9911796707
TMI Blog2019 (12) TMI 1409X X X X Extracts X X X X X X X X Extracts X X X X ..... s 10A. For the A.Y.2007-08 to 2010-11, the department raised one more issue i.e. deletion of addition made protectively in respect of the receipts of VLS IT services for H1B visa processing which were substantively assessed in the hands of the VLS IT Services. In the assessee's appeal, the assessee agitated for restricting the deduction u/s 10A only to the extent of 70% of the profits instead of allowing 100%. For the sake of convenience, these appeals are clubbed, heard together and a common order is being passed as under. 2. First issue in these appeals is related to the deduction u/s 10A of the Income Tax Act, 1961 (in short 'Act'). Brief facts of the case are that a search and seizure operation u/s 132 of Income tax Act ('act' in short) was conducted in the case of M/s Annapurna Business Solutions (in short 'ABS') on 16.09.2010. M/s ABS is the partnership firm instituted by partnership deed dated 02.01.2002. The firm has four partners with equal share of 25% each, namely Smt. Tunuguntla Annapurna, Smt.Tunuguntla Saritha, Sri Tunuguntla Jagan Mohan Rao and Sri Tunuguntla Nanda Kishore. The firm is engaged in the business of software development and providing services in inform ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roduced as per which, on the request of VLS Systems Inc.( in short 'VLS'), vendors are required to provide services or persons recommended by vendor and selected by VLS (collectively 'contractors') to perform services. From the agreement, the AO further found that no product development, i.e. software development is envisaged in the said contract. However, for the purpose of the registration/renewal with STPI the assessee firm has submitted another agreement called 'Master Services Agreement' dated 06.06.2002 and in the said agreement there was a provision for development of software and IT Enabled services to the vendee(VLS). The AO observed that the said agreement dated 06.06.2002 was not available at the time of original registration or in the immediate years thereof. According to the AO this agreement of 06.06.2002 was an afterthought to support his claim for deduction u/s 10A as software developer. The AO came to conclusion that the agreement dated 06/06/2002 was neither originally available nor submitted to the STPI. The AO drawn such conclusion on the basis of the correspondence retrieved by the Investigation team from the seized hard disk marked as Annexure A/ABS/PO-02/9, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ucts developed by the assessee, Shri Nanda Kishore in his deposition stated that M/s ABS has developed number of projects over the years as per clients order. One of such product was ITRM, an applicant tracking and customer relationship management system. He stated that ITRM was developed in USA in the year 1997, later a newer version was developed starting in the year 2002 by the assessee firm. However, the AO disbelieved the assessee's submissions, and viewed that the assessee received foreign remittances from export of man power supply but not from software development. The AO further stated in the assessment order that there were evidences to believe that no software was developed by M/s ABS as there were lots of discrepancies with regard to product development and the year in which it was stated to be developed. The AO reproduced the Email correspondence in the assessment order between Kris Nanda and Hari Babu dated 07.10.2008 which reads as under : "Attached is the updated project details document. The same has been updated in our website. Based on this, you can print the 7010 and any other invoices using this MEMS project, related documents and send it with Mohini. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... client business and assist employer in getting new solutions / IT contract staffing business, identify prospective candidates for project assignments at client sites as well as to identify prospective candidates for India operations and Employer desires to employer employee..." From the agreement, the AO observed that the bonuses are linked to dollar margin that the parent US company makes on placement of candidate selected by these technical recruiters of ABS. The AO further observed that the candidates selected by recruiters are taken to USA on H1B Visa. They are subsequently placed with various organizations on hourly rate. Part of this hourly compensation is retained by M/s VLS and the balance is paid to the candidates. The candidate who opt to go to USA on H1B Visa have to pay certain amount as deposit for visa processing and the said amounts were collected and deposited into the bank accounts of Shri Hari Babu, employee of VLS IT Services and Shri R.Naresh, brother-inlaw of Shri Nanda Kishore.. The AO observed that M/s VLS IT Services was created to enter into agreements with prospective H1B visa holders and the payment received on this account were not deposited into ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... omputing the total income, the AO has adopted incorrect returned income. Hence, the AO is directed verify the computation of total income and pass necessary rectifications at the time of giving effect to this order. 