TaxTMI 
TaxTMI 
2019 (3) TMI 1734
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....f India and one unit registered under the Electronic Hardware Technology Parks ('EHTP') Scheme and one unit registered under the Special Economic Zone (SEZ) Scheme, these units are accordingly eligible to claim tax holiday under sections 10A and 10AA of the Income Tax Act, 1961 (hereinafter referred to as 'the Act'). Under the Engineering segment, the assessee provides IT enabled engineering services to its associated enterprises ('AEs') from its following Software Technology Park ('STP') and SEZ units: a) STP unit 1 at Pune. b) STP unit 2 at Pune. c) Chennai STP unit ; and d) SEZ unit at Pune. The details of the STPI unit and the expiration of the tax holiday are provided as under: Sr. No. Unit Tax holiday under section 10A of the Income Tax Act, 1961 ('the Act') 1 STP unit 1 at Pune Available up to AY 2007-08 2 STP unit 2 at Pune Available up to AY 2011-12 ( on account of sunset clause in the section) 3 Chennai STP unit Available up to AY 2009-10 3. The assessee is engaged in the export Software Engineering/ Software services to its parent company in USA and /affiliates and to third pa....
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.... held by the Ld. CIT(A) that an 'arrangement' can be inferred if the surrounding facts and circumstances so indicate and the present of abnormal profits in the case of STP units provide the existence of an 'arrangement' between the assessee and its AE's. 6. At the time of hearing, the Ld. AR of the assessee submitted that the case of the assessee is squarely covered by the decision of the Pune Bench of the Tribunal in assessee's own cases in ITA No.18/PUN/2011 for assessment year 2006-07, ITA No.2103/PUN/2012 for assessment year 2007-08 and in ITA No.359/PUN/2013 for assessment year 2008-09. The Ld. AR further placed reliance on the decision of Pune Bench of the Tribunal in ITA No.2544/PUN/2012 order dated 30.10.2017 and on the decision of the Hon'ble Jurisdictional High Court in the case of CIT Vs. Schmetz India Pvt. Ltd. (ITA No.1382/2013 dated 24.06.2015. The Ld. AR of the assessee further submitted that against the decision of the Hon'ble Bombay High Court, Revenue had preferred appeal before the Hon'ble Apex Court in SLP CC No.2013/2016 dated 08.02.2016. However, this SLP of the Revenue was dismissed by the Hon'ble Apex Court. 7. We have perused the....
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....ive intent and it is also manifested in the language of section 10A(7) r.w.s. 80-IA(10) of the Act. We say so for the reason that the phraseology of section 80-IA(10) of the Act itself suggests that the profits and gains of an eligible business cannot be tinkered with by the Assessing Officer merely because they are more than the ordinary profits or that they are quite high. The existence of substantial or more than ordinary profits by itself does not sufficiently empower the Assessing Officer to disregard them and determine the profits which he may consider to be reasonably deemed to have been derived therefrom. The presence of the expression "the course of business ............ is so arranged ............. that the business transacted ............... produces to the assessee more than ordinaryprofits" is significant and its understanding has to be prefaced by the legislative objective of plugging abuse of the tax concessions granted u/s 10A of the Act by manipulation of profits between associated parties. In other words, the import of the expression "so arranged" has to be read in conjunction with the legislative intent that there should not be any abuse of tax concession by mani....
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....ee and the associated enterprises whereby the services have been provided by the assessee to them and therefore the same is to be understood as an "arrangement" within the meaning of section 10A(7) r.w.s. 80-IA(10) of the Act. Along with the aforesaid, it has also been emphasized, on the basis of the language of section 80-IA(10) of the Act that, the Assessing Officer is not required to be prove that there is an arrangement for producing more than ordinary profits. Whereas, as per the Ld. CIT-DR, section provides that arrangement leading to production of more than ordinary profit will satisfy the necessary condition of section 80-IA(10) of the Act. Thus, according to the Ld. CIT-DR, in the instant case there is an arrangement and it has lead to production of more than the ordinary profits. According to the Ld. CIT-DR, the meaning of the words "so arranged" in section 80-IA(10) of the Act only seeks to ensure that there was an agreement between the assessee and associated enterprise. 25. We have carefully examined the aforesaid contentions of the Ld. CITDR. In our considered opinion, the import of the expression "arranged" in section 80-IA(10) of the Act is not to be unders....
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.... which would necessarily mean that it must be an agreement or understanding which affects their rights" [underlined for emphasis by us] 27. The aforesaid clearly points out that the Hon'ble High Court imparted meaning to the word "arrangement" in the context of section 391(1) of the Companies Act, 1956 to mean that it must be an agreement or understanding which affects the rights between the company and its creditors or any class of them and between the company and its members or any class of them. By the same analogy in the present context, we have to understand the meaning of the expression "as arranged" in section 10A(7) r.w.s. 80-IA(10) of the Act to mean a situation whereby the course of business has been so arranged that the business transacted produces to the assessee more that the ordinary profits with an intent to abuse the tax concessions granted in section 10A of the Act. Moreover, if one is to understand the import of the expression "so arranged" in section 80-IA(10) of the Act as canvassed by the Ld. CIT-DR, it would mean that for the purposes of fulfillment of the conditions prescribed in section 10A(7) r.w.s. 80-IA(10) of the Act, existence of mere close ....
