Appeal Details
Counselvise Citation
[2017] 119 COUNSELVISE.COM (IT) 3511 (ITAT-PUNE)
Assessee PAN
Bench
Appeal Number
CRN Number
Duration Of Justice
3 year(s) 2 month(s)
Appellant
Respondent
Appeal Type
Cross Objection
Pronouncement Date
16-08-2017
Appeal Filed By
Assessee
Order Result
Partly Allowed
Bench Allotted
A
Next Hearing Date
15-06-2017
Assessment Year
2008-2009
Appeal Filed On
16-06-2014
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE , , BEFORE MS. SUSHMA CHOWLA, JM AND SHRI ANIL CHATURV EDI, AM . / ITA NO.964/PUN/2013 / ASSESSMENT YEAR : 2008-09 THE ASST. COMMISSIONER OF INCOME TAX, CIRCLE-7, PUNE . / APPELLANT VS. SYMANTEC SOFTWARE INDIA PVT. LTD., (FORMERLY VERITAS SOFTWARE INDIA PVT. LTD.,), S.NO.210/1A, SYMPHONEY, RANGE HILLS, PUNE 411 020 PAN : AAACV6015F . RESPONDENT C.O. NO.73/PUN/2014 (ARISING OUT OF ITA NO.964/PUN/2013) / ASSESSMENT YEAR : 2008-09 SYMANTEC SOFTWARE INDIA PRIVATE LIMITED, (FORMERLY VERITAS SOFTWARE INDIA PRIVATE LIMITED), EON FREE ZONE,05 TH FLOOR, WING 1, CLUSTER B, PLOT NO.1, SURVEY NO.77, MIDC KNOWLEDGE PARK, KHARADI, PUNE 411 014 PAN : AAACV6015F . / APPELLANT VS. DY. COMMISSIONER OF INCOME TAX, CIRCLE-7, PUNE . RESPONDENT / APPELLANT BY : SHRI RAJEEV KUMAR, CIT / RESPONDENT BY : SHRI PORUS KAKA & SHRI NIKHIL MUTHA DATE OF HEARING : 15.06.2017 / DATE OF PRONOUNCEMENT: 16.08.2017 / ORDER ITA NO.964/PUN/2013 & CO NO.73/PUN/2014 SYMANTEC SOFTWARE INDIA PVT. LTD. 2 PER SUSHMA CHOWLA, JM: THE APPEALS FILED BY THE REVENUE AND CROSS OBJECTIO N FILED BY THE ASSESSEE ARE AGAINST ORDER OF CIT(A)-IT/TP, PUNE, D ATED 06-02-2013 RELATING TO ASSESSMENT YEAR 2008-09 AGAINST ORDER PASSED UNDER SECTION 143(3) READ WITH SECTION 144C(3) OF THE INCOME TAX ACT, 1961 (IN SH ORT THE ACT). 2. THE APPEAL FILED BY THE REVENUE AND THE CO FILED BY THE ASSESSEE WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS CO NSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. 3. THE REVENUE IN ITA NO.964/PUN/2013 HAS RAISED TH E FOLLOWING GROUNDS OF APPEAL : 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LEARNED CIT(A) ERRED IN HOLDING THAT THE ASSESSEE IS ENTITL ED TO CLAIM DEDUCTION U/S.10A ON THE PROFIT OF UNIT-B ALSO. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, LEAR NED CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE U/S.10A(7) READ WITH SECTION 80IA(7) OF THE ACT DISREGARDING THE FACT THAT THE OPERATING PR OFIT MARGIN OF THE ASSESSEE IS MUCH HIGHER THAN THAT OF COMPARABLE COM PANIES SELECTED BY THE ASSESSEE ITSELF. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, LEAR NED CIT(A) HAS ERRED IN DELETING DISALLOWANCES TOTALING RS.5,19,86 ,127/- BY HOLDING THAT THE AO DID NOT GIVE ADEQUATE OPPORTUNITY TO THE ASS ESSEE, THEREBY DISREGARDING THE DETAILS OF OPPORTUNITIES GIVEN BY THE AO TO THE ASSESSEE AS SPECIFIED IN THE ASSESSMENT ORDER. 4. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, LEAR NED CIT(A) HAS ERRED IN DELETING DISALLOWANCES TOTALING TO RS.5,19 ,86,127/- ALTHOUGH THE ASSESSEE DID NOT DISCHARGE THE ONUS OF SUBSTANTIATI NG THE CLAIMS OF THESE EXPENSES EITHER BEFORE THE AO OR BEFORE THE LEARNED CIT(A). 5. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, LEAR NED CIT(A) HAS ERRED IN DIRECTING THE AO TO ACCEPT R.S. SOFTWARE I NDIA LIMITED AS A COMPARABLE IS REGARDING THE PECULIAR FACTS IN RESPE CT OF THIS COMPANY MENTIONED BY THE TRANSFER PRICING OFFICER (TPO) IN HIS ORDER WHICH CLEARLY DISTINGUISHED THIS COMPANY FROM THE ASSESSEE COMPAN Y. 6. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, LEAR NED CIT(A) HAS ERRED IN DIRECTING THE AO TO EXCLUDE KALS INFORMATI ON SYSTEM LIMITED FOR THE LIST OF COMPARABLE COMPANIES IGNORING THE FACT THAT IN THE ASSESSMENT YEAR 2007-08 IN THE CASE OF THE ASSESSEE, LEARNED C IT(A) HAD ACCEPTED INCLUSION OF THIS COMPANY IN THE LIST OF COMPARABLE S. ITA NO.964/PUN/2013 & CO NO.73/PUN/2014 SYMANTEC SOFTWARE INDIA PVT. LTD. 3 7. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, LEAR NED CIT(A) HAS ERRED IN DIRECTING THE AO TO EXCLUDE FCS SOFTWARE L IMITED FROM THE LIST OF COMPARABLES, THEREBY DISREGARDING THE FINDINGS OF T HE TPO THAT SUBSTANTIAL PART OF THIS COMPANYS REVENUE COMES FR OM SOFTWARE DEVELOPMENT AND THEREFORE IT IS REQUIRED TO BE RETA INED AS A COMPARABLE. 8. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, LEAR NED CIT(A) HAS ERRED IN DIRECTING THE AO TO COMPUTE PLI OF COMPARA BLE COMPANIES AFTER EXCLUDING INCOME IN THE NATURE OF INCOME FROM OTHE R SOURCES AS NON- OPERATIVE INCOME. THE APPELLANT CRAVES LEAVE TO ADD OR AMEND THE GROU NDS OF APPEAL ON OR BEFORE THE APPEAL IS HEARD AND DISPOSED OFF. IT IS PRAYED THAT THE ORDER OF COMMISSIONER OF INCO ME TAX (APPEALS) BE SET ASIDE AND THAT OF THE A.O. BE RESTORED. 4. THE ASSESSEE IN CROSS OBJECTION HAS RAISED THE F OLLOWING GROUNDS : ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LEARNED ASSESSING OFFICER/ TRANSFER PRICING OFFICER AND HON'BLE CIT(A ): CROSS OBJECTIONS WITH REFERENCE TO GROUND 5 OF THE DEPARTMENT'S APPEAL [TRANSFER PRICING ADJUSTMENT] 1. INAPPROPRIATELY SELECTING ADDITIONAL COMPARABLES AND REJECTING COMPANIES IDENTIFIED AS COMPARABLE BY RESPONDENT AS NON-COMPARABLE COMPANIES ERRED BY SELECTING CERTAIN ADDITIONAL COMPANIES AS COMPARABLES EVEN THOUGH SUCH COMPANIES ARE FUNCTIONALLY NOT COMPARAB LE TO THE RESPONDENT AND ALSO FAIL THE QUANTITATIVE CRITERIA ACCEPTED I APPLIED BY THE LEARNED TPO IN TP ORDER ERRED BY REJECTING FUNCTIONALLY COMPARABLE COMPANIE S WHICH ALIKE RESPONDENT UNDERTAKES DEVELOPMENT OF SOFTWARE. FURT HER, THE LEARNED TPO HAS REJECTED CERTAIN COMPARABLE COMPANIES ON AD DITIONAL GROUNDS IN THE TP ORDER WHICH WERE NOT PROVIDED ILL SHOW CAUSE NOTICES THEREBY VIOLATING THE PRINCIPLE OF NATURAL JUSTICE 2. INAPPROPRIATE REJECTION OF CERTAIN FILTERS APPLI ED BY RESPONDENT IN ITS TRANSFER PRICING DOCUMENTATION AND INAPPROPRIAT E INTRODUCTION OF ADDITIONAL FILTERS FOR SELECTING FINAL SET OF COMPA RABLE. ERRED IN APPLYING ADDITIONAL FILTERS FOR SELECTING COMPANIES AND REJECTING THE FILTERS APPLIED BY THE RESPONDENT AT THE TIME O F TRANSFER PRICING DOCUMENTATION FOR IDENTIFYING COMPANIES AS COMPARAB LES, WITHOUT PROVIDING SOUND AND LOGICAL GROUND FOR DOING THE SA ME 3. INAPPROPRIATELY APPLYING THE RELATED PARTY TRA NSACTION ('RPT') CRITERIA ERRED IN APPLYING THE RPT CRITERIA BY CONSIDERING THE VALUE OF RPT AS A PERCENTAGE OF AGGREGATE OF TOTAL SALES AND EXPENSES RATHER THAN CONSIDERING THE BASE TO BE SALES ALONE WHILE COMPUT ING THE RPT CRITERIA. ITA NO.964/PUN/2013 & CO NO.73/PUN/2014 SYMANTEC SOFTWARE INDIA PVT. LTD. 4 FURTHER, ERRED IN REJECTING THE RESPONDENT'S CRITER IA OF APPLYING A FILTER, TO SELECT COMPANIES WITH RPT/SALES LESS THAN OR EQUAL TO 15% AND MODIFYING IT TO SELECT COMPANIES HAVING RPT/TOTAL T RANSACTION LESS THAN OR EQUAL TO 25% WITHOUT SOUND / LOGICAL REASONS. 4. IN APPROPRIATE REJECTION OF COMPANIES REPORTING LOSSES FOR A SINGLE YEAR AND COMPANIES WITH DIMINISHING REVENUES AS COMP ARABLES. ERRED BY REJECTING COMPANIES IDENTIFIED AS COMPARAB LES BY RESPONDENT IN TRANSFER PRICING STUDY REPORT, ON ACCOUNT OF LOS SES INCURRED BY SUCH COMPANIES IN A SINGLE YEAR I.E. FOR FY 2007-08 AND WHICH HAS DIMINISHING REVENUES IN THE SUBSEQUENT FINANCIAL YEA RS, WITHOUT PROVIDING SOUND AND LOGICAL REASONS FOR THE SAME. 5. INAPPROPRIATE SELECTION OF COMPANIES EARNING HIG H / SUPER PROFIT ERRED IN CONSIDERING HIGH PROFIT MAKING COMPANIES I N THE FINAL SET OF COMPARABLES THE TP ORDER CONSIDERING SINGLE YEAR I .E. FY 2007-08, IN COMPARISON TO RESPONDENT WHICH IS A CAPTIVE SERVICE PROVIDER AND OPERATES ON A COST PLUS MODEL. 6. NON ACCEPTANCE OF DATA PROVIDED IN THE TRANSFER PRICING STUDY REPORT AND MAKING AN ADDITION BY RE-COMPUTATION OF ARM'S LENGTH PRICE OF INTERNATIONAL TRANSACTION PERTAINING TO RE NDERING SOFTWARE DEVELOPMENT SERVICES. ERRED BY NOT ACCEPTING THE FINANCIAL DATA AND APPRO ACH ADOPTED BY THE APPELLANT FOR BENCHMARKING ITS INTERNATIONAL TRANSA CTIONS PERTAINING TO INTERNATIONAL TRANSACTION OF RENDERING SOFTWARE DEV ELOPMENT SERVICES PROVIDED BY THE APPELLANT IN ITS TRANSFER PRICING S TUDY REPORT AND FURTHER, RE-COMPUTING THE ARM'S LENGTH PRICE OF INTERNATIONA L TRANSACTIONS PERTAINING TO RENDERING SOFTWARE DEVELOPMENT SERVIC ES. 7. INAPPROPRIATE USE OF SINGLE YEAR FINANCIAL DATA AND NON- CONTEMPORANEOUS FINANCIAL DATA OF COMPARABLE COMPAN IES FOR TRANSFER PRICING ANALYSIS ERRED IN COMPUTING THE ARM'S LENGTH PRICE USING THE FINANCIAL INFORMATION OF COMPARABLE COMPANIES AVAILABLE AT THE TIME OF AS SESSMENT PROCEEDINGS, ALTHOUGH SUCH INFORMATION WAS NOT AVAI LABLE AT THE TIME WHEN THE RESPONDENT COMPLIED WITH THE TRANSFER PRIC ING REGULATIONS. FURTHER, ERRED IN CONSIDERING THE OPERATING MARGINS ON OPERATING COST OF THE COMPARABLE COMPANIES BASED ON THE FINANCIAL DAT A PERTAINING ONLY TO FINANCIAL YEAR ENDED 31 MARCH 2008 AND REJECTING US E OF FINANCIAL' DATA OF COMPARABLE COMPANIES FOR MULTIPLE I.E. THREE YEA RS INCLUDING 31 MARCH 2006 AND 31 MARCH 2007. 8. ERRONEOUSLY REJECTING RISK ADJUSTMENT TO ACCOUNT FOR DIFFERENCE IN RISK PROFILE OF COMPARABLE COMPANIES VIS-A-VIS T HE RESPONDENT ERRED IN NOT MAKING ANY ADJUSTMENTS FOR DIFFERENCE IN RISK PROFILE OF COMPARABLE COMPANIES VIS-A-VIS THE RESPONDENT AND T HEREBY COMPARING THE OPERATING MARGINS OF THE COMPARABLE COMPANIES A SSUMING HIGH BUSINESS RISK WITH THE RESPONDENT'S CAPTIVE RISK MI TIGATED OPERATIONS. ITA NO.964/PUN/2013 & CO NO.73/PUN/2014 SYMANTEC SOFTWARE INDIA PVT. LTD. 5 9. NO OPPORTUNITY OF VERIFICATION ERRED BY UPHOLDING THE LEARNED TPO'S ACTION TO NOT TO SHARE THE SEARCH STRATEGY, ACCEPT / REJECT MATRIX AND SOURCES OF ADD ITIONAL COMPANIES SELECTED AS COMPARABLE IN FINAL SET OF COMPARABLES EVEN AFTER REPEATED REQUESTS BY RESPONDENT FOR THE SAME IN ITS SUBMISSI ONS AND DURING VARIOUS HEARINGS 10. COMPUTATION OF BENEFIT OF VARIATION OF +/- 5 PE RCENT AVAILABLE UNDER PROVISO TO SECTION 92C(2) OF THE ACT. ERRED ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE BY COMPUTING: THE ARM'S LENGTH PRICE OF THE INTERNATIONAL TRANSACTION S OF THE APPELLANT AS THE MEAN ARM'S LENGTH PRICE DETERMINED. WITHOUT TAKING INTO ACCOUNT THE LOWER 5 PERCENT VARIATION (AS STANDARD DEDUCTION) F ROM THE MEAN ARM'S LENGTH PRICE DETERMINED. WHICH IS PERMITTED TO AND WHICH HAS BEEN OPTED FOR BY THE APPELLANT UNDER THE PROVISIONS OF PROVISO TO SE CTION 92C(2) OF THE ACT. 11. ERRONEOUS LEVY OF INTEREST UNDER SECTION 234B O F THE ACT ON TRANSFER PRICING ADJUSTMENT WITHOUT PREJUDICE TO THE GROUNDS ABOVE, IF THE TRAN SFER PRICING ADJUSTMENT IS SUSTAINED THEN THE LEARNED AO HAS ERRED IN LEVYI NG INTEREST UNDER SECTION 2348 OF THE ACT WITHOUT CONSIDERING THE FAC T THAT THE ADDITION ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT IS DUE TO DI FFERENCE OF OPINION AND AS AT THE DUE DATE OF PAYMENT OF ADVANCE TAX BY NO MEANS THE APPELLANT COULD HAVE ESTIMATED SUCH ADJUSTMENTS AND CONSEQUEN TIAL TAX ON SUCH ADJUSTMENT. CROSS OBJECTIONS WITH REFERENCE TO GROUND 3 AND 4 O F THE DEPARTMENT'S APPEAL [ADHOC DISALLOWANCE OF EXPENSES] 12. ADHOC DISALLOWANCE OF BUSINESS EXPENDITURE NOT JUSTIFIABLE AS THE APPELLANT IS COST PLUS ENTITY WITHOUT PREJUDICE TO THE MERITS AS UPHELD BY THE CI T(A), THE EXPENDITURE I.E RENT, REPAIR AND MAINTENANCE, LEGAL FEE, COMPUT ER SUPPLIER, VSNL LINK CHARGES AND TRAVELLING EXPENSES CANNOT BE DISALLOWE D AS THE APPELLANT IS A CAPTIVE UNIT AND INVOICES ITS GROUP COMPANIES ON A COST PLUS BASIS. WITHOUT PREJUDICE TO ABOVE. UPHOLDING THE ADHOC DIS ALLOWANCE WILL RESULT IN DOUBLE DISALLOWANCE AS THE SAME HAS BEEN CONSIDE RED AS PART OF 'OPERATING COST' WHILE COMPUTING THE OPERATING MARG INS EARNED BY THE APPELLANT FOR TRANSFER PRICING PURPOSES THEREBY INC REASING THE TRANSFER PRICING ADJUSTMENT TO THE EXTENT OF THESE EXPENSES. WITHOUT PREJUDICE TO ABOVE, IF THE EXPENDITURE IS D ISALLOWED ON THE GROUND THAT THE SAME IS NOT INCURRED WHOLLY AND EXCLUSIVEL Y FOR THE PURPOSE OF BUSINESS, RECOVERY OF THE SAID COST THROUGH INVOICING SHOULD ALSO NOT BE TAXED. 13. ERRONEOUS COMPUTATION OF INTEREST UNDER SECTION 234B OF THE ACT WITHOUT PREJUDICE TO THE MERITS AND ABOVE OBJECTION S, ERRED ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE IN NOT APPRECIATIN G THAT WHILE COMPUTING THE INTEREST UNDER SECTION 234B OF THE ACT ON ASSES SED INCOME FOR A PERIOD AFTER PAYMENT OF SELF ASSESSMENT TAX. AS PER THE PROVISIONS OF ITA NO.964/PUN/2013 & CO NO.73/PUN/2014 SYMANTEC SOFTWARE INDIA PVT. LTD. 6 SECTION 234B(2)(I) READ WITH SECTION 140A OF THE AC T, ONLY THE AMOUNT OF INTEREST PAID UNDER SECTION 234B AS PART OF SELF- A SSESSMENT TAX AS PER RETURN OF INCOME OUGHT TO BE REDUCED. 