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2022 (6) TMI 642
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.... the case and- In law, Ld. Commissioner of Income Tax (Appeals) was justified in interpreting the words according to the object of the provision ignoring the fundamental principle of interpretation of stature that nothing should be added to the words used by legislature? 4. Whether on the facts and circumstances of the case and in law, the ld. CIT(A) was justified in imposing burden of proving tax avoidance ignoring the fact that section 80IA(10) of the Act is a "domestic transfer pricing" provision and proving tax avoidance is not one of the pre-condition for invoking transfer pricing provisions? 5. Whether on the facts and circumstances of the case and in law, the ld. CIT(A) was justified in concluding that net profit of the assessee would not be considered "more than ordinary" and disregarding the fact that tax avoidance is resulted because of claiming excessive deduction u/s 10A on net profit component of "more than ordinary profit. 6. For these and such other grounds as may be urged at the time of hearing, the order of the ld. CIT(A) may be vacated and that of the AO restored. 7. The appellant craves to add, amend, alter or delete any of the....
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....sactions can be safely inferred. In this case, the Assessing Officer demonstrated that profits earned by the assssee were higher profits having regard to the profitability ratios of similarly placed companies as per Transfer Pricing study report of the assessee and thus, the initial onus placed on the revenue was discharged. As per Transfer Pricing Report the operating margins reported by the comparable companies clearly demonstrated that the assessee declared more than ordinary profits. The AO then held that ordinary profits used in sec. 80IA(10) should be taken to construe reasonable profit from eligible business, which can be ascertained by analyzing the cases of comparable companies. Further, as per the AO, the assessee failed to establish with reliable' and cogent data that the profits shown by it in case of eligible units were "ordinary profits'. On the contrary, having regard to the profit margins declared by the comparable entities, it was 'clear that the profits as disclosed by the assessee SEZ Unit segment were more than the ordinary profits which might have been expected to arise in this line of business 3.3 In view of the above fact, an amount of Rs. 2,88....
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....ranged 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 by other companies in the same industry. Hence there is no case for further verification. " * Visual Graphics Computing Services (InCJia)4!rPvt. Ltd. [TS-27 4-IT A T-2012 (Chny)) "Therefore, where in a case, the Transfer Pricing Officer suggests that the operating profit declared by an assessee is compatible to the arm's length price norms and no adjustment is necessary, the operation of all those provisions come to an end. If the, Assessing Officer has to make any other adjustment towards computing deduction available under section 10A, the computation has to be made in the context of section 10A(7) read with section 80-IA(10). 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 As....
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.... of deduction uls 10A, without firstly showing that there existed any arrangement between the assessee and its overseas related party, by which the transactions were so arranged as to produce more than the ordinary profits in the hands of the assessee. The assessment year under consideration is 2009-10. Neither the proviso to sub-section (10) existed at that time, nor such a proviso can be applied as we are dealing with an international circumstances, we are of the considered opinion that the impugned order upholding the invocation of sub-sec. (10) of sec. 80IA cannot be countenanced to this extent". 5. Thereafter, the ld. CIT(A) after considering the submissions of the assessee and the assessment order observed that the assessee is engaged in rendering ITES in the nature of technical service to its associate enterprises and has bench marked these international transactions which have been accepted in the past by the TPO. The ld. CIT(A) further opined that the A.O has not understood the concept of "ordinary profit" and "in the course of business" terms. The A.O has simply taken the mean margin of the comparables which is not ordinary profit in the course of business. There are t....
