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Income Tax Appellate Tribunal, MUMBAI ‘K’ BENCH, MUMBAI
Before: SHRI SHAMIM YAHYA, HON’BLE & SHRI PAWAN SINGH, HON’BLE]
Appearances by: Shri Rajesh Kumar Mishra, Addl. CIT appeared on behalf of the Revenue. Shri Vijay Mehta, AR appeared on behalf of the Assessee. Date of concluding the hearing : November 14, 2019 Date of pronouncing the order : January 21, 2020 ORDER PER SHRI SHAMIM YAHYA, AM
These are cross-appeals by the Assessee and the Revenue arising out of order of Ld. CIT(A) dated 31.10.2016 for A.Y. 2010-11. 2. The issue raised in revenue’s appeal read as under: i. On the facts and circumstances of the case and in law, the Ld. CIT(A) was erred in allowing the ground that service charges recovered from its 100% subsidiary company i.e. SITL is eligible for deduction u/s 10A. ii. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) was erred in deputation charge for 10A deduction as the assessee company had received deputation charge from its 100% & 721/Mum/2017 Assessment Year: 2010-11 M/s. Sonata Software Ltd. subsidiary company i.e. SITL and not eligible for deduction u/s 10A of subsidiary company i.e. SITL and not eligible for deduction u/s 10A of subsidiary company i.e. SITL and not eligible for deduction u/s 10A of the IT Act. iii. On the facts and circumstances of the case and in law, the Ld. CIT(A) iii. On the facts and circumstances of the case and in law, the Ld. CIT(A) iii. On the facts and circumstances of the case and in law, the Ld. CIT(A) was erred in deleting the addition made on account of unbilled software was erred in deleting the addition made on account of unbilled software was erred in deleting the addition made on account of unbilled software income which is not eligible for deduction u/s 10A of the I.T. Act. income which is not eligible for deduction u/s 10A of the I.T. Act. income which is not eligible for deduction u/s 10A of the I.T. Act.
Ground raised in assessee’s appeal read as under: Ground raised in assessee’s appeal read as under: On the facts and circumstances of the case and in law the Ld. CIT(A) On the facts and circumstances of the case and in law the Ld. CIT(A) On the facts and circumstances of the case and in law the Ld. CIT(A) erred in upholding the contention of the AO in making an upward erred in upholding the contention of the AO in making an upward erred in upholding the contention of the AO in making an upward adjustment of Rs. 57,82,500/ adjustment of Rs. 57,82,500/- on account of transfer pricing adjustment on account of transfer pricing adjustment in respect of Arm’s Length Price of redemption of preference shares of in respect of Arm’s Length Price of redemption of preference shares of in respect of Arm’s Length Price of redemption of preference shares of its associated enterprise. its associated enterprise.
Assessee’s Appeal 4. Brief facts of the case are as under: Brief facts of the case are as under: 4. The appellant (Sonata Software Ltd. or SSL in short) is a company appellant (Sonata Software Ltd. or SSL in short) is a company appellant (Sonata Software Ltd. or SSL in short) is a company incorporated in India, engaged in the business of software incorporated in India, engaged in the business of software incorporated in India, engaged in the business of software development. It offers software development and IT consulting development. It offers software development and IT consulting development. It offers software development and IT consulting services, specialising in area of eCommerce, business intelligence, services, specialising in area of eCommerce, business intelligence, services, specialising in area of eCommerce, business intelligence, enterprise application integration, ECRM for financial services, rprise application integration, ECRM for financial services, rprise application integration, ECRM for financial services, insurance and healthcare sectors. insurance and healthcare sectors. Assessee has set up several set up several undertakings which are recognised by software technology parks of undertakings which are recognised by software technology parks of undertakings which are recognised by software technology parks of India as undertakings set up under the software technology park (ST India as undertakings set up under the software technology park (ST India as undertakings set up under the software technology park (STP) scheme and accordingly eligible for deduction u/s 10A of the Act. scheme and accordingly eligible for deduction u/s 10A of the Act. scheme and accordingly eligible for deduction u/s 10A of the Act.
The T.P.O. in this case dealt with the issue The T.P.O. in this case dealt with the issue of arm’s length price of of arm’s length price of investment in preference share of assessee’s wholly owned subsidiary. investment in preference share of assessee’s wholly owned subsidiary. investment in preference share of assessee’s wholly owned subsidiary. The appellant had furnished Form 3CEB for The appellant had furnished Form 3CEB for the relevant assessment the relevant assessment year reporting various international transactions entered by the year reporting various international transactions entered by the year reporting various international transactions entered by the appellant with Associated Enterprises. Accordingly, the AO made appellant with Associated Enterprises. Accordingly, the AO made appellant with Associated Enterprises. Accordingly, the AO made reference u/s 92CA(1) of the Act for the year under consideration to the reference u/s 92CA(1) of the Act for the year under consideration to the reference u/s 92CA(1) of the Act for the year under consideration to the Additional Commissioner of Inc Additional Commissioner of Income Tax, Transfer Pricing ome Tax, Transfer Pricing – 11(4), Mumbai (‘TPO’) to determine the arm’s length price in relation to the Mumbai (‘TPO’) to determine the arm’s length price in relation to the Mumbai (‘TPO’) to determine the arm’s length price in relation to the international transactions entered by the appellant. The TPO vide order international transactions entered by the appellant. The TPO vide order international transactions entered by the appellant. The TPO vide order u/s 92CA(3) dated 22.01.2014 has made an adjustment to the tune of u/s 92CA(3) dated 22.01.2014 has made an adjustment to the tune of u/s 92CA(3) dated 22.01.2014 has made an adjustment to the tune of Rs. 57,82,500/- to the arm’s length price of the investment in to the arm’s length price of the investment in to the arm’s length price of the investment in preference shares of the subsidiary company made by the appellant. preference shares of the subsidiary company made by the appellant. preference shares of the subsidiary company made by the appellant.
