FAURECIA INTERIOR SYSTEMS INDIA P. LTD.,PUNE vs. ASSISTANT COMMISSIONER OF INCOME-TAX,

PER D. KARUNAKARA RAO, AM :

This appeal is filed by the assessee against the directions/orders of DRP/TPO/AO for the Assessment Year 2010-11.

On the facts and in the circumstances of the case and in law, the Honourable DRP and consequentially the learned AO have: I. Grounds of Objections in respect of transfer pricing adjustment: General ground challenging the transfer pricing adjustment of INR 2,74,95,038 consequential to non-consideration/ acceptance of comparability analysis as documented in the transfer pricing study report Erred in making transfer pricing adjustment to Appellant's international transactions in the nature of provision of design engineering services and not considering/accepting the comparability analysis documented in the Transfer Pricing study report for benchmarking analysis.

Erred in applying transfer pricing provisions to the unit of the Appellant which enjoys tax holiday under section 10A of the Act.

Erred in conducting arm's length analysis based on information of comparable companies available at the time of transfer pricing assessment but not available at the time of compliance with the transfer pricing regulations by the Appellant.

Erred in not considering multiple year data i.e. data for Financial Year (hereinafter referred to as 'FY') 2009-10 and two prior years, in respect of comparable companies for determining the arm's length price of international transactions pertaining to provision of design engineering services.

Erred in accepting companies having supernormal profit for FY 2009-10 as comparable to the Appellant.

Erred in rejecting certain comparable companies from the comparable set identified by the Appellant in respect of international transactions pertaining to provision of design engineering services.

Erred in rejecting certain additional comparable companies identified by the Appellant in respect of international transactions pertaining to provision of design engineering services.

Erred in accepting certain additional companies as comparable to the Appellant in relation to provision of design engineering services.

Erred in computing incorrect operating margins of certain comparable companies in relation to provision of design engineering services.

Erred in computing relief for working capital adjustment in relation to provision of design engineering services.

Erred in comparing full-fledged risk bearing entities with the Appellant's limited risk operations without making any risk adjustment for differences

between the functional and risk profile of comparable companies vis-a-vis the risk profile of the Appellant.

Erred in applying the amended proviso to section 92C(2) of the Act and accordingly, making the transfer pricing adjustment from the arm's length price without giving the benefit of the option available to the Appellant under erstwhile proviso to section 92C(2) of the Act of adopting as arm's length price, a price which varies by not more than 5 per cent from the arm's length price.

II. Grounds in respect of matters other than transfer pricing adjustment :

Erred in law and in facts in allowing the claim of deduction under section 10A of the Act in respect of the eligible undertaking after set-off of current year losses of non-eligible unit.

In doing so, the Honourable DRP and consequentially the learned AO have:

a) Erred in placing reliance on the decision of the Hon'ble Supreme Court in the case of Himatasingike Seide Ltd v CIT (Civil Appeal No 1501 of 2008) without appreciating that the same is distinguishable on facts and law.

b) Erred in placing reliance on the CBDT Circular No. 07/DV /2013 dated 16 July 2013 without appreciating that the interpretation stated in the said Circular is contrary to the literal provisions of the Act.

Erred in law and in facts in invoking disallowance under section 14A read with Rule 8D(2)(iii) of the Rules of Rs. 3,34,928 without appreciating that the Assessee has not specifically incurred any expenditure in relation to earning exempt dividend income from mutual fund units.

Without prejudice to the above, even if disallowance relating to administrative expenses is to be invoked, the same should be restricted to Rs. 71,700 considering remote personnel and processing cost.

Without prejudice to Ground 14, based on the facts and circumstances of the case, erred in not granting deduction under section 10A of the Act of Rs. 3,34,928 for disallowance invoked under section 14A of the Act without appreciating that the Appellant is entitled to deduction on profits derived from

the eligible undertaking which would include disallowance made under section 14 A of the Act.”

3A. Before us, Ld. Counsel for the assessee submitted that Ground Nos.

1 to 6, 11 and 15 are either general in nature or argumentative and

therefore, they are not pressed. According to Ld. Counsel, they do not call

for specific adjudication. Accordingly, after hearing the representatives of

parties, they are dismissed as argumentative or general or not pressed, as

the case may be.