3. Against the order of the AO, the assessee went on appeal before the CIT(A) and submitted point-wise clarifications before the Ld.CIT(A) with regard to various issues raised by the AO in the assessment order. The assessee submitted that it has never indulged in malpractices or the manipulations and it is a genuine software company. With regard to agreement dated 08.01.2002 between VLS Systems Inc., and the assessee firm, inrespect of signature of Shri T.Nanda Kishore he he could not give immediate reply due to the fear of legal repercussions if any though signed genuinely. He stated that his name is T Nanda Kishore and he is one of the partners of the assessee firm and he is also called as Kris Nanda in USA. Hence he submitted that he had signed the agreement with Indian name for the Indian firm and the other one with name by which he is called in USA. He further clarified that he tried to clarify the position before the AO, but he could not get the opportunity in s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ithout having any evidence. The assessee also furnished the information regarding the receipt of US$1,41,458 from Megasoft USA, for supply of it's products. The assessee furnished the breakup of the payments stating that US$11,650 was paid by Megasoft USA towards ITRM software product license and its customization and US $127808 towards employees of VLS who worked in the sites of Megasoft, USA. Thus submitted that neither the amount nor nature of work / services rendered by VLS to Megasoft, USA were matching with the information furnished by the Indiand Chartered Accountant to the department, hence there is no truth in the information furnished by Megasoft India Ltd. 3.3. Regarding the allegation of AO on the use of Monster India.com, the assessee submitted that ABS has developed multiple products by hiring software engineers who are provided salary, benefits like 2 weeks vacation, one week sick leave, health and dental insurance, 401K and profit sharing and make work on client projects in USA. VLS is not a placement agency. ABS used Monster India membership to hire the employees who can work in ABS, Hyderabad office. Monster, USA was used by ABS employees in Hyderabad in the nigh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er and the arguments of the assessee, the Ld.CIT(A) given a finding stating that the AO did not bring any evidence which has impact on the activity of the assessee by signing differently as Nanda Kishore and Krish Nanda. 3.7. With regard to second issue of singing the agreement, the Ld.CIT(A) observed that by keeping the document with assessee itself, whom the assessee was misleading, is not clarified by the AO. Similarly, the Ld.CIT(A) observed that the AO mentioned that the agreement was only for supply of manpower and he had ignored the opening words of the sentence which starts with 'services'. The Ld.CIT(A) further observed that the AO should have examined what inference can be drawn from the membership of Monster.com., with regard to software development. Sale of software to Megasoft, anamoly in invoices , discrepancies regarding the development of product in different years etc., were given undue weightage by the AO for holding that the assessee is not exporting the software, which according to the Ld.CIT(A) do not have any direct impact on the claim of deduction u/s 10A. According to the Ld.CIT(A) the issues that have an impact which need to be examined are (a) The act o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ogs for the A.Ys. 2008-09 and 2009-10 furnished by the assessee. The Ld.CIT(A) also verified the FTP logs for transmission of the export of the software which was furnished by the assessee in 6000 pages by way of example for few logs for different years. The proof of transmission of software by FTP was part of initial filing of 1206 pages in 11 annexures. Before the Ld.CIT(A), the assessee stated that the observation of the AO with regard to firm having only machinery worth Rs. 5.09 lakhs and air conditions worth Rs. 12,000/- is wrong and it has filed the complete details of the assets worth 39.37 lakhs as against 5 lakhs mentioned by the AO. The Ld.CIT(A) verified the copies of export clearance certificate from STPI, agreement between VLS and its clients and association communication by email and the email communication to show software development and ITES provided etc. which were are also enclosed in the annexure-A. With regard to work hours for the F.Y. 2009-10, salary payments for the month of April 2008 runs into Rs. 6,80,411/- per month. Annexure'C' containing program implemented / changed on VmACT product with IP addresses was placed in Annexure A-D of the appellate order. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ls challenging the order of the Ld.CIT(A) for taxing the profits to the extent of @30%. 