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2024 (6) TMI 463 - AT - Income TaxAllowance of deduction u/s 10A on account of enhanced business profit - HELD THAT - In all the above Assessment Years i.e. 2008- 09, 2009-10 and 2010-11 admittedly up to 2010-11 the entire income of the assessees company were exempt u/s 10A of the Act and there is no dispute regarding the said fact. During the assessment proceedings, the A.O. increased profit of business by making addition, but the A.O failed to appreciate that once the profit of business is increased it will correspondingly increase the amount of deduction u/s 10A of the Act. Even if profit of business is increased there will be no change in the return taxable income of the assessee. The said ratio has been laid down in the case of CIT Vs. Gem Plus Jewelers India Ltd. 2010 (6) TMI 65 - BOMBAY HIGH COURT and the same has been clarified in CBDT Circular No. 37/16 dated 02/11/2016. Thus we hold that the Ld. Assessing Officer committed error in not allowing the deduction u/s 10A of the Act on account of enhanced business profit. Decided in favour of assessee. Addition on account of diversion of profit and unexplained expenditure - DR submitted that the Ld. CIT(A) committed error in deleting the addition by ignoring the fact that the A.O. has referred the matter to the TPO for determining the Arms Length Price of the assessee transaction with iEnergizer Holding Ltd., though the TPO found that the transaction between the assessee and iEnergizer Holding Ltd. having been carried out at Arm s Length Price, the A.O. is having every right and duty bound to test the genuineness of the transaction - HELD THAT - Though the TPO has opined that the transaction between the A.O. and the TPO are at Arm s Length, but the A.O. passed the assessment order by making the additions. It is not in dispute that the transaction of the Assessee are with iEnergizers Holdings Ltd. was pursuant to the Service Agreement dated 23/08/2010 w.e.f. 01/04/2010. It is also not in dispute that the very same service agreement and the transaction subsisted for subsequent years i.e. AY 2008-09, 2009-10 and 2010-11. It is pertinent to note that the assessments have been completed in those subsequent years u/s 143(3) of the Act and the very same agreement and the transactions have been tested by the A.O., wherein no doubt has been casted upon regarding the genuineness of the transaction of the Assessee with the iEnergizers Holdings Ltd. and the returned income and the book profit have been accepted by making no addition, which is evident from the Assessment Orders produced - On the query made by the Bench it is also found that the Department has not invoked provisions of Section 263 against the assessment orders passed for Assessment Year 2008-09, 2009-10 and 2010-11 and those assessment orders have reached finality. Thus, the Judgment relied by the Ld. Departmental Representative i.e. Chushman and Wakefield India Pvt. Ltd. (supra) will not come to the rescue of the Department. Considering the fact that the similar transactions were also been tested by the Department in subsequent years in Assessee s own case regarding the very same agreement and those assessment orders have reached finality, the Department cannot have different approach for the year under consideration. Following the principal of consistency, we are of the considered opinion that the additions made by the A.O. deserves to be deleted and we find no error in the conclusion of the Ld. CIT(A) in deleting the addition made by the A.O. Accordingly, we find no merit in the Grounds of Appeal of the Revenue.
Issues Involved:
1. Jurisdiction under section 153A of the Income Tax Act, 1961. 2. Deduction under section 10A on account of enhanced business profit. 3. Addition on account of diversion of profit. 4. Arm's Length Price determination and genuineness of transactions. Issue-wise Detailed Analysis: 1. Jurisdiction under section 153A of the Income Tax Act, 1961: The assessees challenged the jurisdiction of the Assessing Officer (A.O.) under section 153A of the Income Tax Act, 1961. However, the assessees' representatives did not press Ground No. 1 of the Cross Objections (C.O.s), leading to its dismissal as not pressed. 2. Deduction under section 10A on account of enhanced business profit: The assessees contended that the A.O. erred in not allowing the deduction under section 10A on the account of enhanced business profit. The brief facts reveal that the assessees were operating as Business Process Outsourcing units and were subjected to a search and seizure operation under section 132. The A.O. increased the business profit but failed to allow the corresponding deduction under section 10A, despite the entire income being exempt under this section. The Tribunal referred to the Bombay High Court's decision in CIT Vs. Gem Plus Jewelers India Ltd. (330 ITR 175) and CBDT Circular No. 37/16 dated 02/11/2016, concluding that any increase in business profit should correspondingly increase the section 10A deduction. Thus, the Tribunal allowed Ground No. 2 of the Cross Objections, holding that the A.O. committed an error by not allowing the deduction under section 10A on account of enhanced business profit. 3. Addition on account of diversion of profit: The Revenue appealed against the deletion of the addition made by the A.O. on account of diversion of profit. The A.O. had made additions for the Assessment Years 2008-09 to 2010-11 in the case of Granada Services Pvt. Ltd. and for AY 2010-11 in the case of iServices Pvt. Ltd. The CIT(A) deleted these additions on merit. The Tribunal noted that the entire income of the assessees was exempt under section 10A up to AY 2010-11, and any increase in business profit would not affect the taxable income. Consequently, the Tribunal dismissed the Revenue's appeals as infructuous. 4. Arm's Length Price determination and genuineness of transactions: For the Assessment Years 2011-12 and 2012-13, the Revenue raised the issue of deletion of addition made by the A.O. on account of diversion of profit. These years were not covered under section 10A. The A.O. had referred the matter to the Transfer Pricing Officer (TPO) for determining the Arm's Length Price (ALP) of transactions with iEnergizer Holding Ltd. The TPO found the transactions to be at ALP, but the A.O. proceeded with his own methodology and made the addition. The Tribunal observed that the TPO's report is binding on the A.O., and the A.O. cannot take a different view. The Tribunal also noted that similar transactions in subsequent years were accepted without any additions, following the principle of consistency. Thus, the Tribunal found no merit in the Revenue's appeals and dismissed them. Conclusion: The Tribunal allowed the Cross Objections filed by the assessees regarding the deduction under section 10A on account of enhanced business profit and dismissed the Revenue's appeals as infructuous for the years covered under section 10A. For the years not covered under section 10A, the Tribunal upheld the CIT(A)'s deletion of additions on account of diversion of profit, emphasizing the binding nature of the TPO's report and the principle of consistency.
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