TaxTMI 
TaxTMI 
2015 (7) TMI 568
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....engaged in the business of manufacture of X-ray and CT tubes, HV Tanks, Detectors, parts and accessories for medical diagnostic imaging equipment, distribution of tubes, parts and accessories and provision of engineering services to its AE as contract manufacturer. During the previous year, the assessee carried out the following international transactions with its AE:- Import of raw materials for control manufacturing activity : Rs.159,74,15,702 Purchase of fixed assets for contract manufacturing activity : Rs. 4,94,76,509 Sale of manufactured goods : Rs.373,12,86,546 Provision of engineering services : Rs. 4,19,96,848 Payment of training fees : Rs. 67,972 Reimbursement of expenses : Rs. 6,78,964 Recovery of expenses : Rs. 39,99,681 5. The AO referred the determination of Arm's Length Price (ALP) in respect of international transactions entered into by the assessee. The subject matter of the dispute in grounds No.1 to 6 referred to above is with regard to determination of ALP in respect of international transaction of sale of manufactured goods by the Assessee to its AE. As already stated, the assessee is a contract manufacturer for the GEMS group, which is admittedl....
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....essee before the TPO, the assessee took a stand that TNMM may be adopted as the most appropriate method by retaining the same comparables chosen by the TPO. The following were the relevant submissions made by the assessee: "7. Consideration of alternate method We wish to bring to your kind attention, paragraph 2.38 of the OECD TP guidelines, which provide for an application of alternate method to substantiate the results of the Cost Plus method in the following circumstances: * If expenses reflect a functional difference, which has not been taken into account in applying the method, an adjustment to the cost plus mark up may be required. * If expenses reflect additional functions that are distinct from the activities tested by the method, separate compensation for that function may need to be deemed. Since, the comparables chosen by Your Honour perform functions which are beyond that of a contract manufacturer, the result obtained by the assessee through the application of the Cost Plus Method may also have to be substantiated through the application of the Transactional Net Margin Method. Without prejudice to our submission that CPM is applicable and that the comparables ch....
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....he TPO proceeded to determine the ALP as follows:- 5.10.3 Comparables The following four comparables were identified in the show cause letter-dated 13.10.06: Sl. No. Name of the comparable % of GP over costs 1 Contential Surgical Suture Ltd 74.167 2 Polymedicure Ltd. 27.646 3 South India Surgical Co. Ltd. 37.833 4 Shree Pacetronix Ltd. 38.462 Avg. 44.527 Out of this Shree Pacetronix Ltd. is rejected as per the taxpayer's request since it had related party transactions. The final list is as follows: Sl. No. Name of the comparable % of GP over costs 1 Contential Surgical Suture Ltd 74.167 2 Polymedicure Ltd. 27.646 3 South India Surgical Co. Ltd. 37.833 Avg. 46.55% 5.10.4 Adjustment towards Sales functions As discussed, the normal spending on marketing. advertising & distribution comes to 8% of the sales. Therefore an 8% adjustment is given to ALP computed to neutralized the impact of these functions: Cost incurred for contract manufacturing activity A Rs.320,99,16,579 Normal mark up on cost (arithmetic mean of comparables) B 46.55% Arms Length Price computed based on normal gross markup @ 146.55% C=A+A*B Rs....
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....riate to use TNMM as the most appropriate method instead of rejecting the comparables used in the TP Study. 1.5. In this regard we submit that Para 3.27 of the OECD TP guidelines state that net margins used in the TNMM are less affected by transactional differences than is the case with price, as used in the CUP method. The net margins also may be more tolerant to some of the functional differences between controlled and uncontrolled transactions than gross margins (i.e., used in the RPM and the CPM). And, the differences in the functions performed between enterprises are often reflected in variations in operating expenses. Consequently, enterprises may have a wide range of gross profit margins but still earn broadly similar levels of net profits. 1.6. In our submissions to the Ld. TPO it has been clearly established that the functional profiles of the Company and the comparables used by the Ld. TPO ("alleged comparables") are vastly different. The significant variation in the gross margins and the net margins of the comparables used by the Ld. TPO in the TP Order is evident from the tabulation below: Centenial Surgical Suture Ltd. Poly Medicure Ltd. South India Surg....