& 721/Mum/2017 Assessment Year: 2010-11 M/s. Sonata Software Ltd. 5.1 It is seen that during the relevant year under consideration, the 5.1 It is seen that during the relevant year under consideration, the 5.1 It is seen that during the relevant year under consideration, the appellant has redeemed its investment of 25,00,000. Redeemable appellant has redeemed its investment of 25,00,000. Redeemable appellant has redeemed its investment of 25,00,000. Redeemable Preference Shares (preference shares) having a face value of one erence Shares (preference shares) having a face value of one erence Shares (preference shares) having a face value of one doller each (at par) for an amount of Rs. 11,95,27,269/ each (at par) for an amount of Rs. 11,95,27,269/- in its associated in its associated enterprise (AE) i.e. Sonata Software North America Income (SSNA). The enterprise (AE) i.e. Sonata Software North America Income (SSNA). The enterprise (AE) i.e. Sonata Software North America Income (SSNA). The Investment had been made in September, 2001. The c Investment had been made in September, 2001. The claim of the laim of the appellant before the TPO was that SSNA was set up on account of before the TPO was that SSNA was set up on account of before the TPO was that SSNA was set up on account of requirements of customers in USA who preferred to deal with an requirements of customers in USA who preferred to deal with an requirements of customers in USA who preferred to deal with an U.S. Entity. The motive and intention of investment in shares of SSNA was Entity. The motive and intention of investment in shares of SSNA was Entity. The motive and intention of investment in shares of SSNA was related to enabling SSNA raise its capital related to enabling SSNA raise its capital base so as to expand its base so as to expand its information technology operations in USA by effectively projecting to information technology operations in USA by effectively projecting to information technology operations in USA by effectively projecting to US Market as an entity of United States and thereby gain confidence of Market as an entity of United States and thereby gain confidence of Market as an entity of United States and thereby gain confidence of prospective customers of U prospective customers of USA. The business of SSNA in US has a direct has a direct impact on the revenu impact on the revenues of the appellant as the entire software es of the appellant as the entire software development project is offshored to the appellant. The assessee development project is offshored to the appellant. The assessee development project is offshored to the appellant. The assessee produced a chart before the AO to contend that because of SSNA, it had produced a chart before the AO to contend that because of SSNA, it had produced a chart before the AO to contend that because of SSNA, it had earned revenues of over 219 crores in last eight years and a profit of earned revenues of over 219 crores in last eight years and a profit of earned revenues of over 219 crores in last eight years and a profit of over Rs. 42 crores could be attributed to it. It contended that the . 42 crores could be attributed to it. It contended that the . 42 crores could be attributed to it. It contended that the significant contribution to its revenues should be treated as sufficient significant contribution to its revenues should be treated as sufficient significant contribution to its revenues should be treated as sufficient return on its investment and its redeeming the shares at face value was return on its investment and its redeeming the shares at face value was return on its investment and its redeeming the shares at face value was justified.
5.2 The TPO rejected the contenti 5.2 The TPO rejected the contention of the appellant. He held that the appellant. He held that the appellant was required to redeem the shares at an arm’s length value appellant was required to redeem the shares at an arm’s length value appellant was required to redeem the shares at an arm’s length value and since the arm’s length value of these shares was US$ 1.05 as per and since the arm’s length value of these shares was US$ 1.05 as per and since the arm’s length value of these shares was US$ 1.05 as per valuation report submitted by the appellant itself, redeeming the shares valuation report submitted by the appellant itself, redeeming the shares valuation report submitted by the appellant itself, redeeming the shares at face value of $1 did not represent at arm’s length transaction. The $1 did not represent at arm’s length transaction. The $1 did not represent at arm’s length transaction. The TPO proceeded to make an adjustment based on the arm’s length value TPO proceeded to make an adjustment based on the arm’s length value TPO proceeded to make an adjustment based on the arm’s length value of $1.05. He also held that since there was only one price available, the of $1.05. He also held that since there was only one price available, the of $1.05. He also held that since there was only one price available, the appellant was not entitled to be benefits allowable in seco appellant was not entitled to be benefits allowable in second proviso to nd proviso to section 92C(2) of the Act. section 92C(2) of the Act.