B. Further, referring to Ground Nos. 12 and 13 of the appeal, Ld.

Counsel submitted that they relate to the provisions of section 92C(2) of the

Act and the levy of interest u/s.234B of the Act. In this regard, Ld.

Counsel for the assessee submitted that no separate adjudication is

required on these grounds at this stage. Accordingly, they are also

dismissed as consequential or premature. Thus, out of the grounds No.1 to

13 relating to Transfer Pricing issues, only grounds 7 to 10 are left for

adjudication.

C. Further, referring to Ground Nos. 14 and 16 relating to corporate/

non-Transfer Pricing issues, Ld. Counsel submitted that they relate to the

claim of deduction u/s.10A of the Act and disallowance u/s.14A of the Act.

particulars of the grounds/issue-wise revenue comments, contentions of

the assessee on each issue and other details. According to the chart,

Ground Nos. 7 and 8 relate to the decision of the DRP/TPO/AO rejecting

certain additional comparables introduced by the assessee during the

proceedings before the TPO. Further, the Ground Nos. 9 and 10 relate to

incorrect computation of operating margins of the comparables as well as

the error in not granting working capital adjustments by the TPO. For the

sake of completeness, the said Ground Nos. 7 to 10, 14 & 16 are extracted

here as under :

Transfer Pricing related grounds

“7. Rejection of certain additional comparable companies identified by the Appellant.

Erred in rejecting certain additional comparable companies identified by the Appellant in respect of international transactions pertaining to provision of design engineering services.

Erred in accepting certain additional companies as comparable to the Appellant in relation to provision of design engineering services.

Erred in computing incorrect operating margins of certain comparable companies in relation to provision of design engineering services.

Erred in computing relief for working capital adjustment in relation to provision of design engineering services.”

Non-Transfer Pricing related grounds

Erred in law and in facts in allowing the claim of deduction under section 10A of the Act in respect of the eligible undertaking after set-off of current year losses of non-eligible unit.

In doing so, the Honourable DRP and consequentially the learned AO have:

a) Erred in placing reliance on the decision of the Hon'ble Supreme Court in the case of Himatasingike Seide Ltd v CIT (Civil Appeal No 1501 of 2008) without appreciating that the same is distinguishable on facts and law.

b) Erred in placing reliance on the CBDT Circular No. 07/DV /2013 dated 16 July 2013 without appreciating that the interpretation stated in the said Circular is contrary to the literal provisions of the Act.

Without prejudice to Ground 14, based on the facts and circumstances of the case, erred in not granting deduction under section 10A of the Act of Rs. 3,34,928 for disallowance invoked under section 14Aofthe Act without appreciating that the Appellant is entitled to deduction on profits derived from

the eligible undertaking which would include disallowance made under section 14 A of the Act.”

Briefly stated relevant facts include that assessee is a company and is

engaged in the business of CAD/CAE services for automotive services.

Assessee is a Joint Venture incorporated in the year, 2004. Tata Auto

Comp Systems Ltd. (TACO) and Faurecia Automotive Holdings, France

(FAHF) are the members of the said joint venture. During the assessment

proceedings, AO noted that the assessee entered into the international

transactions and the details of these transactions are given in Para 5 of the

TPO order. In the TP study, the assessee considered these transactions are

at Arm’s Length qua the 8 comparables selected by the assessee. Assessee

followed TNM method and the Arithmetic Mean of the 8 comparables works

out to 20.72%. However, during the Transfer Pricing proceedings, the TPO

considered only 5 comparables, details of which are available at Para

No.7.6.1 of the TPO order and rejected 3 of 8 comparables selected by the

assessee. Assessee furnished additional comparables during the TP

proceedings before the TPO and the same were rejected by the TPO. TPO is

of the view that the comparables/data not maintained at the relevant dates

are not admissible or sustainable. Rejecting the assessee’s additional

comparables, the TPO identified 12 comparables as final set of comparables

for the TP study and worked out Arithmetic Mean of the same - OP/OC at

30.56%. TPO rejected 3 of the assessee’s set of 8 comparables. The TPO

also worked out the PLI of the assessee at 19.09% and did not grant

working capital adjustment. 11.47% is the difference. Eventually, the

adjustments equivalent of 11.47% are worked out in the following manner:

“12.2 The difference in the PLI comes to [average PLI of the comparables – PLI of the assessee company] = 30.56% - 19.09% = 11.47%. The corresponding adjustment works out to :

Rs.4,15,76,796/- (Rs.36,24,82,966/- X 11.47%) 13. In view of the discussion as above, the arm’s length price of the assessee of its international transaction is not being disturbed except provision of Design Engineering Services to the extent of Rs.4,15,76,796/-.”