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....in the case of Philips Software, wherein it was held that the action of the Ld. TPO was directed towards making a higher TP adjustment. 1.25. Further, in our submissions we have also clearly brought out the fact of significant functional dissimilarities between the Company and the alleged comparables. In view of such significant functional dissimilarities, CPM is liable to be rejected as the most appropriate method, and the TNMM has to be adopted as the most appropriate method, if the comparables proposed by the Ld. TPO are considered as comparables." 12. On the above submissions made by the assessee, the CIT(A) held as follows:- "6.3.4 As laid down in the case of Aztec Software (supra), the burden to establish that international transactions were carried out at ALP is on the taxpayer. Moreover, the burden to select the most appropriate method has also been held to be on the taxpayer. The decision of selecting the most appropriate method is to be substantiated by the assessee by an appropriate documentation as well as by substantiating why a particular method is considered best suited to the facts and circumstances of the international transaction and as to how it provid....
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....e the fallacies in application of CPM before putting up a case for application of TNMM. It is for the appellant to show that TNMM is more appropriate than CPM and such an appropriateness of method must be shown on the touchstone of the factors set out in Rule 1OC(2). As the appellant has failed to make out a case for adoption of TNMM as the most appropriate method on the basis of cogent material and sound reasoning, the TPO was justified in rejecting the proposal of the appellant in this regard and her action in doing so is hereby sustained." 13. In grounds 3 & 4, the assessee has specifically challenged the action of the revenue authorities in not applying the TNMM as the most appropriate method. 14. We have heard the submissions of the ld. counsel for the assessee and the ld. DR. At the outset, it may be appropriate to set out the provisions of Rule 10B(1)(c) which lays down the situation in which the Cost Plus Method has to be adopted as the most appropriate method. These Rules read thus:- Determination of arm's length price under section 92C. 10B. (1) For the purposes of sub-section (2) of section 92C, the arm's length price in relation to an international transaction sha....
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....parties to the transactions operate, including the geographical location and size of the markets, the laws and Government orders in force, costs of labour and capital in the markets, overall economic development and level of competition and whether the markets are wholesale or retail. (3) An uncontrolled transaction shall be comparable to an international transaction if- (i) none of the differences, if any, between the transactions being compared, or between the enterprises entering into such transactions are likely to materially affect the price or cost charged or paid in, or the profit arising from, such transactions in the open market; or (ii) reasonably accurate adjustments can be made to eliminate the material effects of such differences. 16. The ld. counsel for the assessee submitted that a captive manufacturer works on cost of production plus his margin and does not perform post cost of production function such as selling, administrative cost associated to selling, distribution, licensing, etc. Whereas a fullfledged third party manufacturer is one who does not stop with mere manufacturing or production of goods, but it also performs post cost of production functions refe....
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....18. The next submission was that Rule 10(B) (1) (c) obligates determination of direct and indirect cost of production incurred by the enterprise in respect of property transferred or services provided. It obligates arriving at the normal gross profit markup to such costs and stipulates that the same should be computed according to the same accounting norms. Any uncertainty of the first two elements cannot be adjusted or reconciled in any manner. Adjustments are limited to only functional and other differences and not in either reconciling the direct and indirect costs or reworking the computation when the accounting norms are not the same. 19. It was further submitted the CIT(A) wrongly placed reliance on the decision of the Hon'ble Pune Tribunal's decision in the case of ACIT v. MSS India (P) Ltd. (2009) 123 TTJ (Pune) 657. It was pointed out that in the aforesaid case cost plus method was held to be the most appropriate method in light of availability of internal comparability analysis of MSS India which is absent in the case of the Appellant. Further, in the said case also the TPO himself has noted that cost plus method cannot be applied as the relevant data for applying this m....
