Subscription   Feedback   New User   Login      
Tax Management India .com
TMI - Tax Management India. Com
Articles Highlights TMI Notes SMS News Newsletters Calendar Imp. Links Database Experts Contact us More....
Extracts
Home List
← Previous Next →

Racold Thermo Limited Versus The Addl. Commissioner of Income Tax, Range – 8, Pune

2015 (7) TMI 74 - ITAT PUNE

Disallowance of deduction u/s. 10B - misinterpreting transfer pricing provisions for making addition - Held that:- It is an undisputed fact that on reference made to TPO, the TPO has not made any adjustment in the international transaction with regard to ALP with it’s AE. The sum and substance of the submissions made by ld. Counsel for the assessee is that once the TPO had accepted the international transaction at ALP, the Assessing Officer cannot step into the shoes of the TPO to make disallowa .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

d assessment year to make disallowance. - Decided in favour of assessee. - ITA No. 828/PN/2013 - Dated:- 26-6-2015 - SHRI R.K. PANDA AND SHRI VIKAS AWASTHY, JJ. For The Revenue : Shri A.K. Modi For The Assessee : Shri Ashwani Taneja ORDER PER VIKAS AWASTHY, JM:- The appeal has been filed by the assessee against the order of Commissioner of Income Tax (Appeals)-V, Pune dated 24-01-2013 for the assessment year 2008-09. 2. The brief facts of the case are: The assessee is a 100% export oriented Unit .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

s made to the Transfer Pricing Officer (TPO) for determination of Arm s Length Price (ALP) with reference to the transactions with Associated Enterprise (AE). The assessee entered into transaction of sale with its AE on which it earned margin of 20.24%. The assessee justified before TPO the Arm s Length Price (ALP) by showing the margin of comparables at 5.15%. The TPO accepted ALP of transaction and passed order dated 07-09-2011 u/s. 92CA of the Act, without making any Transfer Pricing Adjustme .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ee has inflated the profits in India and has claimed deduction u/s. 10B thereon. The assessee has arranged it s affairs vis-à-vis it s AE in such a manner, that the entire sale made to the associated concern has become the cost of the AE, eventually reducing the profit in the foreign country. The Assessing Officer recomputed the deduction u/s. 10B by adopting profits at 5.15% and disallowed the claim of deduction u/s. 10B to the tune of ₹ 9,56,36,478/-. Aggrieved by the assessment o .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

disallowance of deduction u/s. 10B of the Act and misinterpreting transfer pricing provisions for making addition. 4. Shri Ashwani Taneja appearing on behalf of the assessee submitted that the Assessing Officer has erred in invoking the provisions of section 10B(7) r.w.s. 80IA(10). The ld. Counsel for the assessee submitted that the authorities below have erred in coming to the conclusion that the assessee is earning more than ordinary profits in the business dealings with its Associated Enterpr .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

o case for treating the good margins earned by the assessee in preceding and succeeding year, there is no justification for treating the margin of the year under appeal as more than ordinary profit for the purpose of section 10B(7) r.w.s. 80IA(10). In support of his submissions the ld. AR placed reliance on following decisions: 1) Tweezerman (India) (P.) Ltd. Vs. ACIT reported as 4 ITR (Trib.) 130 (Chennai). 2) Visual Graphics Computing Services (India) Pvt. Limited Vs. ACIT reported as 15 ITR ( .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

for assessment year 2006-07 in the case of M/s. Honeywell Automation India Limited Vs. DCIT decided on 25-02-2015 has reversed the findings of Assessing Officer on this issue. Therefore, the impugned order is not sustainable. 5. On the other hand Shri A.K. Modi representing the Department vehemently supported the impugned order. The ld. DR submitted that the authorities below have passed well reasoned and detailed order while restricting the disallowance of the assessee u/s. 10B of the Act. The .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

g the case laws relied upon by the assessee. 6. We have heard the submissions made by the representatives of both the sides and have perused the orders of the authorities below. It is an undisputed fact that on reference made to TPO, the TPO has not made any adjustment in the international transaction with regard to ALP with it s AE. The sum and substance of the submissions made by ld. Counsel for the assessee is that once the TPO had accepted the international transaction at ALP, the Assessing .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

the purposes of the undertaking referred to in section 80-IA. Section 80IA(10): Where it appears to the Assessing Officer that, owing to the close connection between the assessee carrying on the eligible business to which this section applies and any other person, or for any other reason, the course of business between them is so arranged that the business transacted between them produces to the assessee more than the ordinary profits which might be expected to arise in such eligible business, t .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e perusal of the provisions of sub-section 10 of section 80IA shows that, it is essential to establish that the business of the assessee and the other person (AE) is so arranged that the business between them produces more than the ordinary profits. Before invoking the provisions of section 10A(7) and section 80IA(10) duty is cast upon the Assessing Officer to show the arrangement of business of assessee and the other person (AE) resulting in more than ordinary profits in the course of business .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

cidate manner has explained the term arranged used in section 80IA(10). The relevant extract of the order of Tribunal in the said case are reproduced here-in-under: 23. Quite clearly, the provisions of section 10A(7) of the Act intend to plug abuse of tax concession by manipulation of profits between associated concerns or between different units of the same concern. The objective of the aforesaid Provision is that the tax concessions are not abused by manipulation of profits. In our considered .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e than ordinary profits by itself does not sufficiently empower the Assessing Officer to disregard them and determine the profits which he may consider to be reasonably deemed to have been derived therefrom. The presence of the expression the course of business ………… is so arranged …………. that the business transacted …………… produces to the assessee more than ordinary profits is significant and its understandi .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