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....the Act in respect of the activity of rendering Engineering Design Services. The question is whether deduction claimed under section 10A of the Act could be curtailed. The answer is "No‟ in view of the ratio laid down by the Tribunal in Honeywell Turbo Technologies (India) Pvt. Ltd. Vs. DCIT in ITA No.2584/PUN/2012 order dated 10-02-2017 which has been applied by the Tribunal further in Tata Johnson Controls Automotive Limited Vs. DCIT (supra). The onus is upon the department to prove that there existed an arrangement between the assessee and its Associated Enterprises to earn more than ordinary profits and in the absence of the said onus having been discharged by the department and following the parity of reasoning as in Honeywell Turbo Technologies (India) Pvt. Ltd. Vs. DCIT and Tata Johnson Controls Automotive Limited Vs. DCIT (supra), we find no merit in the order of the Commissioner passed under section 263 of the Act in holding that the Assessing Officer while granting deduction under section 10A of the Act has passed the said order without any application of mind. Similar issue of invoking of jurisdiction under section 263 of the Act by the Commissioner curtailing the ....
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....at the two divisions are separate and distinct and cannot be compared. In the absence of same, there is no merit in the order of the Commissioner in holding that the Assessing Officer has not applied his mind in comparing operating profit margin over cost of two separate divisions of the assessee. It may also be pointed out herein itself that the total turnover of Engineering Design and Development Services was Rs.60.67 crorees and under the Design & Development Services the total turnover of international transaction was only Rs.2.66 crores. Because the order of the TPO in this regard has become final and has been accepted by the Assessing Officer under which no addition has been made in the margins shown by the Engineering Design and Development Services, there is no merit in the order of Commissioner in comparing the operating profit margin to cost of the said division shown at 270% with the operating profit margin to cost shown by the BSS segment at 7.39%. Accordingly, the directions of the Commissioner in curtailing the deduction under section 10A of the Act by applying provisions of section 10A(7) r.w.s. 80IA(10) of the Act are not correct and are reversed. The finding of the....
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....division so as to claim deduction under section 10A of the Act. These are findings one of fact. The appellant-revenue have not been able to show that the findings are perverse or arbitrary. In the circumstances, questions (a) and (b) as formulated by the appellant/revenue do not raise substantial questions of law in the present facts and are therefore dismissed." 12. The decision of the Hon‟ble Bombay High Court in CIT Vs. M/s. Schmetz India Pvt. Ltd. (supra) and in CIT Vs. M/s. Schmetz India Pvt. Ltd. (supra) has been approved by the Hon'ble Supreme Court." 8. In the aforestated decision, the Tribunal had referred to one decision of Hon‟ble Bombay High Court in the case of Schmetz India Pvt. Ltd. in Income- Tax Appeal No. 1382 of 2013 dated 24-06-2015 wherein in a different issue, the Tribunal‟s order was upheld by the Hon‟ble High Court. The Tribunal has held that the A.O was not able to prove that there was an arrangement between the assessee and its parent company resulting in extraordinary profits, where the assessee had concentrated on exports to its parent company only, which had resulted in higher profits. The Hon‟ble High Court....
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....ss proved otherwise by the person alleging it otherwise. The manner of satisfaction outlined in the section should be based on evidence and not on surmise or suspicion. The question is not whether the onus is light or heavy but whether the Assessing Officer has discussed objectively the conditions mentioned in the section to disturb the results declared by the appellant. In this case, the Assessing Officer had failed to adduce any evidence or reason to satisfy the invoking of section 80-l(9). First of all, a mere substantial profit does not give rise to any valid view that there could be any arrangement. It was a case of joint venture listed Indian company where all arrangements were open for scrutiny and acceptance not only by Digital Group worldwide but also from joint venture partners and shareholders. Digital Group overseas would not pay undue sum which it could not recoup entirely to exclusion of others. Hence nothing could 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 the instant case the profits earned were comparable with the profits e....
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.... of satisfaction outlined in the section should be based on evidence and not on surmise or suspicion. The question is not whether the onus 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 t....
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.... in its Transfer Pricing Study. This has formed the basis for the Assessing Officer to say that assessee has earned more than ordinary profits 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....
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.... object of section 92. When the Transfer Pricing Officer states that there is no need of transfer pricing adjustment, the matter should end there 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 ....
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.... of the Assessing Officer is quite misdirected as the following discussion in his order shows :- "Accordingly, the section only encumbers 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 resulte....