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....terprise as well. It must be recognized that because of the variations in practice among countries, it is difficult to draw any precise lines between the three categories described above." 21. Reference was to the Guidance Note on Report on International Transactions under Section 92E of the Income tax Act, 1961 (Transfer Pricing) issued by ICAI ('Guidance Note') states on Page 79 as follows: "determine normal gross profit mark-up on costs in the comparable uncontrolled transactions. Such costs should be computed according to the same accounting norms. In other words, the components of costs of comparable uncontrolled transaction should be the same as those of international transaction." It was pointed out that the Guidance Note further states that, "adjust the gross profit mark-up to account for functional and other differences between the international transaction and the comparable uncontrolled transaction. Such adjustment should also be made for enterprise level difference." 22. Attention was drawn to the OECD Transfer Pricing Guidelines in Page 75 Para 2.53 has also given an example to explain the crucial points to be borne in mind while applying the CPM and it states as ....
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.... Database limitation on account of Cost of Production (COP) can also be efficiently managed with the use of information at the net level; * Differences, if any, in the cost structures also evens out at the net levels; * The absence of comparables from the same industry calls for the selection of a broader set of comparables thereby making a perfect case for testing the margins at the net level with the application of TNMM. * TNMM should be considered as the MAM where operating expenses represent additional functions but it is not clear how these additional functions are accounted for at the gross margin level, since TNMM includes this in its result. 26. In this regard, out attention was drawn to paragraph 2.62 & 2.69 & 2.4 of the OECD Transfer Pricing guidelines which states as follows: Para 2.62 of the OECD guidelines : "One strength of the transactional net margin method is that profit level indicators (e.g. return on assets, operating income to sales, and possibly other measures of net profit) are less affected by transactional differences than is the case with price, as used in the CUP Method. Net profit level indicators also may be more tolerant to some functional dif....
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....art of costs of goods sold for an independent enterprise cannot be identified so as to adjust the gross margin in a reliable application of cost plus, it may be necessary to examine net margins in the absence of more reliable comparisons; ii. the product or service in question is unique or contains outof- the-ordinary intangibles; iii. while theoretically sound, the traditional methods may not be practicable because of the complexity of the business situation or the extent and diversity of the taxpayer's crossborder dealings with associated enterprises; iv. in many cases, there is a variety of transactions (transfers of tangible and intangible goods and services) back and forth between the associated enterprises, some of which may involve overlaps, and there may be no comparables for the combination of transactions. In these cases, profit methods may be a more reliable way to set or review the transfer pricing used in the dealings between the associated enterprises, or to check findings made using traditional methods if there is doubt about the reliability of the data used or the outcome produced; 28. It was submitted that considering the aforementioned legal principles,....
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....nished goods (4,150,577) Salary expense 34,258,518 Other Depreciation 24,832,551 Repairs and maintenance-Others 2,722,192 Subcontracting charges 12,132,002 Communication exp 8,092,662 Travel & Conveyance 8,027,514 Legal & Professional fee 7,111,653 Rent 2,465,865 Rates & taxes 897,175 Foreign exchange loss- net 430,831 Miscellaneous expenses 5,168,941 Total other operating expenses E 122,397,796 Total operating expenses F = B + E 3,332,314,375 Net Operating profit recomputed G = A- F 995,487,752 Operating Profit/Total Cost ('OP/TC') H = G / F 29.87% It was submitted that from the above calculation it would be clear the learned TPO has contemplated an increase in the revenue to arrive at the desired gross profit of approximately 35%, given the actual operating expense of the Assessee, the net margin of the Company is thus proposed to be considered at about a whopping 30%. It was submitted that the above computation clearly demonstrates the fundamental absurdity in the approach followed by the learned TPO and applying CPM vis-à-vis TNMM wh....
