under a mutual agreement procedure resolution, which is one of several distinct modes by which an arm's length price can come to be determined, and where the assessee actually invoices its associated enterprise and brings the foreign exchange in.
Decided by the ITAT (N.V. Vasudevan, Vice President and B.R. Baskaran, Accountant Member) on 2020-06-24, reported as IT(TP)A No. 879/Bang/2018, assessment year 2007-08. It bears on section 92C(4), section 92CA(4), section 92CC, section 92CD, section 92CB, section 10A, section 10AA, section Rule 44H, section Rule 44H(4), section 90, section 90A, section DTAA art 27 of the Income Tax Act 1961, in Capital Gains Exemptions, Assessment & Scrutiny and How Tax Law Is Read matters.
The APA side of this question is covered by Dar Al Handasah and now by EYGBS. This is the decision that carries the same reasoning across to MAP, which is the harder case because the enhancement follows an agreement between two States rather than the assessee's own computation. It also sets out the modes of determining an arm's length price as a list, which is a useful frame when arguing that a particular proviso is confined to one of them.
Binding on the AO and CIT(A) within the Tribunal's jurisdiction. Persuasive elsewhere.
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For assessment year 2007-08 the assessee's appeal was pending before the CIT(A) when its United States associated enterprise approached the United States competent authority under Article 27 of the India-United States treaty. The competent authorities agreed on mark-up percentages for information technology enabled services. By the resolution dated 28 October 2015 the assessee's export income was enhanced by Rs 31,05,17,297, and the Assessing Officer passed an order under Rule 44H(4) on 25 January 2016 giving effect to it. He allowed the s.10A deduction only up to Rs 132,97,49,723, the figure from the original 2011 assessment, and refused the deduction on the enhanced income of Rs 31,05,17,297, relying on the first proviso. The CIT(A) rejected the assessee's additional ground on the footing that the upward MAP adjustment was not disclosed in the books and was therefore ineligible. The appeal also carried transfer pricing grounds on the comparables selected by the TPO.
On the deduction question the Tribunal held at para 36 that 'The proviso to section 92CA(4) of the Act will apply only to adjustment to transfer pricing made by the AO', and not to income enhanced under a mutual agreement procedure resolution. On the transfer pricing grounds it directed that 'After excluding the aforesaid comparable from the list of comparable chosen by the TPO, the arithmetic mean of profit margin of the remaining comparable is directed to be reworked by the TPO/AO.' That direction sits in the transfer pricing part of the order and no paragraph number is pinned to it here, para 30 in the sequence dealing with the deduction question being the Departmental Representative's reply. The copy available did not run as far as the concluding paragraph, so the terms in which the appeal was finally disposed of are not stated here.
The list of distinct routes by which an arm's length price can come to be determined - suo motu by the assessee in its return; by the Assessing Officer, where accepted by the assessee or confirmed in appeal; by an advance pricing agreement; under the safe harbour rules in s.92CB; and as a result of a resolution under the mutual agreement procedure under s.90 or s.90A - came from counsel for the assessee. Paragraphs 27 to 29 are the assessee's submissions ('It was submitted by the learned counsel for the Assessee that...') and para 30 is the Departmental Representative's answer. The Bench's own analysis begins at para 31, 'We have given a very careful consideration to the rival submissions.' It sets the routes out at para 35, attributing them to counsel - 'As rightly pointed out by the learned counsel for the Assessee in the course of his argument, the addition on account of determination of ALP can be in a different manner' - and adopts the distinction in its own voice at para 36. On the proviso the Bench read it as denying the s.10A deduction in respect of the amount of income by which the total income is enhanced after computation under s.92C(4) by the TPO (para 32), and held it directed at that one route only (para 36). The policy of the proviso, drawn from CBDT Circular 14 of 2001, supported that reading: it recognises the commercial reality that where a transfer pricing adjustment is made the amount represented by the adjustment would not actually have been received in India or would actually have gone out of the country (para 34). A MAP resolution is different in exactly that respect, because the conditions on which the dispute was resolved required the assessee to increase its taxable income and the sum agreed was to be subsequently invoiced and realised, so foreign exchange did come in (para 33). The Bench rested on the Pune Bench decision in Dar Al Handasah Consultants (Shair & Partners) India Private Limited, holding that it 'will be clearly applicable to the facts of the present case' (paras 34 and 36).