5. Upon assessee’s appeal, Ld. CIT(A) consider Upon assessee’s appeal, Ld. CIT(A) considered the submission of the submission of the assessee. However, we upheld the action of the Transfer Pricing the assessee. However, we upheld the action of the Transfer Pricing the assessee. However, we upheld the action of the Transfer Pricing Officer by holding as under: Officer by holding as under: “5.4 It is seen that in the present case there is no dispute that the It is seen that in the present case there is no dispute that the It is seen that in the present case there is no dispute that the transaction constitutes an international transaction. Further, in the transaction constitutes an international transaction. Further, in the transaction constitutes an international transaction. Further, in the present case, the CUP used by the TPO is not exactly a comparable CUP used by the TPO is not exactly a comparable CUP used by the TPO is not exactly a comparable uncontrolled price but the price (value) of the share itself determined ontrolled price but the price (value) of the share itself determined ontrolled price but the price (value) of the share itself determined by an Independent Valuer. The independent valuer has determined the by an Independent Valuer. The independent valuer has determined the by an Independent Valuer. The independent valuer has determined the & 721/Mum/2017 Assessment Year: 2010-11 M/s. Sonata Software Ltd. price of transaction itself rather than price of a comparable instan price of transaction itself rather than price of a comparable instan price of transaction itself rather than price of a comparable instance. In light of the fact that the independent valuer has determined the price of light of the fact that the independent valuer has determined the price of light of the fact that the independent valuer has determined the price of the very same transaction, there is no reason to deviate from this price the very same transaction, there is no reason to deviate from this price the very same transaction, there is no reason to deviate from this price in terms of second proviso to section 92 in terms of second proviso to section 92C9(2) of the Act.
5.5 The decision quoted by the appellant has been examined. It is seen The decision quoted by the appellant has been examined. It is seen The decision quoted by the appellant has been examined. It is seen that in these cases, the prices to be compared were the prices charged that in these cases, the prices to be compared were the prices charged that in these cases, the prices to be compared were the prices charged to AEs and prices charged to non to AEs and prices charged to non-AEs wherein the ITAT held that when AEs wherein the ITAT held that when the price charged from non the price charged from non-AEs was treated at ALP, then the price , then the price charged from AEs was to be tested with the ALP after factoring the charged from AEs was to be tested with the ALP after factoring the charged from AEs was to be tested with the ALP after factoring the second proviso in section 92C(2) of the Act. second proviso in section 92C(2) of the Act.
5.6 It is also seen that there are contrary decisions on this issue wherein It is also seen that there are contrary decisions on this issue wherein It is also seen that there are contrary decisions on this issue wherein it has been held that in certain cases, the secon it has been held that in certain cases, the second proviso to section d proviso to section 92C(2) may not be applicable. 92C(2) may not be applicable. The Hon'ble Delhi ITAT, in the case of Vipin Enterprises (2012) 18 The Hon'ble Delhi ITAT, in the case of Vipin Enterprises (2012) 18 The Hon'ble Delhi ITAT, in the case of Vipin Enterprises (2012) 18 taxmann.com 85 (Delhi) has held at para 5.6 that; taxmann.com 85 (Delhi) has held at para 5.6 that; It has also been argued that the assessee is entitled to deduction of It has also been argued that the assessee is entitled to deduction of It has also been argued that the assessee is entitled to deduction of 5% from the adjusted ALP under the provision contained in section ed ALP under the provision contained in section ed ALP under the provision contained in section 92C. This provision, in sub 92C. This provision, in sub-section (1) enumerates six distinct section (1) enumerates six distinct methods for computation of ALP. Sub methods for computation of ALP. Sub-section (2) provides that the section (2) provides that the most appropriate of these six methods shall be applied appropriate of these six methods shall be applied appropriate of these six methods shall be applied determination of ALP. P determination of ALP. Proviso to this sub-section states that where section states that where more than the price is determined by the most appropriate method, price is determined by the most appropriate method, price is determined by the most appropriate method, the ALP shall be taken to be the arithmetical mean prices, or, at the the ALP shall be taken to be the arithmetical mean prices, or, at the the ALP shall be taken to be the arithmetical mean prices, or, at the option of the assessee, a price which may vary from arithmetical option of the assessee, a price which may vary from arithmetical option of the assessee, a price which may vary from arithmetical mean by an amount not exceeding 5 per cent of such arithmetical amount not exceeding 5 per cent of such arithmetical amount not exceeding 5 per cent of such arithmetical mean. The case of the assessee is that under this proviso, the mean. The case of the assessee is that under this proviso, the mean. The case of the assessee is that under this proviso, the assessee is entitled to deduction of 5 per cent of the arithmetical assessee is entitled to deduction of 5 per cent of the arithmetical assessee is entitled to deduction of 5 per cent of the arithmetical mean as the Commissioner (Appeals) has used data of two mean as the Commissioner (Appeals) has used data of two mean as the Commissioner (Appeals) has used data of two comparable cases, 'G' and 'A'. However, this argument is no s, 'G' and 'A'. However, this argument is not t in line with the content of the proviso, which is applicable where more than with the content of the proviso, which is applicable where more than with the content of the proviso, which is applicable where more than one price is determined by the most appropriate method. one price is determined by the most appropriate method.
