Appeal details
Counselvise Citation
[2017] 123 COUNSELVISE.COM (IT) 3284 (ITAT-PUNE)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
4 month(s) 4 day(s)
Appellant
Respondent
Appeal Type
Cross Objection
Pronouncement Date
24-11-2017
Appeal Filed By
Assessee
Order Result
Allowed
Bench Allotted
A
Next Hearing Date
30-10-2017
Assessment Year
2010-2011
Appeal Filed On
20-07-2017
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A , PUNE , , BEFORE MS. SUSHMA CHOWLA, JM AND SHRI ANIL CHATURVEDI, AM . / ITA NO. 1250 /P U N/20 1 5 / ASSESSMENT YEAR : 20 1 0 - 1 1 THE DY . COMMISSIONER OF INCOME TAX, CIRCLE 1(1) , PU NE . / APPELLANT VS. APPLIED MICRO CIRCUITS INDIA PVT. LTD., 601, 6 TH FLOOR, B - CEREBRUM IT PARK, KALYANI NAGAR, P UNE - 411006 . / RESPONDENT PAN: AA HCA3503C . /CO NO. 43 /P U N/201 7 / ASSESSMENT YEAR : 20 10 - 1 1 (OUT OF ITA NO. 1250 /PUN/201 5 ) APPLIED MICRO CIRCUITS INDIA PVT. LTD., 601, 6 TH FLOOR, B - CEREBRUM IT PARK, KALYAN I NAGAR, PUNE - 411006 / CROSS OBJECT OR PAN: AAHCA3503C VS. THE DY. COMMISSIONER OF INCOME TAX, CIRCLE 1(1), PUNE . / RESPONDENT ASSESSEE BY : S /S HRI M.P. LOHIA & RAJENDRA AGIWAL REVENUE BY : SHRI ACHAL S HARMA, ADDL.CIT / DATE OF HEARING : 30 . 1 0 . 201 7 / DATE OF PRONOUNCEMENT: 24 . 1 1 . 201 7 ITA NO. 1250 /P U N/20 1 5 CO NO. 43 /PUN/201 7 2 / ORDER PER SUSHMA CHOWLA, J M : THE APPEAL FILED BY THE REVENUE IS AGAINST ORDER OF CIT (A) - 13 , PUNE , DATED 26 .0 6 .201 5 RE LATING TO ASSESSMENT YEAR 20 1 0 - 1 1 AGAINST ORDER PASSED UNDER SECTION 143(3) OF THE INCOME - TAX ACT , 1961 (IN SHORT THE ACT) . THE ASSESSEE FILED CROSS OBJECTIONS AGAINST THE APPEAL OF REVENUE. 2 . BOTH THE APPEAL FILED BY THE REVENUE AND CROSS OBJECTIONS FILED BY THE ASSESSEE WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. 3. THE REVENUE IN ITA NO. 1250 /PUN/201 5 HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: - 1. THE LEARNED CIT(A) HAS ERRED IN LAW & ON THE FACTS AND CIRCUMSTANCES OF THE CASE IN EXCLUDING THE COMPARABLES SELECTED BY THE TPO. 2. FOR THIS AND SUCH OTHER GROUNDS AS MAY BE URGED AT THE TIME OF HEARING, THE ORDER OF THE LEARNED CIT(A) MAY BE VACATED AND THAT OF ASSESSING OFFICER BE RESTORED. 4 . THE ASSESSEE IN CO NO. 43 /PUN/201 7 HAS RAISED THE FOLLOWING GROUNDS OF OBJECTIONS: - 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED ASSESSING OFFICER (AO') HAS ERRED IN OBJECTING TO THE ORDER OF THE HONBLE COMMISSIONER OF INCOME TAX (A ) - 13, [CIT(A)], WHEREIN THE HONBLE CIT(A) HAS EXCLUDED THE COMPARABLES SELECTED BY THE LEARNED TRANSFER PRICING OFFICER (TPO) AND TO VACATE THE ORDER OF CIT(A) AND THAT OF THE LEARNED ASSESSING OFFICER (AO') BE RESTORED. 2. WITHOUT PREJUDICE TO THE AB OVE, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE HONBLE CIT(A) HAS: - 2.1 ERRED IN REJECTING CERTAIN COMPARABLE COMPANIES CONSIDERED AS COMPARABLE BY AMC INDIA IN ITS TRANSFER PRICING STUDY REPORT. 2.2. ERRED IN COMPARING THE FULL - FLEDGED RISK BEARING ENTITIES WITH AMC INDIAS CAPTIVE OPERATIONS WITHOUT MAKING ANY RISK ADJUSTMENT FOR ITA NO. 1250 /P U N/20 1 5 CO NO. 43 /PUN/201 7 3 DIFFERENCES BETWEEN THE FUNCTIONAL AND RISK PROFILE OF COMPARABLES VIS - - VIS AMC INDIA. 2.3 ERRED IN COMPUTING THE ARM'S LENGTH PRICE WITHOUT GRANTING THE BENEFIT OF 5% UNDER PROVISIONS OF SECTION 92C(2) OF THE INCOME TAX ACT. 2.4 ERRED IN SETTING OFF UNABSORBED DEPRECIATION BEFORE ALLOWING DEDUCTION UNDER SECTION 10A OF THE ACT FROM PROFITS OF THE BUSINESS. 3. WITHOUT PREJUDICE TO THE ABOVE, THE LEARNED AO ERRED IN NOT GRANTING THE FOLLOWING RELIEF AS PROVIDED BY CIT(A): - 3.1 TO CORRECT THE OPERATING MARGINS OF TATA ELXSI LIMITED AFTER CONSIDERING THE PROVISIONS RELATED TO DOUBTFUL DEBTS DEBITED TO PROFIT AND LOSS ACCOUNT ACCORDING TO PROVISIONS OF RULE 10TA OF INCOME TAX RULES, 1962 AND AFTER CONSIDERING THE UNALLOCATED EXPENSES TO SEGMENT WHICH ARE IN THE COURSE OF BUSINESS. 3.2 TO RE - COMPUTE WORKING CAPITAL ADJUSTMENT FOLLOWING THE APPROACH AS PROVIDED IN THE ANNEXURE TO CHAPTER 3 OF OECD TRANSFER PRICING GUI DELINES, 2010. THE LEARNED AO IS DIRECTED TO ADOPT THE SEGMENTAL DATA IN PROPORTION OF SEGMENTAL TURNOVER TO TOTAL TURNOVER OF THE ITEMS, FOR WHICH, SEGMENTAL DATA IS NOT AVAILABLE. 