The proviso to section 92CA(4) of the Act will apply only to adjustment to transfer pricing made by the AO
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Handle my notice → Ask a CA on WhatsAppNo, on this Bench's view. The proviso applies only to a transfer pricing adjustment made by the Assessing Officer. It does not reach income enhanced under a mutual agreement procedure resolution, which is one of several distinct modes by which an arm's length price can come to be determined, and where the assessee actually invoices its associated enterprise and brings the foreign exchange in. This was decided by the ITAT (N.V. Vasudevan, Vice President and B.R. Baskaran, Accountant Member) and bears on section 92C(4), section 92CA(4), section 92CC, section 92CD, section 92CB, section 10A, section 10AA, section Rule 44H, section Rule 44H(4), section 90, section 90A, section DTAA art 27 of the Income Tax Act 1961. It is reported as IT(TP)A No. 879/Bang/2018, assessment year 2007-08. The APA side of this question is covered by Dar Al Handasah and now by EYGBS. This is the decision that carries the same reasoning across to MAP, which is the harder case because the enhancement follows an agreement between two States rather than the assessee's own computation. It also sets out the modes of determining an arm's length price as a list, which is a useful frame when arguing that a particular proviso is confined to one of them. If it applies to you, the first step is this: Identify which of the modes of determining an arm's length price your figure came out of: the return, the officer, an APA, safe harbour, or a MAP resolution.
For assessment year 2007-08 the assessee's appeal was pending before the CIT(A) when its United States associated enterprise approached the United States competent authority under Article 27 of the India-United States treaty. The competent authorities agreed on mark-up percentages for information technology enabled services. By the resolution dated 28 October 2015 the assessee's export income was enhanced by Rs 31,05,17,297, and the Assessing Officer passed an order under Rule 44H(4) on 25 January 2016 giving effect to it. He allowed the s.10A deduction only up to Rs 132,97,49,723, the figure from the original 2011 assessment, and refused the deduction on the enhanced income of Rs 31,05,17,297, relying on the first proviso. The CIT(A) rejected the assessee's additional ground on the footing that the upward MAP adjustment was not disclosed in the books and was therefore ineligible. The appeal also carried transfer pricing grounds on the comparables selected by the TPO. The matter was decided on 2020-06-24 by the ITAT (N.V. Vasudevan, Vice President and B.R. Baskaran, Accountant Member). On those facts the ITAT held as follows. On the deduction question the Tribunal held at para 36 that 'The proviso to section 92CA(4) of the Act will apply only to adjustment to transfer pricing made by the AO', and not to income enhanced under a mutual agreement procedure resolution. On the transfer pricing grounds it directed that 'After excluding the aforesaid comparable from the list of comparable chosen by the TPO, the arithmetic mean of profit margin of the remaining comparable is directed to be reworked by the TPO/AO.' That direction sits in the transfer pricing part of the order and no paragraph number is pinned to it here, para 30 in the sequence dealing with the deduction question being the Departmental Representative's reply. The copy available did not run as far as the concluding paragraph, so the terms in which the appeal was finally disposed of are not stated here.
The list of distinct routes by which an arm's length price can come to be determined - suo motu by the assessee in its return; by the Assessing Officer, where accepted by the assessee or confirmed in appeal; by an advance pricing agreement; under the safe harbour rules in s.92CB; and as a result of a resolution under the mutual agreement procedure under s.90 or s.90A - came from counsel for the assessee. Paragraphs 27 to 29 are the assessee's submissions ('It was submitted by the learned counsel for the Assessee that...') and para 30 is the Departmental Representative's answer. The Bench's own analysis begins at para 31, 'We have given a very careful consideration to the rival submissions.' It sets the routes out at para 35, attributing them to counsel - 'As rightly pointed out by the learned counsel for the Assessee in the course of his argument, the addition on account of determination of ALP can be in a different manner' - and adopts the distinction in its own voice at para 36. On the proviso the Bench read it as denying the s.10A deduction in respect of the amount of income by which the total income is enhanced after computation under s.92C(4) by the TPO (para 32), and held it directed at that one route only (para 36). The policy of the proviso, drawn from CBDT Circular 14 of 2001, supported that reading: it recognises the commercial reality that where a transfer pricing adjustment is made the amount represented by the adjustment would not actually have been received in India or would actually have gone out of the country (para 34). A MAP resolution is different in exactly that respect, because the conditions on which the dispute was resolved required the assessee to increase its taxable income and the sum agreed was to be subsequently invoiced and realised, so foreign exchange did come in (para 33). The Bench rested on the Pune Bench decision in Dar Al Handasah Consultants (Shair & Partners) India Private Limited, holding that it 'will be clearly applicable to the facts of the present case' (paras 34 and 36). In the words reproduced by the source cited on this page: "The proviso to section 92CA(4) of the Act will apply only to adjustment to transfer pricing made by the AO" The decision followed or applied Dar Al Handasah Consultants (Shair & Partners) India Private Limited v. DCIT (ITAT, Pune Bench) - applied; the Bench held that the decision 'will be clearly applicable to the facts of the present case' (paras 34 and 36).
