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TMI Blog2013 (11) TMI 417X X X X Extracts X X X X X X X X Extracts X X X X ..... ot altogether different unit but it was the extension of the existing unit as both the units were situated in the same building and doing same business. - Held that:- G-GDC STP unit situated at third floor, Sector 29, Noida is to be treated as separate unit and, accordingly, deduction u/s 10A was allowable. Deduction is available under section 10A - Losses of STP units to be set off against income from other units on the ground that STP units were exempt u/s 10A of the Act while profits of non STP units were taxable as normal business income – Held that:- Reliance has been placed upon the case of Hindustan Unilever Ltd. v. DCIT [2010 (4) TMI 206 - BOMBAY HIGH COURT], wherein it has been held that the losses of the unit eligible for deduction u/s 10B of the Act were held allowable to be set off against profits of the business – Further, reliance has been placed upon the Special Bench decision of ITAT, Bench 'C' Chennai (SB) in the case of M/s Scientific Atlanta India Technology Pvt. Ltd. vs. ACIT [2010 (2) TMI 658 - ITAT, CHENNAI], where it has been held that even though sec. 10A falls under Chapter III, it has been mentioned in the section itself that what is to be given is on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inst which assessee filed objections before Dispute Resolution Panel ("DRP"), 1, New Delhi which issued directions u/s 144C(5) on 28th September, 2012. The Assessing Officer passed the order in conformity with the DRP's directions and determined the total various at Rs. 53,51,26,850/- as under: COMPUTATION OF TOTAL INCOME: Business Income Add: Rs. 1,14,11,274/- Adjustment on a/c of ALP Rs. 523,296,756/- Income from Business Add: Rs. 53,47,08,030/- Income from House Property Rs. 418822/- Income from other sources Misc. Income on a/c of notice pay Rs. 3,552,781/- Total Assessed Income Rs. 53,51,26,852/- Rounded Off Rs. 53,51,26,850/- 3. Being aggrieved with the assessment order, the assessee is in appeal before us and has taken various grounds of appeal. 4. Ground nos. 2.1 to 2.14 read as under: "2.1 That the AO/DRP erred on facts and in law in disregarding the internal benchmarking undertaken by the appellant for determining the arm's length price of the international transactions applying TNMM on the ground that : i. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eliminating super normal profit making companies. 2.9 That the AO/TPO erred on facts in law in applying inconsistent approach by eliminating company showing diminishing revenue and persistent loss making companies without eliminating following companies having significantly growth rate and abnormal high margins: S.No . Name OP/OC 1. Kals Information Systems Ltd. 41.94% 2. Infosys Technologies Ltd. 40.41% 2.10 That AO/DRP erred on facts and in law in considering companies which are functionally incomparable to the appellant, for the purpose of benchmarking analysis. 2.11 That the AO/TPO erred in relying upon the information obtained u/s 133(6) of the Act, without appreciating that such information was not available in the public domain and therefore, could not have been relied upon for the purpose of determining the arm's length price. 2.12 That the AO/TPO erred in law in not confronting the appellant with all information obtained u/s 133(6) of the Act prior to using such information for determination of arm's length price. 2.13 That the AO/DRP erred on facts and in la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /-, whereas the revenue from the AE which was USA based was Rs. 2,205,794,233/-. He further noticed that the revenue from the AE which was UK based was Rs. 299,420,008/-, whereas there was no geographic segment for UK. He further noticed that the cost which were directly identifiable to the related and unrelated segments had been considered as directly allocable costs and the expenses which could not be directly allocated were based on the basis of sales earned by various units. He, therefore, concluded that the segments created by the assessee in the TP repot were artificial. He, therefore, rejected the internal TNMM as adopted in the transfer pricing report to bench mark the international transactions. The TPO, therefore, concluded that it would be more reasonable to examine the assessee on entity level and then determine the arm's length price for the international transactions. The TPO undertook a fresh search and external comparables and bench marked the operating profit margin (OP/OC%) of the assessee with the margin of final set of 18 comparable companies with OP/OC% of 21.85% and after making working capital adjustment of 1.68% determined the arm's length margin at 20.17%. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... them to make internal comparison of the profitability from the international transactions with associated enterprise and unrelated parties undertaken by the assessee in the similar functional and economic scenario. We order accordingly." 7. Thus, the Tribunal has held that arm's length price of international transactions with AE's is to be determined by making internal comparison of profitability from the international transactions with associate enterprise and profitability from the international transactions with unrelated parties after allocating respective revenues and expenses to both the segmental. 8. Ld. Counsel pointed out that this issue is also covered by the decision in assessee's own case for A.Y. 2007-08 contained at pages 302 to 317 of paper book, wherein the decision for A.Y 2006-07 has been followed. 9. Ld. Counsel further pointed out that this issue is also covered by the decision of third member bench of the Mumbai Tribunal in the case of Tecnimount ICB (P.) Ltd. v. ACIT (ITA NO. 4608 5085/Mum./2010) in which while explaining merit of clause (i) of Rule 10B(e) of the Act held that the rule itself provides that preference shall be given to internal comparab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prise would have earned if the transaction had been with some third party instead of related party. When the data is available showing profit margin of that enterprise itself from a third party, it is always safe and advisable to have recourse to such internal comparable case. The reason is patent that the various factors having bearing on the quality of output, assets employed, input cost etc. continue to remain by and large same in case of an internal comparable. The effect of difference due to such inherent factors on comparison made with the third parties, gets neutralized when comparison is made with internal comparable. Ex consequenti, it follows that an internal comparable uncontrolled transaction is more noteworthy vis- -vis its counterpart, i.e., external comparable. " 10. He also placed reliance on following decisions: i. UCB India (P.) Ltd. v. Asstt. CIT 30 SOT 95 (Mum.); ii. Gharda Chemicals Ltd. v. Dy. CIT 130 TTJ 556; iii. Destination of the World vs. DCIT [ITA No. 5534/Del/2010] iv. Interra Information Technologies India (P) Ltd. vs.DCIT(ITA No. 5568 5680/Del/2011). 11. Ld. Counsel further referred to pages 402 to 404 of paper book ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... directed to furnish all the details and particulars to enable the AO/TPO to make internal comparison of the profitability from the international transactions with associated enterprise and unrelated parties undertaken by the assessee in the similar functional and economic scenario." 14. There is no dispute that the facts and circumstances in the present assessment year are similar to the facts and circumstances as obtaining in the preceding assessment years. The revenue has not placed before us any material so as to enable us to take a different view in the matter. In view of these facts and circumstances, respectfully following the order for earlier assessment years noted above, we restore this matter to the file of AO/TPO with similar directions as have been given by the ITAT in the preceding assessment year. 15. In the result, all these grounds are allowed for statistical purposes. 16. Ground no. 3 reads as under: 3. That the AO/DRP erred on facts and in law in not allowing deduction of Rs. 2,55,56,639/-claimed u/s 10A of the Act in respect of the 3rd floor GE-GDC STPI unit. 3.1 That the AO/DRP erred on facts and in law in holding that GE-GDC unit is not alto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... P Unit in the year of 1995. Thereafter, another new STP Unit was set up at 3rd Floor, Block-3, Sector 29, Noida in the assessment year 2002-03. The new STP Unit was treated by the assessee to an independent unit for the purpose of exemption claimed u/s 10A of the Act. However, the AO has not accepted the claim of the assessee by holding that the new unit is nothing but an extension of the existing unit and not entitled to separate deduction of exemption