5.7 Similar view has been taken by ITATS in UE Trade Corporation 5.7 Similar view has been taken by ITATS in UE Trade Corporation 5.7 Similar view has been taken by ITATS in UE Trade Corporation (India) (2011-TII-04 04-ITAT-Del-TP), Haworth (India) Pvt. Ltd A.Y 2006 TP), Haworth (India) Pvt. Ltd A.Y 2006- 07 (TA No 5341/Del/2010) Limited (2011 07 (TA No 5341/Del/2010) Limited (2011-TII-44-ITAT-Hyd-T) etc. T) etc.
5.8 Hence, in cases where there is a comparison between third party 5.8 Hence, in cases where there is a comparison between third party 5.8 Hence, in cases where there is a comparison between third party prices and related party prices, the ITAT view has been that secon prices and related party prices, the ITAT view has been that secon prices and related party prices, the ITAT view has been that second proviso must be applied. However, in instances where there is only one proviso must be applied. However, in instances where there is only one proviso must be applied. However, in instances where there is only one & 721/Mum/2017 Assessment Year: 2010-11 M/s. Sonata Software Ltd. price, benefit of this proviso cannot be given. In the instant case, there is price, benefit of this proviso cannot be given. In the instant case, there is price, benefit of this proviso cannot be given. In the instant case, there is no comparison between two prices, related and un no comparison between two prices, related and un-related. There is an related. There is an arm's length determination of the p arm's length determination of the price of the transaction itself through rice of the transaction itself through a scientific process by an independent valuer. Once such a price is a scientific process by an independent valuer. Once such a price is a scientific process by an independent valuer. Once such a price is determined, as held in Vipin Enterprises, there is no question of determined, as held in Vipin Enterprises, there is no question of determined, as held in Vipin Enterprises, there is no question of allowing benefit of safe harbour under second proviso. allowing benefit of safe harbour under second proviso.
5.9 The value of share sou 5.9 The value of share sought to be used as an arm's length price of the ght to be used as an arm's length price of the transaction of purchase of share by the appellant is the 'fair price' of transaction of purchase of share by the appellant is the 'fair price' of transaction of purchase of share by the appellant is the 'fair price' of share determined by an independent valuer and has been determined share determined by an independent valuer and has been determined share determined by an independent valuer and has been determined at the instance of the appellant itself. Hence, this price determined at the instance of the appellant itself. Hence, this price determined at the instance of the appellant itself. Hence, this price determined by the assessee is the price of the transaction itself and not a comparable the assessee is the price of the transaction itself and not a comparable the assessee is the price of the transaction itself and not a comparable instance. It is not that this price so determined is being compared to a instance. It is not that this price so determined is being compared to a instance. It is not that this price so determined is being compared to a similar third party transaction. The price represents the fair price of the similar third party transaction. The price represents the fair price of the similar third party transaction. The price represents the fair price of the transaction being undertaken by transaction being undertaken by the appellant. If the appellant is t appellant. If the appellant is to adopting the fair price determined by itself (through an independent adopting the fair price determined by itself (through an independent adopting the fair price determined by itself (through an independent valuer mandated by it) then it has to come up with a reason for doing valuer mandated by it) then it has to come up with a reason for doing valuer mandated by it) then it has to come up with a reason for doing so. No such reason has been advanced to me. Once he has determined a so. No such reason has been advanced to me. Once he has determined a so. No such reason has been advanced to me. Once he has determined a fair price for the transaction itself without resorting to a non e for the transaction itself without resorting to a non e for the transaction itself without resorting to a non-AE CUP, he is bound to adopt the same without the benefit of the second proviso he is bound to adopt the same without the benefit of the second proviso he is bound to adopt the same without the benefit of the second proviso to section 92C(2) of the Act. to section 92C(2) of the Act.
5.10 In the light of the fact that the transaction in this case represents 5.10 In the light of the fact that the transaction in this case represents 5.10 In the light of the fact that the transaction in this case represents determination of fair value of shares of the AE which have been bought of fair value of shares of the AE which have been bought of fair value of shares of the AE which have been bought back by the appellant by an independent valuer, the back by the appellant by an independent valuer, the price determined price determined by the independent valuer is liable to be adopted without application of by the independent valuer is liable to be adopted without application of by the independent valuer is liable to be adopted without application of second proviso to section 92C(2) of the Act. It is so he second proviso to section 92C(2) of the Act. It is so held.
Against the above order, assessee is in appeal before us. Against the above order, assessee is in appeal before us. Against the above order, assessee is in appeal before us.