6. During the appeal hearing, the Ld.DR assailing the order of the Ld.CIT(A) submitted that the assessee has neither developed any software nor it has infrastructure to develop the software as claimed by the assessee. The Ld.DR further submitted that in fact the assessee is engaged in the recruitment of manpower and supply of manpower to the parent company, VLS Systems Inc, therefore, argued that the claim made by the assessee with regard to software export is bogus. Referring to the statement recorded from Vaka Hari Babu, employee dated 16.11.2010, the Ld.DR argued that the assessee company is engaged in the processing of H1B visas but not in export of software. Referring to question No.12 of V.Hari Babu in statement dt.16.11.2010, the Ld.DR stated that e-mail was sent by Shri Hari Babu to VLS Systems Inc. (Shri Kris Nanda) on the subject of H1B visa payments which shows that it has received H1B processing fee for an amount of Rs. 1,10,000/- in respect of Bhargavi Mallay Joysula, Sitaram Malapaka and Jagan Mohan Naidu Sammeta which was deposited by Shri Hari Babu in the account of Shri Naresh, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in two different names. The Ld.DR argued that VLS Sytems Inc. and the ABS are owned by Shri T.Nanda Kishore and T.Saritha and the assessee is showing 100% identity mapping. During the course of search, another agreement was found in the premises of the assessee dated 06.06.2002, for project assignment services for providing business process outsourcing call centre and other related services. The DR submitted that the said agreement was signed by Shri Nanda Kishore and it does not bear signature of the second part. In the post search proceedings, the assessee signed the agreement on the same date of 06.06.2002 showing the signature of Nanda kishore and T.Jagan Mohan Rao to mislead the government authorities at various stages and the Ld.DR submitted that the agreement was also contrary to the invoices produced by the assessee. The Ld.DR further submitted that the assessee raised a bill in the name of Megasoft Consultants Inc. through its Indian arm Megasoft Ltd. None of the transactions were in the nature of software development, but are in the nature of hiring of software consultants on contract. The agreement dt.14.07.2007 was between two concerns, i.e. Megasoft Ltd and VLS Syst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f various employees was recorded and they stated that they are into recruitment work and not into the development of any software. Shri T.Nanda Kishore also failed to produce the details of any sale of software by VLS, USA from the software claimed to be exported by the assessee to VLS, USA. 6.2. The Ld.DR argued that the trading results of VLS Systems Inc. was not made available by the assessee to the AO and the assessee was showing more than 80% of the net profit out of the turnover which is highly impossible in this line of business. The AO collected the trading results of reputed companies listed in stock exchange, wherein, the profit margins were ranging from 10% to 66%. The Ld.DR further submitted that to earn such abnormal profits, the assessee must be in a possession of unique premium product or service but the same was not found on record. 6.3. The Ld.DR submitted that profile of the employees indicate salary received by them is not commensurating with the skills set as claimed by the assessee. Most of the employees have alias names which are normally used by the call centre operators, but no such activity was recorded by the assessee in its books. The Ld.DR further argu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ercentage of revenue is very low. The STPI logs and e-mails no way provide conclusive proof of claims of the assessee. 6.5. The Ld.CIT(A) invoked the provisions of 10A(7) r.w.s. 80IA(10) because the transaction is between the two parties, arranged in such a way that the assessee derived more than the ordinary profits expected in this line of business. The Ld.DR argued that the Ld.CIT(A) restricted the claim of exemption u/s 10A to 70%, however, the Ld.CIT(A) ought to have appreciated the fact that the assessee being engaged in the manpower services, not entitled for deduction u/s 10A of the Act. The Ld.CIT(A) overlooked the fact that the affairs of the VLS Inc and its financials were not disclosed by the assessee to prove the activity of software development or sale or licensing at USA. More so, when there is cogent evidence that placing of people in third party companies at USA. The Ld.CIT(A) also failed to appreciate that if the assessee was really exporting software, there was no need to recruit software professionals and send them on H1B Visa to USA. Besides, there was no need to camouflage the activity through collection of money on account of M/s VLS IT Services, which have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... permitted by the STPI. The STPI granted extension of approval vide letter dated 12.06.2008 from 24.10.2007 to 23.10.2012. The grant of approval by STPI was based on the Master Service Agreement entered into between the assessee and VLS Systems Inc. USA. According to the Master Service Agreement, the assessee has software engineering resources and personnel to perform such software development services. The amount realized by the assessee for supply of software developed by it under ITES was received through banking channels and is certified by the STPI. The assessee supplied the software developed by it to VLS Systems Inc. It has developed the Information Technology Resource Management System (ITRM). The scope of project included in the following features