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TMI Blog2012 (6) TMI 413X X X X Extracts X X X X X X X X Extracts X X X X ..... /- and Rs. 31,13,225/- for ASSESSMENT YEAR 2003-04 and 2004-05 respectively. Aggrieved by the order of the Assessing Officer, the assessee carried the matter in appeals before the CIT(A). 5. The CIT(A) agreed with the findings of the Assessing Officer for both the years under consideration and confirmed the same. Still aggrieved, the assessee is in appeal before us. 6. For the assessment year 2003-04 ground Nos. 2 to 4 and for the assessment year 2004-05 ground Nos. 3 & 4, the assessee at the time of hearing did not press, the said grounds. Only the alternate ground, which is as follows and common for both the years, was contested before us: "Without prejudice to the appellant's submission that communication charges are not to be reduced from the export turnover, the learned CIT(A) ought to have appreciated that these expenses, if reduced from the export turnover are also be reduced from the total turnover." 7. The issue is no more res-integra and the same is covered by the decision in the case of ITO Vs. Sak Soft Ltd., reported in 313 ITR (AT) 353, wherein the Hon'ble ITAT, Chennai (SB) held that in absence of definition of total turnover, the meaning of the said term for purp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eal with the Cross Objection filed by the assessee. The facts relating to ground No. 1 are that the assessee has objected to the decision of the assessing officer in treating the amounts of Rs. 3,32,64,411/- and Rs. 2,99,55,472/-, shown as towards reimbursement of miscellaneous expenses and travel expenses respectively, as part of total turnover in their case. In the written submissions filed by the learned authorized representative of the assessee, it was submitted that miscellaneous expenses were incurred by the assessee in providing services to the clients of Virtusa Corporation, USA. These expenses include customer specific software license, on-site travel, dedicated tools and communication infrastructure. The same were reimbursed as per Exhibit- B of the services agreement between the assessee company and Virtusa Corporation. It was further submitted that the travel expenses incurred by the employees of the assessee company for traveling outside India were reimbursed by Virtusa Corporation, USA, in accordance with said service agreement. Stating that such amounts were mere reimbursement of actual expenses incurred by the company and no turnover is involved therein, the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vel of margins earned by other comparable cases was 14%, whereas in the assessee's case it was around 23.84%, which was more by 70% of the arithmetical mean which is substantially higher than the ordinary profit expected to arrive in this line. In view of the fact that all the sales were made to the assessee company holding 99.99% equity of the assessee company and substantially higher than ordinary profits were earned therefrom, the assessee was asked to show cause as to why the deduction allowable u/s 10A should not be reworked applying the provisions of section 10A(7) r.w.s. 80IA(10) of the Act. In reply, the assessee filed its objections vide letter dt 16/12/2005, wherein the assessee's contentions were as under:- "i) Relying upon the TP study not be made for determination of ordinary profits - TP not exact science. ii) Ordinary profits neither defined in sec. 10A nor in sec. 80IA(10). iii) Ordinary profits to be decided on the basis of the facts of the case. iv) TP study is for determination of arm's length standard and not for determination of arm's length price - referencemade to page 1 of our TP report. v) OP/TC of Weston @ 24% is only unadjusted arithemetical mean and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... profits, the loss making companies which are listed out in the report are five, which according to the assessee, should be ignored while arriving at the ordinary profits. The CIT(A) held that profits include losses as well and in the process of averaging, the loss making companies had rightly been taken into consideration, therefore, the percentage of profit adopted by the Assessing Officer is on correct lines as per law. Aggrieved, the assessee is in appeal before us. 14. The learned counsel for the assessee relied upon the decision of Tweezerman (India) P. Ltd. Vs. Addl. CIT, [2010] 4 ITR (Trib.) 130 (Chennai) and Digital Equipment India Ltd. Vs. DCIT, 103 TTJ (Ban.) 329 and submitted as follows: i) The CIT(A) erred in upholding the application of the provisions of section 10A(7) read with section 80IA (10) of the Act and in sustaining the reworking of the deduction allowable u/s 10A of the Act and in sustaining the reworking of the deduction allowable u/s 10A of the Act. He ought to have appreciated the fact that the assessee's mark up is within the inter-quartile range which fairly represents the ordinary profits generally earned by the companies. ii) The CIT(A) ought to ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the authorities below, we find that in the case of Tweezerman (India) P. Ltd., [2010] 4 ITR(Trib) 130 (Chennai), the Tribunal held as under:- "i) that the Transfer Pricing Officer had confirmed that the local associated enterprise being the assessee had received the revenue due to it and there was no adjustment made in the affairs of the associated enterprises so as to deprive the assessee of the revenues in the country. The Assessing Officer had not shown the actual ordinary profits which the assessee could have generated and the particulars used for arriving at a figure when the assessee had filed the calculation showing the error in the difference between the prof its and the arm's length price filed before the Transfer Pricing Officer. The provisions of section 80-IA(10) do not given an arbitrary power to the Assessing Officer to fix the profits of the assessee. Under the circumstances, the reduction of the eligible profits of the assessee by the Assessing Officer by invoking section 80-IA(10) read with section 10B(7) of the Act was not sustainable and consequently was to be deleted in toto. 17. The phrase 'more than ordinary profits' referred in section 80IA(10) is different ..... X X X X Extracts X X X X X X X X Extracts X X X X
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