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.... which provides that comparability even where products are different can be undertaken but the functions undertaken should be similar. On the above submission of the Assessee the learned DR has submitted that the TPO has considered both product as well as functional similarity of comparable. iv) The Assessee had submitted that Indian Accounting Standards do not give clear cut requirement for disclosure of gross profits and therefore there will be difficulty in computation of the cost of production and gross profit. The Assessee has relied on para 2.44 to 2.46 and 2.48 of the OECD TP guidelines as to how the details of cost of production and gross profit are important before applying CPM. On the above submission, the learned DR has contended that under para 2.46 of the OECD TP guidelines where the accounting practices differ in the controlled transaction and the uncontrolled transaction, appropriate adjustments should be made to the data used to ensure that the same type of costs are used in each case to ensure consistency. The learned DR thus submitted that CPM cannot be rejected outright but has to be applied after giving appropriate adjustments to the data on costs of the contr....
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....vices and sells it to its AE. The pricing is claimed to be based on the GE Global pricing policy. The Assessee sources raw material and components, performs the manufacturing functions and supplies the entire produce to its AE. To justify the price that it receives from its AE is at Arm's Length the Assessee filed a Transfer pricing Study report. The Assessee claimed that it performed functions and undertook risks that are normally performed by a contract manufacturer. The Assessee chose Cost Plus Method (CPM) as the Most Appropriate Method (MAM) for determination of ALP. The Assessee identified 19 comparable companies which were in the business of manufacture of (i) steel forgings, (ii) automotive brake systems, (iii) compressors; (iv) colour TV picture tubes, (v) Axle shafts, (vi) automotive gears; (vii) rear fork assembly; (viii) sheet metal components, assemblies and sub-assemblies,(ix) auto head lights, (x) fuel tanks, axle housing; (x) steering gears; (xi) wheels for automobiles; (xii) design engines; (xiii) steering gear assembly; (xiv) automotive airconditioning systems; (xv) steel metal parts. The arithmetic mean of the comparable companies was 15.72% gross mark-up on cost....
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....n cost which is the PLI adopted by the Assessee and therefore for comparability at the level of gross mark up on cost of the products sold, those expenses were immaterial. 35. One of the objection of the Assessee before the TPO was that the comparable chosen by the TPO had low export turnover. On the above objection of the Assessee the TPO has observed that two of the comparable companies chosen by the TPO had export turnover. 36. Thereafter the TPO chose comparable companies in the medical equipment components manufacturing sector. The following four comparables were identified by the TPO. Sl.No. Name of the comparable % of GP over costs 1 Contential Surgical Suture Ltd 74.167 2 Polymedicure Ltd. 27.646 3 South India Surgical Co. Ltd. 37.833 4 Shree Pacetronix Ltd. 38.462 Avg. 44.527 Out of this Shree Pacetronix Ltd. was rejected as per the taxpayer's request since it had related party transactions. The final list of comparable companies was as follows: Sl.No. Name of the comparable % of GP over costs 1 Contential Surgical Suture Ltd 74.167 2 Polymedicure Ltd. 27.646 3 South India Surgical Co. Ltd. 37.833 Avg. 46.55% The a....
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....e case of MSS India (P) Ltd. (supra) wherein it was held that Profit methods are pressed into service only when the traditional method which includes CPM cannot be reasonably applied. Once the standard method is applied it cannot be discarded in preference over transactional profit method unless the revenue authorities are able to demonstrate the fallacies in application of standard method. 39. This reasoning cannot be accepted. There cannot be any estoppel in taxation matters. If the Assessee can show that the stand he originally took was not sustainable in law and seeks to take a different stand either in the course of proceedings before the Assessing Officer or Appellate authorities, the claim of the Assessee has to be tested on the basis of the applicable provisions of law. It cannot be rejected solely on the basis that it was contrary to the stand which the assessee had taken originally. At the same time, it does also mean that the assessee could be allowed free license to vary the functional analysis and the method adopted at any time during the appellate proceedings. The above proposition finds support in the decision of the ITAT, Pune, in the case of ACIT Vs MSS India (su....