besides HR application... A) Quick TS/eIPS/Time Tracking - a Time tracking and Accounts Payable System; B) Mems- Membership & Even Management System C) VmAct - Innovative platform for Vendor Management, Contingent Workforce Management, Control your spending; D) Temple Track - an application system aimed to serve the needs of any Religious Organisations; and E) Parent Student Update - Software used for Student Test & Anal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m the said source is assessed in the assessment of VLS IT services. Therefore, the Ld.AR submitted that the income derived by the assessee is from software development of ITES and not from supply of manpower. With regard to allegation that profit margin is higher, the Ld.AR submitted that utilization of 100% capabilities of employees without allowing the employees on Bench and quantum of rent contributed for increase in the income. The assessee further submitted that there was substantial interest income on its deposits and the assessee did not debit any interest as there were no borrowings. No financial charges were debited to P&L account and the managing partner himself is qualified and capable of rendering technical services and is able to manage the affairs of the firm and the profit element is higher in the case of the assessee. 7.1. With regard to other allegations raised by the AO, the Ld.AR submitted that Shri Nanda Kishore has signed as representative of Indian Firm as Shri T.Nanda Kishore and Kris Nanda representing US firm, since he was known in US circles as Kris Nanda and there is no malafide intention in signing differently. Representing VLS Systems.Inc. Shri Nanda K ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ks of accounts of the assessee. The Ld.AR further submitted that even it is presumed that expenditure relatable to VLS IT systems has to be considered in the hands of the assessee firm, the same required to be allowed as deduction in the hands of VLS IT systems. The AO assessed the entire receipts as income in the hands of VLS IT Systems. Hence, argued that the Ld.CIT(A) committed an error in restricting the exemption to the extent of 70% and requested to set aside the order of the Ld.CIT(A) and dismiss the appeal of the revenue and allow the appeal of the assessee. 9. With regard to financials of VLS Inc., the assessee submitted that there is no provision to call for the financials of the VLS Inc since it is a foreign organization and it is for the department to make enquiries relating to the financials of VLS Inc. The financials of VLS Inc has no impact over the payment to the assessee merely because VLS Inc is a sister concern of the assessee. As stated already since the assessee company is engaged in the software development, the assessee company is in constant touch with the recruitment of software professionals for it's own use as well as for the VLS System Inc. Therefore, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The activity of supply of personnel is that of VLS IT Services and the income from the said sources was assessed in the hands of VLS IT Services by the AO substantially which was also confirmed by the Ld.CIT(A). Therefore, the issue with regard to supply of personnel is put at rest by assessing the income in the hands of VLS IT Systems. The Ld.AR argued that the assessee is in the activity of development and export of software, but not for the supply of personnel. Therefore, requested to allow the appeal of the assessee and set aside the orders of the Ld.CIT(A). 10. We have heard both the parties and perused the material placed on record. A search u/s 132 was carried out in the case of the assessee on 16.09.2010 and during the course of search, certain material was found by the AO which led the AO to believe that the assessee is making false claims for deduction u/s 10A. Firstly, the agreement dated 08.01.2002 between VLS Sytems Inc and the assessee firm which was submitted to the STPI for getting it registered as 100% EOU, wherein it was observed that Shri T Nanda Kishore alias Kris Nanda has signed the Vendor Service Agreement between the two entities in two different names wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he parties was furnished during the post search proceedings. The correspondence shows that the agreement was signed by Sri T.Jagan Mohan Rao during 2008. The assessee clarified that the original agreement was submitted to the STPI at the time of registration and subsequently copy of agreement was prepared only for renewal of licence. As discussed the copy of agreement was available in the seized material in soft form. The department did not make any enquiries with the STPI and did not bring any evidence to show that the said agreement dated 06.06.2002 was not submitted to the STPI originally. Therefore, there is no reason to disbelieve the copy of the Services Agreement dated 06.06.2002 as fabricated one or made as an afterthought. 