DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE - 5, PUNE vs. ROMAX SOLUTIONS PRIVATE LIMITED, PUNE

Briefly stated, the facts of the case are that the assessee is a 100% Export Oriented Unit under STPI scheme and a wholly owned subsidiary of Romax Technology Ltd., UK.

During the year under consideration, the assessee provided IT Enabled services to its Associated Enterprises, namely, Romax Technology Ltd., UK and received service charges of Rs.2,16,81,807/-. Operating profit from the rendition of the services was declared at Rs.61,50,896/-, which was claimed as deductible u/s.10A of the Act. The Assessing Officer (AO) allowed the same in scrutiny assessment. Thereafter, the proceeding were taken up pursuant to notice u/s.148 on the ground that excess deduction was allowed u/s.10A of the Act amounting to Rs.35,27,217/-. Such a view was premised on the understanding that the assessee computed the Arm’s Length Price of the international transaction of rendering ITES to its Associated enterprise under the Transactional Net Margin Method (TNMM) by demonstrating its operating profit margin of 39.62% at ALP, which was higher than 16.90% of the comparables. The AO held that the assessee claimed excess deduction u/s.10A amounting to Rs.35,27,217/- (Rs.61,50,896/- [Profit declared by the assessee] minus Rs.26,23,679/- [Arm’s Length profit] ). He, therefore, made an addition of the same, which came to be deleted in the first appeal. Aggrieved thereby, the Revenue has approached the Tribunal.

I have heard the rival submissions and gone through the relevant material on record. It is seen that the AO’s calculation of excess deduction u/s 10A of the Act amounting to Rs.35,27,217/- is based on the Arm’s Length price based profit of the IT Enabled service rendered vis-à-vis the assessee’s actual profit from such services. It is pertinent to mention that the assessee’s Associated Enterprises, namely, Romax Technology Ltd., UK is not chargeable to tax in India. In other words, the assessee offered suo motu higher income in its hands, which was albeit deductible u/s.10A, without conferring any corresponding benefit to its AEs in terms of higher deduction of expenditure. The ld. AR brought to my notice an order passed by the Pune Bench of the Tribunal in Honeywell Automation India Limited and Another Vs. DCIT and Another (2021) 62 CCH 0177 (Pune-Trib) in which the case of excessive deduction made by the AO u/s.10A(7) read with section 80IA(10), similar to the one under consideration, was disapproved. The ld. DR fairly conceded that the facts and circumstances of the instant case are mutatis mutandis similar to the Honeywell Automation India Limited and Another (supra). Respectfully following the precedent, I accord my imprimatur to the order passed by the ld. CIT(A).

In the result, the appeal is dismissed. Order pronounced in the Open Court on 01st March, 2022.