We have heard both the counsels and perused the records We have heard both the counsels and perused the records We have heard both the counsels and perused the records. Learned counsel of the assessee contended that only issue for Learned counsel of the assessee contended that only issue for Learned counsel of the assessee contended that only issue for adjudication here is the application of safe harbour rules under adjudication here is the application of safe harbour rules under adjudication here is the application of safe harbour rules under the 2nd proviso to section 902C(2) which provides for proviso to section 902C(2) which provides for (+/-) 5% variation from 5% variation from the arm’s length price. the arm’s length price. He submitted that the rate at which the international transaction He submitted that the rate at which the international transaction He submitted that the rate at which the international transaction has been entered into by the assessee is dollar 1 as against rate of has been entered into by the assessee is dollar 1 as against rate of has been entered into by the assessee is dollar 1 as against rate of & 721/Mum/2017 Assessment Year: 2010-11 M/s. Sonata Software Ltd. dollar 1.05 adopted by the TPO. He submitted that the said provision ted by the TPO. He submitted that the said provision ted by the TPO. He submitted that the said provision duly permits (+/-) 5% variation in the arm’s length price and in such 5% variation in the arm’s length price and in such 5% variation in the arm’s length price and in such circumstances no adjustment is to be done. Learned counsel contended circumstances no adjustment is to be done. Learned counsel contended circumstances no adjustment is to be done. Learned counsel contended that this issue is squarely covered in favour of the assessee by that this issue is squarely covered in favour of the assessee by that this issue is squarely covered in favour of the assessee by the following ITAT decisions. following ITAT decisions. Per contra learned departmental present relied upon the orders Per contra learned departmental present relied upon the orders Per contra learned departmental present relied upon the orders of the authorities below. of the authorities below. Upon careful consideration we find that the international Upon careful consideration we find that the international Upon careful consideration we find that the international transaction in dispute in the present case is the redemption of the transaction in dispute in the present case is the redemption of the transaction in dispute in the present case is the redemption of the preference shares at the rate of dollar 1. The said international nce shares at the rate of dollar 1. The said international nce shares at the rate of dollar 1. The said international transaction has been benchmarked by the Transfer Pricing Officer on transaction has been benchmarked by the Transfer Pricing Officer on transaction has been benchmarked by the Transfer Pricing Officer on the basis of valuation report submitted by the assessee wherein the the basis of valuation report submitted by the assessee wherein the the basis of valuation report submitted by the assessee wherein the same was valued at dollar 1.05 same was valued at dollar 1.05. Assessee’s plea for granting ssessee’s plea for granting relief as per the safe harbour rules of per the safe harbour rules of (+/-) 5% has been rejected by the 5% has been rejected by the authorities below. The learned CIT has dealt with the same on the authorities below. The learned CIT has dealt with the same on the authorities below. The learned CIT has dealt with the same on the ground that the said proviso is applicable only when more than one ground that the said proviso is applicable only when more than one ground that the said proviso is applicable only when more than one rates have been considered for the benchmarking. rates have been considered for the benchmarking. However as pointed However as pointed by the learned counsel of the assessee in this regard we note that by the learned counsel of the assessee in this regard we note that by the learned counsel of the assessee in this regard we note that following decisions of ITAT are in favour of the assessee. following decisions of ITAT are in favour of the assessee. 1. Dy Director of IT vs. Development Bank of Singapore (Mumbai) Dy Director of IT vs. Development Bank of Singapore (Mumbai) Dy Director of IT vs. Development Bank of Singapore (Mumbai) (2013) 155 TTJ (Mumbai) 265 (2013) 155 TTJ (Mumbai) 265 “LIBOR is arithmetic mean of the rates of interest charged or paid “LIBOR is arithmetic mean of the rates of interest charged or paid “LIBOR is arithmetic mean of the rates of interest charged or paid on inter-bank deposits by a number of panel banks representing bank deposits by a number of panel banks representing bank deposits by a number of panel banks representing different comparable uncontrolled transactions and, therefore, different comparable uncontrolled transactions and, therefore, different comparable uncontrolled transactions and, therefore, benefit of plus/minus 5% variation is available to the assessee benefit of plus/minus 5% variation is available to the assessee benefit of plus/minus 5% variation is available to the assessee where the rate of interest is benchmarked on the basis of LIBOR where the rate of interest is benchmarked on the basis of LIBOR where the rate of interest is benchmarked on the basis of LIBOR rates.” 2. DCIT vs. Begadiya Brothers Pvt. Ltd. (ITA No. 387/BIL/2014 DCIT vs. Begadiya Brothers Pvt. Ltd. (ITA No. 387/BIL/2014 DCIT vs. Begadiya Brothers Pvt. Ltd. (ITA No. 387/BIL/2014 dated 11.10.2018) dated 11.10.2018) & 721/Mum/2017 Assessment Year: 2010-11 M/s. Sonata Software Ltd. “Thus the CIT(A) after verifying all the aspects and also that of the “Thus the CIT(A) after verifying all the aspects and also that of the “Thus the CIT(A) after verifying all the aspects and also that of the evidences come to the conclusion t evidences come to the conclusion that the transaction in two hat the transaction in two vessels, namely “THEOSKEPASTI” and “GOA’’ are within deviation vessels, namely “THEOSKEPASTI” and “GOA’’ are within deviation vessels, namely “THEOSKEPASTI” and “GOA’’ are within deviation of (+/-) 5%, and therefore, the transaction is within ALP. ) 5%, and therefore, the transaction is within ALP. ) 5%, and therefore, the transaction is within ALP. Accordingly, the upward adjustment of Rs. 81,44,959/ Accordingly, the upward adjustment of Rs. 81,44,959/- - is rightly deleted by the CIT(A). The case of the ass deleted by the CIT(A). The case of the assessee is also supported essee is also supported by another reason that prices quoted by Steel Index are available by another reason that prices quoted by Steel Index are available by another reason that prices quoted by Steel Index are available in public domain and assessee filed price data of relevant dates in public domain and assessee filed price data of relevant dates in public domain and assessee filed price data of relevant dates during proceedings before TPO. The TPO has accepted the TSI during proceedings before TPO. The TPO has accepted the TSI during proceedings before TPO. The TPO has accepted the TSI prices in TP Study for determining ALP. T prices in TP Study for determining ALP. Therefore, the comment herefore, the comment of TPO in his report that Trade Steel Index is arithmetical which of TPO in his report that Trade Steel Index is arithmetical which of TPO in his report that Trade Steel Index is arithmetical which was not explained by the assessee was rightly rejected by the was not explained by the assessee was rightly rejected by the was not explained by the assessee was rightly rejected by the CIT(A) and held that the assessee has sufficiently demonstrated CIT(A) and held that the assessee has sufficiently demonstrated CIT(A) and held that the assessee has sufficiently demonstrated the same. Therefore, there is no need to i the same. Therefore, there is no need to interfere with the order of nterfere with the order of the CIT(A).”