5. BRIEFLY, IN THE FACTS OF THE CASE, THE ASSESSEE HAD FURNISHED THE RETURN OF INCOME DECLARING TOTAL INCOME OF RS.88,53,74,905/-. THE ASSESSEE THEREAFTER FILED THE REVISED RETURN OF INCOME DECLARING TOTAL INCOME OF RS.88,41,78,905/-. THE ASSESSING OFFICER MADE A REFERENCE UNDER SECTIO N 92CA(1) TO THE TRANSFER PRICING OFFICER TO COMPUTE THE ARMS LENGTH PRICE O F THE INTERNATIONAL TRANSACTION FOR THE YEAR UNDER CONSIDERATION. THE TRANSFER PRICING OFFICER PROPOSED AN ADJUSTMENT OF RS.39,83,51,674/- VIDE OR DER PASSED UNDER SECTION 92CA(3) OF THE ACT. THE ASSESSING OFFICER SHOW CAU SED THE ASSESSEE WHO INTURN SUBMITTED WRITTEN SUBMISSIONS FILED BEFORE T HE TRANSFER PRICING OFFICER BE RECONSIDERED. HE FURTHER SUBMITTED THAT TRANSFER P RICING OFFICER HAD ERRED IN REJECTING THE COMPARABLES SELECTED IN TRANSFER PRIC ING STUDY REPORT WITHOUT SOUND LOGIC AND LOGICAL REASONS. THE ASSESSING OFF ICER REJECTING THE CONTENTIONS OF THE ASSESSEE MADE ADDITION OF RS.39, 83,51,674/- BEING ADJUSTMENT IN THE INTERNATIONAL TRANSACTIONS. FURT HER, THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAD CLAIMED DEDUCTION UNDER SECTION 10A OF THE ACT AT RS.20,85,53,177/-. THE TRANSFER PRICING OFFICER WH ILE COMPUTING THE VALUE OF INTERNATIONAL TRANSACTION HAD OBSERVED THAT THE OPE RATING PROFIT MARGIN OF THE ASSESSEE WAS 23.02% AND THAT OF THE COMPARABLE COMP ANIES SELECTED BY THE ASSESSEE WAS 11.4%. SINCE THE OPERATING PROFIT MAR GIN OF THE ASSESSEE WAS HIGHER THAN THAT OF THE COMPARABLES SELECTED BY THE ASSESSEE ITSELF, THE AO MADE VERIFICATION OF THE CLAIM OF DEDUCTION UNDER S ECTION 10A OF THE ACT IN VIEW OF SECTION 10A(7) READ WITH SECTION 80IA(10) OF THE ACT. THE ASSESSEE HAD CLAIMED THE SAID DEDUCTION AT RS.20,85,53,177/- AND AS PER THE ASSESSING OFFICER THE DISALLOWANCE UNDER SECTION 10A(7) READ WITH SECTION 80IA(10) OF THE ACT WOULD WORK OUT TO RS.10,32,80,026/-. THE ASSES SING OFFICER MADE ITA NO.964/PUN/2013 & CO NO.73/PUN/2014 SYMANTEC SOFTWARE INDIA PVT. LTD. 7 REFERENCE TO THE ASSESSMENT PROCEEDINGS RELATING TO ASSESSMENT YEARS 2006- 07 AND 2007-08 WHEREIN THE PREDECESSOR-ASSESSING OF FICER HAD DISALLOWED THE SAID DEDUCTION CLAIMED BY THE ASSESSEE UNDER SECTIO N 10A ENTIRELY AND IT WAS ALSO HELD THAT UNIT-B OF THE ASSESSEE COMPANY WAS F OUND BY SPLITTING UP OF BUSINESS OF UNIT-A, HENCE, THE DEDUCTION CLAIMED UN DER SECTION 10A OF THE ACT WAS NOT ALLOWABLE. THE AO FOLLOWING THE SAME PARIT Y OF REASONING DISALLOWED THE DEDUCTION CLAIMED UNDER SECTION 10A OF THE ACT AT RS.20,85,53,177/-. FURTHER, THE CLAIM OF THE ASSESSEE UNDER SECTION 80 G OF THE ACT WAS CURTAILED BECAUSE OF NON-FILING OF THE RECEIPTS. THE ASSESSI NG OFFICER ALSO NOTED THAT THE ASSESSEE HAD NOT ONLY PAID SEVERAL PENALTIES TO THE VARIOUS DEPARTMENTS FOR ITS IRREGULARITIES BUT HAD ALSO COMMITTED OFFENCE UNDER THE COMPANIES ACT AND THE SAID OFFENCE WAS COMPOUNDED BY THE PAYMENT OF COMPO UNDING FEE. 6. ANOTHER POINT NOTED BY THE ASSESSING OFFICER WAS THE COMMENT OF THE AUDITOR THAT THE MANAGEMENT HAS NOT COMPLIED COMPLE TE INFORMATION IN RELATION TO THE TAX DEDUCTED AT SOURCE ON RENT. THE ASSESSE E WAS ASKED TO SUBMIT THE DETAILS OF RENT PAID IN A PARTICULAR FORM, I.E. DET AILS OF THE BUILDING AREA, MACHINERY HIRED, TOTAL AMOUNT PAID AND TDS DEDUCTED AND PAID. THE ASSESSEE WAS ALSO ASKED TO PRODUCE THE BILLS OF EXPENSES. H OWEVER, THE ASSESSING OFFICER NOTED THAT THE ASSESSEE FAILED TO FURNISH T HE DETAILS AND ANOTHER LETTER WAS ISSUED. IN REPLY THOUGH WRITTEN SUBMISSION DAT ED 17-10-2011 WERE FILED, ASSESSEE IN PARA NO.9 WROTE THAT THE DETAILS OF RENT PAYMENTS WERE ENCLOSED BUT THE SAME WERE NOT ENCLOS ED AT ALL, AS PER THE ASSESSING OFFICER, WHO INTURN MADE AN ENTRY IN THE ORDER SHEET ENTRY DATED 17-10-2011. THE ASSESSEE ALSO FAILED TO PRODUCE TH E BILLS OF RENT PAYMENT FOR VERIFICATION. THE ASSESSING OFFICER FURTHER NOTED THAT THERE WAS 45% INCREASE IN RENT AS COMPARED TO THE PRECEDING YEAR AND THOUGH T HE ASSESSEE HAD FURNISHED THE DETAILS BUT THE COLUMN OF REASON OF INCREASE IN RENT WAS LEFT ITA NO.964/PUN/2013 & CO NO.73/PUN/2014 SYMANTEC SOFTWARE INDIA PVT. LTD. 8 BLANK. THE ASSESSEE THUS, AS PER THE ASSESSING OFF ICER, HAD NO EXPLANATION TO OFFER AND 5% OF THE TOTAL RENT PAID AT RS.1,46,40,8 25/- WAS DISALLOWED BY THE ASSESSING OFFICER. FURTHER, OUT OF REPAIRS AND MAI NTENANCE EXPENSES WHERE THERE WAS AN INCREASE OF 325%, I.E. 3.25 TIMES MORE AS COMPARED TO PRECEDING YEAR, WHEREIN THE TOTAL EXPENDITURE DEBITED WAS RS. 3.21 CRORES APPROXIMATELY AND DURING THE YEAR UNDER CONSIDERATION THE ASSESSE E CLAIMED DEDUCTION ON ACCOUNT OF EXPENDITURE TOTALLING TO RS.10.43 CRORES . THE ASSESSEE WAS ASKED TO JUSTIFY THE INCREASE. HOWEVER, THE INFORMATION FILED BY THE ASSESSEE WAS INCOMPLETE AND IN RESPECT OF BIG PAYMENTS, THE ADDR ESSES OF THE RECIPIENTS WERE NOT GIVEN. THE ASSESSEE FAILED TO PRODUCE THE BILL S OF EXPENSES FOR VERIFICATION. THE ASSESSING OFFICER ALSO NOTED THAT THERE WAS NO FALL IN THE NET PROFIT RATE, I.E. AS AGAINST 7.30% FOR ASSESSMENT YEAR 2008-09, GROSS PROFIT RATE FOR ASSESSMENT YEAR WAS ONLY 16.1%. IN THE ABSENCE OF THE ASSESSEE PRODUCING THE BILLS FOR VERIFICATION AS TO WHETHER SAID EXPEN SES WERE REVENUE OR CAPITAL IN NATURE, 20% OF THE TOTAL EXPENSES ON RS.2,08,68,050 /- WAS DISALLOWED. SIMILARLY, IN THE LEGAL AND PROFESSIONAL EXPENSES T HERE WAS INCREASE AND THE ASSESSEE IN RESPECT OF CERTAIN PAYMENTS HAD NOT DED UCTED TAX AT SOURCE AND HAD NOT FURNISHED COMPLETE DETAILS IN RESPECT OF TH E PERSON TO WHOM THE PAYMENTS WAS MADE, HENCE, 5% OF THE TOTAL EXPENSES AT RS.61,04,675/- WAS DISALLOWED. 7. OUT OF THE COMPUTER SUPPLY EXPENDITURE WHEREIN T HE ASSESSEE HAD DEBITED A SUM OF RS.1,29,24,457/- THE ASSESSING OFF ICER NOTED THAT IN THAT ACCOUNT THERE WAS A SUM OF RS.13,11,441/- SHOWN UND ER THE ITEM OCTROI EXPENSES AND SUM OF RS.1,09,476/- UNDER THE ITEM TRAVEL EXPENSES AND FOR THESE TWO EXPENSES NO DETAILS OF RECIPIENTS WERE GI VEN. HENCE, ADDITION OF RS.14,20,917/- WAS MADE IN THE HANDS OF THE ASSESSE E. ANOTHER EXPENDITURE WAS VSNL LINK CHARGES AND TRAVELLING EXPENSES, I.E. RS.2,77,25,825/- AND ITA NO.964/PUN/2013 & CO NO.73/PUN/2014 SYMANTEC SOFTWARE INDIA PVT. LTD. 9 RS.15,12,97,323/- RESPECTIVELY. THE ASSESSEE FAILE D TO FURNISH THE DETAILS BEFORE THE ASSESSING OFFICER NOR THE BILLS OF EXPEN SES. HENCE, 5% OF THE TOTAL EXPENDITURE ON ACCOUNT OF VSNL LINK CHARGES AND TRA VELLING EXPENSES WAS DISALLOWED TOTALLING RS.89,51,160/-. 8. THE CIT(A) DECIDED THE ISSUE OF CLAIM OF DEDUCTI ON UNDER SECTION 10A IN RESPECT OF PROFITS OF UNIT-B IN FAVOUR OF THE ASSES SEE RELYING ON THE DECISION IN ASSESSMENT YEAR 2005-06. THE CIT(A) IN RESPECT OF DISALLOWANCE MADE UNDER SECTION 10A(7) NOTED THAT THE ASSESSING OFFICER HAD FIRST DISALLOWED THE DEDUCTION CLAIMED UNDER SECTION 10A IN ENTIRETY AND THEN HAD GONE TO SAY THAT HE HAS EARNED PROFIT MORE THAN ORDINARY PROFITS. A S AGAINST THE ORDER OF TRANSFER PRICING OFFICER SAYING THAT THE ASSESSEE H AS EARNED LESS THAN WHAT THE COMPARABLE COMPANIES HAVE EARNED IN SIMILAR TRANSAC TIONS, THE CIT(A) OBSERVED THAT IN SUCH CIRCUMSTANCES THE POSITION OF THE ASSESSING OFFICER AND OF THE TRANSFER PRICING OFFICER BOTH COULD NOT BE T RUE AT THE SAME TIME. HE FURTHER HELD THAT ASSESSEES PROFIT MARGIN IN HIS V IEW COULD NOT BE CONSIDERED AS MORE THAN ORDINARY, CONSIDERING THE PROFIT MARGINS PREVALENT IN THE SOFTWARE INDUSTRY. HE FURTHER OBSERVED THAT IN CASE THE YAR DSTICK APPLIED BY THE ASSESSING OFFICER TO DETERMINE THE ORDINARY PROFITS WAS ACCEPTED, THEN NO ASSESSEE WOULD BE IN A POSITION TO SUPPORT ITS TRAN SFER PRICE AT ARMS LENGTH. HE ALSO HELD THAT WHERE THE ASSESSING OFFICER HAS N OT DISCHARGED THE ONUS OF PROVING THE EXISTENCE OF AN ARRANGEMENT, THERE IS N O MERIT IN MAKING THE AFORESAID DISALLOWANCE. 9. THE CIT(A) THEREAFTER TOOK UP THE ISSUE OF ADHOC ADDITION MADE IN RELATION TO CERTAIN EXPENDITURE TOTALLING RS.5,19,8 6,127/-, I.E. OUT OF RENT, REPAIR AND MAINTENANCE, LEGAL FEES, COMPUTER SUPPLY AND VS NL LINK CHARGES/TRAVELLING CHARGES. THE FINDING OF THE CIT (A) AFTER CONSIDERING THE ITA NO.964/PUN/2013 & CO NO.73/PUN/2014 SYMANTEC SOFTWARE INDIA PVT. LTD. 10 EXPLANATION OF THE ASSESSEE IN RESPECT OF EACH OF T HE DISALLOWANCE WAS THAT THE ASSESSING OFFICER HAD FAILED TO CONSIDER THE DETAIL S ALREADY FURNISHED BEFORE HIM, AND IN SOME OF THE ASSESSEE CASES THE ASSESSEE , COULD NOT FURNISH FEW DETAILS. WHERE THE ASSESSEE HAD FURNISHED MOST OF THE INFORMATION AND IF THE INFORMATION WAS NOT SATISFACTORY, THE CIT(A) HELD T HAT IT COULD NOT STRAIGHT-AWAY RESULT INTO DISALLOWANCE. THE CIT(A) FURTHER PRESU MED THAT THE EXPENDITURE BY THE ASSESSEE INVOLVED IN THE DISALLOWANCE WOULD HAV E BEEN PAID BY CHEQUE AND WAS VERIFIABLE AND NO DISALLOWANCE COULD BE MADE IN THE ABSENCE OF SUCH VERIFICATION BY THE ASSESSING OFFICER. HE FURTHER GOES ON TO SAY THAT THE ASSESSING OFFICER DID NOT PROVIDE ADEQUATE NUMBER O F OPPORTUNITIES FOR FURNISHING SOME OF THE DETAILS. ACCORDINGLY, HE HE LD THAT THE DISALLOWANCE MADE BY THE ASSESSING OFFICER WERE UNCALLED FOR AND HE D ELETED THE TOTAL DISALLOWANCE OF RS.5,19,86,127/-. 10. THE NEXT GROUND WHICH WAS TAKEN UP BY THE CIT(A ) WAS THE UNJUST SELECTION OF ADDITIONAL COMPARABLES AND UNJUST REJE CTION OF COMPARABLES SELECTED IN THE TRANSFER PRICING STUDY BY THE ASSES SEE. THE CIT(A) ELABORATELY DEALT WITH EACH OF THE CONCERNS WHICH WERE NOT CONS IDERED BY THE TRANSFER PRICING OFFICER AS FUNCTIONALLY COMPARABLE AND ALSO THE ADDITIONAL CONCERNS WHICH WERE PICKED UP BY THE TRANSFER PRICING OFFICE R. THE REVENUE IS IN APPEAL AGAINST THE ORDER OF CIT(A) IN RESPECT OF CERTAIN C ONCERNS VIDE GROUND NOS. 5 TO 8. THE ASSESSEE VIDE CROSS OBJECTION GROUNDS 1 AND 2 HAS ALSO RAISED THE ISSUE IN RESPECT OF THE COMPARABLES TO BE APPLIED. 11. THE LD. AUTHORISED REPRESENTATIVE FOR THE ASSES SEE AT THE OUTSET POINTED OUT THAT THE ISSUE OF TRANSFER PRICING ADJUSTMENTS IN THE HANDS OF THE ASSESSEE HAS BECOME ACADEMIC BECAUSE OF THE MUTUAL AGREEMENT PROCEDURE (IN SHORT MAP) PROCEEDINGS SINCE ISSUE STANDS SETTLED. ACC ORDINGLY, GROUND NOS. 1 TO ITA NO.964/PUN/2013 & CO NO.73/PUN/2014 SYMANTEC SOFTWARE INDIA PVT. LTD. 11 10 OF THE CROSS OBJECTION AND GROUND NOS. 5 TO 8 OF THE REVENUES APPEAL BECOME ACADEMIC. HENCE, WE ARE NOT DEALING WITH TH E FINDINGS OF CIT(A) IN THIS REGARD AND DISMISS GROUND NOS. 5 TO 8 RAISED BY THE REVENUE, GROUND NO. 1 TO 10 OF CROSS OBJECTIONS. 12. BOTH THE ASSESSEE AND THE REVENUE ARE IN APPEAL AGAINST THE BALANCE ORDER OF THE CIT(A). 13. FIRST WE TAKE UP THE APPEAL FILED BY THE REVENU E. THE FIRST ISSUE RAISED BY THE REVENUE IS AGAINST THE DEDUCTION ALLOWED UND ER SECTION 10A OF THE ACT ON THE PROFIT OF UNIT-B ALSO. 14. THE LD. AUTHORISED REPRESENTATIVE FOR THE ASSES SEE AT THE OUTSET POINTED OUT THAT THE ISSUE HAS BEEN DECIDED IN THE CASE OF THE ASSESSEE ITSELF BY THE HONBLE BOMBAY HIGH COURT IN THE APPEAL RELATING TO ASSESSMENT YEAR 2004-05. HE FURTHER REFERRED TO THE ORDERS OF THE TRIBUNAL R ELATING TO ASSESSMENT YEARS 2006-07, 2007-08, 2009-10 AND 2010-11 AND POINTED O UT THAT THE ISSUE NOW STANDS COVERED. 15. WE FIND THAT THE ISSUE RAISED BEFORE THE HONBL E BOMBAY HIGH COURT IN INCOME TAX APPEAL NO.1534/2012 RELATING TO ASSESSME NT YEAR 2004-05 WAS DECIDED VIDE JUDGMENT DATED 12-12-2014. THE ISSUE WHICH WAS ADJUDICATED BY THE HONBLE HIGH COURT WAS WHETHER THE CLAIM OF DED UCTION UNDER SECTION 10A OF THE ACT IN RESPECT OF UNIT-B WHICH WAS HELD BY T HE ASSESSING OFFICER TO BE A MERE EXTENSION OF UNIT-A AND ACCORDINGLY NOT ELIGIB LE FOR DEDUCTION UNDER SECTION 10A OF THE ACT WAS VALID. IN THAT YEAR, IT WAS HELD THAT THE LOSS OF UNIT-B SHOULD BE SET OFF AGAINST THE PROFIT OF UNIT-A BEFO RE CLAIMING THE DEDUCTION UNDER SECTION 10A OF THE ACT. THE HONBLE HIGH COURT UPH ELD THE FINDINGS OF THE TRIBUNAL THAT UNIT-B WAS NOT AN EXPANSION OF EXISTI NG UNIT-A AND IT WAS RATHER AN ITA NO.964/PUN/2013 & CO NO.73/PUN/2014 SYMANTEC SOFTWARE INDIA PVT. LTD. 12 INDEPENDENT UNIT AND THIS ISSUE WAS SO DECIDED. T HE HONBLE HIGH COURT ALSO HELD THAT THE LOSSES OF UNIT-B BEING SEPARATE UNIT WAS TO BE CARRIED FORWARD AND NOT ADJUSTED AGAINST THE PROFITS OF UNIT-A. FURTHE R THE TRIBUNAL IN ASSESSEES OWN CASE IN ITA NOS.787 AND 805/PN/2009 RELATING TO ASSESSMENT YEAR 2004- 05 ORDER DATED 30-11-2011, ITA NO.962/PN/2013 & CO NO.71/PUN/2014 RELATING TO ASSESSMENT YEAR 2006-07 ORDER DATED 20-01-2017, ITA NO.963/PUN/2013 & CO NO.72/PUN/2014 RELATING TO ASSESSMENT YEAR 2007-08, ITA NO.1799 & 1821/PUN/201 4 AND ITA NO.591/PUN/2015 RELATING TO ASSESSMENT YEARS 2009-1 0 AND 2010-11 ORDER DATED 28-12-2016, ITA NO.538/PUN/2015 RELATING TO A SSESSMENT YEAR 2010-11 ORDER DATED 06-03-2017 HELD THE ASSESSEE TO BE ENTI TLED TO CLAIM DEDUCTION UNDER SECTION 10A OF THE ACT IN RESPECT OF PROFITS OF UNIT-A WITHOUT ADJUSTING THE LOSSES OF UNIT-B AFTER HOLDING THAT UNIT-B WAS A SE PARATE UNIT. IN THE ASSESSMENT YEARS 2006-07 & 2007-08, THE TRIBUNAL HE LD THE ASSESSEE TO BE ELIGIBLE TO CLAIM THE DEDUCTION ON PROFITS OF UNIT- A & UNIT-B ALSO INDEPENDENTLY UNDER SECTION 10A OF THE ACT. FOLLOWING THE SAME P ARITY OF REASONING, WE HOLD THAT THE ASSESSEE IS ENTITLED TO CLAIM THE DEDUCTIO N UNDER SECTION 10A OF THE ACT ON THE PROFITS OF UNIT-A & UNIT-B ALSO AND DISMISS THE GROUND NO.1 RAISED BY THE REVENUE. 