Eaton Industres Pvt Ltd, Pune V. DCIT, Pune

ITA 1148/PUN/2012

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 6920 (ITAT-PUNE)
• Duration Of Justice: 4 year(s) 9 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-03-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 25-01-2017
• Assessment Year: 2006-2007
• Appeal Filed On: 01-06-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Transfer pricing; Opportunity of being heard; International transaction; Application of stay; Wholly owned subsidiary; Avoidance of tax; Competent authority; Onus to prove
• Section: 143(3); 92F; 92E; 80IB; 6; 263

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.1148/PUN/2012 & & / ASSESSMENT YEAR : 2006-07 EATON INDUSTRIES PRIVATE LIMITED, 145, OFF MUMBAI-PUNE ROAD, PIMPRI, PUNE 411018 . / APPELLANT PAN: AAACE6351P VS. THE COMMISSIONER OF INCOME TAX-V, AKURDI, PUNE 411044 . RESPONDENT SA.NO.16/PUN/2013 (ARISING OUT OF ITA NO.1148/PUN/2012) & & / ASSESSMENT YEAR : 2006-07 EATON INDUSTRIES PRIVATE LIMITED, 145, OFF MUMBAI-PUNE ROAD, PIMPRI, PUNE 411018 . APPLICANT PAN: AAACE6351P VS. THE COMMISSIONER OF INCOME TAX-V, AKURDI, PUNE 411044 . RESPONDENT SA.NO.30/PUN/2013 (ARISING OUT OF ITA NO.1148/PUN/2012) & & / ASSESSMENT YEAR : 2006-07 EATON INDUSTRIES PRIVATE LIMITED, 145, OFF MUMBAI-PUNE ROAD, PIMPRI, PUNE 411018 . APPLICANT PAN: AAACE6351P VS. THE COMMISSIONER OF INCOME TAX-V, AKURDI, PUNE 411044 . RESPONDENT ITA NO.1148/PUN/2012 SA NOS.16 & 30/PUN/2013 EATON INDUSTRIES P. LTD. 2 / APPELLANT BY : SHRI VISHAL KALRA / RESPONDENT BY : SHRI RAJEEV KUMAR, CIT DATE OF HEARING : 25.01.2017 / DATE OF PRONOUNCEMENT: 24.03.2017 / ORDER PER SUSHMA CHOWLA, JM: THIS APPEAL FILED BY THE ASSESSEE IS AGAINST THE OR DER OF CIT-V, PUNE, DATED 26.03.2012 RELATING TO ASSESSMENT YEAR 2006-07 PASS ED UNDER SECTION 263 OF THE INCOME-TAX ACT, 1961 (IN SHORT THE ACT). 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL:- 1) THE LEARNED COMMISSIONER OF INCOME TAX V, AKUR DI, PUNE (LD. CIT) ERRED IN ASSUMING JURISDICTION UNDER SECTION 263 OF THE ACT WHICH IS UNCALLED FOR AND UNJUSTIFIED. THE LD. CIT HAS EXERCISED THI S JURISDICTION WITHOUT RECORDING AN OBJECTIVE AND CONCLUSIVE FINDING THAT THE ORDER OF THE AO PASSED UNDER SECTION 143(3) OF THE ACT IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE. 2) THE LD. CIT FAILED TO APPRECIATE THAT SECTION 26 3 OF THE ACT CANNOT BE INVOKED FOR LAUNCHING ROVING ENQUIRIES. THE LD. CI T INVOKED SECTION 10A(7) OF THE ACT READ WITH SECTION 80IA(10) OF THE ACT ON HIS OWN ASSUMPTION AND WITHOUT RECORDING AN OBJECTIVE FINDING THAT THE APP ELLANT HAS EARNED MORE THAN ORDINARY PROFIT. 3) THE LD. CIT ERRED IN GIVING DIRECTIONS TO THE AO TO REVISE THE ASSESSMENT BY APPLYING THE PROVISIONS OF SECTION 10A(7) R.W.S. 80 IA(10) OF THE ACT: A) THE LD. CIT DID NOT DEMONSTRATE HOW THE AFFAIRS BETWEEN THE APPELLANT AND ITS ASSOCIATE ENTERPRISE CAN BE SAID TO BE ARRA NGED SO AS TO YIELD MORE THAN ORDINARY PROFIT TO THE APPELLANT, WHICH I S AN ESSENTIAL PRE- REQUISITE TO INVOKE SECTION 80IA(10) OF THE ACT; B) THE LD. CIT FAILED TO APPRECIATE THAT INVOKING S ECTION 10A(7) WOULD ESSENTIALLY RESULT IN TAXATION NOT IN ACCORDANCE WI TH THE TAX TREATY BETWEEN THE GOVERNMENT OF INDIA AND THE UNITED STAT ES; C) THE LD. CIT FAILED TO APPRECIATE THAT THERE IS N O EROSION OF INDIAN TAX BASE SO AS TO INVOKE SECTION 10A(7) R.W.S. 80IA(10) OF THE ACT. 3. THE ISSUE IN THE PRESENT APPEAL IS AGAINST THE E XERCISE OF JURISDICTION BY THE COMMISSIONER UNDER SECTION 263 OF THE ACT. ITA NO.1148/PUN/2012 SA NOS.16 & 30/PUN/2013 EATON INDUSTRIES P. LTD. 3 4. BRIEFLY IN THE FACTS OF THE CASE THE ASSESSEE HA S FILED THE RETURN OF INCOME DECLARING GROSS INCOME OF RS.56,29,390/- ON 30-11-2 006. THE ASSESSING OFFICER PASSED THE ASSESSMENT ORDER UNDER SECTION 143(3) OF THE ACT