From the above case laws from the tribunal in our considered From the above case laws from the tribunal in our considered From the above case laws from the tribunal in our considered opinion the submission of the assessee is cogent. In these cases opinion the submission of the assessee is cogent. In these cases opinion the submission of the assessee is cogent. In these cases variation of (+/-) 5% have been accepted by the ITAT for the single 5% have been accepted by the ITAT for the single 5% have been accepted by the ITAT for the single rate used for benchmarking the arm’s length price of the international rate used for benchmarking the arm’s length price of the international rate used for benchmarking the arm’s length price of the international transaction. Hence in accordance with transaction. Hence in accordance with the ratio from the above cases, the ratio from the above cases, the relief for variation of variation of 5% sought by the assessee is to be gr 5% sought by the assessee is to be granted from the arm’s length price accepted by the Transfer Pricing Officer from the arm’s length price accepted by the Transfer Pricing Officer from the arm’s length price accepted by the Transfer Pricing Officer is justified. The distinction brought about by the learned CIT(A) . The distinction brought about by the learned CIT(A) . The distinction brought about by the learned CIT(A) that when, one rate is considered then safe harbour rules do not apply, rate is considered then safe harbour rules do not apply, rate is considered then safe harbour rules do not apply, is not mentioned the statute books and the not mentioned the statute books and the same cannot be sustained. same cannot be sustained. Hence when the assessee is granted the benefit of safe harbour rules as Hence when the assessee is granted the benefit of safe harbour rules as Hence when the assessee is granted the benefit of safe harbour rules as mentioned in the 2nd proviso to section 92C(2) the price at which the C(2) the price at which the international transaction has actually been undertaken is to be deemed international transaction has actually been undertaken is to be deemed international transaction has actually been undertaken is to be deemed to be the arm’s length price. ength price. This is so because if the (+/-) 5% variation is granted from the arm’s length price of international transaction is granted from the arm’s length price of international transaction is granted from the arm’s length price of international transaction determined at dollar 1.05 the price determined at dollar 1.05 the price of dollar 1 at which redemption has at which redemption has been done by the assessee is to be accepted. been done by the assessee is to be accepted.
& 721/Mum/2017 Assessment Year: 2010-11 M/s. Sonata Software Ltd. Accordingly following the precedence from the decisions as ollowing the precedence from the decisions as ollowing the precedence from the decisions as referred above we set aside the orders of the ld. CIT and decide the referred above we set aside the orders of the ld. CIT and decide the referred above we set aside the orders of the ld. CIT and decide the issue in favour of the assessee. issue in favour of the assessee. In the result assessee’s appeal stands he result assessee’s appeal stands allowed.
Revenue’s appeal Revenue’s appeal – issue relating to 10A deduction issue relating to 10A deduction service charges recovered from its 100% subsidy. charges recovered from its 100% subsidy.
On this issue at the outset, learned counsel of the assessee On this issue at the outset, learned counsel of the assessee On this issue at the outset, learned counsel of the assessee contended that this issue has been contended that this issue has been decided by the ITAT as well as by the ITAT as well as Hon'ble High Court in favour of the assesse Hon'ble High Court in favour of the assessee, hence facts being e, hence facts being identical, he submitted that this issue needs to be decided in favour of e submitted that this issue needs to be decided in favour of e submitted that this issue needs to be decided in favour of the assessee. Per contra ld. LD.DR could not controvert this the assessee. Per contra ld. LD.DR could not controvert this the assessee. Per contra ld. LD.DR could not controvert this submission.