16. THE ISSUE IN GROUND NO.2 RAISED BY THE REVENUE IS AGAINST THE ORDER OF CIT(A) IN DELETING THE DISALLOWANCE MADE UNDER SECT ION 10A (7) R.W.S. 80IA (10) OF THE ACT. THE REVENUE IS AGGRIEVED BY THE ORDER O F CIT(A) ON THE GROUND THAT THE OPERATING PROFIT MARGIN OF THE ASSESSEE BEING M UCH HIGHER THAN THAT OF THE COMPARABLE COMPANY SELECTED BY THE ASSESSEE ITSELF, THE DISALLOWANCE UNDER SECTION 10A(7) R.W.S. 80IA (10) OF THE ACT IS WARRA NTED. ITA NO.964/PUN/2013 & CO NO.73/PUN/2014 SYMANTEC SOFTWARE INDIA PVT. LTD. 13 17. THE LD. DEPARTMENTAL REPRESENTATIVE FOR THE REV ENUE PLACED RELIANCE ON THE ORDER OF THE ASSESSING OFFICER. 18. THE LD. AUTHORISED REPRESENTATIVE FOR THE ASSES SEE POINTED OUT THAT IN UNIT-B IT WAS OPERATING ON COST PLUS BASIS WITH MAR KUP OF 8%. HE FURTHER POINTED OUT THAT SAME MARGINS WERE BEING EARNED BY THE ASSESSEE SINCE ASSESSMENT YEAR 2003-04. THE LD. AUTHORISED REPRES ENTATIVE FOR THE ASSESSEE FURTHER REFERRED TO THE MARGINS OF THE ASS ESSEE AT 23.02% FOR THE YEAR UNDER CONSIDERATION AND IN THE PRECEDING YEAR AT 34 .31%. OUR ATTENTION WAS DRAWN TO PAGE 473 OF THE PAPER BOOK WHEREIN THE RAN GE OF COMPARABLES VARIED BETWEEN 14.29% TO 47.30%. HE STRESSED THAT THE MAR GINS OF THE ASSESSEE COMPANY WERE WITHIN THE RANGE THEN HOW CAN THE PROF ITS EARNED BY THE ASSESSEE AT 23% BE CONSIDERED AS EXCESSIVE. HE STR ESSED THAT IT CANNOT BE SAID THAT THE MARGINS OF THE ASSESSEE WERE COMPARAB LE TO RANGE AND THEN GO ON TO SAY THAT THE MARGINS WERE MORE THAN ORDINARY PRO FITS. HE ALSO POINTED OUT THAT IN THE PRECEDING YEAR THE MARGINS WERE 34.31%. THERE WAS NO INVOKING OF THE PROVISIONS OF SECTION 10A(7) R.W.S. 80IA(10) OF THE ACT. HE PLACED RELIANCE ON THE RATIO LAID DOWN BY THE HYDERABAD BENCH OF TH E TRIBUNAL IN DCIT VS. QUICK MD IN ITA NO.97/HYD/2015 ORDER DATED 26-08-20 15 ( PAGE 149 OF THE PAPER BOOK) AND POINTED OUT THAT IN THE FACTS OF TH E SAID CASE, THE MARGINS OF THE ASSESSEE THEREIN WAS 97.40%, I.E. EVEN BEYOND THE R ANGE OF THE COMPARABLES BETWEEN 11.87% TO 88% BUT THE TRIBUNAL HELD THAT TH E SAME COULD NOT BE CONSIDERED AS MORE THAN ORDINARY PROFITS. HE FURTH ER RELIED ON THE SAID ORDER ITSELF AND POINTED OUT THAT, TO INVOKE THE SAID PRO VISIONS OF THE ACT, THE BASIC CONDITION TO BE SATISFIED IS THAT WHERE THE ASSESSE E AND THE RELATED PARTY HAD ARRANGED THE BUSINESS TRANSACTION IN SUCH A WAY THA T IT PRODUCES MORE THAN ORDINARY PROFITS THEN READJUSTMENT OF PROFITS IS AL LOWED. IN THE ABSENCE OF ANY ARRANGEMENT, THE PROVISIONS OF SECTION 10A(7) R.W.S . 80IA (10) OF THE ACT CANNOT ITA NO.964/PUN/2013 & CO NO.73/PUN/2014 SYMANTEC SOFTWARE INDIA PVT. LTD. 14 BE APPLIED. RELIANCE IN THIS REGARD WAS ALSO PLACE D ON THE DECISION OF THE PUNE BENCH OF THE TRIBUNAL IN HONEYWELL AUTOMATION INDIA LIMITED VS. DCIT IN ITA NO.18/PN/2011 ORDER DATED 25-02-2015. 19. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ISSUE WHICH ARISES IN THE PRESENT APPEAL IS IN RELATION T O THE PROFITS DECLARED BY THE ASSESSEE. THE TRANSFER PRICING OFFICER WHILE COMPU TING THE VALUE OF THE INTERNATIONAL TRANSACTION HAD OBSERVED THAT THE OPE RATING PROFIT MARGINS OF THE ASSESSEE WAS 23.02%. THE ASSESSING OFFICER NOTED T HAT THE OPERATING MARGINS OF COMPARABLE COMPANIES SELECTED BY THE ASSESSEE IT SELF WAS 11.40%. THE ASSESSING OFFICER WAS OF THE VIEW THAT THE OPERATIN G PROFIT MARGIN OF THE ASSESSEE WAS HIGHER THAN THAT OF THE COMPARABLES SE LECTED AND IN VIEW OF THE PROVISIONS OF SECTION 10A(7) R.W.S. 80IA (10) OF TH E ACT COMPUTED THE DISALLOWANCE AT RS.20,85,53,177/-. 20. THE FIRST ASPECT OF THE ISSUE FOR THE YEAR UNDE R CONSIDERATION IS MARGIN DECLARED ON TURNOVER OF RS.531.71 CRORES, WHICH WOR KS OUT TO 23.02%. THE ASSESSEE IN THE PRECEDING YEAR HAD DECLARED MARGIN OF 34.31%. THE ASSESSING OFFICER HAD INVOKED THE PROVISIONS OF SECTION 10A(7 ) R.W.S. 80IA (10) OF THE ACT AND WAS OF THE VIEW THAT IT HAD EARNED MORE THAN OR DINARY PROFITS OF BUSINESS SINCE THE MARGINS OF THE COMPARABLE COMPANIES SELEC TED BY IT WERE TO THE TUNE OF 11.47%. IT MAY BE CLARIFIED HEREIN ITSELF THAT THE AVERAGE MEAN OF MARGINS OF THE COMPARABLE COMPANIES WORK OUT TO 11.47% WHEREAS THE RANGE OF THE COMPARABLES SELECTED BY THE ASSESSEE VARY BETWEEN ( -)14.29% TO 47.30%. IN SUCH SCENARIO, WHEREIN THE MARGINS OF THE COMPARABL ES SELECTED WAS AS LOW AS (-) 14.29% AND WAS AS HIGH AS 47.30%, THE MARGINS SHOWN BY THE ASSESSEE AT 23.02% CANNOT BE SAID TO BE ABNORMAL JUSTIFYING THE INVOKING OF THE PROVISIONS OF SECTION 10A(7) R.W.S. 80IA (10) OF THE ACT. ITA NO.964/PUN/2013 & CO NO.73/PUN/2014 SYMANTEC SOFTWARE INDIA PVT. LTD. 15 21. WE FIND SIMILAR ISSUE WAS DECIDED BY THE HYDERA BAD BENCH OF THE TRIBUNAL IN ITA NO.97/HYD/2015 ORDER DATED 26-08-20 15 WHEREIN IT WAS HELD AS UNDER : 8. WE HAVE CONSIDERED THE SUBMISSIONS OF THE PARTI ES AND PERUSED THE ORDERS OF REVENUE AUTHORITIES AS WELL AS OTHER MATE RIALS ON RECORD. WE HAVE ALSO CAREFULLY APPLIED OUR MIND TO THE DECISIO NS CITED AT THE BAR. THE ISSUE ARISING FOR CONSIDERATION BEFORE US HAS TWO A SPECTS, FACTUAL AND LEGAL. AS FAR AS THE FACTUAL ASPECT IS CONCERNED, T HERE IS NO DISPUTE THAT ASSESSEE ON A TURNOVER OF RS. 83.49 CRORES HAS DECL ARED A PROFIT OF 81.36 CRORES, WHICH WORKS OUT TO 97.40%. AO IS OF THE VIE W THAT ASSESSEE HAS DECLARED UNREASONABLY HIGH RATE OF PROFIT ONLY FOR THE PURPOSE OF CLAIMING EXEMPTION U/S 10A OF THE ACT. THEREFORE, INVOKING T HE 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 E XEMPTION U/S 10A ACCORDINGLY. HOWEVER, AS CAN BE SEEN FROM THE FACTS ON RECORD, ASSESSEE FOR BENCH MARKING PRICE CHARGED FOR INTERNATIONAL T RANSACTIONS WITH AE HAS CONDUCTED A TP STUDY, WHEREIN CERTAIN COMPARABL E COMPANIES HAVING AVERAGE ARITHMETIC MEAN OF 36.53% HAVE BEEN SELECTE D. TPO HAS ALSO INDEPENDENTLY CONDUCTED ANALYSIS BY SELECTING COMPA RABLES ON HIS OWN. THE AVERAGE ARITHMETIC MEAN OF COMPARABLES SELECTED BY TPO WORKED OUT TO 52.69%. ON A CAREFUL EXAMINATION OF THE COMPARAB LES SELECTED BY ASSESSEE, IT IS FOUND THAT OP TO SALE RATIO OF THE COMPARABLE COMPANIES FLUCTUATES FROM AS LOW AS 11.88% TO A HIGH OF 74.26 %. SIMILARLY OP TO OC RATIO OF COMPARABLE COMPANIES SELECTED BY TPO INDIC ATES LOWEST OP TO OC OF 7.42% AS AGAINST THE HIGHEST OP TO OC OF 289.50 %. EVEN, THE COMPARABLE COMPANIES CONSIDERED BY AO INDICATE THAT OP TO SALES RATIO OF TWO COMPANIES IS 85% AND 88%, WHEREAS, MARGIN OF AN OTHER COMPANY IS 51%. THUS, ANALYSIS OF THE PROFIT MARGIN OF COMPARA BLE COMPANIES SELECTED BY ASSESSEE, TPO AND AO, AS INDICATED ABOV E, WOULD SHOW THAT THE PROFIT MARGIN IS FLUCTUATING FROM VERY LOW OF 1 1.87% TO A HIGH OF 88%. THEREFORE, CONSIDERED IN THE AFORESAID PERSPECTIVE, PROFIT MARGIN DECLARED BY ASSESSEE AT 97.40% CANNOT BE CONSIDERED TO BE UN REASONABLE OR UNBELIEVABLE CONSIDERING OTHER FACTORS POINTED OUT BY ASSESSEE LIKE LIMITED NATURE OF EXPENDITURE INCURRED BY ASSESSEE A ND THE AMOUNT OF RISK INVOLVED AS WELL AS NICHE BUSINESS AREA. MOREO VER, WHEN COMPARABLE COMPANIES SELECTED BY AO HIMSELF SHOW PROFIT MARGIN OF 88% AND 85%, THERE IS NOT MUCH VARIANCE BETWEEN PROFIT MARGIN SH OWN BY ASSESSEE. FURTHER, IT HAS BEEN BROUGHT TO OUR NOTICE BY LD. A R, WHICH HAS NOT BEEN CONTROVERTED BY LD. DR, IN THE SUBSEQUENT AY ALSO A SSESSEE HAS DECLARED PROFIT AT 96% AND HAS ALSO PAID TAXES OF ABOUT 15 C RORES SINCE THE TAX HOLIDAY HAS ALREADY EXPIRED. CONSIDERED IN THE AFOR ESAID PERSPECTIVE, AO'S CONCLUSION THAT ONLY FOR THE PURPOSE OF CLAIMIN G HIGHER EXEMPTION U/S 10A, ASSESSEE ENHANCED ITS PROFIT MARGIN, CANNO T BE ACCEPTED. 22. THE SECOND ASPECT OF THE ISSUE IS THAT PLAIN RE ADING OF THE PROVISIONS OF SECTION 10A(7) R.W.S. 80IA (10) OF THE ACT MAKES IT CLEAR THAT THE BASIC CONDITION TO BE FULFILLED FOR APPLYING THE SAID PROVISIONS IS THE ESTABLISHMENT OF AN ITA NO.964/PUN/2013 & CO NO.73/PUN/2014 SYMANTEC SOFTWARE INDIA PVT. LTD. 16 ARRANGEMENT BETWEEN THE ASSESSEE AND THE RELATED PA RTY IN SUCH A WAY THAT THE BUSINESS TRANSACTION PRODUCES MORE THAN ORDINAR Y PROFITS TO THE ASSESSEE CARRYING ON THE ELIGIBLE BUSINESS. IN THE ABSENCE OF THE ASSESSING OFFICER ESTABLISHING FOR SUCH AN ARRANGEMENT, THERE IS NO M ERIT IN INVOKING THE SAID SECTIONS. THE ASSESSING OFFICER IN THE PRESENT CAS E HAS NOT GIVEN A FINDING AS TO ANY ARRANGEMENT BEING MADE BETWEEN THE ASSESSEE AND ITS ASSOCIATED ENTERPRISES IN SUCH A MANNER TO GENERATE MORE THAN ORDINARY PROFITS OF BUSINESS. WE FIND THIS ISSUE STANDS SQUARELY COVERE D BY THE DECISION OF THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF HONEYWELL AUTOMATION INDIA LIMITED VS. DCIT IN ITA NO.18/PN/2011 RELATING TO ASSESSMEN T YEAR 2006-07 ORDER DATED 25-02-2015. THE TRIBUNAL HELD AS UNDER : 14. NOW, COMING TO THE SECOND ISSUE I.E. COMPUTATI ON OF PROFITS UNDER SECTION 10A(7) OF THE ACT. WHERE THE MARGINS SHOWN BY THE ASSESSEE ON ITS TRANSACTIONS WITH ASSOCIATE ENTERPRISES AT 26.9 86% WAS HIGHER THAN THE BENCHMARKING DONE BY THE ASSESSEE FOR DETERMINI NG THE ARM'S LENGTH MARGINS AT 12.01%, THE ASSESSING OFFICER WAS OF THE VIEW THAT APPLYING THE PROVISIONS OF SECTION 80IA(10) R.W.S. 10A(7) OF THE ACT, THE PROFITS EARNED BY THE ASSESSEE WERE MORE THAN ORDINARY PROF ITS. HENCE, AN ADJUSTMENT HAD TO BE MADE WHILE WORKING OUT THE ELI GIBLE PROFIT FOR THE PURPOSE OF COMPUTATION OF DEDUCTION UNDER SECTION 1 0A OF THE ACT OF PUNE UNIT-I. THE SAID ISSUE IS SQUARELY COVERED BY VARI OUS BENCHES OF TRIBUNAL INCLUDING THE PUNE BENCH OF TRIBUNAL. THE PUNE BEN CH OF TRIBUNAL IN M/S. HONEYWELL AUTOMATION INDIA LTD. VS. DCIT (SUPR A) HAD HELD AS UNDER:- 7. BEFORE PROCEEDING FURTHER, WE MAY BRIEFLY TOUCH -UPON THE RELEVANT PROVISIONS OF THE ACT, WHICH HAVE A BEARIN G ON THE CONTROVERSY BEFORE US. SUB-SECTION (7) OF SECTION 10A OF THE ACT READS AS UNDER :- (7) THE PROVISIONS OF SUB-SECTION (8) AND SUB-SECT ION (10) OF SECTION 80-IA SHALL, SO FAR AS MAY BE, APPLY IN RELATION TO THE UNDERTAKING REFERRED TO IN THIS SECTION AS THEY APPLY FOR THE PURPOSES OF THE UNDERTAKING REFERRED TO IN SECT ION 80- IA. 8. FURTHER, SUB-SECTIONS (8) AND (10) OF SECTION 8 0-IA OF THE ACT REFERRED TO IN SECTION 10A(7) READ AS UNDER :- (8) WHERE ANY GOODS [OR SERVICES] HELD FOR THE PUR POSES OF THE ELIGIBLE BUSINESS ARE TRANSFERRED TO ANY OTH ER BUSINESS CARRIED ON BY THE ASSESSEE, OR WHERE ANY G OODS [OR SERVICES] HELD FOR THE PURPOSES OF ANY OTHER BU SINESS CARRIED ON BY THE ASSESSEE ARE TRANSFERRED TO THE E LIGIBLE BUSINESS AND, IN EITHER CASE, THE CONSIDERATION, IF ANY, FOR SUCH TRANSFER AS RECORDED IN THE ACCOUNTS OF THE EL IGIBLE ITA NO.964/PUN/2013 & CO NO.73/PUN/2014 SYMANTEC SOFTWARE INDIA PVT. LTD. 17 BUSINESS DOES NOT CORRESPOND TO THE MARKET VALUE OF SUCH GOODS [OR SERVICES] AS ON THE DATE OF THE TRANSFER, THEN, FOR THE PURPOSES OF THE DEDUCTION UNDER THIS SECTION, T HE PROFITS AND GAINS OF SUCH ELIGIBLE BUSINESS SHALL BE COMPUT ED AS IF THE TRANSFER, IN EITHER CASE, HAD BEEN MADE AT THE MARKET VALUE OF SUCH GOODS [OR SERVICES] AS ON THAT DATE : PROVIDED THAT WHERE, IN THE OPINION OF THE ASSESSING OFFICER, THE COMPUTATION OF THE PROFITS AND GAINS O F THE ELIGIBLE BUSINESS IN THE MANNER HEREINBEFORE SPECIF IED PRESENTS EXCEPTIONAL DIFFICULTIES, THE ASSESSING OF FICER MAY COMPUTE SUCH PROFITS AND GAINS ON SUCH REASONABLE B ASIS AS HE MAY DEEM FIT. [EXPLANATION.FOR THE PURPOSES OF THIS SUB-SECTION, MARKET VALUE, IN RELATION TO ANY GOODS OR SERVICES, MEANS THE PRICE THAT SUCH GOODS OR SERVICES WOULD ORDINARILY FETCH IN THE OPEN MARKET.] (9) XXXXXXXXXX (10) WHERE IT APPEARS TO THE ASSESSING OFFICER THAT , OWING TO THE CLOSE CONNECTION BETWEEN THE ASSESSEE CARRYI NG ON THE ELIGIBLE BUSINESS TO WHICH THIS SECTION APPLIES AND ANY OTHER PERSON, OR FOR ANY OTHER REASON, THE COURSE O F BUSINESS BETWEEN THEM IS SO ARRANGED THAT THE BUSINESS TRANS ACTED BETWEEN THEM PRODUCES TO THE ASSESSEE MORE THAN THE ORDINARY PROFITS WHICH MIGHT BE EXPECTED TO ARISE I N SUCH ELIGIBLE BUSINESS, THE ASSESSING OFFICER SHALL, IN COMPUTING THE PROFITS AND GAINS OF SUCH ELIGIBLE BUSINESS FOR THE PURPOSES OF THE DEDUCTION UNDER THIS SECTION, TAKE THE AMOUNT OF PROFITS AS MAY BE REASONABLY DEEMED TO HA VE BEEN DERIVED THEREFROM. 