5. BRIEFLY, IN THE FACTS OF THE CASE, THE ASSESSEE WAS ENGAGED IN THE B USINESS OF DESIGNING AND DEVELOPMENT OF CHIP, INTEGRATED CIRCUITS AND STORAGE COMPONENTS AND ALLIED SERVICES FOR ITS HOLDING COMPANY AMCC, USA. THE ASSESSEE ORIGINALLY FILED THE RETURN OF INCOME DECLARING NIL INCOME AND BOOK PROFITS AT RS.2.25 CRORES UNDE R SECTION 115JB OF THE ACT. THE ASSESSEE HAD CLAIMED DEDUCTION UNDER SECTION 10A OF THE ACT AT RS.2.05 CRORES FOR STPI UNIT. THE RETURN OF INCOME OF THE ASSESSEE WAS PROCESSED UNDER SECTION 143(1) OF THE ACT. THEREAFTER, THE CASE WAS SELECTED FOR SCRUTI NY. THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAD ENTERED INTO INTERNATIONAL TRANSACTIONS WITH ITS ASSOCIATED ENTERPRISES AGGREGATING RS.22,46,28,888/ - , WHICH ARE TABULATED AT PAGE 2 OF THE DRAFT ASSESSMENT ORDER. THE ASSESSING OFFICER MADE REFERENCE TO THE TRANSFER PRICING OFFICER (TPO) FOR DETERMINING THE ARM'S LENGTH PRICE OF SAID INTERNATIONAL TRANSACTIONS UNDER SECTION 92CA(1) OF THE ACT. THE TPO AFTER NOTING DOWN THE ACTIVITIES UNDERTAKEN BY THE ASSESSEE FOUND THAT THE ASSESSEE WAS RENDERING DE SIGN AND SOFTWARE ENGINEERING SUPPORT SERVICES FUNCTIONS TO ITS ASSOCIATED ITA NO. 1250 /P U N/20 1 5 CO NO. 43 /PUN/201 7 4 ENTERPRISES. THE TPO NOTED THAT THE ASSESSEE HAD SELECTED TNMM METHOD AS MOST APPROPRIATE METHOD TO BENCHMARK THE INTERNATIONAL TRANSACTIONS. IN THE TNMM ANALYSIS, THE PLI WAS OPE RATING PROFITS / OPERATING COST, WHICH AS PER THE ASSESSEES MARGINS WORKED OUT TO 10.01% . F OR BENCHMARKING THE INTERNATIONAL TRANSACTIONS , T HE ASSESSEE HAD IDENTIFIED CERTAIN COMPARABLE COMPANIES ON THE BASIS OF FAR ANALYSIS IN THE TP STUDY REPORT. THE ASSESSEE HAD SELECTED FOUR COMPANIES AS COMPARABLES AND ARRIVED AT PLI OF THE COMPARABLES AT 8.91% I.E. OP/OC BASED ON THE DATA FOR THREE YEARS. THE ASSESSEE CLAIMED THE INTERNATIONAL TRANSACTIONS TO BE AT ARM'S LENGTH PRICE. HOWEVER, THE FIRST OBJECTION RAISED BY THE TPO WAS THE USE OF SINGLE YEAR DATA VIS - - VIS MULTIPLE YEAR DATA. THE PLEA OF ASSESSEE IN THIS REGARD WAS NOT ACCEPTED BY THE TPO. FURTHER, THE TPO ALSO REJECTED THE EXTERNAL COMPANIES SELECTED BY THE ASSESSEE AS COMPARABLE I.E. BLUE STAR DESIGN & ENGINEERING LIMITED, E - INFOCHIPS LIMITED, AFTEK LIMITED AND CADES DIGITECH PRIVATE LIMITED. THE TPO ON THE OTHER HAND, PROPOSED SELECTION OF FOUR NEW COMPARABLES I.E. GENESYS INTERNATIONAL CORPORATION LTD., CORAL HUB LTD. (VISHAL INFORMATION TECH NOLOGY LTD.), ACCROPETAL TECHNOLOGIES AND TATA ELXSI (SEGMENTAL) . THE TPO DID NOT ACCEPT ANY OF THE OBJECTIONS RAISED BY THE ASSESSEE AGAINST THE SAID NEW COMPANIES SELECTED AS COMPARABLES. THE ASSESSEE ALSO MADE A PLEA THAT IF COMPARABLE TATA ELXSI WAS TO BE INCLUDED DESPITE TURNOVER BEING MORE THAN RS.200 CRORES, THEN ANOTHER SIMILAR FUNCTIONAL COMPANY M/S. KLG SHOULD ALSO BE CONSIDERED. HOWEVER, SINCE THE SAID COMPANY WAS REJECTED BY THE ASSESSEE DUE TO TURNOVER BEING MORE THAN RS.200 CRORES , THE SAME WAS HELD TO BE NOT COMPARABLE. FURTHER, THE TPO ALSO NOTED THAT THE TURNOVER OF THE SAID COMPANY WAS RS.235 CRORES, WHEREAS THE EARNING S FROM FOREIGN EXCHANGE WAS ONLY RS.43.34 LAKHS. THUS, THE COMPANY FAILED THE FILTER OF EXPORT TURNOVER. THE TPO IN T HE FINAL ANALYSIS DROPPED GENESYS INTERNATIONAL CORPORATION LTD. THE TPO ALSO ACCEPTED THE PLEA OF ITA NO. 1250 /P U N/20 1 5 CO NO. 43 /PUN/201 7 5 ASSESSEE IN RESPECT OF ACROPETAL TECHNOLOGIES LTD. AND TATA ELXSI AND REVISED PLI MARGINS WERE ADOPTED AS PER THE CALCULATION OF THE ASSESSEE. HOWEVER, CER TAIN ADJUSTMENTS WERE MADE BY THE TPO IN CALCULATING THE OPERATING MARGINS OF THE SAID CONCERN. IN FINAL ANALYSIS, THREE CONCERNS WERE PICKED UP BY THE TPO AS COMPARABLE I.E. CORAL HUB LTD., ACROPETAL TECHNOLOGIES LTD. (SEGMENTAL) AND TATA ELXSI (SEGMENTA L). THE TPO ALLOWED WORKING CAPITAL ADJUSTMENT TO THE TWO CONCERNS. HOWEVER, NO RISK ADJUSTMENT WAS ALLOWED TO THE ASSESSEE IN VIEW OF THE FACT THAT THERE WAS NO DIFFERENCE IN RISK PROFILE OF THE ASSESSEE AND COMPARABLES. THE ARITHMETIC MEAN OF THE PLI OF COMPARABLES WORKED OUT TO 25.53% AS AGAINST THE MARGINS OF ASSESSEE AT 10.01%. THE TPO THUS, PROPOSED AN ADJUSTMENT OF RS.2,74,31,845/ - . THE ASSESSING OFFICER PASSED AN ORDER UNDER SECTION 143(3) R.W.S. 144C(13) OF THE ACT MAKING THE SAID ADJUSTMENT O F RS.2.74 CRORES. FURTHER, THE ASSESSING OFFICER HELD THAT WHILE COMPUTING THE TOTAL INCOME OF ELIGIBLE UNIT UNDER SECTION 10A OF THE ACT, UNABSORBED DEPRECIATION AND BROUGHT FORWARD BUSINESS LOSSES SHALL BE SET OFF FIRST, THEREAFTER, DEDUCTION UNDER SECT ION 10A OF THE ACT SHALL BE ALLOWED. 