Thus, the TPO quantified the TP adjustment on account of provision

of Design Engineering Services to the tune of Rs.4,15,76,796/-.

Accordingly, AO made a draft assessment order on 27-03-2014 and

determined the taxable income of Rs.5,95,81,136/- after incorporating the

above referred adjustments of Rs.4,15,76,796/-. Thus, the TPO rejected 3

out of 8 original set of comparables as well as the other 5 additional

comparables introduced for the first time during the Transfer Pricing

proceedings. Further, AO did not grant working capital adjustment too.

of changing the mode of computation of allowable deduction u/s.10A of the

Act qua the stage at which the brought forward depreciation/business

losses can be given set off from the total income of the assessee. On this

issue, relying on the judgment of Hon’ble Karnataka High Court in the case

of CIT vs. Himatasingike Seide Ltd., 286 ITR 255, AO held that the set off of

losses and unabsorbed depreciation should be done before quantifying the

allowable deduction u/s.10A of the Act. Accordingly, the allowable

deduction is reduced to the disadvantage of the assessee.

section 14A of the Act amounting to Rs.3,34,928/-. Eventually, in the draft

assessment order dated 27-30-2014, the assessed income is quantified

under normal provisions of Rs.4,20,40,680/- after grant of deduction

u/s.10A of the Act. Rs.5,95,81,136/- is the total income computed

u/s.115JB of the Act.

an application before the DRP with series of objections against the said

draft order of the AO/TPO. DRP issued directions to the AO and the same

are summarised in Para No.7 of the DRP order dated 26-12-2014 passed

u/s.144C(13) of the I.T. Act, 1961. AO incorporated the same in his final

assessment order dated 30-03-2015. Aggrieved with the same, assessee

filed the present appeal before us with the grounds referred above.

BEFORE THE TRIBUNAL

submitted that the issues raised in Ground No.7 relates to the correctness

of the decision of the TPO in rejecting the introduction of the additional

comparables in respect of said international transactions pertaining to

provision of Design Engineering Services. Before the TPO, assessee

introduced five comparables and filed relevant financial data. In this

regard, the arguments of the TPO/AO/DRP as mentioned in the chart filed

before us, reads as under :

“The TPO held that as per the provisions of the act, the Assessee can only use the documents and data maintained by the specific date. In the instant case, the Assessee has included additional 5 comparable companies at the fag end of the TP assessment proceedings. This is clearly against the provision of the law which says that the Assessee should maintain the specified documents/ data by specific date for utilisation for the purpose of determination of arm's length price. For the above contention, the learned TPO has relied upon following case laws:

1.Centillium India (P) Ltd. vs. DCIT (2012) 23 Taxmann.com 34 (Bang) 2. Genisys Integrating System Ltd. (2012) 53 SOT 159 (Bang) During the DRP proceedings, the Hon'ble DRP upheld the decision of the TPO as lawfully correct.”

Thus, the case of the TPO is that the assessee cannot introduce the

comparables as and when he chose to do it. Accordingly, the assessee

needs to maintain specified documents and data by the specific date for

use in TP study. According to TPO, assessee failed to maintain such data

and failed to consider the said additional comparables during his own TP

study. Therefore, assessee is not allowed to introduce new comparables for

TP study.

following written contentions before the Tribunal and the same are

extracted here as under :

“During the course of transfer pricing assessment proceedings, the learned TPO has specifically requested to an updated single year margins of comparable companies selected by the Appellant for provision of design engine services using financial data for FY 2009-10. The Appellant has submitted the single year updated margins inc margins of comparable companies whose data was not available at the time of conducting the transfer pricing study. Further, during the assessment proceedings, the Appellant has identified certain additional comparable companies for which the data was not available at the time of preparation of TP documentation for AY 2010-11 .