Upon careful consideration, we find that the issue is squarely Upon careful consideration, we find that the issue is squarely Upon careful consideration, we find that the issue is squarely covered in favour of the assessee by the decision of covered in favour of the assessee by the decision of ITAT and Hon'ble ITAT and Hon'ble High Court in assessee’s own case. In this regard, we may gainfully High Court in assessee’s own case. In this regard, we may gainfully High Court in assessee’s own case. In this regard, we may gainfully referred to the issue as discussed in the order of the Ld. CIT(A) as referred to the issue as discussed in the order of the Ld. CIT(A) as referred to the issue as discussed in the order of the Ld. CIT(A) as under: 6.1 During the assessment proceedings for A.Y. 1998 6.1 During the assessment proceedings for A.Y. 1998-99, the Assessing 99, the Assessing Officer (A.O.') was of t Officer (A.O.') was of the view that the transfer of SSD as a unit to SSL he view that the transfer of SSD as a unit to SSL was formed by splitting or reconstruction of business already in was formed by splitting or reconstruction of business already in was formed by splitting or reconstruction of business already in existence and the undertaking has been carrying on its activities prior existence and the undertaking has been carrying on its activities prior existence and the undertaking has been carrying on its activities prior to A.Y. 1995-96. The same view point has also been followed in the 96. The same view point has also been followed in the 96. The same view point has also been followed in the assessment order u/s 144C r.w.s 143(3) of the Act dated 06.02.2012 for sessment order u/s 144C r.w.s 143(3) of the Act dated 06.02.2012 for sessment order u/s 144C r.w.s 143(3) of the Act dated 06.02.2012 for A.Y. 2008-09. The A.O. has considered the above issue at para 6.1 and 09. The A.O. has considered the above issue at para 6.1 and 09. The A.O. has considered the above issue at para 6.1 and 6.2 in page 3 of the assessment order, which is reproduced below: 6.2 in page 3 of the assessment order, which is reproduced below: 6.2 in page 3 of the assessment order, which is reproduced below:
"6.1 In this case the deduction u/s. 10A was disallowed in AY "6.1 In this case the deduction u/s. 10A was disallowed in AY "6.1 In this case the deduction u/s. 10A was disallowed in AY 1998-99 and 99- -00 on the ground that undertaking was formed 00 on the ground that undertaking was formed by splitting or reconstruction of business already in existence and by splitting or reconstruction of business already in existence and by splitting or reconstruction of business already in existence and & 721/Mum/2017 Assessment Year: 2010-11 M/s. Sonata Software Ltd. the undertaking has been carrying on its activities prior to A.Y. the undertaking has been carrying on its activities prior to A.Y. the undertaking has been carrying on its activities prior to A.Y. 1995-96. The ITAT decided the issue in favour of assessee against 96. The ITAT decided the issue in favour of assessee against 96. The ITAT decided the issue in favour of assessee against which the department is in appeal before the Hon'ble Supreme which the department is in appeal before the Hon'ble Supreme which the department is in appeal before the Hon'ble Supreme Court. In subsequent years the assessment orders of AY 1998 Court. In subsequent years the assessment orders of AY 1998 Court. In subsequent years the assessment orders of AY 1998-99 and 99-00 were followed by A.O. and ITAT also followed its order 00 were followed by A.O. and ITAT also followed its order 00 were followed by A.O. and ITAT also followed its order of AY 98-99 and 1999 99 and 1999-00. Therefore, following the orders of 00. Therefore, following the orders of earlier years the deduction u/s 10A is not allowed to the earlier years the deduction u/s 10A is not allowed to the earlier years the deduction u/s 10A is not allowed to the assessee.."
"6.2 As per assessee's submission a company viz. IOCL had set up "6.2 As per assessee's submission a company viz. IOCL had set up "6.2 As per assessee's submission a company viz. IOCL had set up a division, Sonata Software Division (SSD) in 1980. In A.Y. 9 a division, Sonata Software Division (SSD) in 1980. In A.Y. 9 a division, Sonata Software Division (SSD) in 1980. In A.Y. 95-96 this division was demerged and became the assessee company i.e. this division was demerged and became the assessee company i.e. this division was demerged and became the assessee company i.e. Sonata Software Ltd. As per assessment order for A.Y. 2000 Sonata Software Ltd. As per assessment order for A.Y. 2000 Sonata Software Ltd. As per assessment order for A.Y. 2000-01 the assessee claimed deduction u/s. 80 assessee claimed deduction u/s. 80-0 for A. Y. 95-96, 96-97 & 97 97 & 97- 98 and exercised option not to claim deduction u/s. 10A 98 and exercised option not to claim deduction u/s. 10A in view of in view of provisions of Sec. 10A(7). Alternatively, deduction u/s. 80HHE provisions of Sec. 10A(7). Alternatively, deduction u/s. 80HHE provisions of Sec. 10A(7). Alternatively, deduction u/s. 80HHE was also claimed. The assessee's claim of deduction u/s. 10A was was also claimed. The assessee's claim of deduction u/s. 10A was was also claimed. The assessee's claim of deduction u/s. 10A was disallowed in A.Y. 98 disallowed in A.Y. 98-99 & 99-2000 on the ground that this 2000 on the ground that this undertaking was formed by splitting or reconstruction of b undertaking was formed by splitting or reconstruction of business usiness already in existence and the undertaking has been carrying on its already in existence and the undertaking has been carrying on its already in existence and the undertaking has been carrying on its activities prior to A.Y. 95 activities prior to A.Y. 95-96. Another ground of disallowance was 96. Another ground of disallowance was that the undertaking was formed by transfer of more than 20% of that the undertaking was formed by transfer of more than 20% of that the undertaking was formed by transfer of more than 20% of used plant and machinery to new business. The ITAT used plant and machinery to new business. The ITAT in its order in its order dated 17.03.2003 for these years allowed the appeal in favour of dated 17.03.2003 for these years allowed the appeal in favour of dated 17.03.2003 for these years allowed the appeal in favour of the assessee against which department has filed an appeal before the assessee against which department has filed an appeal before the assessee against which department has filed an appeal before the Hon'ble Bombay High Court. In subsequent years also the the Hon'ble Bombay High Court. In subsequent years also the the Hon'ble Bombay High Court. In subsequent years also the department has filed appeal before the Hon'ble High department has filed appeal before the Hon'ble High Court. Since Court. Since the department has not accepted ITAT's decision in the earlier the department has not accepted ITAT's decision in the earlier the department has not accepted ITAT's decision in the earlier years, for the same reasons as earlier years, this year also the years, for the same reasons as earlier years, this year also the years, for the same reasons as earlier years, this year also the assessee is held not to be eligible to claim deduction u/s 10A of assessee is held not to be eligible to claim deduction u/s 10A of assessee is held not to be eligible to claim deduction u/s 10A of the Act. Accordingly, the claim of Rs.48,09,68,99 the Act. Accordingly, the claim of Rs.48,09,68,997/- is therefore is therefore disallowed".