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....se methods, which are a step removed from the methods of computing the prices at which independent transactions would normally take place in respect of the product or service must, therefore, be put to service when the traditional methods, which seek to compute prices in independent situations, fail or are incapable of being implemented, as there are a large number of situations in which, for a variety of reasons, traditional methods are simply unworkable. The inputs necessary for applying the traditional methods are not always available and that is the reason that despite better results produced by these methods, these methods are not as much put to use. However, whenever necessary inputs for applying one of these methods are available and there is no dispute about comparability of those inputs, there is no good reason to resort to transactional profit methods. It would thus follow that in a situation in which the assessee has followed one of the standard methods of determining ALP, such a method cannot be discarded in preference over transactional profit methods, unless the revenue authorities are able to demonstrate the fallacies in application of standard methods. In any event,....
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....on. (2) In selecting the most appropriate method as specified in sub-rule (1), the following factors shall be taken into account, namely:- (a) the nature and class of the international transaction; (b) the class or classes of associated enterprises entering into the transaction and the functions performed by them taking into account assets employed or to be employed and risks assumed by such enterprises; (c) the availability, coverage and reliability of data necessary for application of the method; (d) the degree of comparability existing between the international transaction and the uncontrolled transaction and between the enterprises entering into such transactions; (e) the extent to which reliable and accurate adjustments can be made to account for differences, if any, between the international transaction and the comparable uncontrolled transaction or between the enterprises entering into such transactions; (f) the nature, extent and reliability of assumptions required to be made in application of a method." 42. In this regard, it is seen that in the TP Study submitted, the assessee has itself adopted. The Cost Plus Method ('CPM') as the Most Appropriate Method ('MAM').....
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....ly considered to be a residuary method and is relied upon when no direct comparables are available. In the instant case, due to availability of comparables, CPLM could be considered as the most appropriate method in determining arm's length price with respect to contract manufacturing services. Accordingly TNMM is not considered as most appropriate method." 43. The UN Practical Transfer Pricing Manual for developing countries, 2012 in para 5.3.6 lays down the following criteria for choosing MAM. "5.3.6. Selection of Transfer Pricing Method 5.3.6.1. The most appropriate transfer pricing method will be selected taking into account the strengths and weaknesses of the method, the appropriateness of the method in the light of the nature of the controlled transaction (based upon a functional analysis), the availability of reliable information (especially on uncontrolled comparables) and the degree of comparability between the controlled and the uncontrolled transactions(including reliability of comparability adjustments needed). 5.3.6.2.Once the taxpayer has identified the transfer pricing methods that are potentially applicable to the controlled transaction, application of the mo....
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....MM as an alternate approach or method is not in tune with the Indian TP Rules, even though it may be permissible as per OECD guidelines. As per the Indian TP Rules, the assessee is to select one method as the MAM. The Indian TP Rules does not give any scope or leverage to use different TP methods. 45. The U.N. Practical Transfer Pricing Manual for developing countries, 2012 in para 6.1.3.3 lays down as follows: "6.1.3.3. Once a method is chosen and applied taxpayers are generally expected to apply the method in a consistent fashion. Assuming that an appropriate transfer pricing method is being applied, a change in method is typically required only if there are any changes in the facts, functionalities or availability of data." The above guidelines presupposes an appropriate transfer pricing method being applied. The above guidelines emphasise on consistency being followed in applying the method. It also provides that the method can be changed, only if there are any changes in the facts, functionalities or availability of data. Assuming that there could be situations where on assessee may be required to change its chosen MAM for the same year between the time of his TP Study and....