However, the learned TPO has rejected the additional companies citing that the Appellant is not allowed to undertake benchmarking study for selection/ rejection of comparable companies during the TP assessment proceedings. It is submitted that the learned TPO has also accepted additional companies after analysing the accept-reject matrix as enclosed with the TP study and included the same in the final set of comparable companies which tantamount to fresh benchmarking study Hence the position adopted by the learned TPO during the transfer pricing assessment proceedings is inconsistent.

The Appellant would like to mention that it has been consistently upheld by various Hon'ble ITAT's that the appellant can submit for acceptance/ rejection of additional companies as comparable even before the Appellate Authorities. In this regard, the Appellant would like to rely upon following rulings of the Hon'ble ITAT: 1. DCIT v. Quark Systems (P.) Limited - [2010] 38 SOT 307 (CHD.)(SB) 2. Barclays Technology Centre India Private Limited - ITA No. 2279/PN/2012

Thus, it is the case of the assessee before us that it is legally a settled

issue that selection/rejection of comparables is allowed even before the

Appellate bodies, leave alone before the TPO/AO. Assessee relied on certain

decisions (supra) in support of the same.

the DRP/TPO/AO in not entertaining the assessee’s request for considering

the five additional comparables for benchmarking the international

transactions. The TPO rejected the 5 additional comparables selected by

the assessee during the proceedings before him on the ground that

assessee failed to fulfil the condition of maintaining the specified

documents/data by the specific date for utilisation for the purpose of

determining the ALP. Contents of Par No.76 along with its sub-paras are

relevant. Relevant lines from Para No.7.6.2 of the TPO order are extracted

as under :

“7.6.2 I have examined the assessee’s contentions carefully and the same are discussed as under :

It is clear that as per the provision of the act assessee can use the documents and data maintained by the specific date as discussed above only. In the instant case the assessee has included additional 5 cases as comparable companies at fag end of TP Audit proceedings. This is clearly against the provision of the law which says that the assessee should maintain the specified documents/data by specific date for utilization for the purpose of determination of Arm Length Price.”

Act, DRP upheld the above finding of the TPO giving similar reasoning

confirming the TPO’s decision. Contents of Para No.5.8 of the DRP’s

directions are relevant in this regard and the same are extracted here as

under :

“Findings of the DRP :

We have considered the assessee’s submission carefully. The TPO while rejecting the companies by placing reliance on the decision of Bangalore in case of Centillium India Pvt. Ltd. Vs. DCIT (2012) 23 taxmann.com 34 (Bang) and Genisys Integrating Systems Ltd. (2012) 53 SOT 159 (Bang.). The assessee included additional 5 cases as comparables at fag end of TP audit proceedings which is against the provision of the law which says that the assessee should maintain the specified documents/data by specific date for utilization for the purpose of determination of ALP. By providing specified date in the Act, the obligation is cast upon the tax-payer to keep and maintain the documents for that period. In view of the above, we hold that learned TPO was correct in accepting companies having supernormal profits as comparable to the assessee and we do not see any need of interference in the order of TPO.”

parties and the decisions cited by the assessee before us on this issue. We

find the issue of inclusion or exclusion of the comparables at the stage of

the TPO proceedings stands already considered by the Pune Bench of the

Tribunal in the case of Barclays Technology Centre India Private Limited

Vs. ACIT – ITA No.2279/PN/2012, dated 28-01-2015. It is a case of

exclusion and the Tribunal held in favour of the assessee and the relevant

lines from para No.14 is extracted here as under :

“14. . . . . . . . . .In our view, the plea of the assessee for exclusion of Infosys Technologies Ltd. cannot be shut out merely because the said concern was initially adopted by the assessee as a comparable in its Transfer Pricing Study. However, we may wish to point out that the cause and justification for its exclusion is liable to be demonstrated by the assessee.. . . . . .”

From the above, it is evident that subject to the offer of reasons

justifying the request for exclusion of a comparable to be demonstrated by

the assessee. The TPO can entertain the case of exclusions or inclusions,

as the case may be.