9. SECTION 10A OF THE ACT IS A SPECIAL PROVISION IN RESPECT OF NEWLY ESTABLISHED UNDERTAKINGS IN FREE TRADE ZONE, ETC.. SECTION 10A POSTULATES A DEDUCTION OF SUCH PROFITS AND GAIN S AS ARE DERIVED BY AN UNDERTAKING FROM THE EXPORT OF ARTICL ES OR THINGS OR COMPUTER SOFTWARE FOR A PERIOD OF TEN ASSESSMENT YE ARS BEGINNING WITH THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS Y EAR IN WHICH THE UNDERTAKING BEGINS TO MANUFACTURE OR PRODUCE SU CH ARTICLES OR THINGS OR COMPUTER SOFTWARE, AS THE CASE MAY BE, WH ILE COMPUTING THE TOTAL INCOME OF AN ASSESSEE. SHORN OF OTHER DE TAILS, FOR THE PRESENT IT WOULD SUFFICE TO NOTE THAT THE THREE UNI TS OF THE ASSESSEE, NAMELY, UNIT NO.I & II AT PUNE AND UNIT A T CHENNAI ARE RECOGNIZED AS STPI UNITS IN ACCORDANCE WITH THE SOF TWARE TECHNOLOGY PARK SCHEME OF THE GOVERNMENT OF INDIA A ND THEY ARE ELIGIBLE FOR THE BENEFITS OF SECTION 10A OF THE ACT . 10. THE BONE OF CONTENTION IN THE PRESENT CASE BETW EEN THE ASSESSEE AND THE REVENUE IS INVOKING OF SECTION 10A (7) R.W.S. 80- IA(10) OF THE ACT. SECTION 80-IA(10) OF THE ACT, R EPRODUCED ABOVE, EMPOWERS THE ASSESSING OFFICER TO RE-COMPUTE THE PR OFITS AND GAINS OF THE ELIGIBLE BUSINESS FOR THE PURPOSES OF DEDUCTION U/S 10A OF THE ACT IF IT APPEARS TO HIM THAT THE PROFIT S DECLARED BY THE ASSESSEE ARE MORE THAN THE ORDINARY PROFITS WHICH M IGHT BE EXPECTED TO ARISE IN SUCH AN ELIGIBLE BUSINESS. SO HOWEVER, THE AFORESAID POWER OF THE ASSESSING OFFICER IS SUBJECT TO THE PRE- REQUISITES CONTAINED IN SUB-SECTION (10) OF SECTION 80-IA OF THE ACT ITSELF. THE CIRCUMSTANCES IN WHICH SUCH A COURSE I S AVAILABLE TO THE ASSESSING OFFICER IS CONTAINED IN SECTION 80-IA (10) ITSELF. A ITA NO.964/PUN/2013 & CO NO.73/PUN/2014 SYMANTEC SOFTWARE INDIA PVT. LTD. 18 PERUSAL OF SECTION 10A(7) R.W.S. 80-IA(10) OF THE A CT WOULD SHOW THAT THE TWO ESSENTIAL CONDITIONS ARE TO BE ESTABLI SHED BEFORE THE ASSESSING OFFICER CAN PROCEED TO DISREGARD THE PROF ITS DECLARED BY THE ASSESSEE AND DETERMINE THE AMOUNT OF PROFITS WH ICH MAY REASONABLY DEEMED TO HAVE BEEN DERIVED FROM SUCH BU SINESS. NOTABLY, SUCH CONDITIONS ARE (I) EXISTENCE OF A CLO SE CONNECTION BETWEEN THE ASSESSEE CARRYING ON ELIGIBLE BUSINESS AND ANY OTHER PERSON; AND, (II) THAT THE COURSE OF BUSINESS IS SO ARRANGED THAT THE BUSINESS TRANSACTED PRODUCES TO THE ASSESSEE MORE T HAN THE ORDINARY PROFITS. 11. AT THE OUTSET, IT IS TO BE NOTED THAT THE OPENI NG SENTENCE IN SECTION 80-IA(10) OF THE ACT CONTAINS THE EXPRESSIO N WHERE IT APPEARS TO THE ASSESSING OFFICER THAT . THIS WOULD SHOW THAT THE ONUS IS ON THE ASSESSING OFFICER TO JUSTIF Y INVOKING OF SECTION 10A(7) R.W.S. 80-IA(10) OF THE ACT, HAVING REGARD TO THE FACTS CIRCUMSTANCES OF A GIVEN CASE. EVIDENTLY, TH E PRIMARY RULE OF EVIDENCE IS THAT WHAT IS APPARENT IS REAL UNLESS PROVED OTHERWISE BY THE PERSON ALLEGING IT SO. OSTENSIBLY , IF THE ASSESSING OFFICER IS TO INVOKE THE PROVISIONS OF SECTION 10A( 7) R.W.S. 80-IA(10) OF THE ACT THEN THE ONUS IS ON HIM TO JUSTIFY SUCH INVOCATION HAVING REGARD TO THE COGENT MATERIAL AND EVIDENCE ON RECOR D. ON THIS ASPECT OF THE MATTER, THERE WAS NO DISPUTE BETWEEN THE RIVAL COUNSELS INASMUCH AS THE LD. CIT-DR QUITE FAIRLY AG REED THAT THE ONUS WAS ON THE ASSESSING OFFICER TO JUSTIFY INVOKI NG OF SECTION 10A(7) R.W.S. 80-IA(10) OF THE ACT IN THE FACTS OF A GIVEN CASE. NEVERTHELESS, ON THIS ASPECT, WE MAY ALSO MAKE A RE FERENCE TO THE JUDGEMENT OF THE HONBLE KARNATAKA HIGH COURT IN TH E CASE OF CIT VS. H.P. GLOBAL SOFT LTD., 342 ITR 263, WHICH WAS R EFERRED TO IN THE COURSE OF HEARING BEFORE US. IN THE CASE BEFORE TH E KARNATAKA HIGH COURT, THE ISSUE WAS SIMILAR INASMUCH AS THERE IN, THE ASSESSING OFFICER HAD INVOKED THE PROVISIONS OF SEC TION 80-I(9) R.W.S. 10A(6) OF THE ACT WHILE RE-DETERMINING THE C LAIM OF EXEMPTION IN TERMS OF THE THEN PREVAILING SECTION 10A(4) OF T HE ACT, AND THE ASSESSMENT YEARS WERE 1995-96 TO 1998-99. THE PROV ISIONS OF SECTION 10A(6) R.W.S. 80-I(9) OF THE ACT, WHICH WER E BEFORE THE HONBLE KARNATAKA HIGH COURT ARE QUITE SIMILAR TO TH E PROVISIONS OF SECTION 10A(7) R.W.S. 80-IA(10) OF THE ACT BEFORE U S. THE HONBLE KARNATAKA HIGH COURT, UPHELD THE STAND THAT THE REQ UIREMENTS OF THE PROVISIONS OF SECTION 80-I(9) OF THE ACT ARE TW O-FOLD, NAMELY THAT THERE SHOULD BE A CLOSE CONNECTION BETWEEN THE ASSE SSEE AND THE OTHER PERSON, WHICH MAY BE A REASON FOR THE ASSESSE E TO EARN HIGHER PROFITS BUT, MORE IMPORTANTLY THERE SHOULD B E MATERIAL TO INDICATE THAT ASSESSEE HAD INDULGED IN AN ARRANGEME NT WITH THE OTHER PERSON SO AS TO PRODUCE TO THE ASSESSEE MORE PROFITS THAN ORDINARILY WHAT PROFITS THE ASSESSEE MIGHT HAVE EXP ECTED TO ARISE FROM SUCH BUSINESS. AS PER THE HONBLE KARNATAKA H IGH COURT, IT WAS FOR THE ASSESSING OFFICER TO INDICATE ANY MATER IAL OR EVIDENCE TO DISCLOSE ANY SUCH ARRANGEMENT BETWEEN THE ASSESS EE AND THE OTHER PERSON. THE AFORESAID JUDGEMENT OF THE HONB LE KARNATAKA HIGH COURT JUSTIFIES THE ASSERTION OF THE ASSESSEE BEFORE US THAT THE ONUS FOR JUSTIFYING THE INVOKING OF SECTION 80- IA(10) R.W.S. 10A(7) OF THE ACT IS ON THE REVENUE BASED ON COGENT MATERIAL. AT THIS POINT, WE MAY ALSO MAKE A REFERENCE TO THE JUD GEMENT OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. M/ S SCHMETZ INDIA PVT. LTD. VIDE INCOME TAX APPEAL NO.4508 OF 2 010 DATED 04.09.2012, WHICH IS ALSO TO THE SIMILAR EFFECT. I N THE CASE BEFORE THE HONBLE BOMBAY HIGH COURT ASSESSEE WAS A WHOLLY OWNED ITA NO.964/PUN/2013 & CO NO.73/PUN/2014 SYMANTEC SOFTWARE INDIA PVT. LTD. 19 SUBSIDIARY OF A GERMAN COMPANY. IT HAD TWO DIVISIO NS ONE AT KANDLA IN THE KANDLA FREE TRADE ZONE, ENGAGED IN TH E MANUFACTURE AND EXPORT OF INDUSTRIAL SEWING MACHINE NEEDLESS; AND OTHER AT MUMBAI, ENGAGED IN TRADING IN INDUSTRI AL SEWING MACHINE NEEDLESS. THE MANUFACTURING DIVISION AT KA NDLA EXPORTED ITS ENTIRE PRODUCTION OF INDUSTRIAL MACHINE NEEDLES S TO ITS HOLDING COMPANY IN GERMANY. FOR THE ASSESSMENT YEAR 2004-0 5 ASSESSEE DECLARED AN INCOME OF RS.20.54 CRORES FROM ITS MANU FACTURING DIVISION AT KANDLA AND CLAIMED 100% DEDUCTION U/S 1 0A OF THE ACT. DURING THE COURSE OF THE ASSESSMENT PROCEEDIN GS, ASSESSING OFFICER WAS OF THE VIEW THAT ABNORMAL PROFITS HAD B EEN DECLARED IN RESPECT OF THE KANDLA DIVISION, ONLY IN VIEW OF THE INCOME THEREFROM BEING EXEMPT U/S 10A OF THE ACT, AND THAT THE TRADING DIVISION AT MUMBAI SHOWED A LOSS OF RS.70.29 LACS. THE ASSESSING OFFICER INVOKED THE PROVISIONS OF SECTION 10A(7) R.W.S. 80-IA(10) OF THE ACT TO HOLD THAT PROFITS OF KANDLA DIVISION WERE ABNORMAL PROFITS. THE TRIBUNAL DISAGREED WITH THE ASSESSING OFFICER. THE TRIBUNAL, INTER-ALIA, HELD THAT THE A SSESSING OFFICER HAS NOT BEEN ABLE TO PROVE THAT ANY ARRANGEMENT HAD BEEN ARRIVED BETWEEN THE PARTIES WHICH RESULTED IN EXTRAORDINARY PROFITS TO THE RESPONDENT-ASSESSEES MANUFACTURING DIVISION AT KAN DLA. CONSEQUENTLY, THE WORKING OF THE PROFITS BY THE ASS ESSING OFFICER WAS NOT APPROVED. THE AFORESAID ACTION OF THE TRIB UNAL WAS UPHELD BY THE HONBLE BOMBAY HIGH COURT. ON THIS A SPECT, THE BANGALORE BENCH OF THE TRIBUNAL IN THE CASE OF DIGI TAL EQUIPMENT INDIA LTD. VS. DCIT, 103 TTJ 329 (BANG.) HAS ALSO H ELD THAT THE CONDITIONS OF THE SECTION HAVE TO BE OBJECTIVELY SA TISFIED BY THE ASSESSING OFFICER, BASED ON COGENT REASONING AND EV IDENCE. 12. AT THE TIME OF HEARING, THE LD. REPRESENTATIVE FOR THE ASSESSEE VEHEMENTLY ARGUED THAT THE PROVISIONS OF S ECTION 10A(7) R.W.S. 80-IA(10) OF THE ACT ARE INAPPLICABLE IN THE PRESENT CASE BECAUSE THERE IS NO MATERIAL LEAD BY THE REVENUE TO SAY THAT THERE WAS ANY ARRANGEMENT BETWEEN THE ASSESSEE AND THE AS SOCIATED ENTERPRISES WHICH PRODUCED TO THE ASSESSEE MORE THA N THE ORDINARY PROFITS WITHIN THE MEANING OF SECTION 10 A(7) R.W.S. 80- IA(10) OF THE ACT. ACCORDING TO THE LD. REPRESENTA TIVE, THE TRANSACTIONS OF THE ASSESSEE BY WAY OF RENDERING SO FTWARE ENGINEERING SERVICES TO ITS ASSOCIATED ENTERPRISES ABROAD ARE NOT ARRANGED SO TO YIELD ANY EXTRAORDINARY PROFITS TO T HE ASSESSEE. THE LD. REPRESENTATIVE POINTED OUT THAT ASSESSEE WA S CHARGING THE SAME RATE FOR SERVICES RENDERED TO ASSOCIATED E NTERPRISES AS WELL AS TO THE NON-RELATED PARTIES. THE DETAILS OF RATES CHARGED BY THE ASSESSEE TO THE THIRD PARTIES VIS--VIS THE REL ATED PARTIES HAVE ALSO BEEN PLACED IN THE PAPER BOOK ALONG WITH SAMPL E COPIES OF INVOICES RAISED ON THE AND NON-RELATED PARTIES. IT WAS ALSO POINTED OUT WITH REFERENCE TO THE SUBMISSIONS MADE TO THE A SSESSING OFFICER, WHICH HAVE BEEN REPRODUCED IN PARA 2.6 OF THE ASSESSMENT ORDER, THAT THE ASSESSEE HAS CONTINUED TO CHARGE SI MILAR RATES EVEN AFTER THE TAX HOLIDAY PERIOD OF STPI UNIT HAD ENDED. 13. AT THE TIME OF HEARING, IT WAS EXPLAINED THAT T HE TAX HOLIDAY U/S 10A OF THE ACT WAS AVAILABLE FOR UNIT NO.I AT P UNE UPTO ASSESSMENT YEAR 2007-08; THAT FOR UNIT NO.II AT PUN E UPTO ASSESSMENT YEAR 2011-12; AND, THAT FOR CHENNAI UNIT UPTO ASSESSMENT YEAR 2009-10. A STATEMENT SHOWING OPERA TING MARGINS TO TOTAL COST EARNED BY THE ASSESSEE FROM T HE STPI UNITS RELATABLE TO THE SOFTWARE ENGINEERING SERVICES SEGM ENT WAS FURNISHED TO SHOW THAT EVEN AFTER THE EXPIRY OF THE TAX HOLIDAY ITA NO.964/PUN/2013 & CO NO.73/PUN/2014 SYMANTEC SOFTWARE INDIA PVT. LTD. 20 PERIOD THE PROFITS OF THE UNITS IS HIGHER THAN THE OTHER UNITS OF THE ASSESSEE. 14. IN THIS CONTEXT, A REFERENCE HAS ALSO BEEN MADE TO THE COMMERCIAL REASONS EXPLAINED BEFORE THE ASSESSING O FFICER FOR THE HIGH PROFITS EARNED BY THE ASSESSEES STPI UNIT. F ROM THE SUBMISSIONS FURNISHED TO THE ASSESSING OFFICER, WHI CH HAVE BEEN REPRODUCED IN PARA 2.6 OF THE ASSESSMENT ORDER, IT IS REVEALED THAT REASONS WERE ADVANCED TO JUSTIFY THE HIGHER MARGINS OF THE STPI UNITS. FIRSTLY, IT WAS CONTENDED THAT THERE WAS SU BSTANTIAL COST SAVINGS IN TERMS OF COSTS ON SALES, MARKETING, SALE PROMOTION AND ADVERTISEMENT BECAUSE MAJORITY OF THE BUSINESS IN T HE ENGINEERING SERVICES SEGMENT WAS WITH AFFILIATES ONLY. SECONDL Y, IT WAS POINTED OUT THAT ASSESSEE IS IN THE BUSINESS OF IT ENABLED SERVICES RENDERING ENGINEERING CONSULTANCY SERVICES IN EXECU TION OF INDUSTRIAL AUTOMATION AND BUILDING AUTOMATION AND C ONTROL PROJECTS AND IT DOES NOT INCUR MUCH PRODUCT DEVELOPMENT COST S OR INVESTMENTS WHICH ARE USUALLY INCURRED BY OTHER SOF TWARE COMPANIES. THIRDLY, IT WAS POINTED OUT THAT THE SA LARY LEVELS IN THE CASE OF THE ASSESSEE ARE MUCH LOWER THAN OTHER SOFT WARE COMPANIES BECAUSE ASSESSEE WAS HIRING ELECTRONICS A ND PROCESS ENGINEERING GRADUATES/DIPLOMA HOLDERS AND NOT SOFTW ARE PROFESSIONALS. IT IS ALSO POINTED OUT THAT ASSESSE E HAS A LOWER RATE OF IDLE STAFF AS IT WORKS MOSTLY ON IN-HOUSE HONEYW ELL TECHNOLOGY AND THEREFORE THE PRODUCTIVITY OF THE EMPLOYEES IS MUCH HIGHER THAN OTHER SOFTWARE COMPANIES. FURTHER, IT WAS ALS O POINTED OUT THAT ASSESSEE WAS REIMBURSED ALL THE COSTS, LIKE FO REIGN TRAVEL AND LIVING EXPENSES INCURRED ABROAD BY ITS EMPLOYEES IN THE COURSE OF RENDERING ENGINEERING/SOFTWARE SERVICES. ASSESSEE WAS ALSO REIMBURSED INCIDENTAL EXPENSES INCURRED BY IT VIZ. VISA COSTS, WORK PERMIT COSTS, ETC. AND THEREFORE THE COST OF SALES WAS ON LOWER SIDE, AS A RESULT OF WHICH THE PERCENTAGE OF OPERAT ING PROFIT TO TOTAL COST SHOWS A HIGHER PERCENTAGE, ALTHOUGH THE IMPACT ON PROFIT REMAINS UNALTERED. ALL THESE POINTS, WHICH WERE RA ISED BEFORE THE ASSESSING OFFICER, HAVE BEEN REITERATED BEFORE US T O SHOW THAT THE HIGHER PROFITS ARE NOT ATTRIBUTABLE TO ANY ARRANGEM ENT WITH ASSOCIATED ENTERPRISES BUT DUE TO BUSINESS REASONS. 15. APART THEREFROM, IT HAS ALSO BEEN POINTED OUT T HAT ASSESSEE IS A PUBLIC LIMITED COMPANY LISTED ON THE STOCK-EXCH ANGE WHEREIN THE OVERSEAS HONEYWELL ENTITIES OWNED 81.24% OF SHA REHOLDING AND THE PUBLIC SHAREHOLDING IS TO THE EXTENT OF 18. 76%. IT WAS POINTED OUT THAT INITIALLY TATA GROUP WAS ALSO OWNI NG SHARES IN THE ASSESSEE COMPANY TO THE EXTENT OF 40% AND HONEY WELL ENTITIES HELD 41% AND THE BALANCE 19% WAS HELD BY THE PUBLIC . THIS PATTERN HAD CHANGED FROM NOVEMBER, 2004 ONWARDS WHE N THE TATA GROUP GAVE UP ITS SHAREHOLDING IN THE ASSESSEE COMPANY. ON THE BASIS OF THE AFORESAID SHAREHOLDING PATTERN, A PLEA SETUP BY THE ASSESSEE IS THAT IF THERE WAS ANY MANIPULATI ON OF PROFITS BY ASSESSEE CHARGING HIGHER RATES TO ITS OVERSEAS HONE YWELL GROUP ENTITIES RESULTING IN SHIFTING OF PROFITS FROM OVER SEAS ENTITIES TO THE ASSESSEE-COMPANY, IT WOULD NOT BE A PRUDENT EXERCIS E BY THE HONEYWELL GROUP BECAUSE IT DOES BENEFIT THE HONEYWE LL GROUP AS A WHOLE. SINCE THERE IS A SIGNIFICANT PUBLIC SHAREHO LDING IN THE ASSESSEE COMPANY, IT WOULD MEAN THAT THE ANY EXTRAO RDINARY BENEFIT PASSED ON BY OVERSEAS HONEYWELL GROUP ENTIT IES TO ASSESSEE WOULD RESULT IN A LOSS FOR HONEYWELL GROUP ON AN OVERALL BASIS TO THE EXTENT OF PUBLIC SHAREHOLDING IN THE A SSESSEE COMPANY. IT WAS, THEREFORE, CONTENDED THAT IN SUCH A SCENARIO, IT ITA NO.964/PUN/2013 & CO NO.73/PUN/2014 SYMANTEC SOFTWARE INDIA PVT. LTD. 21 COULD NOT BE SAID THAT THERE WAS ANY ARRANGEMENT BE TWEEN THE ASSESSEE AND THE OVERSEAS HONEYWELL ENTITIES TO PRO DUCE HIGHER PROFITS TO THE ASSESSEE. IN SUPPORT OF SUCH PROPOS ITION, RELIANCE HAS BEEN PLACED ON THE DECISIONS OF THE MUMBAI BENC H OF THE TRIBUNAL IN THE CASE OF ITO VS. ZYDUS NYCOMED HEALT HCARE (ITA NOS.4013/MUM/208, 4206/MUM/2009 AND 4343/MUM/2009 DATED 31.10.2013). 