It was decided by the ITAT on 2020-06-24 and is reported as IT(TP)A No. 879/Bang/2018, assessment year 2007-08. Binding on the AO and CIT(A) within the Tribunal's jurisdiction. Persuasive elsewhere. A Tribunal decision binds the assessing officer and the Commissioner (Appeals) within that Tribunal's jurisdiction, and is persuasive before other benches. It is not binding on a High Court, and a contrary co-ordinate bench decision will be argued against you, so check whether the point has been taken the other way before you build a reply around it. On section 92C(4), section 92CA(4), section 92CC, section 92CD, section 92CB, section 10A, section 10AA, section Rule 44H, section Rule 44H(4), section 90, section 90A, section DTAA art 27, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. On the deduction question the Tribunal held at para 36 that 'The proviso to section 92CA(4) of the Act will apply only to adjustment to transfer pricing made by the AO', and not to income enhanced under a mutual agreement procedure resolution. On the transfer pricing grounds it directed that 'After excluding the aforesaid comparable from the list of comparable chosen by the TPO, the arithmetic mean of profit margin of the remaining comparable is directed to be reworked by the TPO/AO.' That direction sits in the transfer pricing part of the order and no paragraph number is pinned to it here, para 30 in the sequence dealing with the deduction question being the Departmental Representative's reply. The copy available did not run as far as the concluding paragraph, so the terms in which the appeal was finally disposed of are not stated here. It arises in Capital Gains Exemptions, Assessment & Scrutiny and How Tax Law Is Read matters, on section 92C(4), section 92CA(4), section 92CC, section 92CD, section 92CB, section 10A, section 10AA, section Rule 44H, section Rule 44H(4), section 90, section 90A, section DTAA art 27 of the Income Tax Act 1961, and was decided by N.V. Vasudevan, Vice President and B.R. Baskaran, Accountant Member. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Show that the enhancement followed the order giving effect to the MAP resolution and not any determination by the officer under the transfer pricing machinery. Put the invoicing and the foreign exchange realisation on record; the Bench treated actual receipt as the commercial feature that distinguishes MAP income from a notional adjustment. Read this alongside Dar Al Handasah and the High Court decisions in EYGBS and Gemological Institute of America, which now carry the same reasoning at appellate level on the APA side.
Searched for later treatment; none was found. That is not the same as a source affirming it. Decided on 24 June 2020. A search for later decisions applying or doubting it returned nothing on point. The same reasoning on the APA side has since been adopted at High Court level in EYGBS (India) and in Gemological Institute of America, but neither of those decisions was found to refer to this order, so they corroborate the principle rather than this authority. Nothing overruling or doubting it was located. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
Four things to record. First, the proposition commonly quoted from para 27 of this order, that an assessee opting for an APA files a modified return under s.92CD and can claim the s.10AA deduction on the enhanced income, is not the Tribunal speaking: paras 27 to 29 open 'It was submitted by the learned counsel for the Assessee that' and are the assessee's submissions, and para 30 is the Departmental Representative's reply. The Bench's own analysis starts at para 31 and its conclusion is at para 36. Second, the order as printed names the provision containing the proviso as s.92CA(4); at para 31 it says 'the provisions of the section 92CA(4) reads as follows' and then sets out the proviso denying the s.10A deduction on income by which the total income is enhanced. That proviso is in s.92C(4) of the Act. The mis-citation appears to be in the order itself and nothing in the reasoning turns on it, but quote the order as it reads and cite the section correctly. Third, the copy available on indiankanoon truncates: the highest paragraph number reachable is 37, and the concluding paragraph recording how the appeal was finally disposed of was not read. The direction on the comparables is a direction within the transfer pricing grounds and is not the disposition of the appeal. Fourth, a later reading of the order against this entry corrected two things: the routes-to-ALP passage was attributed to the Tribunal from para 27 when paras 27 to 30 are the parties' submissions, the Bench setting the list out at para 35 as counsel's point and adopting it at para 36; and the Pune Bench decision in Dar Al Handasah Consultants (Shair & Partners) India Private Limited, earlier left out of 'followed' on the footing that the Bench's own adoption of it could not be fixed, is expressly applied at para 36 and is now listed. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
On the deduction question the Tribunal held at para 36 that 'The proviso to section 92CA(4) of the Act will apply only to adjustment to transfer pricing made by the AO', and not to income enhanced under a mutual agreement procedure resolution. On the transfer pricing grounds it directed that 'After excluding the aforesaid comparable from the list of comparable chosen by the TPO, the arithmetic mean of profit margin of the remaining comparable is directed to be reworked by the TPO/AO.' That direction sits in the transfer pricing part of the order and no paragraph number is pinned to it here, para 30 in the sequence dealing with the deduction question being the Departmental Representative's reply. The copy available did not run as far as the concluding paragraph, so the terms in which the appeal was finally disposed of are not stated here.
TaxSphere, “Dell International Services India Pvt Ltd v DCIT”, https://taxnotice.vittsphere.com/caselaw/case/dell-international-services-map-enhanced-income-keeps-the-10a-deduction/ (validity last checked 2026-09-16)
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