COMPUTING THE TAXABLE INCOME AT RS.1,78,84,938/-. THE ASSESSING OFFICER ALLOWED DEDUCTION UNDER SECTION 10A OF THE ACT AT RS.44,95,69,639/-. THE COMMISSIONER WAS OF THE VIEW THAT THE ASSESSMENT ORDER FRAMED UNDER SECTION 143(3) OF THE ACT APPEARED TO BE ERRONEOUS IN SO FAR AS IT WAS PREJUDICIAL TO THE INTEREST OF REVENUE AND CONSEQUENTLY SHOW CAUSE NOTICE WAS ISSUED TO THE AS SESSEE. AS PER THE SHOW CAUSE NOTICE THE COMMISSIONER OBSERVED THAT THE ASS ESSEE WAS WHOLLY OWNED SUBSIDIARY OF EATON INDUSTRIES CORPORATION, USA (IN SHORT EIC) INCORPORATED ON 07- 10-1999 UNDER THE INDIAN COMPANIES ACT. IT WAS ENG AGED IN PROVIDING ENGINEERING AND BUSINESS SUPPORT SERVICES TO EIC. THE COMMISSIONER ALSO OBSERVED THAT THE ASSESSEE HAD ENTERED INTO VARIOUS INTERNATIONAL TRANSACTIONS WITH ITS ASSOCIATED ENTERPRISES TOTALING RS.63,64,15,354 /-. THE ASSESSEE WAS PROVIDING COMPLEX ENGINEERING ACTIVITIES SUCH AS AD VANCE TECHNOLOGICAL AND PRODUCT DEVELOPMENT SERVICES TO ITS ASSOCIATED ENTE RPRISES. THE COMMISSIONER FURTHER NOTED THAT THE ASSESSEE HAD FURNISHED CATEG ORY WISE TURNOVER AND COST TO EIPL FOR ALL ITS SERVICE CATEGORIES. IT WAS SHOWN B Y THE ASSESSEE THAT TOTAL TURNOVER FOR ENGINEERING DESIGN AND DEVELOPMENT SERVICES WAS RS.60,67,11,083/- AND THE COST FOR THE SAME WAS SHOWN AT RS.16,39,59,079/- WH ICH GIVES A PROFIT OF RS.44,27,52,004/-. THE OPERATING MARGIN ON SALES W ORKS OUT TO 72.98% AND THE OPERATING MARGIN ON TOTAL COST WORKS OUT TO 270%. IN THE BUSINESS SUPPORT SERVICES, THE OPERATING MARGIN ON TOTAL COST IS SHO WN AT MEASLY 7.39%. THE COMMISSIONER WAS OF THE VIEW THAT WHERE THE ASSESSE E HAD CLAIMED DEDUCTION UNDER SECTION 10A OF THE ACT IN RESPECT OF THE ACTI VITY RELATING TO RENDERING OF ENGINEERING DESIGN AND DEVELOPMENT SERVICES TO ITS ASSOCIATED ENTERPRISES, WHERE THE PROFIT BEFORE TAXATION TO TOTAL SALES AND PROFIT BEFORE TAXATION TO TOTAL COST ITA NO.1148/PUN/2012 SA NOS.16 & 30/PUN/2013 EATON INDUSTRIES P. LTD. 4 WAS SIGNIFICANTLY HIGH, THEN THE PROVISIONS OF SECT ION 80IA(8) AND 80IA(10) OF THE ACT, IN SO FAR AS MAY, APPLY IN RELATION TO THE UND ERTAKING REFERRED TO IN SECTION 10A, AS THEY APPLY FOR THE PURPOSES OF UNDERTAKING REFER RED TO IN SECTION 80IA. THE COMMISSIONER WAS OF THE VIEW THAT SINCE THE ASSESSE E HAD SHOWN DISPROPORTIONATELY HIGH PROFIT MARGIN ON ENGINEERIN G DESIGN AND DEVELOPMENT SERVICES AS COMPARED TO THE BUSINESS SUPPORT SERVIC ES, THE DEDUCTION UNDER SECTION 10A WAS REQUIRED TO BE RESTRICTED IN VIEW O F THE PROVISIONS OF SECTION 10A(7) R.W.S. 80IA(8) AND 80IA(10) OF THE ACT. SINCE THE ASSESSING OFFICER HAD FAILED TO APPLY THE AFOREMENTIONED PROVISIONS OF THE ACT, THE COMMISSIONER CONSIDERED THE ASSESSMENT ORDER PASSED UNDER SECTION 143(3) OF THE ACT TO BE ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE WITHIN THE M EANING OF SECTION 263 OF THE ACT. ACCORDINGLY, THE ASSESSEE WAS ASKED TO EXPLAIN ITS CASE. IN RESPONSE THE ASSESSEE FILED WRITTEN SUBMISSIONS WHICH ARE INCORP ORATED AT PAGES 4 TO 14 OF THE ORDER OF COMMISSIONER. 5. THE ASSESSEE EXPLAINED THE NATURE OF BUSINESS SU PPORT SERVICES AND DESIGN ENGINEERING SERVICES PROVIDED TO ITS ASSOCIA TED ENTERPRISES AND POINTED OUT THAT THERE WAS NO MERIT IN COMPARING THE PROFIT ABILITY OF THE DESIGN ENGINEERING SERVICES WITH THAT OF BUSINESS SUPPORT SERVICES, SO AS TO CONCLUDE THAT THE ENGINEERING CENTRE WAS EARNING MORE THAN ORDINARY P ROFITS, AS CONTEMPLATED UNDER SECTION 80IA(10) OF THE ACT, WITH A VIEW TO RESTRIC T TO ENGINEERING CENTRES ON TAX HOLIDAY UNDER SECTION 10A OF THE ACT BY RESORTING T O SECTION 10A(7) R.W.S. 80IA(10) OF THE ACT. 6. THE NEXT ISSUE WHICH WAS POINTED OUT BY THE ASSE SSEE WAS THAT BOTH THE BUSINESS SUPPORT SERVICES AND DESIGN ENGINEERING SE RVICES WERE PROVIDED TO EATON CORPORATION, USA WHICH WAS SUBJECT TO THE TRE ASURY REGULATIONS