16. APART FROM THE AFORESAID, IT HAS BEEN VEHEMENTL Y ARGUED THAT ORDINARY PROFITS FOR THE PURPOSES OF SECTION 1 0A(7) R.W.S. 80- IA(10) OF THE ACT CANNOT BE COMPUTED RELYING UPON T HE TRANSFER PRICING DOCUMENTS PREPARED BY THE ASSESSEE. THE LD . REPRESENTATIVE POINTED OUT THAT HAVING REGARD TO TH E INTENTION OF THE TRANSFER PRICING PROVISIONS, THE MARGINS DETERM INED UNDER THE TNM METHOD ARE TO BE TAKEN AS INDICATIVE OF THE LEA ST PROFITS THAT MUST BE RETAINED IN INDIA AND IT CANNOT BE USED TO BENCHMARK THE ORDINARY PROFITS AS REFERRED TO IN SECTION 10A(7) R.W.S. 80-IA(10) OF THE ACT. THE SUM AND SUBSTANCE OF THE PLEA SETUP B Y THE ASSESSEE IS THAT THE LEGISLATIVE INTENT BEHIND THE TRANSFER PRICING PROVISIONS IS DIFFERENT FROM THE INTENT BEHIND SECTION 10A(7) R.W.S. 80-IA(10) OF THE ACT. 17. THE LD. CIT-DR HAS MADE DETAILED SUBMISSIONS IN SUPPORT OF THE INVOKING OF SECTION 10A(7) R.W.S. 80-IA(10) OF THE ACT IN THE PRESENT CASE. THE LD. CIT-DR SUBMITTED THAT SECTIO N 80-IA(10) OF THE ACT PLACED MUCH LIGHTER BURDEN OF PROOF ON THE ASSESSING OFFICER BECAUSE OF THE PRESENCE OF THE EXPRESSION IT APPEARS IN SECTION 80-IA(10) OF THE ACT. ACCORDING TO THE LD. CIT-DR, SECTION 80-IA(10) CAN BE INVOKED BY THE ASSESSING OFFICER W HEN IT APPEARS TO HIM, AND IT IS NOT SUBJECT TO THE ASSES SING OFFICERS BELIEF OR SATISFACTION AS IS THE CASE WITH INVOKING OF SECTION 147/148, ETC.. THE FOLLOWING PORTION OF SECTION 80 -IA(10) OF THE ACT WAS EMPHASIZED ..THE ASSESSING OFFICER SHALL, I N COMPUTING THE PROFITS AND GAINS OF SUCH ELIGIBLE BUSINESS FOR THE PURPOSES OF THE DEDUCTION UNDER THIS SECTION, TAKE THE AMOUNT O F PROFITS AS MAY BE REASONABLY DEEMED TO HAVE BEEN DERIVED T O SAY THAT IT DOES NOT REQUIRE THE ASSESSING OFFICER TO P RECISELY DETERMINE THE ELIGIBLE PROFITS, BUT ONLY A PRIMA-FACIE SATISF ACTION ABOUT PRESENCE OF MORE THAN THE ORDINARY PROFITS WOULD SU FFICE. IT IS SOUGHT TO BE EMPHASIZED THAT BECAUSE OF THE PRESENC E OF THE WORDS .AS MAY BE REASONABLY DEEMED TO HAVE BEEN DERIVED. IN SECTION 80-IA(10) OF THE ACT, A MUCH LIGHTER BURDEN OF PROOF IS PUT ON THE ASSESSING OFFICER FOR COMPUT ING TAX AVOIDANCE. AS PER THE LD. CIT-DR, SIMILAR TO THE T RANSFER PRICING PROVISIONS, THE SAID PROVISION DOES NOT REQUIRE A P RECISE ACCURACY ON THE PART OF THE ASSESSING OFFICER. AT THIS POIN T, THE LD. CIT-DR RELIED UPON THE DECISION OF THE HONBLE KERALA HIGH COURT IN THE CASE OF ABDUL VAHAB P. VS. ACIT, (2012) 249 CTR 102 (KERALA) WHEREIN THE WORD APPEARS HAS BEEN UNDERSTOOD TO I MPLY A PRIMA-FACIE SATISFACTION OF THE ASSESSING OFFICER . THEREFORE, IT IS SOUGHT TO BE MADE OUT THAT A PRIMA-FACIE SATISFACTI ON OF THE ASSESSING OFFICER IS ENOUGH TO APPLY THE PROVISIONS OF SECTION 10A(7) R.W.S. 80-IA(10) OF THE ACT. 18. IT IS FURTHER SUBMITTED THAT THE WORD ARRANGEM ENT USED IN SECTION 80-IA(10) OF THE ACT IS TO BE UNDERSTOOD AS ANY AGREEMENT WITH THE ASSOCIATED ENTERPRISE AND IN SUPPORT OF TH E SAME RELIANCE HAS BEEN PLACED ON THE DECISION OF THE HONBLE BOMB AY HIGH COURT IN THE CASE OF BANK OF INDIA LTD. VS. AHMEDABAD MAN UFACTURING & ITA NO.964/PUN/2013 & CO NO.73/PUN/2014 SYMANTEC SOFTWARE INDIA PVT. LTD. 22 CALICO, (1972) 42 COMPCAS 211 (BOMXDPB-P-42), WHERE IN IT HAS BEEN HELD AS UNDER :- THE WORD ARRANGE HAS, AS ONE OF ITS MEANING, IN THE SHORTER OXFORD DICTIONARY, EDITION, TO COME TO AN AGREEMENT OR UNDERSTANDING, AND THE WORD ARRANGEMENT HAS, AS ITS PRIMARY MEANING, THE ACTION OF ARRANGING. AS A M ATTER OF PLAIN LANGUAGE IT WOULD, THEREFORE, FOLLOW THAT THE TERM ARRANGEMENT MEANS ANY AGREEMENT OR UNDERSTANDING BETWEEN THE PARTIES CONCERNED. 19. AS PER THE LD. CIT-DR, SINCE THERE IS AN AGREEM ENT BETWEEN THE ASSESSEE AND THE ASSOCIATED ENTERPRISES FOR PRO VISION OF IT ENABLED ENGINEERING/SOFTWARE SERVICES, IT IS TO BE UNDERSTOOD AS AN ARRANGEMENT WITHIN THE MEANING OF SECTION 80-I A(10) OF THE ACT. ACCORDING TO HIM, THE REQUIREMENTS OF SECTION 80-IA(10) OF THE ACT ARE SATISFIED IF THERE EXISTS AN ARRANGEMENT WH ICH LEADS TO PRODUCTION OF MORE THAN ORDINARY PROFITS. THEREFOR E, ACCORDING TO HIM, IN THE PRESENT CASE, THE ASSESSING OFFICER IS JUSTIFIED TO INVOKE SECTION 10A(7) R.W.S. 80-IA(10) OF THE ACT INASMUCH AS THE PROFIT MARGIN OF THE ASSESSEES STPI UNITS IS 80.06% AS AG AINST 17.06% OF THE COMPARABLE SELECTED BY THE ASSESSEE ITSELF I N ITS TRANSFER PRICING STUDY. AS PER THE LD. CIT-DR, WHEN THE ARR ANGEMENT HAS LED TO RESULTING INTO MORE THAN ORDINARY PROFITS, N ECESSARY CONDITION FOR INVOKING SECTION 80-IA(10) OF THE ACT IS SATISFIED. 20. APART FROM THE AFORESAID SUBMISSIONS, THE LD. C IT-DR HAS MADE OTHER PLEAS ALSO TO JUSTIFY THE RESTRICTION OF DEDUCTION U/S 10A OF THE ACT. IN THIS CONTEXT, HE HAS POINTED OU T THAT EVEN THE SAFE HARBOR RULES ISSUED BY THE CBDT WITH RESPECT T O THE TRANSFER PRICING ASSESSMENT PROVIDE FOR 20% OPERATI NG PROFIT AS AN ACCEPTABLE PROFIT IN IT ENABLED SERVICES SEGMENT AN D THEREFORE THAT WAS A GOOD BENCHMARK AS TO WHAT CONSTITUTES ORDINA RY PROFITS IN THE ASSESSEES IMPUGNED LINE OF BUSINESS. THE LD. CIT-DR ALSO MADE A SUBMISSION THAT EVEN IF THE COMPUTATION OF E XCESS PROFITS DONE BY THE ASSESSING OFFICER BASED ON THE MARGIN O F THE COMPARABLE IS NOT FOUND TO BE A GOOD METHODOLOGY, Y ET THE FAILURE OF COMPUTATION PROCESS BY THE ASSESSING OFFICER WOU LD NOT VITIATE THE INVOKING SECTION 10A(7) R.W.S. 80-IA(10) OF THE ACT IN THE PRESENT CASE. THE EXCESS PROFITS ACCORDING TO HIM CAN BE COMPUTED BY AN APPROPRIATE METHOD BY REMANDING THE MATTER BACK TO THE FILE OF THE ASSESSING OFFICER. IN ANY CASE, IT HAS BEEN CONTENDED SECTION 80-IA(10) OF THE ACT REQUIRES COM PUTING OF MORE THAN ORDINARY PROFITS IN THE ELIGIBLE BUSINESS. C OMPARABLE COMPANIES ARE IN THE SAME LINE OF THE BUSINESS AND HAVING SIMILAR FUNCTIONS PERFORMED, ASSETS EMPLOYED AND RISKS ASSU MED AS THE ASSESSEE, THEREFORE, COMPARABLE COMPANIES ARE CARRY ING ON ELIGIBLE BUSINESS, AND THUS THE PROFITS MARGIN OF COMPARABLE REFLECT ORDINARY PROFITS. 21. WITH REGARD TO THE ASSESSEES PLEA THAT EVEN AF TER THE EXPIRY OF SECTION 10A BENEFITS, ASSESSEE WAS DECLAR ING HEALTHY PROFITS, THE LD. CIT-DR POINTED OUT THAT WHAT MATT ERS IN FUTURE YEARS IS THE ACTUAL AMOUNT OF THE TAXES PAID AND NO T MERELY THE PROFITS GENERATED IN THE UNIT. IT WAS ALSO CONTEND ED THAT THE FACT THAT ASSESSEE HAS RENDERED SERVICES TO THE NON-RELA TED PARTIES AT THE SAME RATES IS ALSO NOT RELEVANT FOR THE PURPOSE S OF APPLICATION OF SECTION 10A(7) R.W.S. 80-IA(10) OF THE ACT. IT WAS ALSO SUBMITTED BY HIM THAT FACT OF THE ASSESSEE BEING REIMBURSED TH E TRAVELLING COSTS, ETC. CANNOT BE RESPONSIBLE FOR ASSESSEES HI GH PROFIT WHICH ITA NO.964/PUN/2013 & CO NO.73/PUN/2014 SYMANTEC SOFTWARE INDIA PVT. LTD. 23 ARE NOT OF AN ORDINARY LEVEL. THE LD. CIT-DR POINT ED OUT THAT IF CERTAIN PART OF THE EXPENDITURE IS BEING INCURRED B Y THE OTHER PARTIES THEN THE COST OF SUCH EXPENDITURE WOULD CER TAINLY BE REDUCED FROM THE PRICE CHARGED BY THE ASSESSEE FOR THE SERVICES RENDERED. IN ANY CASE, IT IS POINTED OUT THAT REIM BURSEMENT OF EXPENSES IS A PROFIT NEUTRAL TRANSACTION AND DOES N OT IMPACT THE PROFITABILITY OF THE ASSESSEE. 22. BEFORE WE PROCEED FURTHER, IT WOULD BE APPROPRI ATE TO EXAMINE THE SCOPE AND INTENT OF THE PROVISIONS OF S ECTION 10A(7) R.W.S. 80-IA(10) OF THE ACT. IN THIS CONTEXT, A RE FERENCE HAS BEEN MADE TO THE CBDT CIRCULAR NO.308 DATED 29.06.2008 W HEREIN THE REASONS FOR INTRODUCTION OF SUB-SECTION (7) TO SECT ION 10A OF THE ACT HAS BEEN EXPLAINED. IN-PARTICULAR, REFERENCE HAS B EEN MADE TO THE FOLLOWING CONTENTS OF THE CIRCULAR :- THE PROVISIONS OF SUB-SECTION (8) AND SUB-SECTION (9) OF SECTION 80-I WILL ALSO APPLY IN RELATION TO THE IND USTRIAL UNDERTAKING REFERRED TO IN THE NEW SECTION 10A AS T HEY APPLY IN RELATION TO AN INDUSTRIAL UNDERTAKING REFE RRED TO UNDER SECTION 80-I. UNDER THE APPLIED SUB-SECTION (8) OF SECTION 80-I, IT IS PROVIDED THAT WHERE AN ASSESSEE HAS SEVERAL UNITS, SOME IN THE FREE TRADE ZONE AND SOME OUTSIDE, THE PROFITS OF THE UNIT IN THE FREE TRADE ZONE WILL BE COMPUTED AFTER TAKING THE COST OF THE GOODS TRANSFE RRED TO OR FROM THE UNIT ON THE BASIS OF THE MARKET VALUE OF S UCH GOODS. THE APPLIED SUB-SECTION (9) OF SECTION 80-I EMPOWERS THE INCOME-TAX OFFICER TO DETERMINE THE REASONABLE PROFITS THAT COULD BE ATTRIBUTED TO THE QUALIFYING UNDERTAK ING IN THE FREE TRADE ZONE IN CASES WHERE, OWING TO THE CLOSE CONNECTION BETWEEN THE ASSESSEE AND ANY OTHER PERSO NS OR FOR ANY OTHER REASON, THE COURSE OF THE BUSINESS IS SO ARRANGED THAT THE INDUSTRIAL UNDERTAKING SET UP IN THE FREE TRADE ZONE DERIVES MORE THAN ORDINARY PROFITS WHICH MAY BE EXPECTED TO ARISE IN THAT BUSINESS. THIS PROVISION HAS BEEN MADE WITH A VIEW TO AVOIDING ABUSE OF THE NEW TAX CONCESSIONS BY MANIPULATION OF PROFITS BETWEEN ASSO CIATE CONCERNS OR DIFFERENT UNITS OF THE SAME CONCERN. [UNDERLINED FOR EMPHASIS BY US] 23. QUITE CLEARLY, THE PROVISIONS OF SECTION 10A(7) OF THE ACT INTEND TO PLUG ABUSE OF TAX CONCESSION BY MANIPULAT ION OF PROFITS BETWEEN ASSOCIATED CONCERNS OR BETWEEN DIFFERENT UN ITS OF THE SAME CONCERN. THE OBJECTIVE OF THE AFORESAID PROVI SION IS THAT THE TAX CONCESSIONS ARE NOT ABUSED BY MANIPULATION OF P ROFITS. IN OUR CONSIDERED OPINION, THE AFORESAID EXPLANATION IN TH E CBDT CIRCULAR (SUPRA) SIGNIFIES THE LEGISLATIVE INTENT AND IT IS ALSO MANIFESTED IN THE LANGUAGE OF SECTION 10A(7) R.W.S. 80-IA(10) OF THE ACT. WE SAY SO FOR THE REASON THAT THE PHRASEOLOGY OF SECTION 8 0-IA(10) OF THE ACT ITSELF SUGGESTS THAT THE PROFITS AND GAINS OF A N ELIGIBLE BUSINESS CANNOT BE TINKERED WITH BY THE ASSESSING OFFICER ME RELY BECAUSE THEY ARE MORE THAN THE ORDINARY PROFITS OR THAT THE Y ARE QUITE HIGH. THE EXISTENCE OF SUBSTANTIAL OR MORE THAN ORDINARY PROFITS BY ITSELF DOES NOT SUFFICIENTLY EMPOWER THE ASSESSING OFFICER TO DISREGARD THEM AND DETERMINE THE PROFITS WHICH HE MAY CONSIDE R TO BE REASONABLY DEEMED TO HAVE BEEN DERIVED THEREFROM. THE PRESENCE OF THE EXPRESSION THE COURSE OF BUSINESS IS S O ARRANGED . THAT THE BUSINESS TRANSACTED PRODUCES T O THE ASSESSEE MORE THAN ORDINARY PROFITS IS SIGNIFICANT AND ITS ITA NO.964/PUN/2013 & CO NO.73/PUN/2014 SYMANTEC SOFTWARE INDIA PVT. LTD. 24 UNDERSTANDING HAS TO BE PREFACED BY THE LEGISLATIVE OBJECTIVE OF PLUGGING ABUSE OF THE TAX CONCESSIONS GRANTED U/S 1 0A OF THE ACT BY MANIPULATION OF PROFITS BETWEEN ASSOCIATED PARTI ES. IN OTHER WORDS, THE IMPORT OF THE EXPRESSION SO ARRANGED H AS TO BE READ IN CONJUNCTION WITH THE LEGISLATIVE INTENT THAT THE RE SHOULD NOT BE ANY ABUSE OF TAX CONCESSION BY MANIPULATION OF PROF ITS. THEREFORE, SECTION 10A(7) R.W.S. 80-IA(10) OF THE ACT CAN BE I NVOKED ONLY WHERE IT IS SHOWN THAT THE COURSE OF BUSINESS IS SO ARRANGED WHICH REFLECTS AN ABUSE OF TAX CONCESSION WHEREBY THE BUS INESS TRANSACTED BETWEEN TWO ENTITIES IS SO ARRANGED, WHI CH PRODUCES TO THE ASSESSEE MORE THAN THE ORDINARY PROFITS WHICH M IGHT BE EXPECTED TO ARISE IN SUCH ELIGIBLE BUSINESS. THE E MPHASIS 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 TH E TAX CONCESSION. OSTENSIBLY, IN THE PRESENT CASE, THE R EVENUE WOULD HAVE TO JUSTIFY THAT THE COURSE OF BUSINESS BETWEEN ASSESSEE AND THE ASSOCIATED ENTERPRISES HAS BEEN SO ARRANGED W HICH PRODUCES TO THE ASSESSEE MORE THAN THE ORDINARY PROFITS WHIC H MIGHT BE EXPECTED TO ARISE IN SUCH ELIGIBLE BUSINESS WITH TH E INTENTION OF ABUSING THE TAX CONCESSION GRANTED IN SECTION 10A O F THE ACT. THE MERE EXISTENCE OF (I) A CLOSE CONNECTION BETWEEN TH E ASSESSEE AND THE OTHER PERSON; AND, (II) MORE THAN ORDINARY PROF ITS IS NOT SUFFICIENT TO JUSTIFY INVOKING OF SECTION 80-IA(10) OF 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 MANIPULAT ING PROFITS BETWEEN ASSOCIATED PERSONS. OSTENSIBLY, THE SAME I S REQUIRED TO BE DEMONSTRATED ON THE BASIS OF A COGENT MATERIAL AN D 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 SECTION 10A(7) R.W.S. 80-IA(10) OF THE ACT. 24. ON THIS ASPECT, THE LD. CIT-DR HAD VEHEMENTLY A RGUED, BASED ON THE JUDGEMENT OF THE HONBLE BOMBAY HIGH C OURT IN THE CASE OF BANK OF INDIA LTD. (SUPRA) THAT THE MEANING OF THE WORD ARRANGED IN SECTION 80-IA(10) OF THE ACT HAS TO B E UNDERSTOOD TO MEAN AN AGREEMENT OR AN UNDERSTANDING BETWEEN THE P ARTIES CONCERNED. THE RELEVANT PORTION OF THE DECISION OF THE HONBLE BOMBAY HIGH COURT HAS BEEN REPRODUCED IN THE EARLIE R PART OF THIS ORDER, ACCORDING TO WHICH, IT IS SAID THAT THE TERM ARRANGEMENT IN PLAIN LANGUAGE MEANS ANY AGREEMENT OR UNDERSTANDING BETWEEN THE PARTIES CONCERNED. ON THIS BASIS, THE LD. CIT- DR SUBMITTED THAT UNDENIABLY THERE IS AN AGREEMENT BETWEEN THE A SSESSEE AND THE ASSOCIATED ENTERPRISES WHEREBY THE SERVICES HAV E BEEN PROVIDED BY THE ASSESSEE TO THEM AND THEREFORE THE SAME IS TO BE UNDERSTOOD AS AN ARRANGEMENT WITHIN THE MEANING O F SECTION 10A(7) R.W.S. 80-IA(10) OF THE ACT. ALONG WITH THE AFORESAID, IT HAS ALSO BEEN EMPHASIZED, ON THE BASIS OF THE LANGUAGE OF SECTION 80- IA(10) OF THE ACT THAT, THE ASSESSING OFFICER IS NO T REQUIRED TO BE PROVE THAT THERE IS AN ARRANGEMENT FOR PRODUCING MO RE THAN ORDINARY PROFITS. WHEREAS, AS PER THE LD. CIT-DR, SECTION PROVIDES THAT ARRANGEMENT LEADING TO PRODUCTION OF MORE THAN ORDINARY PROFIT WILL SATISFY THE NECESSARY CONDITION OF SECT ION 80-IA(10) OF THE ACT. THUS, ACCORDING TO THE LD. CIT-DR, IN THE INSTANT CASE THERE IS AN ARRANGEMENT AND IT HAS LEAD TO PRODUCTI ON OF MORE THAN THE ORDINARY PROFITS. ACCORDING TO THE LD. CIT-DR, THE MEANING OF ITA NO.964/PUN/2013 & CO NO.73/PUN/2014 SYMANTEC SOFTWARE INDIA PVT. LTD. 25 THE WORDS SO ARRANGED IN SECTION 80-IA(10) OF THE ACT ONLY SEEKS TO ENSURE THAT THERE WAS AN AGREEMENT BETWEEN THE A SSESSEE AND ASSOCIATED ENTERPRISE. 