Further, we also perused another order of the Tribunal in the case of

DCIT Vs. Quark Systems Pvt. Ltd. 38 SOT 307 (Chd. –SB) has observed as

under :

“39. We have, however, also noted that the very basis of selection of comparables and application of filters leaves lot to be desired. As we have noted earlier as well, the transfer pricing was in the initial stages in this year and we are inclined to take a rather liberal approach by giving assessee an opportunity to make out its case properly and place all the relevant facts before the tax authorities so that proper arms length price can be determined in accordance with the law the proceedings before the tax authorities are not adversarial proceedings and the assessee should not therefore be placed at under advantage because of his inadvertent and bonafide mistakes. With this objective in sight, and having no led inconsistencies in selection of comparables, while we uphold the exclusion of Imercius from comparables, we also deem it fit and proper to remit the matter to the file of the Assessing Officer for adjudication de novo in the light of the above observations and in accordance with law. We direct the assessee to place all relevant material before the Assessing Officer and/or Transfer Pricing Officer and fully

cooperate in expeditious disposal of the matter in accordance with the law. The matter stands restored to the file of the Assessing Officer as such.”

From the above extracts, we are of the opinion that the DRP/TPO/AO

have erred in rejecting the introduction of 5 comparables by the assessee

outright. It is evident that the doors should not be shut on the face of the

assessee if the assessee failed to consider proper comparable for

inadvertent and bonafide reasons and they are explained to the

DRP/TPO/AO to their satisfaction. In this case, non-availability of the said

data/documents in public domain is the reason. Therefore, the assessee’s

ground of failure to maintain proper comparables and the data by specified

date is not sustainable reason for denying the assessee who attempted to

introduce additional comparables at the time of these TP proceedings.

However, the onus is on the assessee to demonstrate that the mistakes in

picking up proper comparables are bonafide and inadvertent and about the

same is in the interest of proper TP analysis.

Therefore, we are of the opinion that the direction should be given to

the assessee to place all the relevant material before the TPO/AO for

applying the principles relating to the Transfer Pricing for determining the

Arms Length Price on the international transactions entered by the

assessee. TPO/AO shall grant reasonable opportunity of being heard to the

assessee. Before them, the assessee shall demonstrate the reasonable

cause. Accordingly, Ground No.7 is restored to the file of the AO and the

thus the same is allowed for statistical purposes.

inclusion of his comparables in the final list during Transfer Pricing

proceedings. The TPO introduced couple of comparables namely, Jeevan

Softech (Segment) and BNR Udyog Ltd. for benchmarking the international

transactions. However, assessee contends that they needs to be rejected as

they cannot pass FAR test. In this regard, assessee filed written

submissions giving arguments of DRP/TPO/AO as well as the contentions

of the assessee. The same are extracted here as under :

“During the TP assessment proceedings for the year under consideration, the TPO has selected certain additional companies in the list of comparables identified by the Assessee. In this regard, the Assessee submits that the TPO has grossly erred in accepting additional companies as comparable to the Assessee as the companies selected by the learned TPO are not functionally comparable to the Assessee. The additional companies selected by the learned TPO as comparable to the appellant which are under dispute before the Hon'ble ITAT are as follows:

1.Jeevan Softech Limited; and 2. BNR Udyog Limited.

two comparables selected by the TPO are not functionally comparable. For

the sake of completeness, the said submissions of the assessee are

extracted here as under :

“Jeevan Softech Limited:

The Assessee submits that Jeevan Softech is not functionally comparable to the Assessee. The Company is engaged in rendering services in relation to the medical writing, clinical data management and research services, Biostatistics and other services including copy, editing, proofreading, formatting and educational and staffing services which are not to the design engineering services rendered by the Assessee.

In this regard, the Assessee would like to rely upon following ruling of the Hon'ble jurisdictional ITAT:

Principal Global Services Pvt. Ltd. Vs. DCIT - ITA No. 338/PUN/2015

BNR Udyog Limited:

BNR Udyog Limited is carrying on medical transcription, construction and financial activities and it is also the member of National commodities and derivative exchange Ltd and multi commodity exchange of India Ltd. The medical transcription business is not the same service compared with services provided by the Assessee and therefore there is functional difference between the comparable and the Assessee. The above facts are clearly endorsed by the Directors report and Management discussion & Analysis report forming part of the annual report of BNR Udyog Limited. (Refer page 486 to 488 of the paper book) Further, the Assessee submits that for the year under consideration, BNR Udyog cannot be considered as good comparable as the value of the RPT for

the said concern is greater than 25% (i.e.739.04%) and hence does not satisfy the RPT filter applied by the Appellant as well as Ld. TPO. The detailed RPT computation for BNR Udyog Limited is provided on page 225 of the appeal memo. In this regard, the Assessee would like to place reliance on the following decision pronounced by the Hon’ble jurisdictional ITAT : DCIT Vs. PTC Software (India) Private Limited – ITA No.572/PUN/2015

Jeevan Softech Ltd. is not functionally comparable to that of the assessee.