6. THE ASSESSEE FILED AN APPEAL BEFORE THE CIT(A). THE FIRST ISSUE RAISED WAS AGAINST THE SINGLE YEAR DATA WHICH WAS REJECTED BY THE CIT(A). THE NEXT PLEA WAS IN RESPECT OF COMPARABLE COMPANIES WHICH WERE SELECTED BY THE ASSESSEE IN THE TP STUDY REPORT. THE CIT(A) REJECTED THE PLEA OF ASSESSEE IN RESPECT OF BLUE STAR DESIGN & ENGINEERING LTD. , AFTEK LIMITED AND CADES DIGITECH PVT. LTD. THE CIT(A) ACCEPTED THE PLEA OF ASSESSEE IN EXCLUDING CORAL HUB LTD. BECAUSE OF DIFFERENT FINANCIAL YEAR AND ALSO BEING FUNCTIONALLY NOT COMPARABLE. IN RESPECT OF ADDITIONAL COMPARABLE COMPANIES, IN THE ABSENCE OF ANY ARGUMENTS BY THE ASSESSEE, THE SAME W ERE REJECTED. THE CIT(A) ALSO DIRECTED THE ASSESSING OFFICER TO EXAMINE THE AS SESSEES CONTENTION AND RE - WORK ITA NO. 1250 /P U N/20 1 5 CO NO. 43 /PUN/201 7 6 THE OPERATING MARGINS OF COMPARABLE COMPANIES, IF NECESSARY. IN RESPECT OF WORKING CAPITAL ADJUSTMENT, THE TPO/ASSESSING OFFICER WAS DIRECTED TO RE - WORK THE SAME. THE CIT(A) UPH E LD THE ORDER OF TPO IN NOT GRANTING RISK ADJ USTMENT. IN RESPECT OF DEDUCTION UNDER SECTION 10A OF THE ACT, THE CIT(A) UPHELD THE ORDER OF ASSESSING OFFICER IN GRANTING SET OFF OF BROUGHT FORWARD UNABSORBED DEPRECIATION BEFORE GRANTING DEDUCTION UNDER SECTION 10A OF THE ACT. 7. THE REVENUE IS IN AP PEAL AGAINST THE ORDER OF CIT(A) IN EXCLUDING THE COMPARABLES SELECTED BY THE TPO. 8. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE POINTED OUT THAT IN ASSESSMENT YEAR 2008 - 09, THE ASSESSEE HIMSELF HAD PICKED UP CORAL HUB LTD. AS COMPARABLE. 9. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE ON THE OTHER HAND, POINTED OUT THAT CORAL HUB LTD. WAS NOT COMPARABLE SINCE THE FINANCIAL ACCOUNTING PERIOD WAS FOR PERIOD OF 15 MONTHS. IN THIS REGARD, HE PLACED RELIANCE ON THE RATIO LAID DOWN BY T HE HONBLE BOMBAY HIGH COURT IN CIT VS. PTC SOFTWARE (I) PVT. LTD. (2017) 395 ITR 176 (BOM) . THE NEXT CONTENTION RAISED BY THE ASSESSEE WAS WITH REGARD TO EMPLOYEE COST OF CORAL HUB LTD. BEING LOWER, HENCE IT WAS CLAIMED TO BE ENGAGED IN OUTSOURCING ITS W ORK AND HENCE, NOT COMPARABLE. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE FOR THIS PROPOSITION, PLACED RELIANCE ON THE RATIO LAID DOWN BY THE HONBLE DELHI HIGH COURT IN RAMPGREEN SOLUTIONS PVT. LTD. VS. CIT IN ITA NO.102/2015, JUDGMENT DATED 10.08.2015 . THE THIRD POINT RAISED BY THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE WAS THAT THE YEAR UNDER CONSIDERATION WAS AN EXCEPTIONAL YEAR FOR CORAL HUB LTD., SINCE IT HAD MADE CERTAIN ACQUISITIONS DURING ITA NO. 1250 /P U N/20 1 5 CO NO. 43 /PUN/201 7 7 THE YEAR. HE ALSO REFERRED TO THE ORDER OF CIT(A) FOR EXCLUDING THE SAID CONCERN BECAUSE OF FUNCTIONAL DISSIMILARITIES. IN THIS REGARD, HE PLACED RELIANCE ON THE RATIO LAID DOWN BY THE PUNE BENCH OF TRIBUNAL IN PRINCIPAL GLOBAL SERVICES PVT. LTD. VS. DCIT IN ITA NO.205/PN/2015 AND CROSS APPEAL IN ITA NO.337/PN/2015, RELATING TO ASSESSMENT YEAR 2007 - 08, ORDER DATED 15.04.2016 . 10. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE LIMITED ISSUE WHICH HAS BEEN RAISED BY THE REVENUE BEFORE US IS IN RESPECT OF EXCLUSION OF ONE CONCERN FROM THE FINAL LIST OF COMPARABLES I.E. CORAL HUB LTD. THE ASSESSEE WAS ENGAGED IN DESIGN ENGINEERING SERVICES. THE TPO HAD SELECTED CORAL HUB LTD . AS FUNCTIONALLY COMPARABLE TO THE ASSESSEE. HOWEVER, THE CIT(A) FIRST HELD THAT IT WAS NOT FUNCTI ONALLY COMPARABLE. THE SECOND PLEA WHICH HAS BEEN RAISED BY THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE BEFORE US IS THAT THE YEAR UNDER CONSIDERATION FOR CORAL HUB LTD. WAS DIFFERENT ACCOUNTING PERIOD I.E. COMPRISING OF 15 MONTHS. IN THIS REG ARD, HE POINTED OUT THAT IN VIEW OF THE RATIO LAID DOWN BY THE HONBLE BOMBAY HIGH COURT IN CIT VS. PTC SOFTWARE (I) PVT. LTD. (SUPRA) , THE SAID CONCERN COULD NOT BE SELECTED AS COMPARABLE. WE FIND MERIT IN THE PLEA OF ASSESSEE, WHEREIN THE HONBLE BOMBAY HIGH COURT HAD CLEARLY LAID DOWN THE PROPOSITION THAT THE DATA TO BE USED FOR COMPARABILITY ANALYSIS SHOULD BE OF THE SAME FINANCIAL YEAR IN WHICH INTERNATIONAL TRANSACTIONS WERE ENTERED INTO BY THE TESTED PARTY. THE RELEVANT FINDINGS OF THE HONBLE BOMB AY HIGH COURT ARE AS UNDER: - 24. THE HONBLE BOMBAY HIGH COURT IN CIT VS. PTC SOFTWARE (I) PVT. LTD. IN INCOME TAX APPEAL NO.732/2014 VIDE JUDGMENT DATED 26.09.2016 HAVE HELD THAT WHERE THE CONCERN HAS DIFFERENT ACCOUNTING PERIOD, THEN THE SAME CANNOT BE COMPARED AS COMPARABLE. THE HONBLE BOMBAY HIGH COURT HELD THAT AS PER PROVISIONS OF SECTION 10B(4) OF THE INCOME TAX RULES, 1962 CLEARLY MANDATES THAT THE DATA TO BE USED FOR COMPARABILITY ANALYSIS SHOULD BE OF THE SAME FINANCIAL YEAR IN WHICH THE INTERN ATIONAL TRANSACTIONS WERE ENTERED INTO BY THE TESTED PARTY. IN VIEW THEREOF, IT HELD THAT WHERE A CONCERN HAS DIFFERENT ACCOUNTING PERIOD, THEN THE MARGINS OF SAID CONCERNS ARE NOT COMPARABLE. FOLLOWING THE SAME PARITY OF REASONING, WE HOLD THAT ROLTA IN DIA LTD. HAVING ITA NO. 1250 /P U N/20 1 5 CO NO. 43 /PUN/201 7 8 DIFFERENT YEAR CLOSING THAN THE ASSESSEE BEFORE US CANNOT BE SELECTED AS COMPARABLE AND CONSEQUENTLY, DIRECT THE ASSESSING OFFICER TO EXCLUDE THE MARGINS OF THE SAID CONCERN FROM THE MEAN MARGINS OF COMPARABLES. 