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TMI Blog2018 (11) TMI 264X X X X Extracts X X X X X X X X Extracts X X X X ..... r section 10AA of the Act amounting to Rs. 1,87,497 with respect to Special Economic Zone ('SEZ') operations of the Appellant 2. erred in recomputing the deduction under section 10A at Rs. 11,39,56,076 as against Rs. 16,62,12,943 with respect to STP operations, Rs. 5,18,31,824 as against Rs. 7,56,00,358 with respect to EHTP operations and deduction under section 10AA at Rs. 4,08,873 as against Rs. 5,06,370 claimed by the Appellant in the return of income filed on 30 September 2008, thereby denying deduction under section 10A to the extent of Rs. 7,60,25,40/and under section 10AA to the extent of Rs. 1,87,497; Invoking the provisions of section 10A(7) and section 10AA(9) read with section 801A( 10) in the Appellant's case 3. erred in invoking the provisions of section 10A(7) and section 10AA(9) read with section 80IA(10) in the Appellant's case, on the ground that transactions between the Appellant and its associated enterprises are arranged to produce more than ordinary profits; 4. failed to appreciate that provisions of section 10A(7) and section 10AA(9) read with section 80IA (10) could only be invoked where both the connected parties are taxable in India ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... but not considered in the return of income as part of 'eligible export turnover' for the purposes of claiming deduction under section 10A and 10AA of the Act 11. erred by denying additional tax holiday benefit under section 10A and 10AA of the Act (amounting to Rs. 55,24,290) claimed by the Appellant during the assessment proceedings by way of filing of revised computation of income, computed by inclusion of export proceeds realised but not considered in the return of income as 'eligible export turnover' for the purposes of claiming deduction under section 10A and 10AA of the Act; D. Denial of tax holiday claim amounting to Rs. 2,37,68,534 in respect of Electronic Hardware Technology Parks ('EHTP') operations of the Appellant. 12. erred in invoking the provision of 10A(7) of the Act to Appellant's EHTP unit despite the fact that margins of comparable companies considered relates to software services segment and cannot be compared with margins earned by EHTP unit which was engaged in manufacturing of electronic parts/components; E. Denial of credit for additional taxes deducted at source claimed by the Appellant during the course of assessment proceedings by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 14 to 17, Ld. Counsel for the assessee submitted that the issues raised in these grounds are identical both on facts and on law to that of the issues settled vide the Advanced Pricing Agreements (APA) made u/s.92CC of the I.T. Act, 1961. Bringing our attention to the Advanced Pricing Agreement, Ld. Counsel submitted that it was agreed upon between the assessee and the CBDT vide agreement dated 30-03-2017 on the AP of the Intra-group Managerial & Administrative Services and the same is relevant for the A.Yrs. 2015-16 to 2019-20. 5. Referring to the issues in the present assessment year under consideration, i.e. A.Y. 2008-09, Ld. Counsel fairly submitted that this year is not actually covered by the said agreement. However, he brought our attention to various decisions as well as the facts relevant to the year under consideration and submitted that the issue stands covered by the said Advanced Pricing Agreement for this year also. In this regard, he filed the following written submissions : "On March 2017, the Appellant has entered into a unilateral APA with CBDT for the transaction of Availing of centralized management, administrative and other services from Honeywell Internatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e in the year of APA and the year for which rollback is applied, roll back is allowed to the assessee on certain normal condition of filing return of income, Report of accountant and a request in specified format. Offcourse, it has also normal revenue safeguarding exclusion clauses of income going below the returned income and where ITAT has passed an order on the subject. Therefore even the rules provide that if the International Transactions are same in the year of APA and in the past year than both the parties, assessee and CBDT may agree for applying the agreements contained in APA agreed. ... Needless to say that Ld.TPO/AO shall give due weightage to the Advance Pricing agreement signed by the assessee with CBDT on other issues also (other than the issue of selection of tested party) for determination of ALP and in case of any divergent view, the assessee shall be granted an adequate opportunity to substantiate any claim/arguments on the manner of determination of ALP. 4. In the case of RBS India Development Centre Pvt. Ltd. VS. ACIT (ITA No.5538/Del/2010), the TPO did not take into consideration other income which was in the nature of operating income. The AR placed t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that margins shown by the Appellant are higher than the margins of the comparables 1. The appellant is an indirect subsidiary of Honeywell Inc. USA and is engaged in the business of providing Software services and industrial automation manufacturing to its group companies. For AY 2008-09 it had two Software Technology Parks located in Pune & Chennai (S.10A units) and an SEZ Unit (S. 10AA Unit) located at Pune. 2. For the years under consideration, the appellant had claimed the following deductions from its total income: AY Section 10A Deduction Section 10AA Deduction Page Reference 2008-09 Rs.7,60,25,401 (STP - 5,22,56,867 EHTP - 2,37,68,534 Rs.1,87,497 Pg. 40 of the Appeal Set. 3. The AO however granted onl a partial deduction of the above sums by invoking section 10A(7)/10AA(9) of the Act read with section 80IA ( 10) of the Act on the ground that the Appellant was claiming a substantially higher deduction than the ordinary profits of the comparable entities. 