u/s 10A. We find that an identical issue had arisen in the assessment year 2003-04 before the Tribunal where the Tribunal vide order dated 27.03.2009 in ITA Nos. 3821/Del/2006 and ITA Nos. 3919/Del/2006 has held and observed as under: "2.9 We have considered the rival submissions and also perused the relevant material on record. It is observed that the claim of assessee for deduction u/s 10A in respect of profits derived from the new STP unit known as GE-GDC was disallowed by the Assessing Officer on the ground that the said unit was set up as a result of reconstruction of the existing business of the assessee company. In his impugned order, the ld. CIT(Appeals) however, held that the said new unit was not set up by the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion u/s 10A of the Act. Respectfully following the Tribunal's order passed in the assessment year 2003-04, we allow this ground raised by the assessee and hold that the new unit is to be treated as a separate and independent unit for the purpose of computing deduction u/s 10A of the Act. The AO shall allow the deduction u/s 10A in respect of the new unit set up at 3rd Floor, Block 3, Sector 29, Noida. Thus, this ground is decided in favour of the assessee." 20. Respectfully following the decision of Tribunal, we hold that G-GDC STP unit situated at third floor, Sector 29, Noida is to be treated as separate unit and, accordingly, deduction u/s 10A was allowable. 21. In the result, this ground is dismissed. 22. Ground no. 4 reads as under: 4. "That the AO/DRP erred on facts and in law in not allowing loss of STPI units to be set off against the profit of non-STP units allegedly holding that loss from such source/unit, which is exempt from tax, cannot be set off against income chargeable to tax. 4.1 That the AO erred on facts and in law in not appreciating that section 10A of the Act is a deduction provision and the profits of the unit eligible for deduction u/s 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that this issue has been decided in favour of the assessee by the decision of ITAT in assessee's own case for AY 2006-07 and also for AY 2007-08. It was held in A.Y. 2006-07 vide ITA No. 3839/Del/2010 as under: 6.1 "The Assessing Officer has taken a view that the loss from STPI Unit, which is exempt from tax, cannot be set off against income chargeable to tax by observing that sec. 10A is an exemption provision and not a deduction provision. 6.2 In this connection, the ld. Counsel for the assesee has relied upon the following decision: i. Mindtree Consulting (P) Ltd. v. ACIT, 102 TTJ 691 = (2006-TIOL-164-ITAT-BANG) ii. Honeywell International India (P.) Ltd. v. DCIT (2008) 108 TTJ 924 (Del) = (2007-TIOL-522-ITAT-DEL) iii. Navin Bharat Industries v. ACIT , 90 ITD 1 (Mum.) = (2004-TIOL-50-ITAT-MUM). 6.3 The ld. Counsel for the assessee has further placed reliance on the decision of the Hon'ble Bombay High Court in the case of Hindustan Unilever Ltd. v. DCIT , 325 ITR 102= (2010- TIOL-239-HC-MUM-IT), wherein the losses of the unit eligible for deduction u/s 10B of the Act were held allowable to be set off against profits of the b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rived by the assessee from export of computer software and he treated the same as income from other sources and not business income. 30. Ld. DRP had confirmed the order of TPO on this count and, therefore, the AO rejected the assessee's claim. 31. Ld. Counsel for the assessee submitted that this issue is covered in favour of the assessee by the decision of Tribunal in assessee's cown case for AY 2006-07 vide ITA No. 3839/Del/2010 and also in AY 2007-08 vide ITA No. 4776/Del/2011. 32. Having heard both the parties, we find that the Tribunal in AY 2006-07 vide ITA No. 3839/Del/2010 has observed in para 7.3 as under: 7.3 "We have heard both the parties and perused the material on record. In the course of hearing of this appeal, reliance was placed by the ld. Counsel for the assessee upon the decision of ITAT, Delhi Bench in the case of Jubilant Empro (P) Ltd. v. DCIT in ITA No. 107/Del/2007 = (2007-TIOL-458-ITAT-DEL). In the above referred case of Jubilant Empro (P) Ltd. pertaining to the A.Y. 2000-01, the assessee had recovered a sum of Rs. 4,95,070/- being notice period pay. This sum was recovered from the employees, who had left the services prior to the agreed period ..... X X X X Extracts X X X X X X X X Extracts X X X X
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