11. APPLYING THE SAID PRIN CIPLE TO THE ISSUE RAISED BEFORE US IN THE INSTANT ASSESSMENT YEAR, WE UPHOLD THE ORDER OF CIT(A) IN EXCLUDING CORAL HUB LTD. FROM THE FINAL LIST OF COMPARABLES. EVEN IF CONCERN IS FUNCTIONALLY COMPARABLE, IT CANNOT BE SELECTED BECAUSE OF DIFFERENT ACCOUN TING PERIOD. 12. THE SECOND ASPECT WHICH NEEDS TO BE KEPT IN MIND IS THE YEAR BEING AN EXCEPTIONAL YEAR FOR CORAL HUB LTD., WHEREIN IT HAD MADE CERTAIN ACQUISITIONS DURING THE YEAR. FURTHER, EVEN THE EMPLOYEE COST OF THE SAID CONCERN WAS LOWER. IN OTHER WORDS, IMPLYING IT WAS ENGAGED IN OUTSOURCING. THE ISSUE BEFORE THE HONBLE DELHI HIGH COURT IN RAMPGREEN SOLUTIONS PVT. LTD. VS. CIT (SUPRA) WAS ALSO IN RESPECT OF SAID CONCERN CORAL HUB LTD., WHICH WAS EARLIER KNOWN AS VISHAL INFORMATION TECHNOLOGY LTD . THE HONBLE HIGH COURT NOTED THAT THE EXPENDITURE ON EMPLOYMENT COST DURING THE RELEVANT PERIOD WAS SMALLER COST AS COMPARED TO THE PROPORTIONATE COST INCURRED BY THE ASSESSEE, APPARENTLY FOR THE REASON THAT MOST OF ITS WORK WAS OUTSOURCED TO THE OTHER FINANCIAL / SERVICE PROVIDERS. THE HONBLE HIGH COURT HELD THAT SUCH DIFFERENCE COULD NOT BE BRUSHED ASIDE AS IT WAS VITAL DIFFERENCE AND WOULD HAVE A BEARING ON PROFITABILITY . APPLYING THE SAID PROPOSITION TO THE FACTS OF THE PRESENT CASE, WE UPHOLD THE ORDER OF CIT(A) IN EXCLUDING CORAL HUB LTD. FROM THE FINAL LIST OF COMPARABLES. HENCE, THE GROUNDS OF APPEAL RAISED BY THE REVENUE ARE DISMISSED. 13. NOW, COMING TO THE CROSS OBJECTIONS FILED BY THE ASSESSEE, WHEREIN THE GROUND OF APPEAL NO.1 IS AGAINST THE GROUND OF APPEAL RAISED BY THE REVENUE I.E. IN RESPECT OF ORDER OF CIT(A). IN VIEW OF OUR DECIDING THE ISSUE AND REJECTING THE ITA NO. 1250 /P U N/20 1 5 CO NO. 43 /PUN/201 7 9 GROUND OF APPEAL NO.1 RAISED BY THE REVENUE, THE GROUND OF OBJECTION NO.1 RAISED BY THE ASSESSEE IS THUS, ALLOWED. 14. THE NEXT ISSUE WHICH IS RAISED BY THE ASSESSEE IS IN RESPECT OF REJECTION OF CERTAIN COMPARABLE COMPANIES CONSIDERED AS COMPARABLE BY THE ASSESSEE. 15. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT THOUGH IT HAD RAISED THE ISSUE FOR INCLUSION OF ALL THE CONCERNS WHICH WERE INITIALLY SELECTED BY THE ASSESSEE IN ITS TP STUDY REPORT AS COMPARABLE ; HOWEVER, NOW THE ARGUMENTS ARE RESTRICTED TO INCLUSION OF CADES DIGITECH PRIVATE LIMITED . THE SAID CONCERN WAS REJECTED ON THE GROUND THAT T HE ANNUAL REPORT FOR FINANCIAL YEAR 2009 - 10 WAS NOT FURNISHED BY THE ASSESSEE AND WAS NOT AVAILABLE IN PUBLIC DOMAIN. THE ASSESSEE BEFORE THE CIT(A) HAD POINTED OUT THAT IT HAD USED THE ANNUAL REPORT OF FINANCIAL YEAR 2010 - 11 FOR OBTAINING COMPARATIVE FIG URES FOR FINANCIAL YEAR 2009 - 10 , AS THE PROFIT AND LOSS ACCOUNT REQUIRED TO COMPUTE OPERATING MARGINS WAS NOT AVAILABLE IN PUBLIC DOMAIN FOR THE SAID YEAR. THE ASSESSEE FURTHER POINTED OUT THAT ANNUAL REPORT FOR FINANCIAL YEAR 2009 - 10 WAS AVAILABLE AND FR OM THE SAME, IT WAS POINTED OUT THAT THE SAID COMPANY WAS ENGAGED IN PROVIDING SIMILAR SERVICES AS THAT OF ASSESSEE AND CONSIDERING THE FACT THAT THE ANNUAL REPORT WAS ALSO AVAILABLE IN PUBLIC DOMAIN, COMPANY SHOULD NOT BE REJECTED AND SHOULD BE CONSIDERED IN THE FINAL LIST OF COMPARABLES. THE CIT(A) ON THE OTHER HAND, HELD THAT FIRST OF ALL, SINGLE YEAR DATA HAD TO BE USED. THEREFORE, THE SAID COMPANY COULD NOT BE HELD TO BE COMPARABLE ON THE BASIS OF THREE YEARS DATA. FURTHER, HE NOTED THAT THE ANNUAL REPORT FOR THE SAID COMPANY OF THE RELEVANT YEAR WAS NOT AVAILABLE. HE WAS OF THE VIEW THAT WHERE THE DIRECTORS REPORT, NOTES TO ACCOUNTS AND AUDITORS REPORT PROVIDED USEFUL QUANTITATIVE AS WELL AS QUALITATIVE INFORMATION ABOUT THE BUSINESS ACTIVITY OF T HE ITA NO. 1250 /P U N/20 1 5 CO NO. 43 /PUN/201 7 10 COMPANY DURING THE YEAR, FOR DECIDING THE FUNCTIONAL COMPARABILITY OF THE COMPANY AND FOR DECIDING THE APPLICABILITY OF OTHER FILTERS AND INFORMATION I.E. RPT, HAPPENING OF EXTRAORDINARY EVENTS, ETC. INCLUDING SEGMENTAL WORKINGS, ETC. THE CIT(A) HELD THAT THE SAID INFORMATION COULD NOT BE GATHERED IN THE ABSENCE OF ANNUAL REPORT OF THE SAID COMPANY AND ITS COMPARABILITY OR OTHERWISE COULD NOT BE ASCERTAINED. THE ASSESSEE IS IN APPEAL AGAINST THE SAME. HE STRESSED THAT THE PREVIOUS YEAR FIGURES WERE A VAILABLE IN THE PROFIT AND LOSS ACCOUNT AND OTHER STATEMENTS FOR THE YEAR ENDING 31.03.2010. HE ALSO REFERRED TO THE NOTES TO ACCOUNTS FOR THE YEAR ENDING 31.03.2010 AND POINTED OUT THAT THE FIGURES FOR EARLIER YEAR ENDING 31.03.2009 WERE AVAILABLE IN THE SAID NOTES ITSELF. HE STRESSED THAT THE DETAILS FOR THIS YEAR WERE AVAILABLE IN PUBLIC DOMAIN. HE ALSO POINTED OUT THAT THE TPO IN ASSESSMENT YEAR 2013 - 14 HAS TAKEN THE SAID CONCERN AS COMPARABLE. 16. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE R EVENUE POINTED OUT THAT THE AUDITORS REPORT FOR THE SUBSEQUENT YEAR COULD NOT BE USED AS BASIS FOR DETERMINING FUNCTIONAL COMPARABILITIES AND ALSO TO VERIFY ANY EXTRA EVENTS, ETC. IN THE CASE OF ASSESSEE. 17. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERU SED THE RECORD. THE LIMITED ISSUE WHICH HAS BEEN RAISED VIDE GROUND OF OBJECTION NO.2.1 BY THE ASSESSEE IS RESTRICTED TO INCLUSION OF ONE CONCERN I.E. CADES DIGITECH PVT. LTD. IN FINAL SET OF COMPARABLES. THE CASE OF THE ASSESSEE BEFORE US IS THAT THE FI GURES FOR THE SAID ASSESSMENT YEAR WERE AVAILABLE IN ANNUAL REPORT FOR THE SUCCEEDING YEAR. THE ASSESSEE ALSO CLAIMED THAT THE FINANCIAL DATA FOR THE FINANCIAL YEAR 2009 - 10 WAS AVAILABLE AND COULD BE RELIED UPON FROM THE ANNUAL REPORT OF FINANCIAL YEAR 2010 - 11. THE ASSESSEE HAD FURNISHED THE ANNUAL REPORT FOR FINANCIAL YEAR ITA NO. 1250 /P U N/20 1 5 CO NO. 43 /PUN/201 7 11 2010 - 11 BEFORE THE TPO AND THE CIT(A). HOWEVER, IN THE ABSENCE OF ANNUAL REPORT FOR FINANCIAL YEAR 2009 - 10, THE SAME WAS NOT CONSIDERED BY THE TPO AND THE CIT(A). THE ASSESSEE ON THE OTHER HAND, CLAIMED THAT ALL THESE DATA WAS AVAILABLE IN FINANCIAL STATEMENTS AND ALSO IN THE NOTES TO ACCOUNTS. OUR ATTENTION HAS BEEN DRAWN TO THE ANNUAL REPORT FOR FINANCIAL YEAR 2010 - 11 AND REFERENCE IS MADE TO THE DETAILS AT PAGES 235, 238, 239 AND 240 OF THE PAPER BOOK TO POINT OUT THAT THE FIGURES OF EARLIER YEAR ARE AVAILABLE IN THE PROFIT AND LOSS ACCOUNT, BALANCE SHEET AND EVEN IN THE NOTES TO ACCOUNTS. HE FURTHER POINTED OUT THAT THIS YEAR DETAILS ARE AVAILABLE IN PUBLIC DOMAIN , MAY BE , NO T AT THAT RELEVANT TIME. HE FURTHER POINTED OUT THAT THE TPO HIMSELF IN ASSESSMENT YEAR 2013 - 14 HAD TAKEN THE SAID CONCERN AS COMPARABLE. WE FIND MERIT IN THE PLEA OF ASSESSEE, IN VIEW OF INFORMATION AVAILABLE IN PUBLIC DOMAIN AND ACCORDINGLY, WE DIRECT THE TPO TO INCLUDE CADES DIGITECH PVT. LTD. AS COMPARABLE IN THE HANDS OF ASSESSEE AND RE - WORK THE MEAN MARGINS OF EXTERNAL COMPARABLES AND ALSO DETERMINE THE ARM'S LENGTH PRICE OF INTERNATIONAL TRANSACTIONS . BEFORE PARTING, WE MAY ALSO REFER TO THE TRANS FER PRICING ORDER FOR ASSESSMENT YEAR 2013 - 14 IN ASSESSEES OWN CASE, WHEREIN CADES DIGITECH PVT. LTD. WAS CONSIDERED AS COMPARABLE FOR DESIGN ENGINEERING SEGMENT. FURTHER, THE DELHI BENCH OF TRIBUNAL IN BECHTEL INDIA PVT. LTD. VS. DCIT IN ITA NO.1478/DEL /2015, RELATING TO ASSESSMENT YEAR 2010 - 11, ORDER DATED 21.12.2015 HAD ALSO CONSIDERED CADES DIGITECH PVT. LTD. AS COMPARABLE FOR DESIGN ENGINEERING SEGMENT. IN VIEW THEREOF, THE SAID CONCERN IS TO BE CONSIDERED AS COMPARABLE. ACCORDINGLY, GROUND OF OBJE CTION NO.2.1 IS THUS, ALLOWED. 18. THE NEXT ISSUE RAISED VIDE GROUND OF OBJECTION NO.2.2 IS AGAINST THE CLAIM OF RISK ADJUSTMENT. THE PLEA OF ASSESSEE THAT RISK ADJUSTMENT SHOULD HAVE BEEN GRANTED TO THE ASSESSEE FOR DIFFERENCES BETWEEN FUNCTIONAL AND RI SK PROFILE OF ITA NO. 1250 /P U N/20 1 5 CO NO. 43 /PUN/201 7 12 COMPARABLE COMPANIES VIS - - VIS ASSESSEE. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE IN THIS REGARD POINTED OUT THAT THE ASSESSEE WAS RISK MITIGATED ENTITY, WHEREAS THE COMPARABLES WERE RISK BEARING. HE FURTHER STATED THAT THE AS SESSEE HAD FURNISHED THE WORKING AS PER THE DECISION OF BANGALORE BENCH OF TRIBUNAL IN PHILIPS SOFTWARE CENTRE PVT. LTD. VS. ACIT REPORTED IN 26 SOT 226 AND THE DELHI BENCH OF TRIBUNAL I N THE CASE OF SONY INDIA PVT. LTD. REPORTED IN 114 ITD 448. THE LEARN ED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE IN THIS REGARD PLACED RELIANCE ON THE RATIO LAID DOWN BY THE PUNE BENCH OF TRIBUNAL IN MSC SOFTWARE CORPORATION INDIA PVT. LTD. VS. ACIT IN ITA NO.46/PUN/2013, RELATING TO ASSESSMENT YEAR 2008 - 09, ORDER DATED 2 2.03.2017. 19. WE FIND THAT THE ISSUE IS SQUARELY COVERED BY EARLIER DECISIONS OF THE PUNE BENCH OF TRIBUNAL IN MSC SOFTWARE CORPORATION INDIA PVT. LTD. VS. ACIT (SUPRA), WHEREIN THE SAID CONCERN WAS ALSO CAPTIVE SERVICE PROVIDER TO ITS ASSOCIATED ENTERPR ISES AND HAD CLAIMED TO BE RISK FREE. IT HAD ASKED FOR RISK ADJUSTMENT IN THE MARGINS OF FINALLY SELECTED COMPARABLES AND THE TRIBUNAL VIDE ORDER DATED 22.03.2017 HELD AS UNDER: - 34. FOLLOWING THE SAID RATIO, WE DIRECT THE ASSESSING OFFICER TO ALLOW THE RISK ADJUSTMENT AND RE - COMPUTE THE MARGINS OF COMPARABLES BY APPLYING THE RATIO LAID DOWN BY DELHI BENCH OF TRIBUNAL IN THE CASE OF SONY INDIA PVT. LTD. (SUPRA) AND COMPUTE THE TP ADJUSTMENT, IF ANY, IN THE HANDS OF ASSESSEE. 