TMI Blog2017 (11) TMI 1636X X X X Extracts X X X X X X X X Extracts X X X X ..... PUN/2015, CO No.43/PUN/2017, (out of ITA No.1250/PUN/2015) - - - Dated:- 24-11-2017 - MS. Sushma Chowla, JM And Shri Anil Chaturvedi, AM Assessee by : S/Shri M.P. Lohia Rajendra Agiwal Revenue by : Shri Achal Sharma, Addl.CIT ORDER Sushma Chowla, JM: The appeal filed by the Revenue is against order of CIT(A)-13, Pune, dated 26.06.2015 relating to assessment year 2010-11 against order passed under section 143(3) of the Income-tax Act, 1961 (in short the Act ). The assessee filed Cross Objections against the appeal of Revenue. 2. Both the appeal filed by the Revenue and Cross Objections filed by the assessee were heard together and are being disposed of by this consolidated order for the sake of convenience. 3. The Revenue in ITA No.1250/PUN/2015 has raised the following grounds of appeal:- 1. The learned CIT(A) has erred in law on the facts and circumstances of the case in excluding the comparables selected by the TPO. 2. For this and such other grounds as may be urged at the time of hearing, the order of the learned CIT(A) may be vacated and that of Assessing Officer be restored. 4. The assessee in CO No.43/PUN/2017 has raised the fol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at ₹ 2.05 crores for STPI unit. The return of income of the assessee was processed under section 143(1) of the Act. Thereafter, the case was selected for scrutiny. The Assessing Officer noted that the assessee had entered into international transactions with its associated enterprises aggregating ₹ 22,46,28,888/-, which are tabulated at page 2 of the draft assessment order. The Assessing Officer made reference to the Transfer Pricing Officer (TPO) for determining the arm's length price of said international transactions under section 92CA(1) of the Act. The TPO after noting down the activities undertaken by the assessee found that the assessee was rendering design and software engineering support services functions to its associated enterprises. The TPO noted that the assessee had selected TNMM method as most appropriate method to benchmark the international transactions. In the TNMM analysis, the PLI was operating profits / operating cost, which as per the assessee s margins worked out to 10.01%. For benchmarking the international transactions, the assessee had identified certain comparable companies on the basis of FAR analysis in the TP study report. The assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proposed an adjustment of ₹ 2,74,31,845/-. The Assessing Officer passed an order under section 143(3) r.w.s. 144C(13) of the Act making the said adjustment of ₹ 2.74 crores. Further, the Assessing Officer held that while computing the total income of eligible unit under section 10A of the Act, unabsorbed depreciation and brought forward business losses shall be set off first, thereafter, deduction under section 10A of the Act shall be allowed. 6. The assessee filed an appeal before the CIT(A). The first issue raised was against the single year data which was rejected by the CIT(A). The next plea was in respect of comparable companies which were selected by the assessee in the TP study report. The CIT(A) rejected the plea of assessee in respect of Blue Star Design Engineering Ltd., Aftek Limited and Cades Digitech Pvt. Ltd. The CIT(A) accepted the plea of assessee in excluding Coral Hub Ltd. because of different financial year and also being functionally not comparable. In respect of additional comparable companies, in the absence of any arguments by the assessee, the same were rejected. The CIT(A) also directed the Assessing Officer to examine the assessee s conten ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vices. The TPO had selected Coral Hub Ltd. as functionally comparable to the assessee. However, the CIT(A) first held that it was not functionally comparable. The second plea which has been raised by the learned Authorized Representative for the assessee before us is that the year under consideration for Coral Hub Ltd. was different accounting period i.e. comprising of 15 months. In this regard, he pointed out that in view of the ratio laid down by the Hon ble Bombay High Court in CIT Vs. PTC Software (I) Pvt. Ltd. (supra), the said concern could not be selected as comparable. We find merit in the plea of assessee, wherein the Hon ble Bombay High Court had clearly laid down the proposition that the data to be used for comparability analysis should be of the same financial year in which international transactions were entered into by the tested party. The relevant findings of the Hon ble Bombay High Court are as under:- 24. The Hon‟ble Bombay High Court in CIT Vs. PTC Software (I) Pvt. Ltd. in Income Tax Appeal No.732/2014 vide judgment dated 26.09.2016 have held that where the concern has different accounting period, then the same cannot be compared as comparable. The Hon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the ground of appeal No.1 raised by the Revenue, the ground of objection No.1 raised by the assessee is thus, allowed. 14. The next issue which is raised by the assessee is in respect of rejection of certain comparable companies considered as comparable by the assessee. 15. The learned Authorized Representative for the assessee pointed out that though it had raised the issue for inclusion of all the concerns which were initially selected by the assessee in its TP study report as comparable; however, now the arguments are restricted to inclusion of Cades Digitech Private Limited. The said concern was rejected on the ground that the annual report for financial year 2009-10 was not furnished by the assessee and was not available in public domain. The assessee before the CIT(A) had pointed out that it had used the annual report of financial year 2010-11 for obtaining comparative figures for financial year 2009-10, as the Profit and Loss Account required to compute operating margins was not available in public domain for the said year. The assessee further pointed out that annual report for financial year 2009-10 was available and from the same, it was pointed out that the said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncial year 