PROMULGATED UNDER US INTERNAL REVENUE CODE 482 RE LATED TO PRICING OF INTER- ITA NO.1148/PUN/2012 SA NOS.16 & 30/PUN/2013 EATON INDUSTRIES P. LTD. 5 COMPANY TRANSACTIONS, INCLUDING TREASURY REGULATION 482-9. IT WAS POINTED OUT THAT THE US COMPETENT AUTHORITY WOULD NOT ACCEPT TH E COMPARISON OF THE PROFITABILITY OF BUSINESS SUPPORT SERVICES TO THE DESIGN ENGINEER ING SERVICES FOR THE PURPOSE OF CONCLUDING, WHERE THE TRANSFER PRICE FOR DESIGN ENGINEERING SERVICES WAS CONSISTENT WITH THE ARMS LENGTH STANDARD, HENCE NO ADJUSTMENT UNDER SECTION 10A(7) OF THE ACT WAS WARRANTED IN CASE OF THE ENGI NEERING CENTRE. THE NEXT POINT WHICH WAS RAISED BY THE ASSESSEE WAS THAT THERE WAS NO EROSION OF THE INDIAN TAX BASE ON ACCOUNT OF PAYMENT FOR ENGINEERING SERVICES . IT WAS STRESSED BY THE ASSESSEE THAT ENGINEERING CENTRE DOES NOT EARN MORE THAN ORDINARY PROFITS WHEREIN THE ASSESSEE EXPLAINED THAT THE HOURLY RATE S CHARGED BY THE ENGINEERING CENTRE TO EATON CORPORATION HAD REMAINED UNCHANGED DURING THE TENURE OF CONTRACT WITH TATA AMERICA CORPORATION. THE ASSESS EE ALSO EXPLAINED THE COMPLEXITY OF THE SERVICES PROVIDED AND WHERE THE E NGINEERING CENTRES HOURLY RATES BEING CHARGED TO EATON CORPORATION HAVE BEEN ACCEPT ED AS BEING AT ARMS LENGTH AND WHERE THERE HAS BEEN NO TRANSFER PRICING OR OTH ER ADJUSTMENT IN RESPECT OF THE PAYMENT MADE BY THE ENGINEERING CENTRE TO THE ASSOC IATED ENTERPRISES FOR INPUTS/INPUT SERVICES, THEN THE PROFITS EARNED BY T HE ENGINEERING CENTRE ON THE BASIS OF SUCH HOURLY RATES CANNOT BE REGARDED AS MO RE THAN ORDINARY PROFITS IN THE CONTEXT OF SECTION 80IA(10) OF THE ACT AND THE SAID SECTION COULD NOT BE INVOKED TO RECOMPUTE THE PROFITS OF ENGINEERING CENTRE TO LIMI T THE QUANTUM OF TAX HOLIDAY UNDER SECTION 10A OF THE ACT. THE NEXT CONTENTION O F THE ASSESSEE WAS THAT THERE WAS NO ARRANGEMENT TO MANIPULATE THE PROFITS OF THE ENGINEERING CENTRE. 7. THE COMMISSIONER ON THE ANALYSIS OF THE PROVISIO NS OF SECTION 263 OF THE ACT OBSERVED THAT THE FUNDAMENTAL PRINCIPLES FOR IN VOKING THE SAID JURISDICTION WERE AS UNDER : (I) THE CIT MUST RECORD SATISFACTION THAT THE ORDE R OF THE AO IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. BOTH T HE CONDITIONS MUST BE FULFILLED. ITA NO.1148/PUN/2012 SA NOS.16 & 30/PUN/2013 EATON INDUSTRIES P. LTD. 6 (II) SEC.263 CANNOT BE INVOKED TO CORRECT EACH AND EVERY TYPE OF MISTAKE OR ERROR COMMITTED BY THE AO AND IT IS ONLY WHEN AN OR DER IS ERRONEOUS THAT THE SECTION WILL BE ATTRACTED. (III) AN INCORRECT ASSUMPTION OF FACTS OR AN INCORR ECT APPLICATION OF LAW WILL SUFFICE THE REQUIREMENT OF ORDER BEING ERRONEOUS. (IV) IF THE ORDER IS PASSED WITHOUT APPLICATION OF MIND, SUCH ORDER WILL FALL UNDER THE CATEGORY OF ERRONEOUS ORDER. (V) EVERY LOSS OF REVENUE CANNOT BE TREATED AS PREJ UDICIAL TO THE INTERESTS OF THE REVENUE AND IF THE AO HAS ADOPTED ONE OF THE COURSE S PERMISSIBLE UNDER LAW OR WHERE TWO VIEWS ARE POSSIBLE AND THE AO HAS TAKEN O NE VIEW WITH WHICH THE CIT DOES NOT AGREE, IT CANNOT BE TREATED AS AN ERRONEOU S ORDER, UNLESS THE VIEW TAKEN BY THE AO IS UNSUSTAINABLE UNDER LAW. (VI) IF WHILE MAKING THE ASSESSMENT, THE AO EXAMINE S THE ACCOUNTS, MAKES ENQUIRIES, APPLIES HIS MIND TO THE FACTS AND CIRCUM STANCES OF THE CASE AND DETERMINES THE INCOME, THE CIT, WHILE EXERCISING HI S POWER U/S.263 IS NOT PERMITTED TO SUBSTITUTE HIS ESTIMATE OF INCOME IN PLACE OF TH E INCOME ESTIMATED BY THE AO. (VII) THE AO EXERCISES QUASI-JUDICIAL POWER VESTED IN HIM AND IF HE EXERCISES SUCH POWER IN ACCORDANCE WITH LAW AND ARRIVES AT A CONCLUSION, SUCH CONCLUSION CANNOT BE TERMED TO BE ERRONEOUS SIMPLY BECAUSE THE CIT DOES NOT FEEL SATISFIED WITH THE CONCLUSION. (VIII) THE CIT, BEFORE EXERCISING THE JURISDICTION U/S.263, MUST HAVE MATERIAL ON RECORD TO ARRIVE AT A SATISFACTION. (IX) IF THE AO HAS MADE ENQUIRIES DURING THE COURSE OF ASSESSMENT PROCEEDINGS ON THE RELEVANT ISSUES AND THE ASSESSEE HAS GIVEN D ETAILED EXPLANATION OF THE ASSESSEE, THE DECISION OF THE AO CANNOT BE HELD TO BE ERRONEOUSLY SIMPLY BECAUSE IN HIS ORDER HE DOES NOT MAKE AN ELABORATE DISCUSSI ON IN THAT REGARD. 