TMI Blog2015 (7) TMI 864X X X X Extracts X X X X X X X X Extracts X X X X ..... than the ordinary profits in the hands of assessee, disallowance of part deduction claimed by applying the provisions of section 80IA(10), in our view is not justified. Since ld. CIT(A) upheld the disallowance without examining the aforesaid aspect, order of ld. CIT(A) deserves to be set aside. The conditions of section 80IA(1) having not been fully complied by AO, disallowance of deduction claimed u/s 80IA(10), in our view is not justified. Accordingly, we delete the addition made by AO in this regard. - Decided in favour of assessee. - ITA No. 423/Hyd/2014 - - - Dated:- 30-6-2015 - Shri B. Ramakotaiah and Shri Saktijit Dey, JJ. For the Petitioner : Shri S. Rama Rao For the Respondent : Shri B. Rajaram ORDER PER SAKTIJIT DEY, J.M.: This appeal of the assessee is directed against order dated 29/11/2013 of ld. CIT(A)-V, Hyderabad pertaining to AY 2007-08. Present name of the assessee was changed from its earlier name i.e. Login Soft India Pvt. Ltd. by Registrar of Company s order dated 13/03/2011. 2. The solitary issue arising for consideration in the aforesaid appeal is related to disallowance of a part of deduction claimed u/s 10A of the Act. 3. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 30% excess profit claimed by assessee. Being aggrieved with the disallowance of part of deduction claimed u/s 10A, assessee preferred appeal before ld. CIT(A). 4. Ld. CIT(A) deleted the addition made by AO on account of disallowance of 10A deduction by observing that 10A deduction can be disallowed in terms with proviso to section 92C(4) only in a case where total income declared by assessee gets enhanced on account of adjustment u/s 92C(4). Ld. CIT(A) observed that since in assessee s case, there is no adjustment to the profit shown and there is no enhancement of income, no disallowance can be made u/s 10A of the Act. Accordingly, he deleted the addition made by AO. Being aggrieved of the aforesaid order of ld. CIT(A), revenue preferred appeal before ITAT. ITAT after considering the submissions, remitted the matter back to ld. CIT(A) with the following directions: 5. We have heard both the parties and perused the material available on record. In our opinion, the provisions of section 10A(7) are applicable to the facts of the case which has not been considered by the CIT(A). Hence, we direct the CIT(A) to consider the issue in the light of the provisions of section 10A(7) a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ence, disallowance of deduction u/s 10A on excess profit earned by assessee is reasonable and justified. 7. We have considered the submissions of the parties and perused the orders of revenue authorities as well as other materials on record. As far as the applicability of section 10A(7) is concerned, in our view, the issue has attained finality as the directions of ITAT in the earlier round of litigation has not been challenged by assessee or by revenue. Keeping this in view, we have to decide whether disallowance of deduction u/s 10A of the Act by applying the provisions of section 80IA(1) is valid. As can be seen, section 10A of the Act allows exemption at 100% of the profit earned by assessee from export of software. However, deduction u/s 10A is subject to 10A(7), which in turn refers to section 80IA(8) and 80IA(10) of the Act. Since 80IA(8) is not relevant for our purpose, there is no need to discuss the same. As far as the provisions contained u/s 80IA(10) is concerned, it reads as under: Where it appears to the AO 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... umentation the average margin of comparable companies are 15% where as the assessee has shown profit at 50%, the departmental authorities have reduced the deduction claimed u/s 10A by restricting the profit from the eligible business of assessee to 20% of the turnover. In our view, the Department having not fulfilled the conditions of section 80IA(10), disallowance in the present case is not justified. At the cost of repetition, it needs to be stated that only relying upon TP documentation, AO has inferred that the profit earned by assessee at 50% is more than the arm s length profit. However, without bringing material on record that the profit earned by assessee at 50% is not the profit ordinarily earned in similar line of business, it cannot be said that it is not at arm s length. Moreover, excess profit may be due to various reasons. Therefore, without analysing those factors, it cannot be said that only because average profit earned by comparables is 15%, the profit earned by assessee at 50% is not reasonable. The Chennai Bench of the Tribunal in case of Tweezmen India Pvt. Ltd., Vs. Addl. CIT, 133 TTJ 308 while considering similar issue held that the provisions of section 80IA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o allow deduction as claimed. Examining the facts of the present case in the light of the decisions referred to hereinabove, it is noticed that in the present case also AO has simply relied on the TP study report of assessee to conclude that the profit earned by assessee cannot be considered to be reasonable profit earned from eligible business and on that basis has disallowed part of the deduction u/s 10A. Therefore, since AO has not conclusively proved the fact that there is an arrangement between assessee and its AE by which the transactions were so arranged as to produce more than the ordinary profits in the hands of assessee, disallowance of part deduction claimed by applying the provisions of section 80IA(10), in our view is not justified. Since ld. CIT(A) upheld the disallowance without examining the aforesaid aspect, order of ld. CIT(A) deserves to be set aside. The conditions of section 80IA(1) having not been fully complied by AO, disallowance of deduction claimed u/s 80IA(10), in our view is not justified. Accordingly, we delete the addition made by AO in this regard. 8. In the result, assessee s appeal is allowed. Pronounced in the open court on 30th June, 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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