2009-10 was available and could be relied upon from the annual report of financial year 2010-11. The assessee had furnished the annual report for financial year 2010-11 before the TPO and the CIT(A). However, in the absence of annual report for financial year 2009-10, the same was not considered by the TPO and the CIT(A). The assessee on the other hand, claimed that all these data was available in financial statements and also in the Notes to accounts. Our attention has been drawn to the annual report for financial year 2010-11 and reference is made to the details at pages 235, 238, 239 and 240 of the Paper Book to point out that the figures of earlier year are available in the Profit and Loss Account, Balance Sheet and even in the Notes to accounts. He further pointed out that this year details are available in public domain, may be, not at that relevant time. He further pointed out that the TPO himself in assessment year 2013-14 had taken the said concern as comparable. We find merit in the plea of assessee, in view of information available in public domain and accordingly, we direct the TPO to include Cades Digitech Pvt. Ltd. as comparable in the hands of assessee and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... adjustment, if any, in the hands of assessee. 35. The ground of appeal No.10 raised by the assessee is against applicability of +/- 5% and the benefit can be allowed if the adjustment is within such range and hence, no adjustment is to be made in case it is not more than 5% from the arm's length price. We hold so. 20. The issue arising before us is similar and following the same parity of reasoning, we direct the Assessing Officer to allow risk adjustment and re-work the margins of comparables, in turn, relying on the ratio laid down by the Delhi Bench of Tribunal in the case of Sony India Pvt. Ltd. (supra) and compute the TP adjustment, if any, in the hands of assessee. The ground of objection No.2.2 is thus, allowed. 21. The ground of objection No.2.3 is against computation of arm's length price without granting benefit of +/- 5% under the provisions of section 92C(2) of the Act. The said issue is squarely covered against the assessee and hence, the same is dismissed. 22. The last issue which has been raised by the assessee vide ground of objection No.2.4 is against the order of CIT(A) in setting off of unabsorbed depreciation before allowing deduction under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income. The issue arising before us is whether while computing deduction under section 10B of the Act, in cases where the assessee has unabsorbed losses or depreciation, brought forward from earlier years, then whether the said unabsorbed business losses / depreciation are to be adjusted from the gross total income before allowing the deduction under section 10B of the Act or the said losses or the deduction under section 10B of the Act is to be allowed in the hands of the assessee without considering the brought forward unabsorbed losses / depreciation, which can be set off against the other income of assessee. Both the authorities below had denied the claim to the assessee, in view of the ratio laid down by the Hon‟ble Supreme Court in Himasingka Seide Ltd. Vs. CIT (supra). The perusal of the judgment of Hon‟ble Karnataka High Court in the said case reflects that the years under appeal related to assessment years 1988-89 to 1990-91 i.e. the years where the benefit under section 10B of the Act was for being exempt from total income. However, the year under appeal before us is assessment year 2005-06, wherein the said section has been amended and the deduction now is a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . (2012) 348 ITR 72 (Bom). It was further held that the proposition laid down by the Hon ble High Court of Karnataka in CIT Vs. Himasingka Seide Limited (2006) 156 taxmann 151 (Kar), though has been upheld by the Apex Court in its judgment dated 19.09.2013 but the said decision of the Hon ble High Court of Karnataka was in respect of assessment year 1994-95. Hence, it dealt with the provisions of section 10B of the Act as existing prior to 01.04.2001, which admittedly, was different from section 10B of the Act as in force in assessment year 2009-10, which was involved in the appeal before the Hon ble High Court. It was pointed out that the amended provisions of section 10B of the Act provides for tax on profits and gains derived from 100% Export Oriented Unit and it was clearly held that the Apex Court in Himasingka Seide Limited Vs. CIT (supra) dealt with the provisions of law different from that which was dealt with in the impugned order.Hence, it was held that question of law proposed by the Revenue was not substantive question of law. 28. The Hon'ble Supreme Court in the latest decision in CIT Anr. Vs. Yokogawa India Ltd. (supra) while deciding the issue of whether bro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deduction of the profits and gains of the business of an eligible undertaking has to be made independently and, therefore, immediately after the stage of determination of its profits and gains. At that stage the aggregate of the incomes under other heads and the provisions for set off and carry forward contained in Sections 70, 72 and 74 of the Act would be premature for application. The deductions under Section 10A therefore would be prior to the commencement of the exercise to be undertaken under Chapter VI of the Act for arriving at the total income of the assessee from the gross total income. The somewhat discordant use of the expression total income of the assessee in Section 10A has already been dealt with earlier and in the overall scenario unfolded by the provisions of Section 10A the aforesaid discord can be reconciled by understanding the expression total income of the assessee in Section 10A as total income of the undertaking‟. 18. For the aforesaid reasons we answer the appeals and the questions arising therein, as formulated at the outset of this order, by holding that though Section 10A, as amended, is a provision for deduction, the stage of deduction w ..... X X X X Extracts X X X X X X X X Extracts X X X X
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