TMI Blog2011 (12) TMI 385X X X X Extracts X X X X X X X X Extracts X X X X ..... ted as reconstruction of the assessee company's original business and why both units should not be treated as single unit , the nature of business and the kind of services provided by the assessee being the same in the two units - Held that: ITAT in the preceding assessment year accepted the claim of the assessee while holding that new unit was to be treated as a separate and independent unit for the purpose of computing deduction u/s 10A of the Act, following the order of the ITAT for the AY 2003-04 - Decided in favor of the assessee. Regarding set off of profit of non-STPI units against the loss of STPI units - Held that: ITAT in the preceding assessment year restored the matter back to the file of the AO for fresh computation by treating the provisions of section 10A to be in the nature of deduction provision and not exemption - Decided in favor of the assessee - IT APPEAL NO. 4776 (DELHI) OF 2011 - - - Dated:- 30-12-2011 - R.P. TOLANI, A.N. PAHUJA, JJ. For the Appellant: Ajay Vohra, Ramit Katyal, Abhishek Aggarwal and Ms. Archana Gupta For the Respondent: Mrs. Geetmala Mohananey ORDER A.N. Pahuja, Accountant Member This appeal filed on 2.11.201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... between these two segments without any explained or disclosed allocation keys could not be relied upon to determine the correct segmental results 2.3 That the assessing officer/DRP erred on facts and In law in not taking into account the segmental analysis certified by a Chartered Accountant, allegedly observing that (i) as per tax auditor report the appellant has not maintained segmental account for provision of consultancy services and (ii) that the segments were drawn by the management. 2.4 That the assessing officer/DRP erred on facts and in law in evaluating the international transactions applying TNMM at entity level by comparing the net operating profit margin of the assessee with uncontrolled net operating profit margin of comparable uncontrolled enterprises. 2.5 That the assessing officer/DRP erred on facts and in law in disregarding multiple year data, as the use of single year data of the comparable companies did not adequately capture the market and business cycle reflected in the industry. 2.6 That the assessing officer/DRP erred on facts and in law in applying the additional filters of wages/sales ratio, persistent losses and declining revenue for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5% without considering the actual employee cost to sales as 53.77%. 2.16 That the assessing officer/DRP erred in rejecting Vision Comptech Integrators Limited allegedly on the basis that the company had related party transaction in excess of 25% even when it was fairly demonstrated that the related party transactions in that company were less than 25%. 2.17 That the assessing officer/DRP erred in not considering the fresh database search conducted by appellant based on the filters taken by TPO in the assessment for the preceding year. 2.18 That the assessing officer / DRP erred on facts and in law in not appreciating that the associated enterprise has, in fact, incurred a loss from the international transactions and, therefore, no adjustment on account of the alleged difference in arm's length price was even otherwise warranted. 2.19 Without prejudice, that the assessing officer/IDRP erred on facts and in law in not appreciating that in any case the adjustment cannot exceed the revenue earned by the associated enterprise. 2.20 That the assessing officer/DRP erred on facts and in law in disregarding the risk immune profile of the assessee and rejecting t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reciating that miscellaneous income of ₹ 42,95,817, represented amount received on account of notice pay, which is incidental to software export business and is to be considered as part of the income of the eligible undertaking. 2. Adverting first to ground nos.2 to 2.23 in the appeal, facts, in brief, as per relevant orders are that return declaring loss of ₹ 74,32,731/- under the normal provisions and book profit of ₹ 11,022,438/- u/s 115JB of the Income-tax Act, 1961 (hereinafter referred to as the Act) filed on 30th October,2007 by the assessee, after being processed u/s 143(1) of the Act, was selected for scrutiny with the service of a notice u/s 143(2) of the Act issued on 18.9.2008. During the course of assessment proceedings, the Assessing Officer[AO in short] noticed that the assessee was engaged in the activities of software related to services carried out from STP units. On perusal of Form 3CB filed with the return, the AO noticed that the assessee had entered into International transactions with its Associated Enterprises to the extent of ₹ 206,86,92,958/- .In order to determine arm's length price[ALP] in relation to international trans ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons to A.O./TPO for completing the assessment. We, therefore, direct to Assessing Officer/Transfer pricing officer to determine arm's length price of international transactions with AEs by making internal comparison of the net margin earned by the assessee from the international transactions with associated enterprises and the profit earned by the assessee from the international transactions with unrelated parties. In this respect, the assessee has already given his working by allocating revenues and expenses to both /the segmental and determined separate profitability. However, on perusal of the TPO's order, we find that the TPO has not undertaken any exercise to examine the correctness of the working done by the assessee. We, therefore, restore this matter back to the file of the Assessing Officer/TPO for fresh adjudication and/for the purpose of determining the arm's length price in respect of the international transactions undertaken with the associated enterprise by making comparison of profitability from the international transactions with associated enterprises and profitability from the international transactions with unrelated parties after allocating res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng Officer to determine arm's length price of international transactions with AEs by making internal comparison of the net margin earned by the assessee from the international transactions with associated enterprises and the profit earned by the assessee from the international transactions with unrelated parties. In this respect, the assessee has already given his working by allocating revenue and expenses to both the segmental and determined separate profitability. However, on perusal of the TPO's order, we find that the TPO has not undertaken any exercise to examine the correctness of the workings done by the assessee. We, therefore, restore this matter back to the file of the Assessing Officer/TPO for fresh adjudication and for the purpose of determining the arm's length price in respect of the international transactions undertaken with the associated enterprise by making internal comparison of profitability from the international transactions with unrelated parties after allocating respective revenues and expenses to both the segmental. The Assessing Officer/TPO shall provide reasonable opportunity