8. HE FURTHER NOTED THE PROVISIONS OF SECTION 10A(7 ) OF THE ACT WHICH PROVIDE THAT THE PROVISIONS CONTAINED IN SECTION 80IA(10) A ND 80IA(8) AS FAR AS WOULD APPLY TO SECTION 10A ALSO. HE FURTHER NOTED THAT SECTION 80IA(10) PROVIDED THAT IN CASE DUE TO CLOSE CONNECTION BETWEEN THE ASSESSEE AND AN Y OTHER PERSON, BUSINESS TRANSACTIONS ARE SO ARRANGED THAT THEY PRODUCE MORE THAN ORDINARY PROFITS IN CASE OF THE ASSESSEE, THEN THE ASSESSING OFFICER WHILE C OMPUTING THE PROFIT AND GAINS OF ELIGIBLE BUSINESS, FOR THE PURPOSE OF DEDUCTION UND ER THE SAID SECTION, SHALL TAKE THE AMOUNT OF PROFIT AS MAY BE REASONABLY DEEMED TO HAVE BEEN DERIVED THEREFROM. 9. THE COMMISSIONER NOTED THAT TRANSFER PRICING PRO VISIONS WERE APPLICABLE IN THE CASE OF ASSESSEE TO BENCHMARK THE INTERNATIONAL TRANSACTION UNDERTAKEN BY THE ASSESSEE. IT WAS FURTHER NOTED THAT ASSESSEE HAD S ELECTED CUP AS THE MOST APPROPRIATE METHOD FOR ENGINEERING DESIGN AND DEVEL OPMENT SERVICES WHILE FOR BUSINESS SUPPORT SERVICES TNMM WAS SELECTED AS MOST APPROPRIATE METHOD. IT ITA NO.1148/PUN/2012 SA NOS.16 & 30/PUN/2013 EATON INDUSTRIES P. LTD. 7 WAS FURTHER NOTED THAT THE OPERATING PROFIT MARGIN ON TOTAL COST WORKED OUT TO 270% IN ENGINEERING DESIGN AND DEVELOPMENT SERVICES WHIL E FOR BUSINESS SUPPORT SERVICES, THE OPERATING PROFIT MARGIN ON TOTAL COST WAS SHOWN AT 7.39%. INVOKING THE PROVISIONS OF SECTION 10A(7) R.W.S.80IA(10) OF THE ACT, THE COMMISSIONER WAS OF THE VIEW THAT IN ORDER TO SATISFY THE PROVISIONS OF LAW AND TO ARRIVE AT THE REASONABLE AMOUNT OF PROFIT, IT MAY HAVE BEEN DEEMED TO BE DER IVED BY THE ELIGIBLE BUSINESS BEING ENGINEERING DESIGN AND DEVELOPMENT SERVICES, THEN THE SAME HAD TO BE BENCHMARKED AGAINST THE PROFITABILITY OF BUSINESS S UPPORT SERVICES. IT WAS FURTHER OBSERVED THAT NOTWITHSTANDING THE CONTENTION OF THE ASSESSEE THAT THE TWO SERVICES PROVIDED WERE DIFFERENT AND NOT COMPARABLE, EVEN TH OUGH THEY WERE FOUND TO BE NOT VERY DISSIMILAR, THE WIDE VARIATION BETWEEN THE OPERATING PROFIT MARGINS OF THE TWO SERVICES SHOULD HAVE INSTIGATED THE ASSESSING O FFICER TO APPLY THE PROVISIONS OF SECTION 10A(7) R.W.S. 80IA(10) OF THE ACT. THE COM MISSIONER TOOK NOTE OF THE ORDER OF TPO, WHO ACCORDING TO THE ASSESSEE HAD ACCEPTED THE OPERATING PROFIT OF THE ASSESSEE WITH RESPECT TO ENGINEERING DESIGN AND DEV ELOPMENT SERVICES WITHOUT MAKING ANY ADJUSTMENT TO THE CLAIM OF THE ASSESSEE UNDER SECTION 10A OF THE ACT AND REFERRED TO THE ORDER OF TPO VIDE PARA 8.2 TO 8 .4 WHICH ARE REPRODUCED AT PAGES 24 AND 25 OF THE ORDER OF COMMISSIONER. THE COMMISSIONER WAS OF THE VIEW THAT IN VIEW OF THE SAID SPECIFIC FINDINGS OF TPO, THE ASSESSING OFFICER HAD GROSSLY ERRED IN NOT APPLYING HIS MIND IN MAKING AN Y ENQUIRY EVEN THOUGH IT WAS PRIMA-FACIE WARRANTED. THE ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER WITHOUT APPLICATION OF MIND WAS THEREFORE HELD TO B E ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE. THE COMMISSIONER THEREAFT ER MET WITH EACH OF THE OBJECTIONS RAISED BY THE ASSESSEE IN RESPONSE TO NO TICE UNDER SECTION 263 OF THE ACT. IT WAS SPECIFICALLY OBSERVED BY THE COMMISSIO NER THAT THE ENTIRE ORDER OF TPO, ASSESSING OFFICER AND DRP WERE WITH RESPECT TO PROV ISIONS OF BUSINESS SUPPORT SERVICES AND NOT A WORD HAS BEEN SPOKEN ABOUT THE A RMS LENGTH PRICE OF ITA NO.1148/PUN/2012 SA NOS.16 & 30/PUN/2013 EATON INDUSTRIES P. LTD. 8 ENGINEERING DESIGN AND DEVELOPMENT SERVICES. HE, HO WEVER, ADMITTED THAT FROM THE RECORDS IT WAS EVIDENT THAT THE TPO HAD LOOKED AT THE ARMS LENGTH PRICE OF THE ENGINEERING