Infact, the same was communicated to the TPO as evident from the

contents of Para No.8.1.1 of his order. Further, it is discussed by the TPO

that the assessee considered this comparable in the accept and reject

matrix and assessee rejected the same in the TP study on the ground of

super normal activity of the said company. TPO rejected the said argument

of the assessee and relied on the decision in the case of M/s. Trilogy E-

business software India Pvt. Ltd. Vs. DCIT – ITA No.1054/Bang/2011,

dated 23-11-2012. However, there is no discussion about the functional

comparability of the said comparable to that of the assessee while including

the same by the TPO in benchmarking the international transactions. In

the background of the above, assessee raised the present ground stating

that Jeevan Softech Ltd. is not comparable to that of the assessee.

According to him, the said is engaged in ‘rendering services in relation to

the medical writing, clinical data management and research services etc’.

They are not akin to the Design Engineering Services rendered by the

assessee. Further, relying on the order of the Tribunal in the case of

Principal Global Services Pvt. Ltd. Vs. DCIT – ITA No.323/PUN/2015, dated

29-11-2017 for the A.Y. 2010-11, Ld. Counsel for the assessee brought our

attention to the contents of Para No.18 of the said order of the Tribunal

wherein the Tribunal held that Jeevan Softech Ltd. is engaged in providing

services which include medical writing, clinical data management bio-

statistics and other services. In that case of Principal Global Services Pvt.

Ltd. which is engaged in providing back office and support services an

attempt was made by the TPO for benchmarking the transactions by

comparing with that of Jeevan Softech Ltd. The Tribunal held against the

Revenue stating that Jeevan Softech Ltd. has different functions, i.e.

medical writing, clinical data management, bio-statistics and other

services.

engaged in providing Design Engineering Services whereas the Jeevan

Softech Ltd. is into medical writing, clinical data management, bio-statistics

and other services. The functions of the said company are clearly specified

by the Tribunal in Para No.18 in the case of Principal Global Services Pvt.

Ltd. Vs. DCIT (supra). For the sake of completeness, the relevant

paragraph is extracted here as under :

“18. The next concern which the assessee wants to be excluded is Jeevan Softech Ltd., being not functionally comparable. The services which are provided by the said concern include medical writing, clinical data management, biostatistics and other services. The name of said concern has also been changed to Jeeven Scientific Technology Ltd. The assessee on the other hand, is engaged in providing back office support service. Accordingly, we hold that the said concern is not comparable to the assessee and to be excluded from final list of comparables. In this regard, we find support from the ratio laid down by the Chennai Bench of Tribunal in iNautix Technologies India Pvt. Ltd. Vs. DCIT in ITA No.802/Mds/2015, relating to assessment year 2010-11, order dated 24.08.2016.”

opinion that Jeevan Softech Ltd. is not a good comparable to the functions

of the present assessee. Accordingly, the TPO/AO is directed to exclude the

same from the final list of the comparables.

is again not a good comparable to that of the assessee, which is engaged

into providing Design Engineering Services. Narrating the functions of BNR

Udyog Ltd., Ld. Counsel for the assessee demonstrated that it is into the

function of the medical transcription, construction and financial activities

and the same is nowhere comparable to the functions of the assessee.

Referring to the order of Tribunal in the case of DCIT Vs. PTC Software

India Pvt. Ltd. – ITA No.572/PUN/2015 and vice-versa dated 27-10-2017

for the A.Y. 2010-11, Ld. Counsel for the assessee brought our attention to

the contents of Para Nos. 31 to 35 and submitted that the Tribunal

considered the said functions of BNR Udyog Ltd. while deciding the said

case. Further, the same is supported by the contents of the Directors

report of the BNR Udyog Ltd., that it is into medical transcription business.