35. THE GROUND OF APPEAL NO. 10 RAISED BY THE ASSESSEE IS AGAINST APPLICABILITY OF +/ - 5% AND THE BENEFIT CAN BE ALLOWED IF THE ADJUSTMENT IS WITHIN SUCH RANGE AND HENCE, NO ADJUSTMENT IS TO BE MADE IN CASE IT IS NOT MORE THAN 5% FROM THE ARM'S LENGTH PRICE. WE HOLD SO. 20. THE ISSU E ARISING BEFORE US IS SIMILAR AND FOLLOWING THE SAME PARITY OF REASONING, WE DIRECT THE ASSESSING OFFICER TO ALLOW RISK ADJUSTMENT AND RE - WORK THE MARGINS OF COMPARABLES, IN TURN, RELYING ON THE RATIO LAID DOWN BY THE DELHI BENCH OF TRIBUNAL IN THE CASE O F SONY INDIA PVT. LTD. (SUPRA) AND COMPUTE THE TP ITA NO. 1250 /P U N/20 1 5 CO NO. 43 /PUN/201 7 13 ADJUSTMENT, IF ANY, IN THE HANDS OF ASSESSEE. THE GROUND OF OBJECTION NO.2.2 IS THUS, ALLOWED. 21. THE GROUND OF OBJECTION NO.2.3 IS AGAINST COMPUTATION OF ARM'S LENGTH PRICE WITHOUT GRANTING BENEFIT OF + / - 5% UNDER THE PROVISIONS OF SECTION 92C(2) OF THE ACT. THE SAID ISSUE IS SQUARELY COVERED AGAINST THE ASSESSEE AND HENCE, THE SAME IS DISMISSED. 22. THE LAST ISSUE WHICH HAS BEEN RAISED BY THE ASSESSEE VIDE GROUND OF OBJECTION NO.2.4 IS AGAINST THE O RDER OF CIT(A) IN SETTING OFF OF UNABSORBED DEPRECIATION BEFORE ALLOWING DEDUCTION UNDER SECTION 10A OF THE ACT. 23. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT THE DEDUCTION UNDER SECTION 10A OF THE ACT IS TO BE ALLOWED FIRST BEFORE ADJUSTING UNABSORBED DEPRECIATION. IN THIS REGARD, HE PLACED RELIANCE ON THE FOLLOWING DECISIONS: - A) CIT & ANR. VS. YOKOGAWA INDIA LTD. (2017) 291 CTR 0001 (SC) B) CIT VS. TECHNO TARP AND POLYMERS PVT. LTD. (2015) 97 CCH 0048 (BOM) C) VISHAY CO MPONENTS INDIA PVT. LTD. VS. ADDL. CIT (2015) 174 TTJ 354 (PUNE) D) PEOPLE INTERACTIVE (I) PVT. LTD. VS. DCIT IN ITA NOS.3558 & 3717/MUM/2016, RELATING TO ASSESSMENT YEARS 2010 - 11 & 2011 - 12, ORDER DATED 28.12.2016 24. THE LEARNED DEPARTMENTAL REPRESENTAT IVE FOR THE REVENUE IN REPLY, POINTED OUT THAT THE ISSUE STANDS COVERED AGAINST THE ASSESSEE BY THE RATIO LAID DOWN BY THE HON'BLE SUPREME COURT PLASTIBLENDS INDIA LTD. VS. ADDL.CIT (2017) 86 TAXMANN.COM 137 (SC). HE FURTHER POINTED OUT THAT THE CIT(A) HA D RELIED ON THE RATIO LAID DOWN BY THE HON'BLE SUPREME COURT IN HIMASINGKA SEIDE LIMITED VS. CIT REPORTED IN 100 DTR 37 (SC). ITA NO. 1250 /P U N/20 1 5 CO NO. 43 /PUN/201 7 14 25. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ISSUE RAISED VIDE GROUND OF OBJECTION NO.2.4 IS IN RELATION TO COMPUTATION OF DEDUCTION UNDER SECTION 10A OF THE ACT. THE ASSESSEE HAD COMPUTED THE SAID DEDUCTION BEFORE SETTING OFF OF UNABSORBED DEPRECIATION FROM THE PROFITS OF BUSINESS. BOTH THE AUTHORITIES BELOW WERE OF THE VIEW THAT THE SAID DEDUCTION UNDER S ECTION 10A OF THE ACT IS TO BE ALLOWED AFTER SETTING OFF OF UNABSORBED DEPRECIATION FROM THE PROFITS OF ASSESSEE. IN THIS REGARD, RELIANCE WAS PLACED ON THE RATIO LAID DOWN BY THE HON'BLE SUPREME COURT IN HIMASINGKA SEIDE LIMITED VS. CIT (SUPRA). 26. WE FIND THAT SIMILAR ISSUE OF COMPUTATION OF DEDUCTION UNDER SECTION 10A OF THE ACT AROSE BEFORE THE PUNE BENCH OF TRIBUNAL IN VISHAY COMPONENTS INDIA PVT. LTD. VS. ADDL. CIT (SUPRA), WHEREIN IT WAS HELD AS UNDER: - 27. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ISSUE ARISING VIDE GROUND OF APPEAL NO.3 IS IN RELATION TO THE COMPUTATION OF DEDUCTION UNDER SECTION 10B OF THE ACT AFTER THE AMENDMENT TO SECTION W.E.F. 01.04.2001. THE PERSONS INVOKING THE SAID PROVISIONS ARE ENTITLED TO A DED UCTION UNDER THE ACT, AS COMPARED TO THE PRE - AMENDED PROVISIONS OF THE SECTION, UNDER WHICH THE INCOME COMPRISING UNDER THE SAID SECTION WAS EXEMPT FROM THE TOTAL INCOME. THE ISSUE ARISING BEFORE US IS WHETHER WHILE COMPUTING DEDUCTION UNDER SECTION 10B O F THE ACT, IN CASES WHERE THE ASSESSEE HAS UNABSORBED LOSSES OR DEPRECIATION, BROUGHT FORWARD FROM EARLIER YEARS, THEN WHETHER THE SAID UNABSORBED BUSINESS LOSSES / DEPRECIATION ARE TO BE ADJUSTED FROM THE GROSS TOTAL INCOME BEFORE ALLOWING THE DEDUCTION U NDER SECTION 10B OF THE ACT OR THE SAID LOSSES OR THE DEDUCTION UNDER SECTION 10B OF THE ACT IS TO BE ALLOWED IN THE HANDS OF THE ASSESSEE WITHOUT CONSIDERING THE BROUGHT FORWARD UNABSORBED LOSSES / DEPRECIATION, WHICH CAN BE SET OFF AGAINST THE OTHER INCO ME OF ASSESSEE. BOTH THE AUTHORITIES BELOW HAD DENIED THE CLAIM TO THE ASSESSEE, IN VIEW OF THE RATIO LAID DOWN BY THE HONBLE SUPREME COURT IN HIMASINGKA SEIDE LTD. VS. CIT (SUPRA). THE PERUSAL OF THE JUDGMENT OF HONBLE KARNATAKA HIGH COURT IN THE SAID CASE REFLECTS THAT THE YEARS UNDER APPEAL RELATED TO ASSESSMENT YEARS 1988 - 89 TO 1990 - 91 I.E. THE YEARS WHERE THE BENEFIT UNDER SECTION 10B OF THE ACT WAS FOR BEING EXEMPT FROM TOTAL INCOME. HOWEVER, THE YEAR UNDER APPEAL BEFORE US IS ASSESSMENT YEAR 200 5 - 06, WHEREIN THE SAID SECTION HAS BEEN AMENDED AND THE DEDUCTION NOW IS ALLOWABLE TO THE ASSESSEE AS AGAINST THE SAID INCOME BEING EXEMPT IN THE EARLIER YEARS. THE ISSUE IS SETTLED BY THE HONBLE BOMBAY HIGH COURT IN CIT VS. BLACK & VEATCH CONSULTING PVT . LTD. (2012) 348 ITR 72 (BOM), WHEREIN IT WAS HELD AS UNDER: - THE DEDUCTION UNDER S. 10A, HAS TO BE GIVEN