25. WE HAVE CAREFULLY EXAMINED THE AFORESAID CONTEN TIONS OF THE LD. CIT-DR. IN OUR CONSIDERED OPINION, THE IMP ORT OF THE EXPRESSION ARRANGED IN SECTION 80-IA(10) OF THE A CT IS NOT TO BE UNDERSTOOD IN ITS PLAIN LANGUAGE BUT THE SAME HAS T O BE UNDERSTOOD IN THE CONTEXT IN WHICH IT IS PLACED IN THE SECTION. NOTABLY, SECTION 80-IA(10) OF THE ACT RESTRICTS THE PLAIN MEANING OF THE TERM ARRANGED BECAUSE IT IS PLACED BETWEEN TH E WORDS ..THE COURSE OF BUSINESS BETWEEN THEM IS SO ARRA NGED THAT THE BUSINESS TRANSACTED BETWEEN THEM PRODUCES TO THE AS SESSEE MORE THAN THE ORDINARY PROFITS WHICH MIGHT BE EXPECTED T O ARISE IN SUCH ELIGIBLE BUSINESS . THEREFORE, IT WOULD NECESSA RILY MEAN THAT THE ARRANGEMENT REFERRED TO IS AN ARRANGEMEN T OF THE COURSE OF BUSINESS WHICH PRODUCES TO THE ASSESSEE MORE THA N THE ORDINARY PROFITS WITH THE INTENT OF ABUSING THE TAX CONCESSION. THUS, THE WORD ARRANGED IN THE SECTION DOES NOT E NVISAGE A SIMPLE ARRANGEMENT, BUT A ARRANGEMENT OF THE COURS E OF BUSINESS TRANSACTED WHICH PRODUCES TO THE ASSESSEE MORE TH AN ORDINARY PROFITS WHICH MIGHT BE EXPECTED TO ARISE IN SUCH A B USINESS WITH THE INTENT OF ABUSING THE TAX CONCESSIONS. THEREFO RE, THE MEANING OF THE WORDS SO ARRANGED HAVE TO BE UNDERSTOOD IN THE CONTEXT IN WHICH THEY ARE PLACED IN SECTION 80-IA(10) OF THE A CT. A MERE AGREEMENT BETWEEN THE ASSESSEE AND THE ASSOCIATED E NTERPRISES FOR TRANSACTING BUSINESS IS NOT ENOUGH TO INVOKE SE CTION 80-IA(10) OF THE ACT. 26. IN-FACT, EVEN THE HONBLE 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 HONBLE BOMBAY HIGH COURT WAS WITH REGARD TO THE SC HEME OF RE- CONSTRUCTION OR ARRANGEMENT CONTAINED IN SECTION 39 1(1) OF THE COMPANIES ACT, 1956. IN THE CONTEXT OF SECTION 391 (1) OF THE COMPANIES ACT, 1956, THE HONBLE HIGH COURT WAS DEA LING WITH THE MEANING OF THE WORD ARRANGEMENT. AFTER HAVIN G EXPLAINED THE MEANING OF THE TERM ARRANGEMENT IN PLAIN LANGUA GE, WHICH WE HAVE REFERRED EARLIER, THE HONBLE HIGH COURT WENT ON TO SAY AS UNDER IN THE CONTEXT OF THE WORD ARRANGEMENT QUA SECTION 391(1) OF THE COMPANIES ACT, 1956 :- SECTION 391(1) , HOWEVER, IN ANY OPINION SOMEWHAT RESTRICTS THIS OTHERWISE UNLIMITED IMPORT OF THE TERM ARRANGE MENT IN SO FAR AS THE SAID SECTION APPLIES ONLY TO AN AGREE MENT OR UNDERSTANDING BETWEEN THE COMPANY AND ITS CREDITORS OR ANY CLASS OF THEM, OR BETWEEN THE COMPANY AND ITS MEMBERS OR ANY CLASS OF THEM, OR BETWEEN THE COMPAN Y 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 HONB LE HIGH COURT IMPARTED MEANING TO THE WORD ARRANGEMENT IN THE C ONTEXT OF SECTION 391(1) OF THE COMPANIES ACT, 1956 TO MEAN T HAT IT MUST BE AN AGREEMENT OR UNDERSTANDING WHICH AFFECTS THE RIG HTS BETWEEN THE COMPANY AND ITS CREDITORS OR ANY CLASS OF THEM AND BETWEEN THE COMPANY AND ITS MEMBERS OR ANY CLASS OF THEM. BY THE SAME ANALOGY IN THE PRESENT CONTEXT, WE HAVE TO UNDERSTA ND THE ITA NO.964/PUN/2013 & CO NO.73/PUN/2014 SYMANTEC SOFTWARE INDIA PVT. LTD. 26 MEANING OF THE EXPRESSION AS ARRANGED IN SECTION 10A(7) R.W.S. 80-IA(10) OF THE ACT TO MEAN A SITUATION WHEREBY TH E COURSE OF BUSINESS HAS BEEN SO ARRANGED THAT THE BUSINESS TRA NSACTED PRODUCES TO THE ASSESSEE MORE THAT THE ORDINARY PRO FITS WITH AN INTENT TO ABUSE THE TAX CONCESSIONS GRANTED IN SECT ION 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 CA NVASSED 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 TH AN THE ORDINARY PROFITS WOULD SUFFICE. IN OTHER WORDS, AS PER THE REVENUE, THE EXISTENCE OF CLOSE CONNECTION AND HIGH PROFITS WOUL D LEAD TO A PRESUMPTION THAT THERE IS AN ARRANGEMENT WITHIN T HE MEANING OF SECTION 80-IA(10) OF THE ACT. THE AFORESAID PLEA, IN OUR VIEW, NOT ONLY BELIES THE LANGUAGE OF SECTION 80-IA(10) BUT A LSO THE LEGISLATIVE INTENT WHICH SEEKS TO CURTAIL THE ABUSE OF TAX CONCESSION BY MANIPULATION OF PROFITS BETWEEN ASSOCIATED CONCE RNS. THEREFORE, AN ARRANGEMENT WHICH IS REFERRED TO IN S ECTION 10A(7) R.W.S. 80-IA(10) OF THE ACT HAS TO BE ONE WHICH IS PREFACED BY AN INTENTION TO ABUSE THE TAX CONCESSIONS, AS PER THE INTENDMENT OF THE LEGISLATURE. THEREFORE, EXISTENCE OF A MERE AG REEMENT TO DO BUSINESS IS NOT ENOUGH TO FULFILL THE REQUIREMENT O F SECTION 10A(7) R.W.S. 80-IA(10) OF THE ACT IN THE CONTEXT OF THE W ORDS THE COURSE OF BUSINESS BETWEEN THEM IS SO ARRANGED. 28. AT THIS STAGE, WE MAY ALSO ADDRESS THE ARGUMENT OF THE LD. CIT-DR THAT THE BURDEN CAST ON THE ASSESSING OFFICE R IN SECTION 10A(7) R.W.S. 80-IA(10) OF THE ACT IS MUCH LIGHTER AND EVEN A PRIMA- FACIE SATISFACTION OF AN EXISTENCE OF TAX AVOIDANCE IS SUFFICIENT. IN THIS CONTEXT, WE MAY REFER TO THE DECISION OF THE B ANGALORE BENCH OF THE TRIBUNAL IN THE CASE OF DIGITAL EQUIPMENT IN DIA LTD. (SUPRA), WHEREIN SIMILAR ARGUMENT FROM THE SIDE OF THE REVEN UE HAS BEEN ADDRESSED. THE BANGALORE BENCH OF THE TRIBUNAL WAS DEALING WITH INVOKING OF SECTION 10A(6) R.W.S. 80-I(9) OF T HE ACT FOR ASSESSMENT YEAR 1995-96, WHICH ARE PARI-MATERIA TO SECTION 10A(7) R.W.S. 80-IA(10) OF THE ACT INVOKED BY THE R EVENUE BEFORE US. THE FOLLOWING DISCUSSION IS RELEVANT:- THE REQUIREMENTS UNDER THE SECTION ARE : (A) THERE MUST BE A CLOSE CONNECTION BETWEEN THE APPELLANT AND OTHER PERSON. (B) THE COURSE OF BUSINESS BETWEEN THEM SHOULD BE S O ARRANGED THAT IT PRODUCES TO THE APPELLANT MORE THA N THE ORDINARY PROFITS FROM SUCH BUSINESS. TO SATISFY THE ABOVE TEST THE AO HAS TO ADDUCE EVID ENCE AND REASONS COGENTLY AND THE SAME IS OPEN TO VERIFI CATION BY THE APPELLATE AUTHORITIES. THE PRIMARY RULE OF E VIDENCE IS THAT 'WHAT IS APPARENT IS REAL' UNLESS PROVED OTHER WISE BY THE PERSON ALLEGING IT OTHERWISE. THE MANNER OF SAT ISFACTION OUTLINED IN THE SECTION SHOULD BE BASED ON EVIDENCE AND NOT ON SURMISE OR SUSPICION. THE QUESTION IS NOT WHETH ER THE ONUS IS LIGHT OR HEAVY BUT WHETHER THE AO HAS DISCU SSED OBJECTIVELY THE CONDITIONS MENTIONED IN THE SECTION TO DISTURB THE RESULTS DECLARED BY THE APPELLANT. IN THIS CASE , THE AO HAS FAILED TO ADDUCE ANY EVIDENCE OR REASON TO SATI SFY THE INVOKING OF S. 80-1(9). FIRST OF ALL, A MERE SUBSTA NTIAL PROFIT DOES NOT GIVE RISE TO ANY VALID VIEW THAT THERE COU LD BE ANY ARRANGEMENT. IT IS A CASE OF JOINT VENTURE LISTED I NDIAN ITA NO.964/PUN/2013 & CO NO.73/PUN/2014 SYMANTEC SOFTWARE INDIA PVT. LTD. 27 COMPANY, WHERE ALL ARRANGEMENTS ARE OPEN FOR SCRUTI NY AND ACCEPTANCE NOT ONLY BY DIGITAL GROUP WORLDWIDE BUT ALSO FROM JOINT VENTURE PARTNERS AND SHAREHOLDERS. DIGIT AL GROUP OVERSEAS WILL NOT PAY UNDUE SUM, WHICH IT CANNOT RE COUP ENTIRELY TO EXCLUSION OF OTHERS. HENCE NOTHING CAN BE ARRANGED TO THE EXCLUSIVE BENEFIT OF OVERSEAS PARTN ER. ONE CANNOT PRESUME THE EXISTENCE OF CLOSE CONNECTION OR POSSIBILITY OF AN ARRANGEMENT FOR EARNING MORE THAN ORDINARY PROFITS. IN THIS CASE THE PROFITS EARNED I S COMPARABLE WITH THE PROFITS EARNED BY OTHER COMPANI ES IN THE SAME INDUSTRY. HENCE THERE IS NO CASE FOR FURTH ER VERIFICATION. THE AO HAS COMPARED THE PROFIT OF SOF TWARE UNIT WITH THAT OF HARDWARE UNIT. THUS THE FOUNDATIO N ITSELF IS ON WRONG PREMISE. THERE CANNOT BE COMPARISON BETWEE N AN ORANGE AND AN APPLE. IT IS KNOWN FACT THAT PROFITAB ILITY OF SOFTWARE UNITS IS ALWAYS HIGHER THAN HARDWARE UNIT. THE TEST WHETHER THE APPELLANT HAS EARNED MORE THAN ORD INARY PROFITS, IN THIS CASE, THE ANSWER IS OBVIOUS NO, EV EN AS FOUND BY THE AO. WHEN THE PROFITS EARNED ARE REASON ABLE AND NOT EXCESSIVE, THERE IS NO REASON TO SUSTAIN TH E ADDITION FURTHER THERE IS NO EVIDENCE OF EXISTENCE OF ANY ARRANGEMENT AS CONTEMPLATED UNDER S. 80-1(9). 29. QUITE CLEARLY, AS PER THE TRIBUNAL THE QUESTION IS NOT WHETHER THE ONUS IS LIGHT OR HEAVY BUT WHETHER THE ASSESSING OFFICER HAS DISCUSSED OBJECTIVELY THE CONDITIONS ME NTIONED IN THE SECTION TO DISTURB THE RESULTS DECLARED BY THE APPE LLANT. 30. NOW, THE CASE OF THE ASSESSING OFFICER IS THAT THE PROFITS DERIVED BY THE ASSESSEE FROM THE ELIGIBLE BUSINESS ARE MORE THAN THE ORDINARY PROFITS AND THEREFORE HE IS EMPOWERED TO ARRIVE AT WHAT COULD BE A REASONABLE PROFIT FROM SUCH ELIGIBL E BUSINESS AND SUCH PROFIT BE TAKEN AS REASONABLY DEEMED TO HAVE B EEN DERIVED FROM THE ELIGIBLE BUSINESS FOR THE PURPOSES OF COMP UTING THE DEDUCTION U/S 10A OF THE ACT. WE FIND THAT IN THE ENTIRE ASSESSMENT ORDER, THERE IS NO MATERIAL OR ANY EVIDE NCE WHICH HAS BEEN BROUGHT OUT TO SAY THAT THE COURSE OF BUSINESS BETWEEN ASSESSEE AND THE ASSOCIATED ENTERPRISES HAS BEEN SO ARRANGED THAT THE BUSINESS TRANSACTED HAS PRODUCED TO THE AS SESSEE MORE THAN THE ORDINARY PROFITS. 31. NO DOUBT, THERE IS A CLOSE CONNECTION BETWEEN A SSESSEE AND THE ASSOCIATED ENTERPRISES AND TO THAT EXTENT SECTI ON 10A(7) R.W.S. 80-IA(10) OF THE ACT HAS BEEN RIGHTLY EXAMINED BY T HE INCOME-TAX AUTHORITIES. THE SECOND ASPECT THAT THE COURSE OF BUSINESS WAS SO ARRANGED SO AS TO RESULT IN MORE THAN ORDINARY PROF ITS IS NOT AT ALL FORTHCOMING FROM THE ORDER OF THE ASSESSING OFFICER . THERE IS NO MATERIAL OR EVIDENCE REFERRED TO IN THE ASSESSMENT ORDER TO INDICATE THAT THE COURSE OF BUSINESS HAS BEEN SO ARRANGED SO AS TO INFLATE PROFITS WITH THE INTENT TO ABUSE TAX CONCESSION U/S 10A OF THE ACT. AT THIS POINT, WE MAY MAKE A REFERENCE TO THE STAND OF THE ASSESSING OFFICER THAT THE OPERATING PROFIT MARGINS OF THE ASSESSEE ARE SUBSTANTIALLY HIGHER THAN THE AVERAGE OPERATING MARGIN OF THE COMPARABLES SELECTED BY THE ASSESSEE IN ITS TRANSFE R PRICING STUDY. THIS HAS FORMED THE BASIS FOR THE ASSESSING OFFICER TO SAY THAT ASSESSEE HAS EARNED MORE THAN ORDINARY PROFITS WHICH MIGHT BE EXPECTED TO ARISE IN SUCH A BUSINESS. BE THAT A S IT MAY, THE AFORESAID IS NOT ENOUGH TO SAY THAT THE COURSE OF B USINESS HAS BEEN SO ARRANGED TO RESULT IN MORE THAN ORDINARY PR OFITS. ITA NO.964/PUN/2013 & CO NO.73/PUN/2014 SYMANTEC SOFTWARE INDIA PVT. LTD. 28 HOWEVER, FROM THE SIDE OF THE REVENUE, IT WAS POINT ED OUT THAT THE TRANSFER PRICING COMPARABILITY ANALYSIS ITSELF SUGG ESTS THAT THE PROFIT MARGINS OF THE ASSESSEE ARE MORE THAN THE OR DINARILY ACCEPTED MARGIN IN THIS LINE OF BUSINESS. THE MOOT QUESTION IS AS TO WHETHER THE SAME CAN BE CONSIDERED AS A MATERIAL TO INDICATE THAT THE COURSE OF BUSINESS BETWEEN THE ASSESSEE AN D THE ASSOCIATED ENTERPRISES HAS BEEN SO ARRANGED, SO AS TO RESULT IN MORE THAN THE ORDINARY PROFITS WITHIN THE MEANING OF SECTION 10A(7) R.W.S. 80-IA(10) OF THE ACT. IN THIS CONTEX T, WE MAY REFER TO THE DECISION OF THE CHENNAI BENCH OF THE TRIBUNAL I N THE CASE OF VISUAL GRAPHICS COMPUTING SERVICES INDIA (P) LTD. V S. ACIT, 148 TTJ 621 (CHENNAI), WHEREIN FOLLOWING DISCUSSION IS RELEVANT :- WE HEARD BOTH SIDES IN DETAIL AND CONSIDERED THE I SSUE. AS FAR AS THE PRESENT CASE IS CONCERNED, THE TRANSFER PRICING OFFICER HAS MADE A CATEGORICAL FINDING THAT THE OPE RATING PROFIT REPORTED BY THE ASSESSEE IS HIGHER THAN THE PROFIT WORKED OUT ON THE BASIS OF ARM'S LENGTH PRICE. THE TRANSFER PRICING OFFICER, THEREFORE, CONCLUDED THAT NO TRANS FER PRICING ADJUSTMENT IS CALLED FOR IN THE PRESENT CASE. THE A SSESSING OFFICER HAS MADE THE REFERENCE TO THE TRANSFER PRIC ING OFFICER UNDER SECTION 92CA. THE REFERENCE IS MADE F OR THE PURPOSE OF COMPUTING INCOME ARISING FROM AN INTERNA TIONAL TRANSACTION WITH REGARD TO THE ARM'S LENGTH PRICE A S PROVIDED IN SECTION 92. THEREFORE, IT IS TO BE SEEN THAT THE SCOPE AND EXTENT OF REFERENCE MADE BY THE ASSESSING OFFICER TO THE TRANSFER PRICING OFFICER IS CONFINED TO THE SINGULAR PURPOSE STATED IN SECTION 92. SECTIONS 92A , 92B, 92C, 92CB, 92D, 92E AND SECTION 92F ARE ALL PRECISE LY DEFINING AND FACILITATING PROVISIONS ULTIMATELY FOR THE PURPOSE OF COMPUTING THE INCOME AS STATED IN SECTIO N 92. ALL