6.2 The appellant has claimed that the Hon'ble ITAT. "G" Bench, 6.2 The appellant has claimed that the Hon'ble ITAT. "G" Bench, 6.2 The appellant has claimed that the Hon'ble ITAT. "G" Bench, Mumbai vide order No. Income Tax Act, 1961 (in short 'the Act') No. Mumbai vide order No. Income Tax Act, 1961 (in short 'the Act') No. Mumbai vide order No. Income Tax Act, 1961 (in short 'the Act') No. 495/496/MUM/2002 dated 17.03.2003 in appellant's own case, 495/496/MUM/2002 dated 17.03.2003 in appellant's own case, 495/496/MUM/2002 dated 17.03.2003 in appellant's own case, allowed the claim u/s 10A of the A allowed the claim u/s 10A of the Act for the initial year of claim for A.Y. ct for the initial year of claim for A.Y. 1998-99 and for subsequent A.Y. 1999 99 and for subsequent A.Y. 1999- 2000. 6.3 It is seen that that the AO, in his assessment order, has admitted that 6.3 It is seen that that the AO, in his assessment order, has admitted that 6.3 It is seen that that the AO, in his assessment order, has admitted that the issue has been decided in favour of the appellant by ITAT in earlier the issue has been decided in favour of the appellant by ITAT in earlier the issue has been decided in favour of the appellant by ITAT in earlier years. Respectfully f years. Respectfully following the orders of the ITAT in preceding years, ollowing the orders of the ITAT in preceding years, & 721/Mum/2017 Assessment Year: 2010-11 M/s. Sonata Software Ltd. the claim of deduction u/s 10A of the Act is allowed. The ground raised the claim of deduction u/s 10A of the Act is allowed. The ground raised the claim of deduction u/s 10A of the Act is allowed. The ground raised by the appellant is upheld. by the appellant is upheld.
We find that identical issue was dealt with by ITAT in assessee’s We find that identical issue was dealt with by ITAT in assessee’s We find that identical issue was dealt with by ITAT in assessee’s own case for A.Y. 2008 own case for A.Y. 2008-09 vide order dated 22.04.2019 der dated 22.04.2019 covered in favour of assessee.
Respectfully following the precedent in assessee’s own case, we Respectfully following the precedent in assessee’s own case, we Respectfully following the precedent in assessee’s own case, we do not find any infirmity in the order of the Ld. CIT(A). Accordingly we do not find any infirmity in the order of the Ld. CIT(A). Accordingly we do not find any infirmity in the order of the Ld. CIT(A). Accordingly we uphold the same.
In the result, appeal filed by the Revenue is dismissed and In the result, appeal filed by the Revenue is dismissed and In the result, appeal filed by the Revenue is dismissed and appeal by the Assessee appeal by the Assessee is allowed. Order Pronounced in the Open Court on 21 Pronounced in the Open Court on 21st January, 2020 January, 2020. Sd/- Sd/ Sd/- (PAWAN SINGH) (SHAMIM YAHYA SHAMIM YAHYA) JUDICIAL MEMBER MEMBER ACCOUNTANT MEMBER MEMBER Dated: 21/01/2020 Biswajit, Sr. PS Copy of the order forwarded to: opy of the order forwarded to:
1. 1. M/s. Sonata Software Ltd., 208, T.V. Industrial Estate, S.K. Ahire Marg, Worli, M/s. Sonata Software Ltd., 208, T.V. Industrial Estate, S.K. Ahire Marg, Worli, M/s. Sonata Software Ltd., 208, T.V. Industrial Estate, S.K. Ahire Marg, Worli, Mumbai – 400 025.
2. DCIT Range 7(2), presently DCIT 8(2)(2), Mumbai. 7(2), presently DCIT 8(2)(2), Mumbai.
3. CIT(A)- 4. CIT- , 5. CIT(DR), Mumbai Benches, Mumbai Mumbai Benches, Mumbai.