In addition, it is the further submission of the assessee for the year under

consideration that BNR Udyog Ltd. cannot be considered as a good

comparable as the value of RPT for the said concern is greater than 25%,

i.e. 739.04%. Thus, it is the case of the assessee that the RPT filter chosen

by the TPO does not meet the requirements when it comes to the BNR

Udyog Ltd. TPO considered the RPT filter at 25% only whereas BNR Udyog

Ltd. has registered RPT filter of nearly 739%. Contents of Page No.225 of

the appeal memo is relevant (Para No.8.2.1 of the TPO’s order).

functions of BNR Udyog Ltd. is into medical transcription, construction and

financial activities and therefore, it is not a good comparable to the present

assessee which is into providing Design Engineering Services. In addition,

on the ground of RPT filter also, BNR Udyog Ltd. with RPT of 739.04%, is

not a good comparable. On both the counts, BNR Udyog Ltd. is not a good

comparable. Therefore, we direct the TPO/AO to exclude the same from the

final list of comparables. Accordingly, Ground No.8 raised by the assessee

is allowed.

operating margins of comparable companies and incorrect relief in granting

of working capital adjustments.

these issues to the file of AO/TPO for removal of the mistakes. As such,

our directions to the TPO/AO given in connection with the adjudication of

Ground Nos. 7 and 8 of this appeal need to be incorporated by the Revenue

authorities in arriving at the correct TP adjustments if any. AO/TPO are

directed to grant reasonable opportunity of being heard to the assessee

while working out the correct adjustments if any. Accordingly, Ground

Nos. 9 and 10 are allowed for statistical purposes.

CORPORATE ISSUES

submitted that the claim of deduction u/s.10A of the Act at what stage of

computation the same should be quantified is the settled issue in the light

of the Apex Court judgment in the case of Himatasingike Seide Ltd. Vs.

ACIT – Civil Appeal No.1501 of 2008. The judgments of jurisdictional High

Court of Bombay in the case of CIT & Another Vs. M/s.Yokogawa India Ltd.

TS-661-SC-2016, CIT Vs. Schmetz India Pvt. Ltd. 79 DTR 356 and the

decisions of Pune Bench of the Tribunal in the case of Vishay Components

Pvt. Ltd. Vs. ACIT – ITA No.1712/PUN/2011 and DCIT Vs. Applied Micro

Circuits India Pvt. Ltd. – ITA No.1250/PUN/2015 were relied upon. The

fact that the judgment of Apex Court was pertaining to the period prior to

the amendment to section 10A of the Act was also brought to our notice.

The submission of the Ld. Counsel for the assessee in this regard are

extracted here as under :

“The Appellant submits that deduction under section 10A of the Act should be allowed from the income of the eligible unit i.e. before aggregating the income of both the units and before set-off of current year losses of ineligible unit. In this regard, the Appellant submits that:

The CAD and PPV businesses of the Appellant are two separate units wherein CAD is eligible unit and is into profits and PPV business has made loss for the year under consideration. Accordingly, the eligible CAD unit constitutes a separate undertaking.

Deduction under section 10A is 'undertaking' specific and losses of other units can be adjusted 1 carried forward only after allowing deduction under section 10A of the Act. This is amply clear from section 10A(1) and 10A(4) of the Act which specifically provide the mechanism of computing deduction from 'profits derived by the undertaking'. The same is also squarely covered by the Jurisdictional Hon'ble Bombay High Court decision in the case of Hindustan Unilever Limited v. DCIT and UOI (325 ITR 102).

Even the format of the return of income (schedule CYLA and BFLA of Form ITR 6) contemplates adjustment of losses only after availing the deduction under section 10A of the Act. Reliance in this regard can be placed on the Bangalore Tribunal judgment in case of KPIT Cummins Infosystems (P) Ltd v. ACIT (120 TTJ 956) .

While the CBDT Circular relied on by the learned AO has emphasized that the deduction is allowed from the total income which signifies income after set-off of losses, a plain reading of section 4 of the Act read with section 2(45) suggests that 'total income' is the final amount on which tax has to be computed without any further deduction and hence, the interpretation stated in the CBDT Circular is contrary to the literal provisions of the Act.