of being heard to the assessee. The assessee shall furnish all the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation and for the purpose of determining the arm's length price in respect of the international transactions undertaken with the associated enterprise by making internal comparison of profitability from the international transactions with unrelated parties after allocating respective revenues and expenses to both the segmental. The AO/TPO were directed to provide reasonable opportunity of being heard to the assessee while the assessee was 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. In the instant case, facts and circumstances in the year consideration are , indisputably, parallel to the facts and circumstances in the preceding assessment year while the directions of the DRP are also based on the conclusion of the ITAT in the preceding assessment year. The Revenue have also not placed before us any material so as to enable us to take a different view in the matter. In such a situation, we find merit in the contentions the ld. AR and therefore, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 10A of the Act. However, the DRP vide their order dated 10.8.2011 directed as under:- 5. ..As the Department has not accepted the claim of the assessee u/s 10A in the three assessment years as mentioned above, as such this issue has not achieved finality. It would, therefore, be proper to disallow the claim u/s 10A in this year. Therefore, it is held that the assessee is not eligible for deduction u/s 10A of the IT Act. 6.1 In the light of aforesaid directions of the DRP, the AO finalized the assessment. 7. The assessee is now in appeal before us against the aforesaid findings of the AO in the light of directions of the DRP. The ld. AR submitted that the issue is squarely covered by the decision dated 20th January, 2011 of the ITAT for the preceding assessment year wherein it was held as under:- 5.6 We have heard both the parties and carefully perused the orders of the authorities below. The assessee company is engaged in the activities of software development and related services. The software related business is being carried out from the STP unit and the exemption u/s 10A has been claimed. Originally, the assessee company had set up a STP unit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ness, then it could not be said that the new undertaking was not the new industrial unit by itself. It was also held that establishment of new industrial unit as a part of already existing industrial establishment may result in an extension of the industry, but if the newly established unit itself is an integrated unit in which new plant and machinery are put up and the same itself independently of the old unit capable of production of goods, then it can be classified as a newly established industrial undertaking. This makes it abundantly clear that even if the new unit was established by the assessee company as expansion of its existing unit, a substantial fresh capital having been invested in the said unit and it was capable of doing business of its own independent of the old unit, the same was eligible to be treated as a newly established undertaking. In our opinion, the learned CIT(A) thus was not correct in holding that both the units were liable to be treated as one unit for the purpose of computing deduction u/s 10A. 5.7 From the said decision of Tribunal pertaining to the assessment year 2003-04, it is clear that the Tribunal has taken a view that new unit cannot be t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 19 9.1 Relying upon his findings in the assessment order for the AYs 2003-04 and 2004-05 2006-07, the AO concluded that losses of ₹ 1.57 crores from exempted units cannot be set off against income chargeable to tax of Non-STPI undertaking. Accordingly, the AO disallowed the claim for set off of loss of 10A-units against income of ₹ 85,35,889/- of non-STPI units. 10. The assessee approached DRP against the aforesaid findings of the AO in the draft assessment order. The DRP in their directions while referring to the decision of the ITAT for the assessment year 2006-07 observed that since the said decision has not been accepted by the Department and appeal has been filed before Hon'ble High Court, the issue did not achieve finality. 11. Accordingly, the AO finalized the assessment in the light of these directions of DRP. 12. The assessee is now in appeal before us against the aforesaid findings of the AO in the light of directions of the DRP. The ld. AR submitted that the issue is squarely covered by the decision dated 20th January, 2011 of the ITAT for the preceding assessment year wherein the ITAT concluded as under :- 6 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deduction provision and not exemption. Inter alia, the AO was directed to recompute the total income of the assessee in the light of the various decisions referred to in the said order after providing reasonable opportunity to the assessee while the latter was directed to furnish a fresh computation of income to the AO in the light of the principles and propositions laid down in the said decisions . In the instant case, facts and circumstances in the year consideration are , indisputably, parallel to the facts and circumstances in the preceding assessment year while the directions of the DRP also refer to the conclusion of the ITAT in the preceding assessment year. The Revenue have also not placed before us any material so as to enable us to take a different view in the matter. In such a situation, we find merit in the contentions the ld. AR and therefore, restore the matter to the file of AO for fresh adjudication with similar directions as have been issued by the ITAT in the preceding assessment year, keeping in mind the various decisions including in Hindustan Unilever Ltd. v. Dy. CIT [2010] 325 ITR 102/191 Taxman 119 (Bom.) and Special Bench decision of ITAT in the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /D/2007. In the above referred case of Jubilant Empro (P) Ltd. pertaining to the assessment year 2000-01, the assessee had recovered a sum of ₹ 4,95,070/- being notice period pay. This sum was recovered from the employees, who had left the services prior to the agreed period of rendering services with the assessee. The Tribunal relying upon the earlier decision of the Tribunal pertaining to the assessment year 1999-2000 in the case of Jubilant Empro (P) Ltd. has held that the notice period pay was to be considered as income derived by the eligible undertaking and as such, notice period pay would go to reduce the expenses on account of salary and the real nature of the transaction will not have any effect on the income derived by the assessee from the eligible undertaking. In the earlier decision the Tribunal had taken a view that because the assessee instead of crediting the notice period pay to the salary account and reducing the salary expenses, had shown the amount separately in the profit and loss account, that book entry by itself would not change the real nature of transaction and it was accordingly held that the recovery of notice pay represents income derives from the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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