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....rchasing raw materials in some cases), risks incurred (e.g. market risk, credit risk and inventory risk) and assets owned (product intangibles). The contract manufacturer is thus the less complex and as such should be the tested party in the transfer pricing analysis. 6.2.20.3 The cost plus method is usually not a suitable method to use in transactions involving a fully-fledged manufacturer which owns valuable product intangibles as it will be very difficult to locate independent manufacturers owning comparable product intangibles. That is, it will be hard to establish a profit mark-up that is required to remunerate the fullyıfledged manufacturer for owning the product intangibles. In a typical transaction structure involving a fullyıfledged manufacturer and related sales companies (e.g. commissionaires), the sales companies will normally be the least complex entities involved in the controlled transactions and will therefore be the tested party in the analysis. The resale price method is typically more easily applied in such cases. 6.2.21 Case Examples of Cost Plus Method: 6.2.21.1. Example 1 (i) LCO, a domestic manufacturer of computer components, sells its prod....
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....roduces the apparel according to designs provided by PCO. The local taxing authority identifies 10 uncontrolled foreign apparel producers that operate in the same geographic market and are similar in many respects to FS; (ii) Relatively complete data is available regarding the functions performed and risks borne by the uncontrolled producers. In addition, data is sufficiently detailed to permit adjustments for differences in accounting practices. However, sufficient data is not available to determine whether it is likely that all material differences in contractual terms have been identified. For example, it is not possible to determine which parties in the uncontrolled transactions bear currency risks. As the differences in these contractual terms could materially affect price or profits, the inability to determine whether differences exist between the controlled and uncontrolled transactions will diminish the reliability of these results. Therefore, the reliability of the results of the uncontrolled transactions must be enhanced." As a general rule it can be said that the above guidelines advocate use of CPM in the case of Contract manufacturers. However, the provisions of Se....
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....ts / semi finished goods to Original Equipment Manufacturers (OEMs) and the functions of such companies are comparable or similar to those of a contract manufacturer. The comparables determined by the company primarily perform manufacturing functions and the performance of other functions (e.g. marketing & advertisement) is negligible and insignificant, much the same as is the case with the appellant. Therefore, the profit margins of these companies are primarily reflective of the return on the manufacturing function. > However, it would be worthy to note that the ld. TPO has given weightage to product similarity over the functional similarity thereby contradicting the basic premise of application of CPM. Base don this, the ld. TPO has chosen the set of comparables which fall under the broad category of "Medical Equipments" as classified in the Prowess database. The comparables chosen by the ld. TPO are engaged in the manufacture of medical consumables viz. Disposable syringes, Disposable sutures, Disposable needles, etc. On the other hand, the appellant is a contract manufacturer engaged in manufacturing Tubes, Inserts, Detectors, Tanks and other parts and accessories for medica....
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.... with the ld. TPOs philosophy of adjusting the gross mark-up, however, your goodself would appreciate that in order that the adjustments have the desired effect, the actual proportion of marketing expenses to sales ought to be considered for each comparable. This is more so necessary because the level of these expenses as a proportion of sales for each of the ld. TPO comparable varies. > In this regard, the appellant would like to mention that Centenial Surgical ( a comparable selected by the ld. TPO) is a case in point, for the reason that its marketing expenses as a proportion of sales is 30% and the adjustment of 8% Tribunal sales granted by the ld. TPO would be grossly inadequate to eliminate the effect of the marketing, distribution and advertisement function on the gross profits. > Therefore the appellant submits that the financial analysis by the ld. TPO to arrive at the appropriate gross margin is erroneous, and the adjustment for the differences in the marketing and selling functions ought to be recomputed based on the actual expenses incurred by the companies. Further, in the same written submissions, at page 117 of the paper book, it is submitted as under : Analysis ....
