TMI Blog2019 (1) TMI 1707X X X X Extracts X X X X X X X X Extracts X X X X ..... ied. The distinction brought about by the learned CIT(A) that when, one rate is considered then safe harbour rules do not apply, is not mentioned the statute books and the same cannot be sustained. Hence when the assessee is granted the benefit of safe harbour rules as mentioned in the 2nd proviso to section 92C(2) the price at which the international transaction has actually been undertaken is to be deemed to be the arm s length price. This is so because if the (+/-) 5% variation is granted from the arm s length price of international transaction determined at dollar 1.05 the price of dollar 1 at which redemption has been done by the assessee is to be accepted. - Decided in favour of assessee 10A deduction service charges recovered from its 100% subsidy - HELD THAT:- We find that the issue is squarely covered in favour of the assessee by the decision of ITAT and Hon'ble High Court in assessee s own case. - I.T.A. No. 594/Mum/2017, I.T.A. No. 721/Mum/2017 - - - Dated:- 21-1-2019 - Shri Shamim Yahya, Hon ble Accountant Member And Shri Pawan Singh, Hon ble Judicial Member For the Assessee : Shri Vijay Mehta, AR For the Reve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt assessment year reporting various international transactions entered by the appellant with Associated Enterprises. Accordingly, the AO made reference u/s 92CA(1) of the Act for the year under consideration to the Additional Commissioner of Income Tax, Transfer Pricing 11(4), Mumbai ( TPO ) to determine the arm s length price in relation to the international transactions entered by the appellant. The TPO vide order u/s 92CA(3) dated 22.01.2014 has made an adjustment to the tune of ₹ 57,82,500/- to the arm s length price of the investment in preference shares of the subsidiary company made by the appellant. 5.1 It is seen that during the relevant year under consideration, the appellant has redeemed its investment of 25,00,000. Redeemable Preference Shares (preference shares) having a face value of one doller each (at par) for an amount of ₹ 11,95,27,269/- in its associated enterprise (AE) i.e. Sonata Software North America Income (SSNA). The Investment had been made in September, 2001. The claim of the appellant before the TPO was that SSNA was set up on account of requirements of customers in USA who preferred to deal with an U.S. Entity. The motive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re the prices charged to AEs and prices charged to non-AEs wherein the ITAT held that when the price charged from non-AEs was treated at ALP, then the price charged from AEs was to be tested with the ALP after factoring the second proviso in section 92C(2) of the Act. 5.6 It is also seen that there are contrary decisions on this issue wherein it has been held that in certain cases, the second proviso to section 92C(2) may not be applicable. The Hon'ble Delhi ITAT, in the case of Vipin Enterprises (2012) 18 taxmann.com 85 (Delhi) has held at para 5.6 that; It has also been argued that the assessee is entitled to deduction of 5% from the adjusted ALP under the provision contained in section 92C. This provision, in sub-section (1) enumerates six distinct methods for computation of ALP. Sub-section (2) provides that the most appropriate of these six methods shall be applied determination of ALP. Proviso to this sub-section states that where more than the price is determined by the most appropriate method, the ALP shall be taken to be the arithmetical mean prices, or, at the option of the assessee, a price which may vary from arithm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... determination of fair value of shares of the AE which have been bought back by the appellant by an independent valuer, the price determined by the independent valuer is liable to be adopted without application of second proviso to section 92C(2) of the Act. It is so held. 6. Against the above order, assessee is in appeal before us. 7. We have heard both the counsels and perused the records. Learned counsel of the assessee contended that only issue for adjudication here is the application of safe harbour rules under the 2nd proviso to section 902C(2) which provides for (+/-) 5% variation from the arm s length price. He submitted that the rate at which the international transaction has been entered into by the assessee is dollar 1 as against rate of dollar 1.05 adopted by the TPO. He submitted that the said provision duly permits (+/-) 5% variation in the arm s length price and in such circumstances no adjustment is to be done. Learned counsel contended that this issue is squarely covered in favour of the assessee by the following ITAT decisions. Per contra learned departmental present relied upon the orders of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submission of the assessee is cogent. In these cases variation of (+/-) 5% have been accepted by the ITAT for the single rate used for bench marking the arm s length price of the international transaction. Hence in accordance with the ratio from the above cases, the relief for variation of 5% sought by the assessee is to be granted from the arm s length price accepted by the Transfer Pricing Officer is justified. The distinction brought about by the learned CIT(A) that when, one rate is considered then safe harbour rules do not apply, is not mentioned the statute books and the same cannot be sustained. Hence when the assessee is granted the benefit of safe harbour rules as mentioned in the 2nd proviso to section 92C(2) the price at which the international transaction has actually been undertaken is to be deemed to be the arm s length price. This is so because if the (+/-) 5% variation is granted from the arm s length price of international transaction determined at dollar 1.05 the price of dollar 1 at which redemption has been done by the assessee is to be accepted. Accordingly following the precedence from the decisions as referred above we set a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . As per assessment order for A.Y. 2000-01 the assessee claimed deduction u/s. 80-0 for A. Y. 95-96, 96-97 9798 and exercised option not to claim deduction u/s. 10A in view of provisions of Sec. 10A(7). Alternatively, deduction u/s. 80HHE was also claimed. The assessee's claim of deduction u/s. 10A was disallowed in A.Y. 98-99 99-2000 on the ground that this undertaking was formed by splitting or reconstruction of business already in existence and the undertaking has been carrying on its activities prior to A.Y. 95-96. Another ground of disallowance was that the undertaking was formed by transfer of more than 20% of used plant and machinery to new business. The ITAT in its order dated 17.03.2003 for these years allowed the appeal in favour of the assessee against which department has filed an appeal before the Hon'ble Bombay High Court. In subsequent years also the department has filed appeal before the Hon'ble High Court. Since the department has not accepted ITAT's decision in the earlier years, for the same reasons as earlier years, this year also the assessee is held not to be eligible to claim deduction u/s 10A of the Act. Accordingly, the claim of ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X
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