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Income Tax Appellate Tribunal, “A” BENCH, PUNE
आदेश / ORDER
PER SUSHMA CHOWLA, JM
The appeal filed by the Revenue is against the order of Commissioner of Income Tax (Appeals)-1, Pune dated 21.10.2015 relating to assessment year 2008- 09 against order passed under section 143(3) of the Income Tax Act, 1961 ( in short ‘the Act’)
2 ITA No.1722/PUN/2015 A.Y.2008-09
The Revenue has raised following grounds of appeal:-
“1.Whether on the facts and in the circumstances of the case & in law, the Ld. CIT(A) was justified in holding that the AO was not justified in invoking provisions of section 10A(7) of the I.T.Act, 1961. 2. Whether on the facts and circumstances of the case, the Ld. CIT(A) erred in directing the AO to delete the addition made u/s. 10A(7) of the I.T. Act, 1961 of Rs.2,88,69,742/- 3. The appellant craves leave to add, amend or alter any of the above grounds of appeal.”
The Revenue is in appeal against the order of CIT(A) in holding that the
Assessing Officer was not justified in invoking provisions of section 10A(7) of the Act
and to delete the addition of Rs.2,88,69,742/-.
Briefly in the facts of the case, the assessee was a joint venture Company
between Tata Comp Systems Ltd. India (TACO) and Faurecia Automotive Holidays,
France with equal share holding, had unit registered in the Software Technology
Park (STP) and was engaged in the business of design engineering services. The
assessee company filed its return of income for A.Y.2008-09 on 29.09.2009,
declaring total income of Rs.2,81,340/- as per normal provisions of the I.T Act, 1961
and Rs. 5,04,28,913/- as per section 115JB of the I.T. Act, 1961. In the return filed
the assessee company had claimed deduction under section10A of the I.T. Act,
1961 and Rs. 5,07,09,119/-. The Transfer Pricing Officer (TPO) has passed order
under section 92CA(3) of the I.T. Act, 1961 dated 18.10.2011. The TPO in his order,
had requested the AO to verify the feasibility of disallowance under section10A of
the Act in view of sec.10A(7) r.w.s.80IA (10) of the Act, as the operating profit
margin was higher than that of the comparables selected by the assessee. The
Assessing Officer issued show cause notice to the assessee asking the assessee to
explain its claim of deduction under section 10A of the Act. The assessee explained
that there was no arrangement between the assessee and comparables selected by
3 ITA No.1722/PUN/2015 A.Y.2008-09
the assessee. Hence, the provisions of section 10A(7) r.w.s.80IA(10) are not
attracted. The Assessing Officer, however, rejected the submissions of assessee
holding that ordinary profit as per transfer pricing report was 12.55% as against
29.14% shown by the assessee. Accordingly, excess profit worked out at
Rs.2,88,69,742/- was added back to the total income of the assessee; in turn,
disallowing the excess claim of deduction under section 10A of the Act, the
Assessing Officer passed order under section 143(3) r.w.s 144C(13) of the Act.
Before CIT(A), the assessee pleaded that the course of business between
assessee and group company/AEs was not so arranged as covered under section
10A(7) r.w.s. 80IA(10) of the Act. It was further pointed out that assessee had not
earned more than ordinary profits and the margin shown by comparables could not
be bench-marked for ordinary profits as per section 10A(7) of the Act. It was further
pointed out by the assessee that provisions of section 10A(7) r.w.s. 80IA(10) of the
Act were not applicable to the international transactions. The CIT(A) held that
operating margins of the assessee had been fluctuating over the years, depending
upon performance of the company. The operating margins of the assessee had
been fluctuating from 18.42% to 38.73% which shows that operating margins was
based upon the performance of the assessee for the particular assessment year.
Further, CIT(A) had placed reliance on the decision of Pune Bench of Tribunal in the
case of M/s. Honey well Automation India Ltd. Vs. DCIT, ITA No.18/PN/2011 relating
to assessment year 2006-07 order dated 25.02.2015. The CIT(A) relying on the
decision of Pune Bench of Tribunal in the case of M/s. Honey well Automation India
Ltd. Vs. DCIT (supra.) held that the issue in the present appeal is identical and held
that the Assessing Officer was not justified in invoking the provisions of section
10A(7) r.w.s. 80IA (10) of the Act and accordingly, directed the Assessing Officer to delete the addition.
4 ITA No.1722/PUN/2015 A.Y.2008-09
Now, the Revenue is in appeal against the order of CIT(A).
On slated date of hearing, the assessee moved an application for
adjournment. Since the issue raised in the present appeal is squarely covered by the
decision of Pune Bench of Tribunal in the case of M/s. Honey well Automation India
Ltd. Vs. DCIT (supra.), adjournment application was refused and matter was heard.
On perusal of the record, we find the issue raised in the present appeal is
against invoking provision of section 10A(7) r.w.s 80IA(10) of the Act. The assessee
had entered into various international transactions with its related concerns/AEs.
The transfer pricing issue was referred by the Assessing Officer to TPO who
accepted the margins shown by assessee @ 29.14% to be at arm’s length. The
Assessing Officer held that ordinary profits as per transfer pricing report was @
12.55% as against 29.14% shown by the assessee. No adjustment on account of
arm’s length price was proposed by the TPO. However, the TPO requested the
Assessing Officer to verify the feasibility of disallowance under section 10A (7) r.w.s
80IA(10) of the Act on the surmise that the assessee had earned higher margins
than the mean margins earned by comparables selected by assessee. Accordingly,
deduction claimed under section 10A of the Act was reworked at Rs. 2,88,69,742/-
and added back the total income of the assessee. The case of the assessee before
Authorities below was that in the absence of any arrangement between the
assessee and its group companies/AEs, margins earned by assessee could not be
held to be more than ordinary profits. It was also stressed by the assessee that it
had not earned more than ordinary profits. We find the issue raised in present
appeal stands covered by a series of decisions of Pune Bench of Tribunal and on this count, we rely on the decision of Pune Bench in the case of M/s. Honey well
5 ITA No.1722/PUN/2015 A.Y.2008-09
Automation India Ltd. Vs. DCIT (supra). The relevant portions of the Tribunal’s order is reproduced by CIT(A) at page 12 to 17 of the appellate order. Only reference is being made to the findings of the Tribunal in the said decision but same is not being reproduced for the sake of brevity. The issue arising in the present appeal is squarely covered by the order of the Tribunal on this count in favour of the assessee. Accordingly, we find no merit in the grounds raised in appeal by Revenue and hence, are dismissed.
In the result, appeal of the Revenue is dismissed.
Order pronounced on this 24th day of May, 2018.
Sd/- Sd/- ( ANIL CHATURVEDI) (SUSHMA CHOWLA) लेखा सद�य/ACCOUNTANT MEMBER �या�यक सद�य/JUDICIAL MEMBER
पुणे / Pune; �दनांक / Dated : 24th May, 2018 SB आदेश क� ��त�ल�प अ�े�षत / Copy of the Order forwarded to : अपीलाथ� / The Appellant. 1. ��यथ� / The Respondent. 2. 3. The CIT(Appeals)-1, Pune. 4. The Pr.CIT-4, Pune. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, “ए” ब�च, 5. पुणे / DR, ITAT, “A” Bench, Pune. गाड� फ़ाइल / Guard File. 6.
// True Copy // आदेशानुसार / BY ORDER,
�नजी स�चव /Private Secretary आयकर अपील�य अ�धकरण, पुणे / ITAT, Pune.