2018 (5) TMI 2175 - AT - Income Tax

Justification in invoking provisions of section 10A(7) r.w.s 80IA(10) - assessee had earned higher margins than the mean margins earned by comparables selected by assessee - AO held that ordinary profits as per transfer pricing report was @ 12.55% as against 29.14% shown by the assessee - case of the assessee before Authorities below was that in the absence of any arrangement between the assessee and its group companies/AEs, margins earned by assessee could not be held to be more than ordinary profits. It was also stressed by the assessee that it had not earned more than ordinary profits - HELD THAT - We find the issue raised in present appeal stands covered by a series of decisions of Pune Bench of Tribunal and on this count, we rely on the decision of M/s. Honey well Automation India Ltd. 2015 (3) TMI 494 - ITAT PUNE wherein held even if it is accepted that the difference between the operating margins of the assessee and the comparables show existence of more than the ordinary profits in the hands of the assessee, so however, it was still imperative for the AO to establish on the basis of substantive evidence and corroborative material that qua section 10A r.w.s. 80-IA(10) of the Act, the course of business between the assessee and the associated enterprises is so arranged that the business transacted between them produces to the assessee more than the ordinary profits with the intent of abusing tax concession. Quite clearly, in the entire assessment order, there is no whisper of any material or evidence in this regard. Thus we conclude, 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 AO by invoking section 10A r.w.s. 80-IA(10) of the Act is not justified. Thus, the issue arising in the present appeal is squarely covered by the order of the Tribunal on this count in favour of the assessee. Revenue appeal dismissed.

Summary

Issues:
Appeal against invoking provisions of section 10A(7) r.w.s 80IA(10) of the Income Tax Act, 1961.

Analysis:
The appeal was filed by the Revenue against the order of the Commissioner of Income Tax (Appeals) relating to the assessment year 2008-09 under section 143(3) of the Income Tax Act, 1961. The Revenue contested the CIT(A)'s decision that the Assessing Officer was not justified in invoking provisions of section 10A(7) of the Act and deleting the addition of Rs. 2,88,69,742. The case involved a joint venture company engaged in design engineering services that claimed deductions under section 10A of the Act. The Transfer Pricing Officer (TPO) raised concerns about the operating profit margin, leading to the Assessing Officer adding back excess profit to the total income of the assessee.

Before the CIT(A), the assessee argued that there was no arrangement with comparables and that the provisions of section 10A(7) were not applicable to international transactions. The CIT(A) observed fluctuating operating margins based on the company's performance and relied on a previous tribunal decision to rule in favor of the assessee. The Revenue appealed this decision.

The Tribunal found that the issue revolved around the application of section 10A(7) r.w.s 80IA(10) of the Act to the international transactions of the assessee. Despite the TPO accepting the margins shown by the assessee as arm's length, the Assessing Officer questioned the feasibility of disallowance under section 10A(7) due to higher margins earned. The Tribunal referred to previous decisions and upheld the CIT(A)'s decision, dismissing the Revenue's appeal as the issue was already settled in favor of the assessee.

In conclusion, the Tribunal dismissed the Revenue's appeal, stating that the issue was adequately addressed in previous decisions and ruled in favor of the assessee based on established precedents.