THE ABOVE STATED SECTIONS PROVIDED IN CHAPTER X OF THE INCOME-TAX ACT, 1961 BELONG TO A SEPARATE CODE AS S UCH, ENACTED FOR THE PURPOSE OF COMPUTING INCOME FROM INTERNATIONAL TRANSACTIONS HAVING REGARD TO THE ARM 'S LENGTH PRICE SO AS TO CONFIRM THAT THERE IS NO AVOIDANCE O F TAX BY AN ASSESSEE. THEREFORE, WHERE IN A CASE, THE TRANSF ER PRICING OFFICER SUGGESTS THAT THE OPERATING PROFIT DECLARED BY AN ASSESSEE IS COMPATIBLE TO THE ARM'S LENGTH PRICE NORMS AND NO ADJUSTMENT IS NECESSARY, THE OPERATION OF AL L THOSE PROVISIONS COME TO AN END. IF THE, ASSESSING OFFICE R HAS TO MAKE ANY OTHER ADJUSTMENT TOWARDS COMPUTING DEDUCTI ON AVAILABLE UNDER SECTION 10A, THE COMPUTATION HAS TO BE MADE IN THE CONTEXT OF SECTION 10A(7) READ WITH SEC TION 80- IA(10). IT IS CLEAR THAT IN A CASE OF TRANSFER PRICING ASSE SSMENT, 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 WI TH ASSOCIATE ENTERPRISE. THE SECOND SEGMENT CONSISTS O F RULES AND PROCEDURES IN CONNECTION WITH COMPUTATION OF IN COME FROM INTERNATIONAL TRANSACTIONS WITH ASSOCIATE ENTE RPRISES ON THE BASIS OF THE ARM'S LENGTH PRICE. THE SECOND SEGMENT RELATING TO COMPUTATION OF THE ARM'S LENGTH PRICE, IS A SET OF RULES FOR THE PURPOSES OF TRANSFER PRICING MATTERS AND THOSE PROCEDURES AND RULES CAN BE USED ONLY FOR THE PURPO SE SERVING THE OBJECT OF SECTION 92. WHEN THE TRANSFER PRICING OFFICER STATES THAT THERE IS NO NEED OF TRANSFER PR ICING ITA NO.964/PUN/2013 & CO NO.73/PUN/2014 SYMANTEC SOFTWARE INDIA PVT. LTD. 29 ADJUSTMENT, THE MATTER SHOULD END THERE AND ANY OTH ER ADJUSTMENT THAT THE ASSESSING OFFICER WOULD LIKE TO MAKE WITH REFERENCE TO THE FIRST SEGMENT MUST BE MADE INDEPENDENT OF THE ORDER OF THE TRANSFER PRICING OF FICE UNDER SECTION 92CA. TO STATE IN SIMPLE TERMS, THE TRANSFER PRICING REGI ME IS DIFFERENT FROM REGULAR COMPUTATION OF INCOME. SECTI ON 10A BELONGS TO THAT PART OF REGULAR COMPUTATION OF INCO ME AND IT SHOULD BE COMPUTED INDEPENDENT OF TRANSFER PRICING REGULATIONS AND TRANSFER PRICING ORDERS. IT IS NOT THEREFORE, PERMISSIBLE FOR THE ASSESSING OFFICER TO WORK OUT S ECTION 10A DEDUCTION ON THE BASIS OF ARM'S LENGTH PRICE PR OFIT GENERATED OUT OF THE ORDER OF THE TRANSFER PRICING OFFICER. IN FACT THESE ISSUES HAVE ALREADY BEEN CONSIDERED I N VARIOUS ORDERS OF THE TRIBUNAL. THE INCOME-TAX APPE LLATE TRIBUNAL, CHENNAI 'A' BENCH IN THE CASE OF TWEEZERM AN (INDIA) P. LTD. V. ADDL. CIT [2010] 4 ITR (TRIB) 13 0 (CHENNAI) (133 TTJ 308) HAS CONSIDERED THE MATTER IN DETAIL A ND HELD THAT THE REDUCTION OF ELIGIBLE PROFITS OF AN ASSESS EE AS DONE BY THE ASSESSING OFFICER BY INVOKING THE PROVISIONS OF SECTION 80-IA(10) READ WITH SECTION 10B(7), IN THE CONTEXT OF THE TRANSFER PRICING OFFICER'S ORDER IS UNSUSTAINAB LE. THE TRIBUNAL HAS HELD THAT THE ASSESSING OFFICER WAS NO T JUSTIFIED TO INVOKE THE PROVISIONS OF SECTION 80-IA (10) READ WITH SECTION 10B(7) SO AS TO REDUCE THE ELIGIBLE PR OFITS ON THE BASIS OF THE ARM'S LENGTH PRICE COMPUTED BY THE TRA NSFER PRICING OFFICER WITHOUT SHOWING HOW HE DETERMINED T HAT THE ASSESSEE HAD SHOWN MORE THAN 'ORDINARY PROFITS'. AS RIGHTLY ARGUED BY LEARNED SENIOR COUNSEL THE ARM 'S LENGTH PRICE IS DETERMINED ON THE BASIS OF THE MOST APPROPRIATE METHOD. THE MOST APPROPRIATE METHOD IS CHOSEN EITHER ON PROFIT BASIS METHOD OR PRICE BASIS METHOD . IN THE LATTER EASE, PROFITS ARE NOT AT ALL CONSIDERED. IN THAT METHOD, PROFIT IS ONLY A DERIVATIVE OF PRICES. WHEN PROFITS ITSELF IS NOT WORKED OUT, HOW IS IT JUSTIFIED TO ADOPT THE ARM'S LENGTH PRICE PROFITS TO DETERMINE WHAT IS 'ORDINARY PROFIT S' FOR THE PURPOSE OF SECTION 10A(7)? IN THE FACTS AND CIRCUMSTANCES OF THE CASE, WE HOLD THAT THE ASSESSING OFFICER HAS ERRED IN REDUCING RS.4,48,50, 795 FROM THE ELIGIBLE PROFITS OF THE ASSESSEE UNDER SEC TION 10A. THE SAID ADJUSTMENT MADE BY THE ASSESSING AUTHORITY IN COMPUTING THE DEDUCTION UNDER SECTION 10A IS ACCORD INGLY, DELETED. 32. IN OUR CONSIDERED OPINION, THE RESULT OF THE TR ANSFER PRICING ASSESSMENT CAN AT BEST BE TAKEN AS AN INDICATOR FOR THE ASSESSING OFFICER TO INVESTIGATE AS TO WHETHER OR NOT THERE E XISTS ANY ARRANGEMENT WHICH HAS RESULTED IN MORE THAN ORDINAR Y PROFITS QUA THE REQUIREMENTS OF SECTION 10A(7) R.W.S. 80-IA(10) OF THE ACT. EVEN IF IT IS ACCEPTED THAT THE DIFFERENCE BETWEEN THE O PERATING MARGINS OF THE ASSESSEE AND THE COMPARABLES SHOW EXISTENCE OF MORE THAN THE ORDINARY PROFITS IN THE HANDS OF THE ASSESSEE, SO HOWEVER, IT WAS STILL IMPERATIVE FOR THE ASSESSING OFFICER TO E STABLISH ON THE BASIS OF SUBSTANTIVE EVIDENCE AND CORROBORATIVE MAT ERIAL THAT QUA SECTION 10A R.W.S. 80-IA(10) OF THE ACT, THE COURSE OF BUSINESS BETWEEN THE ASSESSEE AND THE ASSOCIATED ENTERPRISES IS SO ARRANGED THAT THE BUSINESS TRANSACTED BETWEEN THEM PRODUCES TO ITA NO.964/PUN/2013 & CO NO.73/PUN/2014 SYMANTEC SOFTWARE INDIA PVT. LTD. 30 THE ASSESSEE MORE THAN THE ORDINARY PROFITS WITH TH E INTENT OF ABUSING TAX CONCESSION. QUITE CLEARLY, IN THE ENTI RE ASSESSMENT ORDER, THERE IS NO WHISPER OF ANY MATERIAL OR EVIDE NCE IN THIS REGARD. IN-FACT, THE APPROACH OF THE ASSESSING OFF ICER IS QUITE MISDIRECTED AS THE FOLLOWING DISCUSSION IN HIS ORDE R SHOWS :- ACCORDINGLY, THE SECTION ONLY ENCUMBERS THE A.O. T O EXAMINE IF THE PROFITS DERIVED FROM THE ELIGIBLE BU SINESS BY THE ASSESSEE IS MORE THAN THE ORDINARY PROFITS, THE N THE A.O. HAS TO ARRIVE AS TO WHAT COULD BE THE REASONAB LE PROFIT FROM THE SUCH ELIGIBLE BUSINESS AND SUCH PROFIT HAS TO BE THEN TAKEN AS REASONABLY DEEMED TO HAVE BEEN DERIVE D FROM THE ELIGIBLE BUSINESS FOR THE PURPOSES OF COMP UTING DEDUCTION UNDER THE SECTION. 33. THE AFORESAID DISCUSSION IN THE ASSESSMENT ORDE R REVEALS THAT AS PER THE ASSESSING OFFICER, THE EXISTENCE OF CLOSE CONNECTION AND MORE THAN ORDINARY PROFITS IS ENOUGH TO ASSUME AN ARRANGEMENT AS CONTEMPLATED U/S 80-IA(10) OF THE AC T. THE AFORESAID UNDERSTANDING, IN OUR VIEW, IS DIRECTLY C ONTRARY TO THE JUDGEMENT OF THE HONBLE KARNATAKA HIGH COURT IN TH E CASE OF H.P. GLOBAL SOFT LTD. (SUPRA) AND OUR DISCUSSION IN THE EARLIER PART OF THIS ORDER. 34. IN VIEW OF THE AFORESAID, WE CONCLUDE BY HOLDIN G THAT IN THE PRESENT CASE, THE ASSESSING OFFICER HAS NOT PROVED THAT ANY ARRANGEMENT HAD BEEN ARRIVED BETWEEN THE PARTIES WH ICH RESULTED IN HIGHER PROFITS. CONSEQUENTLY, THE RE-WORKING OF THE PROFITS BY ASSESSING OFFICER BY INVOKING SECTION 10A R.W.S. 80 -IA(10) OF THE ACT IS NOT JUSTIFIED. THE ACTION OF THE ASSESSING OFFICER TO RESTRICT THE DEDUCTION U/S 10A OF THE ACT TO RS.7,74,60,281/ - AS AGAINST THE CLAIM OF RS.36,35,09,382/- IS HEREBY SET-ASIDE. THUS, ASSESSEE SUCCEEDS ON THIS ASPECT. 15. APPLYING THE SAID PARITY OF REASONING, WE UPHOL D THE ORDER OF CIT(A) AND DISMISS THE GROUND OF APPEAL NO.2 RAISED BY THE REVENUE. 23. FURTHER, THE HYDERABAD BENCH OF THE TRIBUNAL IN THE DCIT VS. QUICK MD IN ITA NO.97/HYD/2015 ORDER DATED 26-08-2015 HAS AL SO VIDE PARA NO.8.1 HELD SIMILARLY. THE SAID FINDINGS OF THE TRIBUNAL ARE E XTRACTED AS UNDER : 8.1 AS FAR AS LEGAL ASPECT IS CONCERNED, ON PLAIN READING OF SECTION 80IA(10), WHICH IS REFERRED TO IN SECTION 10A(7) OF THE ACT, IT IS VERY MUCH CLEAR THAT THE BASIC CONDITION TO BE SATISFIED BY A O IS, HE MUST ESTABLISH IT ON RECORD THAT ASSESSEE AND ITS RELATED PARTY HAVE ARRANGED THE BUSINESS TRANSACTION IN SUCH A WAY THAT IT PRODUCES MORE THA N THE ORDINARY PROFIT TO THE ASSESSEE CARRYING ON THE ELIGIBLE BUSINESS. ONLY WHEN AO ESTABLISHES ON RECORD SUCH ARRANGEMENT, HE CAN PROC EED TO ESTIMATE THE PROFIT OF ASSESSEE AT A REASONABLE RATE. IN THE FAC TS OF THE PRESENT CASE, ON CAREFUL READING OF THE ASSESSMENT ORDER, WE DO N OT FIND ANY CONCLUSIVE FINDING OF AO THAT ASSESSEE AND ITS AE HAVE ARRANGE D BUSINESS TRANSACTIONS IN A MANNER TO GENERATE MORE THAN ORDI NARY PROFIT TO ITA NO.964/PUN/2013 & CO NO.73/PUN/2014 SYMANTEC SOFTWARE INDIA PVT. LTD. 31 ASSESSEE. AT LEAST, THERE IS NOTHING ITA NO. 97 /HY D/2015 QUICK MD MENTIONED IN THE ASSESSMENT ORDER TO SUGGEST THAT A O 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 S ECTION 80IA(10) ON MERE PRESUMPTIONS AND SURMISES. THE COORDINATE BENCH OF THIS TRIBUNAL WHILE CONSIDERING IDENTICAL ISSUE IN CASE OF AQUILA SOFTW ARE SERVICES HYDERABAD PVT LTD. VS. DCIT, ITA NO. 423/HYD/14, DA TED 30/06/2015, HELD AS UNDER: '7.WE HAVE CONSIDERED THE SUBMISSIONS OF THE PARTIE S 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 DI RECTIONS OF ITAT IN THE EARLIER ROUND OF LITIGATION HAS NOT BEEN CHA LLENGED BY ASSESSEE OR BY REVENUE. KEEPING THIS IN VIEW, WE HA VE TO DECIDE WHETHER DISALLOWANCE OF DEDUCTION U/S 10A OF THE AC T 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 PROF IT EARNED BY ASSESSEE FROM EXPORT OF SOFTWARE. HOWEVER, DEDUCTIO N 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 N OT 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 CLOS E CONNECTION BETWEEN THE ASSESSEE CARRYING ON THE ELIGIBLE BUSIN ESS TO WHICH THIS SECTION APPLIES AND ANY OTHER PERSON, OR FOR A NY OTHER REASON, THE COURSE OF BUSINESS BETWEEN THEM IS SO ARRANGED THAT THE BUSINESS TRANSACTED BETWEEN THEM PRODUCES TO THE AS SESSEE MORE THAN THE ORDINARY PROFITS WHICH MIGHT BE EXPECTED T O ARISE IN SUCH ELIGIBLE BUSINESS, THE AO SHALL, IN COMPUTING THE P ROFITS AND GAINS OF SUCH ELIGIBLE BUSINESS FOR THE PURPOSES OF THE D EDUCTION UNDER THIS SECTION, TAKE THE AMOUNT OF PROFITS AS MAY BE REASONABLY DEEMED TO HAVE BEEN DERIVED THEREFROM.' ON PLAIN READING OF THE AFORESAID PROVISION, IT IS CLEAR THAT AS PER THE SAID PROVISION THREE CONDITIONS HAVE TO BE FULF ILLED. FIRSTLY, THERE MUST BE CLOSE CONNECTION BETWEEN ASSESSEE CAR RYING ON THE ELIGIBLE BUSINESS AND THE OTHER PERSON. SECONDLY, THE BUSINESS BETWEEN ASSESSEE AND SUCH OT HER CLOSELY CONNECTED PERSON SHOULD BE SO ARRANGED THAT BUSINES S TRANSACTED BETWEEN THEM PRODUCES MORE THAN THE ORDINARY ITA NO . 97 /HYD/2015 QUICK MD PROFITS TO ASSESSEE CARRYING ON ELIGIBLE B USINESS. IF AO IS SATISFIED WITH THE AFORESAID TWO CONDITIONS, THEN, AS PER THE THIRD CONDITION, HE MAY TAKE THE AMOUNT OF PROFITS AS MAY BE REASONABLY DEEMED TO HAVE BEEN DERIVED FROM TRANSACTIONS OF SU CH BUSINESS IN COMPUTING PROFITS OF SUCH ELIGIBLE BUSINESS FOR THE PURPOSE OF DEDUCTION UNDER THE SAID SECTION. CONSIDERING THE FACTS OF TH E PRESENT CASE IN THE LIGHT OF THE AFORESAID STATUTORY PROVISIONS, IT IS TO BE SEEN THAT THE FIRST CONDITION IS FULFILLED AS ASSESSEE AND ITS AE ARE R ELATED PARTIES. HOWEVER, AS FAR AS THE SECOND CONDITION I.E. EXISTENCE OF AR RANGEMENT BETWEEN ASSESSEE AND ITS RELATED PARTY BY WHICH THESE TRANS ACTIONS SO ARRANGED HAS TO PRODUCE MORE THAN THE ORDINARY PROFITS IN TH E HANDS OF ASSESSEE, WHETHER HAS BEEN FULFILLED OR NOT NEEDS TO BE EXAMI NED. ON PERUSAL OF THE ASSESSMENT ORDER, IT IS VERY MUCH EVIDENT THAT ONLY RELYING UPON TP ITA NO.964/PUN/2013 & CO NO.73/PUN/2014 SYMANTEC SOFTWARE INDIA PVT. LTD. 32 DOCUMENT OF ASSESSEE WHEREIN IT IS STATED THAT AVER AGE PROFIT MARGIN OF COMPARABLE COMPANY IS 15% AS AGAINST 50% OF ASSESSE E, AO HAS CONCLUDED THAT PROFIT EARNED BY ASSESSEE IS NOT AT ARM'S LENGTH. AO HAS NOT GIVEN A CONCLUSIVE FINDING AS TO WHETHER EARNIN G 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 TH E ISSUE TO CONCLUSIVELY PROVE THAT ASSESSEE AND ITS RELATED PARTY HAS ARRAN GED THEIR BUSINESS AFFAIRS IN SUCH A MANNER THAT IT WILL RESULT IN MOR E THAN REASONABLE PROFIT TO ASSESSEE. MERELY RELYING UPON THE FACT THAT IN T HE 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 RESTRICTIN G THE PROFIT FROM THE ELIGIBLE BUSINESS OF ASSESSEE TO 20% OF THE TURNOVE R. IN OUR VIEW, THE DEPARTMENT HAVING NOT FULFILLED THE CONDITIONS OF S ECTION 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 DOC UMENTATION, AO HAS INFERRED THAT THE PROFIT EARNED BY ASSESSEE AT 50% IS MORE THAN THE ARM'S LENGTH PROFIT. HOWEVER, WITHOUT BRINGING MATERIAL O N RECORD THAT THE PROFIT EARNED BY ASSESSEE AT 50% IS NOT THE PROFIT ORDINAR ILY 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. THEREF ORE, WITHOUT ANALYSING THOSE FACTORS, IT CANNOT BE SAID THAT ONL Y BECAUSE AVERAGE PROFIT EARNED BY COMPARABLES IS 15%, THE PROFIT EAR NED BY ASSESSEE AT 50% IS NOT REASONABLE. THE CHENNAI BENCH OF THE TRI BUNAL IN CASE OF TWEEZMEN INDIA PVT. LTD., VS. ADDL. CIT, 133 TTJ 30 8 WHILE CONSIDERING SIMILAR ISSUE HELD THAT THE PROVISIONS OF SECTION 8 0IA(10)DO NOT GIVE ARBITRARY POWER TO AO TO FIX THE PROFITS OF ASSESSE E. AO HAS TO SPECIFY AS TO WHY HE FEELS THAT PROFITS OF ASSESSEE ARE BEING SHOWN AT HIGHER FIGURE. AO HAS TO FURTHER SHOW AS TO HOW HE HAS COMPUTED OR DINARY PROFITS WHICH HE DEEMS TO BE PROFIT WHICH ASSESSEE MIGHT B E REASONABLY EXPECTED TO GENERATE. THE BENCH HELD THAT AO WOULD BE EXPECTED TO USE A COMPARABLE CASE TO DETERMINE THE POSSIBLE ORDINARY PROFIT WHICH ASSESSEE COULD BE