anged which reflects an abuse of tax concession whereby the business transacted between two entities is so arranged, which produces to the assessee more than the ordinary profits which might be expected to arise in such eligible business. The emphasis is to eschew those more than the ordinary profits which are as a result of a business between two closely connected concerns having been arranged with the intent of abuse of the tax concession. Ostensibly, in the present case, the Revenue would hav .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

f 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. Ostensibly, the same is required to be demonstrated on the basis of a cogent material and evidence. In other words, the presence of the expression so arranged has to be understood in the context of the abuse of tax concession which is sought to be plugged by the provisions of .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

s ……..the course of business between them is so arranged that the business transacted between them produces to the assessee more than the ordinary profits which might be expected to arise in such eligible business……… . Therefore, it would necessarily mean that the arrangement referred to is an arrangement of the course of business which produces to the assessee more than the ordinary profits with the intent of abusing the tax concession. Thus, the word arranged .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

iness is not enough to invoke section 80-IA(10) of the Act. 26. In-fact, even the Hon ble Bombay High Court in the case of Bank of India Ltd. (supra) has also appreciated the contextual meaning of the expression arrangement . The issue before the Hon ble Bombay High Court was with regard to the scheme of re-construction or arrangement contained in section 391(1) of the Companies Act, 1956. In the context of section 391(1) of the Companies Act, 1956, the Hon ble High Court was dealing with the me .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

itors or any class of them, or between the company and its members or any class of them, or between the company and its members or any class of them, which would necessarily mean that it must be an agreement or understanding which affects their rights [underlined for emphasis by us] 27. The aforesaid clearly points out that the Hon ble High Court imparted meaning to the word arrangement in the context of section 391(1) of the Companies Act, 1956 to mean that it must be an agreement or understand .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ions granted in section 10A of the Act. Moreover, if one is to understand the import of the expression so arranged in section 80-IA(10) of the Act as canvassed by the Ld. CIT-DR, it would mean that for the purposes of fulfillment of the conditions prescribed in section 10A(7) r.w.s. 80-IA(10) of the Act, existence of mere close connection and more than the ordinary profits would suffice. In other words, as per the Revenue, the existence of close connection and high profits would lead to a presum .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

t of the legislature. Therefore, existence of a mere agreement to do business is not enough to fulfill the requirement of section 10A(7) r.w.s. 80-IA(10) of the Act in the context of the words the course of business between them is so arranged . The Co-ordinate Bench after appreciating the facts of the case and the provisions of sections concluded that the Assessing Officer has not been able to prove any arrangement arrived at between the parties which resulted in higher profits. Consequently, t .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

not justified in invoking the provisions of section 80IA(10) r.w.s. 10B(7) so as to reduce the eligible profits on the basis of reduction of arm s length profit reported by TPO without showing how he deemed that assessee has shown more than ordinary profit and without giving any calculation on the basis of which excess profit was determined by him. 9. The Chennai Bench of the Tribunal in the case of Visual Graphics Computing Services (India) Pvt. Limited Vs. ACIT (supra) while dealing with a sim .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ec.92CA. The reference is made for the purpose of computing income arising from an international transaction with regard to ALP as provided in sec.92. Therefore, it is to be seen that the scope and extent of reference made by the Assessing Officer to the TPO is confined to the singular purpose stated in sec.92. Sections 92A, 92B, 92C, 92CB, 92D, 92E and sec.92F are all, precisely defining and facilitating provisions ultimately for the purpose of computing the income as stated in sec.92. All the .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

cer has to make any other adjustment towards computing deduction available under sec.10A, the computation has to be made in the context of sec.10A(7) read with sec.80IA(10). 25. It is clear that in a case of Transfer Pricing assessment, it has got two segments. The first segment consists of rules and procedures for computing the income other than the income arising out of international transactions with Associate Enterprise. The second segment consists of rules and procedures in connection with .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ndependent of the order of the TPO under sec. 92CA. 26. To state in simple terms, the TP regime is different from regular computation of income. Sec.10A belongs to that part of regular computation of income and it should be computed independent of TP regulations and TP orders. It is not therefore, permissible for the Assessing Officer to work out sec.10A deduction on the basis of ALP profit generated out of the order of the TPO. [Emphasized by us] 27. In fact these issues have already been consi .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

0B(7) so as to reduce the eligible profits on the basis of the ALP computed by the TPO without showing how he determined that the assessee had shown more than ordinary profits . 28. As rightly argued by the learned senior counsel, ALP is determined on the basis of the most appropriate method. Most appropriate method is chosen either on profit basis method or price basis method. In the latter case, profits are not at all considered. In that method, profit is only a derivative of prices. When prof .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

erbase India Pvt. Ltd. (supra). 10. A perusal of the assessment order shows that the Assessing Officer has followed his own order in the case of Honeywell Automation (I) Ltd. (supra) for assessment year 2006-07 to make disallowance/deduction u/s. 10B(7) r.w.s. 80IA(10) of the Act in the case of assessee. The findings of the Assessing Officer on the issue in the case of Honeywell Automation (I) Ltd. (supra) have been reversed by the Tribunal in ITA No. 18/PN/2011 decided on 25-02-2015. The releva .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

 

 

 

 

 

what is new what is new
  ↓     bird's eye view     ↓  


|| Home || Acts and Rules || Notifications || Circulars || Schedules || Tariff || Forms || Case Laws || Manuals ||

|| About us || Contact us || Disclaimer || Terms of Use || Privacy Policy || TMI Database || Members || Site Map ||

© Taxmanagementindia.com [A unit of MS Knowledge Processing Pvt. Ltd.] All rights reserved.

Go to Mobile Version