EFFECT TO AT THE STAGE OF COMPUTING THE PROFITS AND GAINS OF BUSINESS. THIS IS ANTERIOR TO THE APPLICATION OF THE PROVISIONS OF S.72 WHICH DEALS W ITH THE CARRY FORWARD AND SET OFF OF BUSINESS LOSSES. A DISTINCTION HAS BEEN MADE BY THE LEGISLATURE WHILE INCORPORATING THE PROVISIONS OF CHAPTER VI - A. SECTION 80A(1) STIPULATES THAT IN COMPUTING THE TOTAL INCOME OF AN ASSESSEE, THERE ITA NO. 1250 /P U N/20 1 5 CO NO. 43 /PUN/201 7 15 SHALL BE ALLOWED F ROM HIS GROSS TOTAL INCOME, IN ACCORDANCE WITH AND SUBJECT TO THE PROVISIONS OF THE CHAPTER, THE DEDUCTIONS SPECIFIED IN SS.80C TO 80U. S.80B(5) DEFINES FOR THE PURPOSE OF CHAPTER VI - A GROSS TOTAL INCOME TO MEAN THE TOTAL INCOME COMPUTED IN ACCORDANCE WI TH THE PROVISIONS OF THE ACT, BEFORE MAKING ANY DEDUCTION UNDER THE CHAPTER. WHAT THE REVENUE IN ESSENCE SEEKS TO ATTAIN IS TO TELESCOPE THE PROVISIONS OF CHAPTER VI - A IN THE CONTENT OF THE DEDUCTION WHICH IS ALLOWABLE UNDER S.10A, WHICH WOULD NOT BE PERM ISSIBLE UNLESS A SPECIFIC STATUTORY PROVISION TO THAT EFFECT WERE TO BE MADE. IN THE ABSENCE THEREOF, SUCH AN APPROACH CANNOT BE ACCEPTED. THUS ITAT WAS CORRECT IN HOLDING THAT THE BROUGHT FORWARD UNABSORBED DEPRECIATION AND LOSSES OF THE UNIT THE INCOME WHICH IS NOT ELIGIBLE FOR DEDUCTION UNDER S.10A OF THE ACT CANNOT BE SET OFF AGAINST THE CURRENT PROFIT OF THE ELIGIBLE UNIT FOR COMPUTING THE DEDUCTION UNDER S.10A OF THE IT ACT. 28. THE SAID PROPOSITION OF LAW HAS FURTHER BEEN APPLIED BY THE HONBLE B OMBAY HIGH COURT IN CIT VS. M/S. GANESH POLYCHEM LTD. IN INCOME TAX APPEAL NO.2083 OF 2012, ORDER DATED 25.02.2013 AND IN CIT VS. SCHMETZ INDIA PVT. LTD. (2012) 79 DTR (BOM) 356 AND ALSO BY THE HONBLE HIGH COURT OF GUJARAT IN CIT VS. ACE SOFTWARE EXPORTS LTD. IN TAX APPEAL NO.687 OF 2012, ORDER DATED 18.02.2013. THE MUMBAI BENCH OF TRIBUNAL HAS ALSO APPLIED THE SAID PROPOSITION IN VARIOUS CASES. 27. FURTHER, THE HONBLE BOMBAY HIGH COURT IN CIT VS. TECHNO TARP AND POLYMERS PVT. LTD. IN ITA NO.2134 OF 201 3, VIDE JUDGMENT DATED 05.12.2015 HAVE APPLIED THE PROPOSITION LAID DOWN BY THE HONBLE HIGH COURT OF BOMBAY IN CIT VS. BLACK & VEATCH CONSULTING PVT. LTD. (2012) 348 ITR 72 (BOM) . IT WAS FURTHER HELD THAT THE PROPOSITION LAID DOWN BY THE HONBLE HIGH COU RT OF KARNATAKA IN CIT VS. HIMASINGKA SEIDE LIMITED (2006) 156 TAXMANN 151 (KAR), THOUGH HAS BEEN UPHELD BY THE APEX COURT IN ITS JUDGMENT DATED 19.09.2013 BUT THE SAID DECISION OF THE HONBLE HIGH COURT OF KARNATAKA WAS IN RESPECT OF ASSESSMENT YEAR 1994 - 95. HENCE, IT DEALT WITH THE PROVISIONS OF SECTION 10B OF THE ACT AS EXISTING PRIOR TO 01.04.2001, WHICH ADMITTEDLY, WAS DIFFERENT FROM SECTION 10B OF THE ACT AS IN FORCE IN ASSESSMENT YEAR 2009 - 10, WHICH WAS INVOLVED IN THE APPEAL BEFORE THE HONBLE HIGH COURT. IT WAS POINTED OUT THAT THE AMENDED PROVISIONS OF SECTION 10B OF THE ACT PROVIDES FOR TAX ON PROFITS AND GAINS DERIVED FROM 100% EXPORT ORIENTED UNIT AND IT WAS CLEARLY HELD THAT THE APEX COURT IN HIMASINGKA SEIDE LIMITED VS. CIT (SUPRA) DEALT WIT H THE PROVISIONS OF LAW DIFFERENT FROM THAT WHICH WAS DEALT WITH IN THE IMPUGNED ORDER. ITA NO. 1250 /P U N/20 1 5 CO NO. 43 /PUN/201 7 16 HENCE, IT WAS HELD THAT QUESTION OF LAW PROPOSED BY THE REVENUE WAS NOT SUBSTANTIVE QUESTION OF LAW. 28. THE HON'BLE SUPREME COURT IN THE LATEST DECISION IN CIT & A NR. VS. YOKOGAWA INDIA LTD. (SUPRA) WHILE DECIDING THE ISSUE OF WHETHER BROUGHT FORWARD AND UNABSORBED DEPRECIATION OF 10A UNITS OR NON 10A UNITS COULD BE SET OFF AGAINST PROFITS OF ANOTHER 10A UNITS OF ASSESSEE HELD THAT THE AMENDMENT OF SECTION 10A OF TH E ACT BY THE FINANCE ACT, 2000 W.E.F. 01.04.2001, ESPECIALLY USED THE WORD DEDUCTION OF PROFITS AND GAINS DERIVED BY ELIGIBLE UNIT.., FROM THE TOTAL INCOME OF ASSESSEE. THE APEX COURT THUS, HELD THAT SECTION 10A OF THE ACT HAD CHANGED ITS COLOUR FROM B EING EXEMPTION SECTION TO A PROVISION PROVIDING FOR DEDUCTION; YET IT CONTINUE TO REMAIN IN CHAPTER III OF THE ACT. THE APEX COURT FURTHER REFERRED TO THE CIRCULAR NO.7, DATED 16.07.2013 AS WELL AS CIRCULAR NO.01/13, DATED 17.01.2013, WHICH APPEARED TO BE CONFLICTING AND CONTRADICTORY TO EACH OTHER. THE HON'BLE SUPREME COURT NOTED THE CONTENTION OF REVENUE THAT BY VIRTUE OF AMENDMENT MADE BY THE FINANCE ACT, 2000, DEDUCTION UNDER SECTION 10A OF THE ACT WAS REQUIRED TO BE MADE AND ALLOWED AT THE STAGE OF C OMPUTATION OF TOTAL INCOME UNDER CHAPTER VI, NOTWITHSTANDING THE ABSENCE OF ANY SPECIFIC PROVISIONS IN CHAPTER VI TO THE SAID EFFECT. THE APEX COURT CONCLUDED BY HOLDING AS UNDER : - 16. FROM A READING OF THE RELEVANT PROVISIONS OF SECTION 10A IT IS MORE T HAN CLEAR TO US THAT THE DEDUCTIONS CONTEMPLATED THEREIN IS QUA THE ELIGIBLE UNDERTAKING OF AN ASSESSEE