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....s is light or heavy but whether the AO has discussed objectively the conditions mentioned in the section to disturb the results declared by the appellant. In this case, the AO has failed to adduce any evidence or reason to satisfy the invoking of s. 80-1(9). First of all, a mere substantial profit does not give rise to any valid view that there could be any arrangement. It is a case of joint venture listed Indian company, where all arrangements are open for scrutiny and acceptance not only by digital group worldwide but also from joint venture partners and shareholders. Digital group overseas will not pay undue sum, which it cannot recoup entirely to exclusion of others. Hence nothing can be arranged to the exclusive benefit of overseas partner. One cannot presume the existence of close connection or possibility of an arrangement for earning more than ordinary profits. In this case the profits earned is comparable with the profits earned by other companies in the same industry. Hence there is no case for further verification. The AO has compared the profit of software unit with that of hardware unit. Thus the foundation itself is on wrong premise. There cannot be comparison between....
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....fits which might be expected to arise in such a business. Be that as it may, the aforesaid is not enough to say that the course of business has been so arranged to result in more than ordinary profits. However, from the side of the Revenue, it was pointed out that the Transfer Pricing comparability analysis itself suggests that the profit margins of the assessee are more than the ordinarily accepted margin in this line of business. The moot question is as to whether the same can be considered as a material to indicate that the course of business between the assessee and the associated enterprises has been so arranged, so as to result in 'more than the ordinary profits' within the meaning of section 10A(7) r.w.s. 80- IA(10) of the Act. In this context, we may refer to the decision of the Chennai Bench of the Tribunal in the case of Visual Graphics Computing Services India (P) Ltd. vs. ACIT, 148 TTJ 621 (Chennai), wherein following discussion is relevant :- "We heard both sides in detail and considered the issue. As far as the present case is concerned, the Transfer Pricing Officer has made a categorical finding that the operating profit reported by the assessee is higher th....
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....re and any other adjustment that the Assessing Officer would like to make with reference to the first segment must be made independent of the order of the Transfer Pricing Office under section 92CA. To state in simple terms, the transfer pricing regime is different from regular computation of income. Section 10A belongs to that part of regular computation of income and it should be computed independent of transfer pricing regulations and transfer pricing orders. It is not therefore, permissible for the Assessing Officer to work out section 10A deduction on the basis of arm's length price profit generated out of the order of the Transfer Pricing Officer. In fact these issues have already been considered in various orders of the Tribunal. The Income-tax Appellate Tribunal, Chennai "A" Bench in the case of Tweezerman (India) P. Ltd. v. Addl. CIT [2010] 4 ITR (Trib) 130 (Chennai) (133 TTJ 308) has considered the matter in detail and held that the reduction of eligible profits of an assessee as done by the Assessing Officer by invoking the provisions of section 80-IA(10) read with section 10B(7), in the context of the Transfer Pricing Officer's order is unsusta....
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....bers the A.O. to examine if the profits derived from the eligible business by the assessee is more than the ordinary profits, then the A.O. has to arrive as to what could be the reasonable profit from the such eligible business and such profit has to be then taken as reasonably deemed to have been derived from the eligible business for the purposes of computing deduction under the section. 33. The aforesaid discussion in the assessment order reveals that as per the Assessing Officer, the existence of close connection and more than ordinary profits is enough to assume an arrangement as contemplated u/s 80- IA(10) of the Act. The aforesaid understanding, in our view, is directly contrary to the judgement of the Hon'ble Karnataka High Court in the case of H.P. Global Soft Ltd. (supra) and our discussion in the earlier part of this order. 34. In view of the aforesaid, we conclude by holding that in the present case, the Assessing Officer has not proved that any arrangement had been arrived between the parties which resulted in higher profits. Consequently, the re-working of the profits by Assessing Officer by invoking section 10A r.w.s. 80- IA(10) of the Act is not ju....
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....t, appeal of the Revenue in ITA No.473/PUN/2016 is dismissed. ITA No.446/PUN/2016 ( By Assessee) Assessment year 2011-12 10. Now, we proceed to decide the assessee's appeal. The Ld. AR of the assessee apprised the Bench that ground No.1 is general. That ground No.1 being general in nature, requires no adjudication. 11. The Ld. AR of the assessee is not pressing ground Nos. 2 to 13. Hence, ground Nos. 2 to 13 are dismissed as 'not pressed'. 12. Ground No.15 is consequential. That the ground No.15 being consequential, requires no adjudication. 13. Thus the only ground left for adjudication is ground No.14. This ground is with respect to addition on account of reconciliation of receipts with Form 26AS. The grievance of the assessee is that the Ld. DRP/TPO has erred on facts and in law in considering the difference amounting to Rs. 2,883,003/- in receipts reported in Form 26AS and as per the Profit and Loss Account as income of the assessee for assessment year 2011-12 and adding the same to the total income of the assessee for the year. 14. The facts on this issue are that during the course of assessment proceedings, the Assessing Officer asked the assessee to reco....
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....ntly argued that they have made best efforts for reconciliation. The Ld. AR further submitted that Form 26AS is a statement generated by the Revenue regarding transactions pertaining to income tax with the assessee and that cannot be a tool or basis for making addition in respect of the assessee. If there is any difference between the books of account of assessee and statement of Form 26AS, then the Revenue has machinery for verification from concerned parties regarding actual transactions carried out in the relevant year. 16. We have perused the case records and analyzed the facts and circumstances with regard to this issue. Herein, the assessee has stated that whatever receipts are acquired, they have reflected in their books of account. If there is any discrepancy, it is upon the Department to reconcile the same and that burden is shifted to the Department. However, while saying so, the assessee accepts TDS components involved in the transactions. If Form 26AS reveals Rs. 100/- as received by the assessee while in the books account, the assessee has recorded Rs. 90/- and there is discrepancy of Rs. 10/-. However, for getting the benefit of TDS, the assessee accepts TDS with r....