12. The third issue is with regard to invoices submitted to the STPI. The AO contended that the agreement was pertaining to IT Enabled Services, invoices raised and submitted to the STPI were related to export of software products. Since the assessee claims that it has sold the software products, the invoices raised are in tune with the activity of the assessee. Therefore, there is no reason to suspect the invoice raised by the assessee. The issue with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... department has accepted that recruitment of manpower and personnel supply was the activities of VLS IT Services, but not of the assessee. Though the AO has alleged that the profit was abnormally high, the AO has not computed the income on account of export activity, referred the issue to TPO for Arms length and brought on record comparables and made the T.P.study. Instead taxed the entire income declared by the assessee, thus, there is no reason for justification to tax the entire income earned by the assessee denying the deduction claimed. Once, the AO has taxed the entire income admitted by the assessee without computing the income or estimating the income, there is no reason to disbelieve the income earned by the assessee from the export activity. From the above, it is clear that the assessee has answered all the issues raised by the AO as well as the DR suitably in it's reply submitted to the Ld.CIT(A) which was not countered by the department. The issues raised by the AO such as signatures in two different names, agreement dated 06.06.2002, invoice on Megasoft, invoices raised by the assessee, the statements recorded from the employees, the staff position, percentage of income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... VSS was used later on TFS was used. All the applications were developed by using Microsoft Technologies including Visaual Studio, C#Net, ASP.NET, Ajax, J Query, JavaScript, HTMS, XML, TFS (Team Foundation Servicer) and SQL server and all these products are transferred using FTP (File Transfer Protocol), a tool to transfer the software and its associated documents from one computer/server in Hyderabad, to a server in VA, USA. Each of these computers are assigned an IP address, which is a unique number given to a computer servicer. Each IP address is unique to each country and each state within the country. The logs of these can be found on each of the server which tracks the date and time of each FTP transfer along with duration of transfer. Log is similar to a phone bill which lists the date and time stamp along with duration of the call. Around 10 - 12 voice over IP phones were used in calling the prospective clients in USA on supporting these software were used. Few phone bills, along with date was submitted to the AO and the Ld.CIT(A). Few employees of ABS who were customer facing in USA are given pseudo names for easy understanding of names which are familiar to USA citizens. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s including professional services. Once the unit is located in STPI, the assessee can make export in single window using the lines and infrastructure of STPI. As rightly held by CIT(A), the documentation prescribed by the STPI is sufficient to hold that the assessee made the exports. Softex forms are proof of transmission of data. Ld.DR also argued that Softex forms are proof of transmission of data. Mere transmission of data from India to outside India is sufficient to hold that the assessee has made the exports. In this case the assessee submitted the bundles of information with regard to transmission of data as observed from the order of Ld.CIT(A). Hence, the responsibility is more on the AO to prove that there was no software export with direct evidence. In the instant case, the department has not established that that there was no software export by the assessee from the STPI inspite of conducting the search. As seen from the orders of the lower authorities, the assessee has used the infrastructure made available by STPI for transmitting the data, the details of transmission of the data was submitted to the Ld.CIT(A) as well as the AO. The assessee submitted that the data was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loyees and salary paid along with details of PF credited for the AYs under question. Letters sent to the bank regarding salary and the salary sheet of April, 2008 is enclosed for the sake of immediate reference as Annexure B (5 pages). -(pages 32, 33, 34, 35, & 36 of this order}. The appellant had also filed copies of employment letters and employment agreement in support of the claim. All the details filed by the appellant are placed on record. 13.0 As claimed in the written submissions reproduced supra, the appellant also furnished copies of sworn statements from the employees of the firm wherein, they have clearly mentioned the work they have undertaken in software. Sworn statement of Sri Kishore Kumar recorded on 16.09.10 is perused and in this statement he has categorically stated that he is services team leader and had worked on enhancing and modifying IT cubes (AASA) and also works on task assigned by his project manager either through email or by phone. He stated that he modified and incorporated the changes in the programme and sends the modified version. He also mentioned that all the communications are by way of email. 