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....s perform functions beyond that of a contract manufacturer then they are not comparable. This argument is again general in nature without any particulars on the three comparable companies chosen by the TPO. 50. One of the pleas raised by the Assessee was that functional similarity is to be first seen before choosing an appropriate method and that the TPO in choosing CPM has given weightage to product similarity rather than functional similarity. The Assessee had further pointed out that the comparable chosen by the TPO were manufacturing medical consumables viz., disposal syringes, disposable sutures, disposable needles etc., and that the same cannot be compared with contract manufacturing of tubes, inserts, detectors, tanks and other parts and accessories for medical diagnostic imaging equipment which the Assessee manufactures and which are incorporated by the AE into equipment which are capital goods. On the above submission, the learned DR has submitted that it cannot be said that product similarity has no relevance. Product similarity is also important. If there is no product similarity then even though there may be functional similarity then CPM may not be the right method. T....
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....e comparable companies can be made. 53. It thus seen that the Assessee has not been able to point out as to how CPM is not the MAM in the present case. It can therefore be concluded that CPM, on the facts and circumstances of the present case, is the MAM. 54. It is however seen that the TPO has not given any weightage to the various aspects pointed out by the assessee which call for making appropriate adjustments to the margins of the comparable companies, as required under Rule 10B(1)( c )(iii), (ic) & (v) of the Rules. The computation of adjustment at 8% made by TPO is not backed by proper reasoning or rationale. The comparables selected by the TPO perform additional functions in the nature of selling & marketing thus evidencing functional differences with the appellant. This fact has been acknowledged by the TPO, but while giving adjustment, the TPO has computed the adjustment at an adhoc figure of 8%. In view of the difference in functions, the assessee is entitled to adjustments which are reliable and accurate, as stipulated in Rule 10C(2)(e) of the Rules. If such adjustments are provided on actual basis, the difference in the functional profile with the comparable companies....
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....he profits of the business while computing deduction u/s. 10B is no longer res integra and has been settled by the Special Bench of the Tribunal in the case of Maral Overseas Ltd. v. ACIT, 136 ITD 177 (SB)(Indore) wherein the Special Bench held as follows:- " 78. Section 10B of sub-section (1) allows deduction in respect of profits and gains as are derived by a 100% EOU. Section 10B(4) lays down special formula for computing the profits derived by the undertaking from export. The formula is as under :- Profit of the business of the Undertaking x Export Turnover Total turnover of business carried out by the Undertaking 79. Thus, sub-section (4) of section 10B stipulated that deduction under that section shall be computed by apportioning the profits of the business of the undertaking in the ratio of turnover to the total turnover. Thus, notwithstanding the fact that sub-section (1) of section 10B refers the profits and gains as are derived by a 100%EOU, yet the manner of determining such eligible profits has been statutorily defined in sub-section (4) of section 10B of the Act. As per the formula stated above, the entire profits of the business are to be taken which are multipl....
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....e eligible business profit. 80. In view of the above discussion, question NO.2 is answered in affirmation and in favour of the assessee. Accordingly, the assessee is eligible for claim of deduction on export incentive received by it in terms of provisions of section 10B(1) read with section 10B(4) of the Act." 58. Similar view was also expressed by the Mumbai ITAT in the case of T. Two International (P) Ltd. v. ITO, 122 ITD 279 (Mum) and ITAT Bangalore in the case of ACIT v. Motorola India Electronics Pvt. Ltd. in ITA No.1134 & 1139/Bang/2003, A.Y. 1998-99 & 2001- 02 by order dated 28.11.2006. 59. The ld. DR, however, pointed out that this Tribunal in assessee's own case for the A.Y. 2002-03 in ITA No.3624/Bang/2004 for the A.Y. 2001-02 by order dated 14.02.2007 has taken a view that profits from trading activity will not be eligible for deduction u/s. 10B of the Act. 60. We have considered the rival submissions and are of the view that the decision rendered by the Tribunal in assessee's own case for the A.Y. 2001-02 will no longer by binding in view of the decision of the Special Bench Indore in the case of Maral Overseas Ltd. (supra). It is clear from the decision of the Spec....