DESIGN AND DEVELOPMENT SERVICES AND AS THE OPERATING PROFIT MARGIN WAS FOUND TO BE COMMENSURATE WITH THE NOTIONAL CUP SELECTED BY THE ASSESSEE, NO ADJUSTMENT WAS MADE IN ENGINEERING DESIGN AND DE VELOPMENT SERVICES. THE COMMISSIONER FURTHER OBSERVED THAT THE ISSUE AT STA KE WAS NON APPLICATION OF MIND BY THE ASSESSING OFFICER IN APPLYING THE PROVISIONS OF SECTION 10A(7) R.W.S. 80IA(10) OF THE ACT WHEREIN THE ASSESSEE HAD CLAIME D HIGHER DEDUCTION UNDER SECTION 10A OF THE ACT WHICH PRIMA-FACIE WARRANTED ENQUIRY, WHICH THE ASSESSING OFFICER FAILED TO MAKE AND HENCE THE CONTENTION OF THE ASSESSEE THAT THE ORDER WAS NOT PREJUDICIAL TO THE INTEREST OF REVENUE WAS FOUN D TO BE NOT ACCEPTABLE. 10. THE COMMISSIONER ALSO BRUSHED ASIDE THE CONTENT ION OF THE ASSESSEE THAT THE COMPARISON OF OPERATING MARGIN DERIVED BY ENGIN EERING CENTRES AND OPERATING PROFIT OF BUSINESS SUPPORT SERVICES, BEING NOT PERM ISSIBLE AND HENCE PROVISIONS OF SECTION 10A(7) OF THE ACT PER SE NOT APPLICABLE. T HE COMMISSIONER OBSERVED THAT THE ASSESSING OFFICER WAS BEING DIRECTED TO APPLY H IS MIND WITH RESPECT TO APPLICATION OF PROVISIONS OF SECTION 10A(7) R.W.S. 80IA(10) AFTER GIVING OPPORTUNITY OF HEARING TO THE ASSESSEE AND HENCE ISSUE COULD BE TA KEN UP BEFORE THE ASSESSING OFFICER DURING THE DENOVO ASSESSMENT PROCEEDINGS. THE COMMISSIONER ALSO BRUSHED ASIDE THE SUBMISSION OF THE ASSESSEE THAT T HERE IS NO EROSION OF INDIAN TAX BASE. THE COMMISSIONER CONCLUDED BY HOLDING THAT T HE ASSESSMENT ORDER WAS DIRECTED TO BE MODIFIED FOR NON APPLICATION OF MIND BY THE ASSESSING OFFICER ON THE ISSUE AND ASSESSING OFFICER WAS DIRECTED TO APPLY THE PROVISIONS OF SECTION 10A(7) R.W.S. 80IA(10) OF THE ACT WITH RESPECT TO THE OPER ATING PROFIT MARGIN TO COST, SHOWN BY THE ENGINEERING DESIGN AND DEVELOPMENT SERVICES AT 270%, VIS--VIS THE OPERATING PROFIT MARGIN TO COST SHOWN BY THE BUSINE SS SUPPORT SERVICES AT 7.39% OR ANY OTHER SUITABLE BENCHMARK FOUND AFTER FRESH S EARCH; IN CASE THE BUSINESS ITA NO.1148/PUN/2012 SA NOS.16 & 30/PUN/2013 EATON INDUSTRIES P. LTD. 9 SUPPORT SERVICES WERE FOUND TO BE NOT COMPARABLE TO THE ENGINEERING DESIGN AND DEVELOPMENT SERVICES, AS VEHEMENTLY ARGUED BY THE A SSESSEE. THE COMMISSIONER FURTHER DIRECTED THAT THE DEDUCTION UN DER SECTION 10A OF THE ACT MAY BE RESTRICTED, IF REQUIRED, ACCORDINGLY, AFTER GIVI NG AN OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 11. THE ASSESSEE IS IN APPEAL AGAINST THE ORDER OF COMMISSIONER UNDER SECTION 263 OF THE ACT. 12. THE LD. AUTHORISED REPRESENTATIVE FOR THE ASSES SEE POINTED OUT THAT THE COMMISSIONER VIDE HIS ORDER UNDER SECTION 263 OF TH E ACT HAS OBSERVED THAT THE ASSESSEE HAD EARNED MORE THAN ORDINARY PROFITS FROM BUSINESS AND HENCE THE PROVISIONS OF SECTION 10A(7) R.W.S. 80IA(10) OF TH E ACT ARE ATTRACTED. HE FURTHER POINTED OUT THAT THE FIRST ISSUE WHICH IS RAISED IN THE PRESENT APPEAL IS WHETHER ASSUMPTION OF JURISDICTION WAS CORRECTLY EXERCISED BY THE COMMISSIONER. THE LD. AUTHORISED REPRESENTATIVE FOR THE ASSESSEE FURTHER POINTED OUT THAT THE ASSESSEE WAS PROVIDING ENGINEERING DESIGN AND DEVELOPMENT SE RVICES IN THE UNIT WHICH WAS APPROVED BY THE STPI AND THE TOTAL TURNOVER WAS RS. 60.67 CRORES. FURTHER IT WAS ALSO PROVIDING BUSINESS SUPPORT SERVICES TO ITS ASS OCIATED ENTERPRISES WHICH WAS A NON STPI UNIT AND THE TOTAL TURNOVER WAS RS.2.66 CRORES. HE FURTHER CLARIFIED THAT ALL THE SERVICES WERE PROVIDED TO THE ASSOCIATED EN TERPRISES AND NO THIRD PARTY SERVICES WERE BEING PROVIDED BY THE ASSESSEE. HE D REW OUR ATTENTION TO THE DRAFT ASSESSMENT ORDER ISSUED UNDER SECTION 143(3) R.W.S. 144C OF THE ACT WHICH WAS PASSED BY THE ASSESSING OFFICER WHEREIN VIDE PARA 3 AND 4 OF THE SAID ORDER THE ASSESSING OFFICER HAS CLEARLY GIVEN A FINDING THAT THE CLAIM OF THE ASSESSEE UNDER SECTION 10A OF THE ACT HAS BEEN