STANDING ON ITS OWN AND WITHOUT REFERENCE TO THE OTHER ELIGIBLE OR NON - ELIGIBLE UNITS OR UNDERTAKINGS OF THE ASSESSEE. THE BENEFIT OF DEDUCTION IS GIVEN BY THE ACT TO THE INDIVIDUAL UNDERTAKING AND RESULTANTLY FLOWS TO THE ASSESSEE. THIS IS ALSO MORE THAN CLEAR FROM THE CONTEMPORANEOUS CIRCULAR NO. 794 DATED 9.8.2000 WHICH STATES IN PARAGRAPH 15.6 THAT, THE EXPORT TURNOVER AND THE TOTAL TURNOVER FOR THE PURPOSES OF SECTIONS 10A AND 10B SHALL BE OF THE UNDERTAKING LOCATED IN SPECIFIED ZONES OR 100% EXPORT ORIENTED UNDERTAKINGS, AS THE CASE MAY BE, AND THIS SHALL NOT HAVE ANY MATERIAL RELATIONSHIP WITH THE OTHER BUSINESS OF THE ASSESSEE OUTSIDE THESE ZONES OR UNITS FOR THE PURPOSES OF THIS PROVISION. ITA NO. 1250 /P U N/20 1 5 CO NO. 43 /PUN/201 7 17 17. IF THE SPECIFIC PROVISIONS OF THE ACT PROVIDE [FIRST PROVISO TO SECTIONS 10A(1); 10A (1A) AND 10A (4)] THAT THE UNIT THAT IS CONTEMPLATED FOR GRANT OF BENEFIT OF DEDUCTION IS THE ELIGIBLE UNDERTAKING AND THAT IS ALSO HOW THE CONTEMPORANEOUS CIRCULAR OF THE DEPARTMENT (NO.794 DATED 09.08.2000) UNDERSTOOD THE SITUATION, IT IS ONLY LOGICAL AND NATURAL THAT THE STAGE OF DEDUCTION OF THE PROFITS AND GAINS OF THE BUSINESS OF AN ELIGIBLE UNDERTAKING HAS TO BE MAD E INDEPENDENTLY AND, THEREFORE, IMMEDIATELY AFTER THE STAGE OF DETERMINATION OF ITS PROFITS AND GAINS. AT THAT STAGE THE AGGREGATE OF THE INCOMES UNDER OTHER HEADS AND THE PROVISIONS FOR SET OFF AND CARRY FORWARD CONTAINED IN SECTIONS 70, 72 AND 74 OF THE ACT WOULD BE PREMATURE FOR APPLICATION. THE DEDUCTIONS UNDER SECTION 10A THEREFORE WOULD BE PRIOR TO THE COMMENCEMENT OF THE EXERCISE TO BE UNDERTAKEN UNDER CHAPTER VI OF THE ACT FOR ARRIVING AT THE TOTAL INCOME OF THE ASSESSEE FROM THE GROSS TOTAL INCOME. THE SOMEWHAT DISCORDANT USE OF THE EXPRESSION TOTAL INCOME OF THE ASSESSEE IN SECTION 10A HAS ALREADY BEEN DEALT WITH EARLIER AND IN THE OVERALL SCENARIO UNFOLDED BY THE PROVISIONS OF SECTION 10A THE AFORESAID DISCORD CAN BE RECONCILED BY UNDERSTANDING THE EXPRESSION TOTAL INCOME OF THE ASSESSEE IN SECTION 10A AS TOTAL INCOME OF THE UNDERTAKING. 18. FOR THE AFORESAID REASONS WE ANSWER THE APPEALS AND THE QUESTIONS ARISING THEREIN, AS FORMULATED AT THE OUTSET OF THIS ORDER, BY HOLDING THAT THOUGH SE CTION 10A, AS AMENDED, IS A PROVISION FOR DEDUCTION, THE STAGE OF DEDUCTION WOULD BE WHILE COMPUTING THE GROSS TOTAL INCOME OF THE ELIGIBLE UNDERTAKING UNDER CHAPTER IV OF THE ACT AND NOT AT THE STAGE OF COMPUTATION OF THE TOTAL INCOME UNDER CHAPTER VI. AL L THE APPEALS SHALL STAND DISPOSED OF ACCORDINGLY. 29. THE HON'BLE SUPREME COURT IN CIT & ANR. VS. YOKOGAWA INDIA LTD. (SUPRA) THUS, HELD THAT STAGE OF DEDUCTION OF PROFITS AND GAINS OF THE BUSINESS OF ELIGIBLE UNDERTAKING HAD TO BE MADE INDEPENDENTLY I. E. IMMEDIATELY AFTER STAGE OF DETERMINATION OF ITS PROFITS AND GAINS. IT WAS FURTHER LAID DOWN THAT PROVISIONS FOR SET OFF AND CARRY FORWARD CONTAINED IN SECTIONS 70, 72 AND 74 OF THE ACT WOULD BE PREMATURE FOR APPLICATION. 30 . THE LEARNED DEPARTMENTAL R EPRESENTATIVE FOR THE REVENUE ON THE OTHER HAND, PLACED RELIANCE ON THE RATIO LAID DOWN BY THE APEX COURT IN PLASTIBLENDS INDIA LTD. VS. ADDL.CIT (SUPRA), WHEREIN THE CLAIM OF DEDUCTION WAS UNDER SECTION 80IA OF THE ACT I.E. CHAPTER VI. THE APEX COURT HEL D THAT THE SAID DEDUCTION UNDER SECTION 80IA OF THE ACT IS TO BE ALLOWED AFTER REDUCING THE DEPRECIATION FOR COMPUTING THE PROFITS ELIGIBLE FOR THE AFORESAID DEDUCTION. HOWEVER, ISSUE IN THE PRESENT CASE BEFORE US IS IN RESPECT OF CLAIM OF DEDUCTION UNDER SECTION 10A OF THE ACT, WHICH IS UNDER CHAPTER III OF THE ACT AND FOLLOWING THE RATIO LAID DOWN IN ITA NO. 1250 /P U N/20 1 5 CO NO. 43 /PUN/201 7 18 CIT & ANR. VS. YOKOGAWA INDIA LTD. (SUPRA), WE FIND NO MERIT IN THE RELIANCE PLACED UPON BY THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE. ACCORD INGLY, APPLYING THE RATIO LAID DOWN IN CIT & ANR. VS. YOKOGAWA INDIA LTD. (SUPRA), WE DIRECT THE ASSESSING OFFICER TO ALLOW THE DEDUCTION UNDER SECTION 10A OF THE ACT BEFORE SETTING OFF OF UNABSORBED DEPRECIATION AGAINST THE PROFITS OF ELIGIBLE UNITS. THUS, THE GROUND OF OBJECTION NO.2.4 IS ALLOWED IN FAVOUR OF ASSESSEE. 31 . IN THE RESULT, APPEAL OF REVENUE IS DISMISSED AND THE CROSS OBJECTIONS OF ASSESSEE ARE ALLOWED. ORDE R PRONOUNCED ON THIS 24 TH DAY OF NOVEM BER , 201 7 . SD/ - SD/ - ( ANIL CHATURVEDI ) (SUSHMA CHOWLA) / ACCOUNTANT MEMBER / JUDICIAL MEMBER / PUNE ; DATED : 24 TH NOVEM BER , 201 7 . GCVSR / COPY OF THE ORDER IS FORWARDED TO : 1. THE APPELLANT ; 2. THE RESPONDENT; 3. THE CIT(A) - 13, PUNE ; 4. THE C IT - 1 / CIT(IT/TP), PUNE ; 5. THE DR A , ITAT, PUNE; 6. GUARD FILE . / BY ORDER , // TRUE COPY // / SR. PRIVATE SECRETARY , / ITAT, PUNE