EXPECTED TO GENERATE FROM HIS BUS INESS. IN THE ABSENCE OF ANY OTHER SUBSTANTIAL EVIDENCE WITH HIM, WHEN US ING A COMPARABLE, ASSESSEE'S OWN PAST AND FUTURE PERFORMANCE WOULD OB VIOUSLY BE THE BEST COMPARABLE. COMPARING ASSESSEE'S MODUS OPERANDI OF CONDUCTING ITS BUSINESS WITH ANOTHER WHEN THE SAME ARE NOT OF EQUA L TERMS WOULD BE A TRAVESTY OF JUSTICE IN SO FAR AS THE FINANCIAL CHAR GES. THE USE OF PLANT & MACHINERY, DEPRECIATION THEREON, THE LOCATION WHICH WOULD AFFECT THE COST OF TRANSPORTATION AS ALSO THE COST OF LABOUR, COST OF POWER AND FUEL WOULD HAVE TO BE SEEN. THE ITAT, DELHI BENCH IN CASE OF A T KEATNEY INDIA LTD. VS. ADDL. CIT (SUPRA), THE FACTS OF WHICH ARE MORE OR LESS IDENTICAL TO THE FACTS OF THE PRESENT CASE, WHILE DECIDING SIMILAR IS SUE HELD AS UNDER: '11. ADVERTING TO THE FACTS OF THE EXTANT CASE, WE FIND THAT THE AO SIMPLY RELIED ON THE TP STUDY REPORT SUBMITTED BY T HE ASSESSEE TO FORM A BEDROCK FOR THE DISALLOWANCE OF THE PART OF THE AMOUNT OF DEDUCTION U/S 10A, WITHOUT FIRSTLY SHOWING THAT THE RE EXISTED ANY ARRANGEMENT BETWEEN THE ASSESSEE AND ITS OVERSEAS R ELATED PARTY, BY WHICH THE TRANSACTIONS WERE SO ARRANGED AS TO PR ODUCE MORE THAN THE ORDINARY PROFITS IN THE HANDS OF THE ASSES SEE. THE ASSESSMENT YEAR UNDER CONSIDERATION IS 2009-10. NEI THER THE PROVISO TO SUB-SECTION (10) EXISTED AT THAT TIME, NO R SUCH A PROVISO CAN BE APPLIED AS WE ARE DEALING WITH AN INTERNATIO NAL TRANSACTION AND NOT SPECIFIED DOMESTIC TRANSACTION. UNDER THESE CIRCUMSTANCES, WE ARE OF THE CONSIDERED OPINION THA T THE IMPUGNED ORDER UPHOLDING THE INVOCATION OF SUB-SEC. (10) OF SEC. 80IA CANNOT BE COUNTENANCED TO THIS EXTENT. ERGO, IT IS HELD TH AT THE LD. CIT(A) ITA NO.964/PUN/2013 & CO NO.73/PUN/2014 SYMANTEC SOFTWARE INDIA PVT. LTD. 33 ERRED IN SUSTAINING THE DISALLOWANCE MADE BY THE AS SESSING 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 LIGH T 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 B E 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 ASSES SEE AND ITS AE BY WHICH THE TRANSACTIONS WERE SO ARRANGED AS TO PRODU CE MORE THAN THE ORDINARY PROFITS IN THE HANDS OF ASSESSEE, DISALLOW ANCE 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 ITA NO. 97 /HYD/2015 QUICK MD 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 DEDUCTIO N CLAIMED U/S 80IA(10), IN OUR VIEW IS NOT JUSTIFIED. ACCORDINGLY , WE DELETE THE ADDITION MADE BY AO IN THIS REGARD.' 24. APPLYING THE SAID PRINCIPLES TO THE ISSUE BEFOR E US, WE FIND NO MERIT IN THE ORDER OF THE ASSESSING OFFICER IN THIS REGARD AND U PHOLDING THE ORDER OF CIT(A), WE DISMISS GROUND NO.2 RAISED BY THE REVENUE. 25. ANOTHER ASPECT WHICH WAS POINTED OUT BY THE LD. AUTHORISED REPRESENTATIVE FOR THE ASSESSEE WAS THAT THE EXPENS ES CLAIMED BY THE ASSESSEE WERE THE OPERATING EXPENSES AND THUS WERE CONSIDERED WHILE DETERMINING THE OPERATING MARGINS OF THE ASSESSEE C OMPANY. HE ALSO POINTED OUT THAT THERE IS NO QUESTION OF DISALLOWANCE OF TH E EXPENSES SINCE THE ASSESSING OFFICER CANNOT SIT IN JUDGMENT OF THE ORD ER OF THE TRANSFER PRICING OFFICER IN VIEW OF THE PROVISIONS OF SECTION 92C(4) OF THE ACT. THE LD. AUTHORISED REPRESENTATIVE FOR THE ASSESSEE IN THIS REGARD POINTED OUT THAT THE ASSESSING OFFICER CANNOT CHANGE THE OPERATING EXPEN SES WHICH WERE THE BASIS OF 23%, THE MARGINS SHOWN BY THE ASSESSEE IN THE CA SE WHERE THE ASSESSEE IS A COST PLUS ENTITY. ITA NO.964/PUN/2013 & CO NO.73/PUN/2014 SYMANTEC SOFTWARE INDIA PVT. LTD. 34 26. ANOTHER POINT RAISED BY THE LD. AUTHORISED REPR ESENTATIVE FOR THE ASSESSEE THAT SINCE IN THE MUTUAL AGREEMENT PROCEDU RE PROCEEDINGS THE DEPARTMENT HAS ACCEPTED THE OPERATING COST AND OPER ATING REVENUE, THEN THERE IS NO MERIT IN TINKERING WITH THE EXPENSES. 27. WE FIND MERIT IN THE PLEA OF THE ASSESSEE IN TH IS REGARD ESPECIALLY WHEREIN THE CASE OF A COST PLUS ENTITIES, WHERE THE BASIS FOR EARNING THE MARGINS, IS THE COST INCURRED BY THE ASSESSEE. THE COST IS THE EXPENDITURE INCURRED BY THE ASSESSEE IN RUNNING ITS BUSINESS AN D THE MARGINS AT 23% ARE OFFERED AND ADDITIONAL COST WHICH ARE BROUGHT TO TA X IN THE HANDS OF THE ASSESSEE. IN VIEW THEREOF, WE HOLD THAT THE ASSES SING OFFICER HAS TRANSGRESSED HIS JURISDICTION IN DISALLOWING THE AB OVE SAID EXPENDITURE. ACCORDINGLY, WE UPHOLD THE ORDER OF THE CIT(A) ON T HIS ISSUE. 28. NOW COMING TO THE ISSUE RAISED VIDE GROUNDS OF APPEAL NO.3 AND 4 BY THE REVENUE AND GROUND OF CROSS OBJECTION NO.12 BY THE ASSESSEE IS AGAINST THE DELETION OF DISALLOWANCE OF RS.5.19 CRORES MADE ON ACCOUNT OF VARIOUS EXPENSES. 29. THE CASE OF THE REVENUE IN THIS REGARD IS THAT THE ASSESSEE HAD FAILED TO FURNISH THE BASIC DETAILS OF VARIOUS EXPENSES CLAIM ED BY IT IN ITS PROFIT AND LOSS ACCOUNT AND HAS FAILED TO FURNISH THE INFORMATION A S CALLED FOR AND HENCE THE DISALLOWANCE MADE UNDER VARIOUS HEADS NEEDS TO BE A FFIRMED. 30. THE LD. AUTHORISED REPRESENTATIVE FOR THE ASSES SEE ON THE OTHER HAND POINTS OUT THAT COMPLETE DETAILS WERE FURNISHED BEF ORE THE ASSESSING OFFICER IN OCTOBER, 2011 AS CALLED FOR BY THE ASSESSING OFFICE R BUT THE SAME HAVE NOT BEEN CONSIDERED BY THE ASSESSING OFFICER. OUR ATTE NTION WAS DRAWN TO THE DETAILS OF EXPENSES FILED BEFORE THE ASSESSING OFFI CER WHICH ARE PLACED AT PAGES ITA NO.964/PUN/2013 & CO NO.73/PUN/2014 SYMANTEC SOFTWARE INDIA PVT. LTD. 35 935 TO 1013 OF THE PAPER BOOK AND POINTED OUT THAT FURTHER DETAILS WERE FILED BEFORE THE ASSESSING OFFICER VIDE LETTER DATED 31-1 0-2011 WHICH ARE ENCLOSED AT PAGES 1014 TO 1043 OF THE PAPER BOOK ALONG WITH PAR TY-WISE DETAILS OF ADDRESSES, EXPENSES INCURRED, PAN NUMBERS, TDS DEDU CTED OUT OF REPAIR AND MAINTENANCE ACCOUNTS AND EVEN THE SIMPLE FACTS. TH E ASSESSING OFFICER HOWEVER PASSED THE ASSESSMENT ORDER IN JANUARY, 201 2, I.E. AFTER A GAP OF FEW MONTHS BUT FAILED TO CONSIDER THE EVIDENCES FILED B Y THE ASSESSEE ON RECORD. THE LD. AUTHORISED REPRESENTATIVE FOR THE ASSESSEE BEFORE US POINTED OUT THAT COMPLETE INFORMATION WAS FILED BEFORE THE CIT(A) AL ONG WITH CERTAIN OTHER INFORMATIONS AS CALLED FOR AND THE SAME WAS LOOKED INTO BY THE CIT(A), COPY OF WHICH ARE PLACED AT PAGES 1014 TO 1069 OF THE PAPER BOOK AND HE DELETED THE ADDITION. ANOTHER ASPECT WAS POINTED OUT BY THE LD . AUTHORISED REPRESENTATIVE FOR THE ASSESSEE WAS THAT EXPENSES INCURRED BY THE ASSESSEE WERE SIMILAR IN NATURE TO THE EARLIER YEARS AND COMMENSURATE WITH T HE REVENUE EARNINGS OF THE ASSESSEE. 31. WE FIND THAT THE CIT(A) HAS CONSIDERED THE EVID ENCES FILED IN RESPECT OF EACH OF THE HEAD OF EXPENDITURE AND GIVEN A FINDING THAT THE ASSESSEE HAD FURNISHED THE DETAILS BEFORE THE ASSESSING OFFICER EXCEPT IN SOME OF THE CASES. THE CIT(A) VIDE PARA NO.5.3.6 AT PAGE 74 OF THE APP ELLATE ORDER HOLDS THAT ON THE BASIS OF THE INFORMATION FILED THE ASSESSING OF FICER HAS NOT VERIFIED THE PAYMENTS AND IN THE ABSENCE OF SUCH VERIFICATION EX ERCISE, THERE IS NO MERIT IN THE DISALLOWANCE. 32. THE LD. AUTHORISED REPRESENTATIVE FOR THE ASSES SEE HAS TAKEN US THROUGH DIFFERENT ASPECTS OF THE EXPENDITURE CLAIME D AND THE REASONS FOR DISALLOWANCE. IN RESPECT OF THE RENT ACCOUNT, THE LD. AUTHORISED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT BE CAUSE OF THE REASON FOR ITA NO.964/PUN/2013 & CO NO.73/PUN/2014 SYMANTEC SOFTWARE INDIA PVT. LTD. 36 INCREASE IN THE EXPENDITURE WAS, TAKING NEW PREMISE S ON LEASE WAS NOT CONSIDERED BY THE ASSESSING OFFICER BEFORE MAKING T HE DISALLOWANCE. IN RESPECT OF REPAIR AND MAINTENANCE EXPENSES, THE ASS ESSING OFFICER HAD DISALLOWED 20% OUT OF REPAIR AND MAINTENANCE EXPENS ES ON THE GROUND THAT BILLS AND EXPENDITURE WERE NOT SUBMITTED FOR VERIFI CATION. HOWEVER, THE ASSESSING OFFICER HAS NOT VERIFIED THE EVIDENCES FI LED BY THE ASSESSEE AND ADHOC DISALLOWANCE OF 20% WAS MADE ON THE GROUND TH AT SOME EXPENDITURE MAY BE CAPITAL EXPENDITURE. IN RESPECT OF LEGAL AND PROFESSIONAL FEE, THE EXPENDITURE WAS DISALLOWED FOR NON-DEDUCTION OF TAX ON SOME OF THE BIG PAYMENTS, I.E. MADE TO TEAM LEASE SERVICES PRIVATE LIMITED AND OTHERS. THE ASSESSEE EXPLAINED THAT NO TAX DEDUCTION AT SOURCE CERTIFICATE WAS OBTAINED BY THE SAID COMPANY AND FURTHER THE DETAILS OF PAN AND ADDRESSES OF MOST OF THE PARTIES WAS GIVEN. IN RESPECT OF THE COMPUTER SUPP LY, THE ASSESSING OFFICER DISALLOWED RS.13,11,441/- AND RS.1,09,476/- SHOWN U NDER THE HEAD OCTROI EXPENSES AND TRAVELLING EXPENSES; IT WAS EXPLAIN ED BY THE LD. AUTHORISED REPRESENTATIVE FOR THE ASSESSEE THAT THE SAID EXPEN DITURE WAS BY MISTAKE DEBITED TO THE COMPUTER SUPPLY EXPENSES, BUT THE AS SESSEE HAD INCURRED THE SAID EXPENSES AND THE DEDUCTION WAS ALLOWABLE IN TH E HANDS OF THE ASSESSEE. 33. THE NEXT ITEM OF DISALLOWANCE WAS 5% OUT OF VSN L LINK CHARGES AND TRAVELLING EXPENSES ON THE GROUND THAT THE ASSESSEE HAS NOT FURNISHED THE DETAILS. HOWEVER, THE ASSESSEE CLAIMS TO HAVE FURN ISHED ALL THE DETAILS ALONG WITH LETTER DATED 17-11-2011 AND THE SAME HAS NOT B EEN CONSIDERED BY THE ASSESSING OFFICER. IT WAS POINTED OUT BY THE LD. A UTHORISED REPRESENTATIVE FOR THE ASSESSEE BEFORE THE CIT(A) AND EVEN BEFORE US T HAT COPIES OF THE BILLS BEING VOLUMINOUS IN NATURE WERE NOT FILED. HOWEVER, THE ASSESSING OFFICER DID NOT ASK FOR THE SAME AND IN THE ABSENCE OF THE SAME THERE I S NO MERIT IN MAKING THE AFORESAID DISALLOWANCE. ITA NO.964/PUN/2013 & CO NO.73/PUN/2014 SYMANTEC SOFTWARE INDIA PVT. LTD. 37 34. ON THE PERUSAL OF THE ORDERS OF AUTHORITIES BEL OW AND THE VOLUMINOUS DOCUMENTS FILED BY THE ASSESSEE IN A SEPARATE PAPER BOOK IN THIS REGARD, WE ARE OF THE VIEW THAT THE ASSESSING OFFICER HAS FAIL ED TO VERIFY THE DOCUMENTS FILED BY THE ASSESSEE IN RESPECT OF THE DIFFERENT H EADS OF EXPENDITURE. IN SUCH CIRCUMSTANCES, NO ADHOC DISALLOWANCE CAN BE MADE, E SPECIALLY KEEPING IN MIND THE REPLY FILED BY THE ASSESSEE, BEFORE THE ASSESSI NG OFFICER, CIT(A) AND THE EXPLANATION ALSO FILED BEFORE US. FURTHER ASSESSEE IS OFFERING ITS INCOME ON THE BASIS OF COST AND NO DISALLOWANCE OF COST IS WARRAN TED IN SUCH CIRCUMSTANCES. IN THE TOTALITY OF THE FACTS AND CIRCUMSTANCES, WE UPHOLD THE ORDER OF CIT(A) IN DELETING THE DISALLOWANCE OF RS.5.19 CRORES. GROUN DS OF APPEAL NO.3 AND 4 RAISED BY THE REVENUE ARE THUS DISMISSED AND GROUND OF CROSS OBJECTION NO.12 RAISED BY THE ASSESSEE IS ALLOWED. 35. GROUNDS OF APPEAL NO.5 TO 8 RAISED BY THE REVEN UE AND THE CROSS OBJECTION GROUND NOS. 1 TO 10 RAISED BY THE ASSESSE E ARE ACADEMIC BECAUSE OF THE ISSUE OF TRANSFER PRICING BEING SETTLED BY MAP. ACCEPTANCE OF MAP RESOLUTION FOR THE YEAR UNDER CONSIDERATION IS PLAC ED ON RECORD. THE ASSESSING OFFICER IS THUS DIRECTED TO APPLY THE SAME AND CONS EQUENTLY THE GROUNDS OF APPEAL RAISED BY THE REVENUE AND THE CROSS OBJECTIO NS RAISED BY THE ASSESSEE BECOME ACADEMIC IN NATURE AND ARE DISMISSED. 36. NOW COMING TO GROUND OF CROSS OBJECTION NO.11 B Y THE ASSESSEE WHICH IS AGAINST CHARGING OF INTEREST U/S.234B OF THE ACT , THE LD. AUTHORISED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT TH E SAME WOULD NOT ARISE SINCE NO TRANSFER PRICING ADJUSTMENT IS MADE IN THE HANDS OF THE ASSESSEE. HOWEVER, LEVY OF INTEREST U/S.234B OF THE ACT IS CO NSEQUENTIAL IN NATURE. SIMILARLY, GROUND NO.13 IN THE CROSS OBJECTION BY T HE ASSESSEE IS AGAINST COMPUTATION OF INTEREST U/S.234B OF THE ACT IS AGAI NST THE ASSESSED INCOME ITA NO.964/PUN/2013 & CO NO.73/PUN/2014 SYMANTEC SOFTWARE INDIA PVT. LTD. 38 WHICH IS ALSO CONSEQUENTIAL IN NATURE. THEREFORE, THE GROUND NO. 11 AND GROUND NO.13 OF THE CROSS OBJECTIONS FILED BY THE A SSESSEE ARE DISMISSED SINCE LEVY OF INTEREST U/S.234B OF THE ACT IS CONSE QUENTIAL IN NATURE. 37. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED AND THE CROSS OBJECTION OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED ON THIS 16 TH DAY OF AUGUST, 2017. SD/- SD/- (ANIL CHATURVEDI) (SUSHMA CHOWLA) / ACCOUNTANT MEMBER / JUDICIAL MEMBER / PUNE; DATED : 16 TH AUGUST, 2017. SATISH / COPY OF THE ORDER IS FORWARDED TO : THE APPELLANT; THE RESPONDENT; ( ) THE CIT(A)-IT/TP, PUNE / THE CIT - IT/TP , PUNE , , / DR A, ITAT, PUNE; / GUARD FILE. / BY ORDER // TRUE COPY // SENIOR PRIVATE SECRETARY, ITAT, PUNE BENCHES, PUNE
Other Referred Cases
-
Laws Referred To
-
Tax Holiday Secrets for Startups
₹0
Guide to Charitable Trusts: Formation, Benefits, and Compliance
₹0
1:1 Consultation on Salary Structuring
₹1
Startup Valuation Certificate
₹0
Affidavit - Application for condonation of delay in filing the appeal before ITAT - Type 2
Mehul₹0
Why Lacoste Won a 20-Year Trademark Battle Against Crocodile ?
Team Counselvise - March 10, 2026
Finance Bill, 2026: Key Direct Tax Amendments on Assessments and Appeals
Team Counselvise - February 06, 2026
Minimum Alternate Tax (MAT): Comprehensive Overview and Key Changes under Finance Bill, 2026
Team Counselvise - February 06, 2026