VERIFIED FROM THE D ETAILS AVAILABLE AND WITH REFERENCE TO THE PROVISIONS OF SECTION 10A OF THE A CT. THE ASSESSING OFFICER HAD PERUSED THE DETAILED WORKING OF THE COMPUTATION OF DEDUCTION UNDER SECTION 10A OF ITA NO.1148/PUN/2012 SA NOS.16 & 30/PUN/2013 EATON INDUSTRIES P. LTD. 10 THE ACT AND ALLOWED THE SAME. HE ALSO POINTED OUT THAT THE ASSESSING OFFICER HAD REVISED THE CLAIM OF DEDUCTION UNDER SECTION 10A OF THE ACT, I.E. AS AGAINST THE CLAIM OF ASSESSEE AT RS.44,84,70,823/-, THE ASSESSI NG OFFICER HAD ALLOWED THE DEDUCTION UNDER SECTION 10A OF THE ACT AT RS.45,03, 55,521/-. OUR ATTENTION WAS DRAWN TO THE ORDER OF THE TPO WHEREIN HE HAS MADE A N ADJUSTMENT ON ACCOUNT OF PROVISIONS OF BUSINESS SUPPORT SERVICES BY THE ASSE SSEE TO ITS ASSOCIATED ENTERPRISES. OUR ATTENTION WAS THEN DRAWN TO THE O RDER OF TPO WHEREIN ADJUSTMENT HAS BEEN MADE UNDER THE BSS SEGMENT. THE TPO AT PA GE 15 HAD OBSERVED THAT BSS SEGMENT WAS FUNCTIONALLY DIFFERENT DIVISION BUT RISK ASSUMED WAS SIMILAR AS TO THE ENGINEERING DESIGN SERVICES. OUR ATTENTION WAS DRAWN TO PARA 8.2 OF THE TPOS ORDER WHEREIN THOUGH THE TPO MENTIONS THAT TH E OPERATING PROFIT OVER TOTAL COST IN RESPECT OF ENGINEERING DESIGN SERVICES WAS 270% BUT THE TPO APPLIED THE CUP METHOD AND ACCEPTED THE MARGINS SHOWN BY THE AS SESSEE AND NO ADDITION WAS MADE IN THE ENGINEERING DESIGN SERVICES. IT WA S FURTHER POINTED OUT BY THE LD. AUTHORISED REPRESENTATIVE FOR THE ASSESSEE THAT THE NET PROFIT EARNED IN THE ENGINEERING DESIGN SERVICES WAS 72.98% AND THE RESU LTS OF OP/OC AT 270% WAS ONLY FOR THE INFORMATION OF THE TPO WHICH HAS NOT B EEN APPLIED ANYWHERE. IN RESPECT OF THE BSS SEGMENT HE POINTED OUT THAT THE TPO APPLIED TNM METHOD, PICKED UP EXTERNAL COMPARABLES AND THE PLI WAS REWO RKED FOR THE BSS SEGMENT, WHEREIN THE RISK WAS SIMILAR, BUT IT WAS BEING COMP ENSATED BY THE ASSOCIATED ENTERPRISES AT 7.39%. HE FURTHER POINTED OUT THAT AT PAGE 39 OF THE TPOS ORDER A CONCERN HAVING OP/OC OF 151.71% WAS DROPPED BECAUSE OF THE TURNOVER. THE LD. AUTHORISED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT THE TPO AT NO PLACE HAD COMPARED THE RESULTS OF THE BSS SEGMENT WITH T HE RESULTS OF THE ENGINEERING DESIGN SERVICES BUT HAD ADOPTED EXTERNAL COMPARABLE S FOR COMPARISON. THE LD. AUTHORISED REPRESENTATIVE FOR THE ASSESSEE THEREAFT ER TOOK US THROUGH THE SHOW CAUSE NOTICE ISSUED BY THE COMMISSIONER WHEREIN THE ALLEGATION WAS THAT THE ITA NO.1148/PUN/2012 SA NOS.16 & 30/PUN/2013 EATON INDUSTRIES P. LTD. 11 ASSESSEE HAD EARNED HIGHER OPERATING MARGINS IN ENG INEERING DESIGN SERVICES AS COMPARED TO THE BSS SEGMENT AND BECAUSE OF THESE HI GHER OPERATING MARGINS THE COMMISSIONER HAD APPLIED SECTION 10A(7) R.W.S. 80IA (8) AND 80IA(10) OF THE ACT. OUR ATTENTION WAS FURTHER DRAWN TO THE DETAILED SUB MISSIONS MADE BY THE ASSESSEE BEFORE THE COMMISSIONER WHO INTURN SUMMARIZED THE C ONDITIONS TO BE APPLIED FOR INVOKING THE JURISDICTION UNDER SECTION 263 OF THE ACT, WHICH IN THE PRESENT CASE IS NOT SATISFIED. HE FURTHER REFERRED TO PAGE 23 OF T HE ORDER OF COMMISSIONER TO POINT OUT THAT THE CONCLUSION OF THE COMMISSIONER WAS THA T THE TWO SERVICES WERE TO BE BENCHMARKED, HOWEVER, WHERE THE SERVICES WERE NOT C OMPARABLE AND EVEN THE TPO HAD NOT APPLIED THE RESULTS FOR EITHER OF THE D IVISIONS TO MAKE A COMPARISON AND THE TPO HAD BENCHMARKED THE TWO DIVISIONS SEPAR ATELY BY APPLYING CUP METHOD TO ENGINEERING DESIGN SERVICES AND TNM METHO D TO BSS SEGMENT, THE ORDER OF THE COMMISSIONER IN THIS REGARD WAS HELD T O BE NOT CORRECT. HE FURTHER STRESSED THAT WHILE BENCHMARKING THE RESULTS OF BSS SEGMENT WHERE THE CONCERN OF HIGHER PROFIT RANGE WAS SELECTED BUT DROPPED ON QUA LITATIVE FILTER, THEN SIMILARLY RESULTS OF ENGINEERING DESIGN SERVICES COULD NOT BE APPLIED. ON THE OTHER HAND THE COMMISSIONER OBSERVED THAT THE ENGINEERING