4. In coming to this conclusion the AO has primarily relied on the reasoning adopted by its predecessors for AY 2006-07 & 2007-08. This is evident from a bare reading of the final assessment order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ranged, which produces to the assessee more than the ordinary profits which might be expected to arise in such eligible business. ii. The mere existence of (i) a close connection between the assessee and the other person; and, (ii) more than ordinary profits is not sufficient to justify invoking of section 80-IA (10) of the Act in the absence of there being any material to say that the course of business between them is "so arranged" to abuse the tax concessions granted u/s 10A of the Act by manipulating profits between associated persons. 9.. It was on this basis that the Hon'ble Bench came to the conclusion that the revenue was unable to justify the business between the Appellant and the AE had been arranged to produce more than ordinary profits. "Ostensibly, in the present case, the Revenue would have to justify that the course of business between assessee and the associated enterprises has been 'so arranged' which produces to the assessee more than the ordinary profits which might be expected to arise in such eligible business with the intention of abusing the tax concession granted in section 10A of the Act. " 10. Further, in regards the expression 'arrange ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of CIT V. Schmetz India Pvt. Ltd. (ITA No.1382/2013 dated 24-06-2015) wherein the Hon'ble Court has held at Para 8 as under : "So far as question (a) & (b) are concerned, we find that the Tribunal has considered the entire evidence and on facts come to the conclusion that the profits earned by Kandla division of the respondent-assessee is not abnormally high due to any arrangement between the respondent-assessee and its German Principal. The Tribunal correctly held that extraordinary profits cannot lead to the conclusion that there is an arrangement between the parties. This would penalize efficient functioning. Further, the authorities have also recorded a finding that the industrial sewing machine needles imported and traded by the Mumbai Division are different from those manufactured & exported by the Kandla division. Consequently, this also negatives any arrangement between the parties to show extraordinary profits in respect of its Kandla 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, question (a) and (b) a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to Rs. 55,24,290/- which is nothing but export proceeds received by the date of making of the said revised computation. AO denied the same without giving any reasoning. Ground No.11 is relevant in this regard. 10. Before us, on the said issues, Ld. Counsel for the assessee submitted that the said rejection by the AO merely citing the Hon'ble Supreme Court's judgment in the case of Goetz India Ltd. 284 ITR 323 (SC) is not sustainable. The judgment is relevant for the proposition that assessee is allowed to make additional claims by way of revised return of income before the AO. In this regard, Ld. Counsel for the assessee submitted that it is the duty of the AO to make the assessment in tune with the provisions of the Act which includes amended provisions of the Act. But AO conveniently rejected the assessee's revised computation which is made based on the amended laws of section 10A(7) of the Act. In this regard, Ld. Counsel for the assessee filed written submissions and relied on the decision of CIT Vs. Pruthvi Brokers and Shareholders Pvt. Ltd. 349 ITR 336 and many others and they are relevant for the legal proposition that the CIT(A) is under obligation to consider the revise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... They should freely advise the taxpayers, when approached, as to their rights and liabilities and as to the procedure to be adopted for claiming refunds and reliefs. Judicial precedents wherein Supreme Court decision in case Goetze (India) Ltd (relied by the AO) has been discussed and it has upheld that claims made by the assessee in the assessment proceedings should be allowed 1. CIT v. Pruthvi Brokers and Shareholders (P.) Ltd. [2012] 349 ITR 336 (page 115 to 124 of the legal paper book - CT)- The Bombay High court has stated that Assessing Officer may not be entitled to grant a deduction or an exemption on the basis of a revised computation of income, there was no such fetter on the appellate authorities. The extract of the case law is given below: "It is clear to us that the Supreme Court did not hold anything contrary to what was held in the previous judgments to the effect that even if a claim is not made before the assessing officer, it can be made before the appellate authorities. The jurisdiction of the appellate authorities to entertain such a claim has not been negated by the Supreme Court in this judgment. In fact, the Supreme Court made it clear that the issue in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... return of income. The AO denied the deduction on the basis that the claim was made through a letter in the course of assessment proceedings without furnishing a revised return. The CIT(A) allowed the taxpayer's claim. Before the [TAT, the Tax authorities relied on the decision of the SC in Goetze (India) (Supra). The ITAT upheld the CIT(A)'s order after referring to CBDT circular No. 14 (XL- 35) of 1955 dated 11-4-1955 and held that the circular was binding on the lower Tax authorities. 7. Moser Bear India Ltd v JCIT [108 ITD 80] (2007) (Del) (Page 92 - 99 of the legal paper book- CT)- The Hon'ble ITAT upheld the claim of the taxpayer. It observed that the reliance placed by the Tax authorities on the decision in Goetze (India) was misplaced as the decision was given in a different context when compared to the provisions of section 10A/10B which are a code in itself and contain scheme of taxation formulated by Government for taxability of units set up in the export processing zone. Impossibility of performance - The retrospective amendment was introduced by the Finance Bill 2010 which got presidential assent on 8 May 2010 i.e after the time limit specified under s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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