With regard to the Hon'ble Supreme Court decision of Himatasingike Seide Ltd relied on by the learned AO, the Appellant in the said case had only one unit which had generated unabsorbed depreciation in preceding years. In the facts of the present case however, the issue is regarding set-off of current year losses of ineligible unit against eligible unit. Further, this decision has been distinguished/ not followed in many other identical cases.

Further, the Appellant wishes to place reliance on the CBDT circular 37/2016 in relation to the Chapter VI A deduction on enhanced profits. (The copy of the circular is enclosed on page 753 to page 754 of the legal paper book)

Reliance is placed on the Jurisdictional Hon'ble Jurisdictional Bombay High Court's decisions in the case of-

Reliance is also placed on the Hon'ble Jurisdictional IT AT decision in the case of – • Vishay Components Private Limited vs. ACIT - ITA No. 1712/PUN/2011 • DCIT vs. Applied Micro Circuits India Pvt. Ltd - ITA No. 1250/PUN/2015

of deduction u/s.10A of the Act and we find now this issue stands covered

in favour of the assessee by virtue of the decision of the Tribunal in the

case of Trizetto Services India Pvt. Ltd. Vs. DCIT – ITA No.2537/PUN/2016,

dated 28-03-2018 for the A.Y. 2010-11. The said finding of the Tribunal is

extracted here as under :

“8. We heard both the parties and perused the orders of the Revenue as well as the Apex Court judgment in the case of CIT Vs. Yokogawa India Private Ltd. (Supra). It is a settled legal proposition on the issue raised in Ground No.1, i.e. set off of brought forward losses before considering deduction u/s.10A of the Act. The legal proposition laid down by the Hon’ble Apex Court (supra) reads as under :

“Conclusion : “After amendment of section 10A by Finance Act 2000 with effect from 1-4-2001, said section has become a provision for deduction but stage of deduction would be while computing gross total income of eligible undertaking under Chapter IV of Act and not at stage of computation of total income under Chapter VI of Act.”

The said Apex Court judgment is categorical in stating that the deduction u/s.10A should be first computed and allowed before setting off brought forward losses. The stage of granting the said deduction is categorically specified and the same is to be allowed at the stage while computing the gross total income of eligible undertaking under Chapter IV of the Act and not at the stage of computation of total income under Chapter VI of the Act. Considering the binding nature of the Apex Court judgment, we are of the view that Ground No.1 in the appeal is required to be decided in favour of the assessee. Accordingly, Ground No.1 is allowed.”

Considering the above, we are of the opinion that the issue now

stands covered in favour of the assessee. Accordingly, Ground No.14 raised

by the assessee is allowed in favour of the assessee.

disallowed u/s.14A of the Act while dealing with deduction u/s.10A of the

Act. We have discussed the issue of claim of deduction u/s.10A in the

preceding paras of this order and decided the same in favour of the

assessee. Therefore, we are of the opinion that adjudication of the Ground

No.16 raised by the assessee without prejudice to Ground No.14 becomes

an academic exercise. As such before us, merits of disallowance of

Rs.3,34,928/- was not pressed through a specific ground is raised vide

Ground No.15. Accordingly, Ground No.16 raised by the assessee is

dismissed as academic.

purposes.

Order pronounced on this 23rd day of May, 2018.

Sd/- Sd/- (SUSHMA CHOWLA) (D.KARUNAKARA RAO) �ाियक सद� / JUDICIAL MEMBER लेखा सद� / ACCOUNTANT MEMBER पुणे / Pune; �दनांक Dated : 23rd May, 2018. Satish

आदेश आदेश क� आदेश आदेश क� क� �ितिलिप क� �ितिलिप �ितिलिप अ�ेिषत �ितिलिप अ�ेिषत अ�ेिषत/Copy of the Order is forwarded to : अ�ेिषत

अपीलाथ� / The Appellant; 1. ��यथ� / The Respondent; 2. आयकर आयु�(अपील) / The CIT(A)-13, Pune 3. आयकर आयु� / The CIT-IT/TP, Pune 4. िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, पुणे “ए” / 5. DR ‘A’, ITAT, Pune; गाड� फाईल / Guard file. 6.

आदेशानुसार आदेशानुसार आदेशानुसार/ BY ORDER,स आदेशानुसार

स�यािपत �ित //True Copy// //True Copy// Senior Private Secretary आयकर अपीलीय अिधकरण ,पुणे / ITAT, Pune