DESIGN SERVICES HAD EARNED HIGHER PROFITS AND HAD HELD THE SAME TO BE E XTRAORDINARY PROFITS. FURTHER HE POINTED OUT THAT THE ORDER OF COMMISSIONER SUFFERS FROM INFIRMITIES, WHERE HE HAD NOT COME TO ANY CONCLUSION AND HE HAS DIRECTED THE ASSESSING OFFICER TO APPLY HIS MIND THAT THE PROVISIONS OF SECTION 10A(7) ARE TO B E APPLIED OR NOT AND ALSO DIRECTED THE ISSUES TO BE TAKEN UP BEFORE THE ASSES SING OFFICER DENOVO. HE STRESSED THAT WHERE THERE WAS NO SATISFACTION BY TH E COMMISSIONER AS TO HOW THERE WAS AN ARRANGEMENT BETWEEN THE PARTIES AND HOW THE TWO SERVICES WERE COMPARABLE AND THEN COMMISSIONER GOES ON TO HOLD TH AT THE ASSESSING OFFICER HAD NOT APPLIED HIS MIND AND IF REQUIRED DEDUCTION UNDE R SECTION 10A MAY BE RESTRICTED; ITA NO.1148/PUN/2012 SA NOS.16 & 30/PUN/2013 EATON INDUSTRIES P. LTD. 12 WHERE THE MATTER HAS BEEN SENT BACK WITH NO CONCLUS ION FOR DENOVO ASSESSMENT, THE ORDER PASSED BY THE COMMISSIONER WAS HELD TO BE INVALID. 13. ANOTHER CONCLUSION OF THE COMMISSIONER FOR EXER CISING THE JURISDICTION UNDER SECTION 263 OF THE ACT WAS THAT THE ASSESSING OFFIC ER/TPO HAD NOT LOOKED INTO THE CUP METHOD. OUR ATTENTION WAS DRAWN TO THE ORDER S HEET ENTRIES WHEREIN THE ASSESSING OFFICER/TPO HAD RAISED THE QUERIES AGAINS T WHICH THE ASSESSEE FURNISHED THE SUBMISSIONS IN RESPECT OF THE SEGMENT AL DETAILS, INCREASE IN EXPENSES AND ELIGIBILITY OF CLAIM OF DEDUCTION UNDE R SECTION 10A OF THE ACT WHICH ARE PLACED AT PAGES 43 TO 52 OF THE PAPER BOOK. TH E LD. AUTHORISED REPRESENTATIVE FOR THE ASSESSEE PLACED RELIANCE ON THE FOLLOWING DECISIONS IN RESPECT OF THE EXERCISE OF JURISDICTION UNDER SECTI ON 263 OF THE ACT : 1. M/S. SEMCO ELECTRIC PRIVATE LIMITED VS. ACIT IN ITA NO.792/PN/2012 ORDER DATED 14-10-2012. 2. SPICER INDIA LIMITED VS. CIT AND VICE VERSA IN I TA NOS.1112, 1113 AND 1280/PN/2012 ORDER DATED 08-07-2015. 14. THE LD. AUTHORISED REPRESENTATIVE FOR THE ASSES SEE FURTHER POINTED OUT THAT WHERE THE TWO DIVISIONS OF THE ASSESSEE WERE SEPARA TE BECAUSE OF THE NATURE OF WORKING, THEN IT CANNOT BE SAID THAT THERE WAS AN A RRANGEMENT BETWEEN THE TWO. HE FURTHER STRESSED THAT THE ISSUE RAISED IN THE PR ESENT APPEAL IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE FOLLOWING DECISION S OF THE TRIBUNAL : 1. M/S. HONEYWELL AUTOMATION INDIA LIMITED VS. DCIT IN ITGA NO.18/PN/2011 ORDER DATED 25-02-2015. 2. TATA JOHNSON CONTROLS AUTOMOTIVE LIMITED VS. DCI T AND VICE VERSA IN ITA NOS. 1450 AND 1454/PN/2011 ORDER DATED 09-12-2015 3. CIT VS. M/S. SCHMETZ INDIA PVT. LTD. IN INCOME T AX APPEAL NO.1973/2013 ORDER DATED 30-09-2015 4. CIT VS. M/S. SCHMETZ INDIA PVT. LTD. IN SPECIAL LEAVE TO APPEAL (CIVIL NO.2013/2016 ORDER DATED 08-02-2016 5. CIT VS. M/S. SCHMETZ INDIA PVT. LTD. IN SPECIAL LEAVE TO APPEAL (CIVIL NO.6097/2016 ORDER DATED 08-04-2016 6. CIT VS. M/S. SCHMETZ INDIA PVT. LTD. IN INCOME T AX APPEAL NO.1382/2013 ORDER DATED 24-06-2015 ITA NO.1148/PUN/2012 SA NOS.16 & 30/PUN/2013 EATON INDUSTRIES P. LTD. 13 15. THE LD. DEPARTMENTAL REPRESENTATIVE FOR THE REV ENUE POINTED OUT THAT WHERE THE ORDER OF THE ASSESSING OFFICER WAS ERRONE OUS AND PREJUDICIAL TO THE INTEREST OF REVENUE THEN THE EXERCISE OF JURISDICTI ON BY THE COMMISSIONER WAS CORRECT. HE PLACED RELIANCE ON THE DECISION OF CIT VS. SHREE MANJUNATHESWARE PACKING PRODUCTS & CAMPHOR WORKS REPORTED IN (1998) 96 TAXMAN 1 (SC) AND THE DECISION IN THE CASE OF CAIRN ENERGY INDIA (P.) LTD . VS. DIT (INTERNATIONAL TAXATION) REPORTED IN (2013) 30 TAXMANN.COM 332 (CHENNAI.TRIB .) THE LD. DEPARTMENTAL REPRESENTATIVE FURTHER POINTED OUT THAT EXPLANATION 2 TO SECTION 263 OF THE ACT HAS BEEN AMENDED AND THE SAME WAS CLARIFICATORY IN NATU RE AND HENCE WAS APPLICABLE RETROSPECTIVELY. COMING TO THE FINDING OF THE COMM ISSIONER THAT THERE WAS NON- APPLICATION OF MIND BY THE ASSESSING OFFICER, THE L D. DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE POINTED OUT THAT THE COMMISSIONER H AS REFERRED TO THE PROCEEDINGS BEFORE THE ASSESSING OFFICER/TPO AND REBUTTED THE S UBMISSIONS OF ASSESSEE. 