14.0 Source control logs for the years 2008-09 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t / insertion) through the emails and the time and date log and which was furnished through FTP log sheets, the software related activity and it export of the appellant cannot be denied. Thus, questions raised in para 8 at (a), (b) and (c) given hereunder for ready reference have to be answered in favour of the appellant. (a) The act of development as shown in source codes. (b) The act of export as evidenced in log sheets, STPI forms. (c) The adequacy or otherwise of infrastructure and expenditure to support the incomes." 15.2. In the instant case, though the department has alleged that the assessee is not exporting the software, but engaged in the body shopping no conclusive evidence was brought on record to support the department's contention. As per the provisions of section 10A of the Act, the assessee engaged in the export of software is entitled for deduction of 100% profits derived from the export of software. In the instant case, by providing various details, information, the assessee has proved that it was in the activity of software export and received foreign exchange on account of software export. No enquiries were made with the importing country, no evidence was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by ITAT Hyderabad in the case of DCIT Circle-8(1), Hyderabad Vs. Quick MD, Hyderabad in I.T.A. No.97/hyd/2015 in the order dated 26.08.2015 and dismissed the appeal of the department. For the sake of clarity and convenience, we extract relevant part of the order of the Tribunal from para 8 to 8.2 which reads as under : "8. We have considered the submissions of the parties and perused the orders of revenue authorities as well as other materials on record. We have also carefully applied our mind to the decisions cited at the bar. The issue arising for consideration before us has two aspects, factual and legal. As far as the factual aspect is concerned, there is no dispute that assessee on a turnover of Rs. 83.49 crores has declared a profit of 81.36 crores, which works out to 97.40%. AO is of the view that assessee has declared unreasonably high rate of profit only for the purpose of claiming exemption u/s 10A of the Act. Therefore, invoking the provisions of section 10A(7) read with section 80IA(10) of the Act, AO has restricted the profit margin of assessee to 74% and computed exemption u/s 10A accordingly. However, as can be seen from the facts on record, assessee for bench mark ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uch arrangement, he can proceed to estimate the profit of assessee at a reasonable rate. In the facts of the present case, on careful reading of the assessment order, we do not find any conclusive finding of AO that assessee and its AE have arranged business transactions in a manner to generate more than ordinary profit to assessee. At least, there is nothing mentioned in the assessment order to suggest that AO has satisfied such condition. Therefore, without establishing through positive evidence that assessee and its related party have arranged their business transaction in a manner to produce more than ordinary profit to assessee, AO cannot invoke the provisions of section 10A(7) read with section 80IA(10) on mere presumptions and surmises. The coordinate bench of this Tribunal while considering identical issue in case of Aquila Software Services Hyderabad Pvt Ltd. Vs. DCIT, ITA No. 423/Hyd/14, dated 30/06/2015, held as under: "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 dire ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... more than the ordinary profits in the hands of assessee, whether has been fulfilled or not needs to be examined. On perusal of the assessment order, it is very much evident that only relying upon TP document of assessee wherein it is stated that average profit margin of comparable company is 15% as against 50% of assessee, AO has concluded that profit earned by assessee is not at arm's length. AO has not given a conclusive finding as to whether earning of such excess profit is as a result of business arrangement between the parties. Even, ld. CIT(A) has also not given any factual finding on the issue to conclusively prove that assessee and its related party has arranged their business affairs in such a manner that it will result in more than reasonable profit to assessee. Merely relying upon the fact that in the TP documentation 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ransactions were so arranged as to produce more than the ordinary profits in the hands of the assessee. The assessment year under consideration is 2009-10. Neither the proviso to sub-section (10) existed at that time, nor such a proviso can be applied as we are dealing with an international transaction and not specified domestic transaction. Under these circumstances, we are of the considered opinion that the impugned order upholding the invocation of sub-sec. (10) of sec. 80IA cannot be countenanced to this extent. Ergo, it is held that the ld. CIT(A) erred in sustaining the disallowance made by the Assessing Officer by restricting the amount of deduction u/s 10A of the Act to Rs. 2.63 crore as against Rs. 8.22 crore claimed by the assessee. The impugned order on this issue is overturned and it is directed to 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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