16. THE LD. AUTHORISED REPRESENTATIVE FOR THE ASSES SEE IN HIS REJOINDER POINTED OUT THAT WHEN IT WAS DISCERNIBLE FROM RECORD THAT T HE ASSESSING OFFICER HAD APPLIED HIS MIND TO THE ISSUE IN QUESTION, THE COMMISSIONER COULD NOT INVOKE SECTION 263 MERELY BECAUSE HE HAD A DIFFERENT OPINION, WAS THE RATIO LAID DOWN BY THE HONBLE DELHI HIGH COURT IN CIT VS. ANIL KUMAR SHARMA (2010 ) 194 TAXMAN 504(DELHI). 17. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ISSUE WHICH ARISES IN THE PRESENT APPEAL IS AGAINST THE J URISDICTION EXERCISED BY THE COMMISSIONER UNDER SECTION 263 OF THE ACT WHEREIN H E HAS OBSERVED THAT THE ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER WA S WITHOUT APPLICATION OF MIND ON THE ISSUE OF GRANT OF DEDUCTION UNDER SECTION 1 0A OF THE ACT. AFTER CONSIDERING THE VARIOUS ASPECTS OF THE PROVISIONS OF SECTION 26 3 OF THE ACT UNDER THE SAID SECTION THE COMMISSIONER DIRECTED THE ASSESSING OFF ICER TO APPLY THE PROVISIONS OF SECTION 10A(7) R.W.S. 80IA(8) AND 80IA(10) OF THE A CT WITH RESPECT TO THE OPERATING ITA NO.1148/PUN/2012 SA NOS.16 & 30/PUN/2013 EATON INDUSTRIES P. LTD. 14 PROFIT MARGIN SHOWN BY THE ASSESSEE IN THE ENGINEER ING DESIGN SERVICES AND CONSEQUENTLY THE DEDUCTION UNDER SECTION 10A OF THE ACT WAS TO BE RESTRICTED, IF REQUIRED. 18. THE ASSESSEE WAS PROVIDING ENGINEERING DESIGN S ERVICES TO ITS ASSOCIATED ENTERPRISES IN THE STPI UNIT AND THE TOTAL TURNOVER FOR THE SAID UNIT WAS RS.60.67 CRORES AND THE ASSESSEE HAD SHOWN THE PROFIT OF RS. 44.27 CRORES IN THE SAID UNIT. THE OPERATING PROFIT MARGIN ON SALES WORKED TO 72.9 8% AND THE OPERATING PROFIT MARGIN ON TOTAL COST WORKED TO 270%. THE ASSESSEE WHILE BENCHMARKING ITS INTERNATIONAL TRANSACTION OF ENGINEERING DESIGN SER VICES HAD APPLIED CUP METHOD AND THE SAME WAS ALSO APPLIED BY THE TPO AND THE SA ID INTERNATIONAL TRANSACTION WAS ACCEPTED TO BE AT ARMS LENGTH. IT MAY BE CLAR IFIED HEREIN ITSELF THAT THE NET PROFIT SHOWN BY THE ASSESSEE FOR THE YEAR UNDER CON SIDERATION WAS 72.98% IN THE ENGINEERING DESIGN SERVICES. THE WORKING OF OPERAT ING MARGIN ON TOTAL COST IS TO BE ADOPTED IF TNM METHOD IS USED AS THE MOST APPROP RIATE METHODS. HOWEVER, BOTH THE ASSESSEE AND THE TPO APPLIED THE CUP METHO D AND THE SAID WORKING OF OPERATING MARGIN ON TOTAL COST AT 270% HAD NO APPLI CATION AND WAS NOT USED FOR DETERMINING THE ARMS LENGTH PRICE OF THE INTERNATI ONAL TRANSACTION UNDERTAKEN BY THE ASSESSEE IN THE SAID DIVISION. THE ASSESSEE HA D EXPLAINED THAT IT WAS PROVIDING COMPLEX ENGINEERING ACTIVITIES SUCH AS AD VANCE TECHNOLOGICAL AND PRODUCT DEVELOPMENT SERVICES TO ITS ASSOCIATED ENTE RPRISES AND BECAUSE THE COST PROVIDED BY THE ASSESSEE WERE CONTROLLED, THE ASSES SEE HAD SHOWN NET PROFIT OF RS.44.27 CRORES ON TOTAL VALUE OF SERVICES PROVIDED AT RS.60.67 CRORES. IN ADDITION, THE ASSESSEE HAD ANOTHER UNIT WHICH WAS A NON STPI UNIT, UNDER WHICH THE ASSESSEE WAS PROVIDING BUSINESS SUPPORT SERVICES AN D THE OPERATING MARGIN ON TOTAL COST OF THE SAID DIVISION WAS 7.39%. THE ASS ESSING OFFICER/TPO BENCHMARKED THE SAID TRANSACTION OF BUSINESS SUPPOR T SERVICES BY APPLYING TNM METHOD AS THE MOST APPROPRIATE METHOD AND MADE SOME ADDITION TO THE ARMS ITA NO.1148/PUN/2012 SA NOS.16 & 30/PUN/2013 EATON INDUSTRIES P. LTD. 15 LENGTH PRICE OF THE SAID INTERNATIONAL TRANSACTION. HOWEVER, IN RESPECT OF THE ENGINEERING DESIGN SERVICES, NO ADDITION WAS MADE U NDER THE TRANSFER PRICING PROVISIONS. FURTHER, THE ASSESSEE HAD CLAIMED DEDU CTION UNDER SECTION 10A OF THE ACT IN RESPECT OF THE ENGINEERING DESIGN AND DEVELO PMENT SERVICES PROVIDED TO ITS ASSOCIATED ENTERPRISES WHICH WAS ALLOWED BY THE ASS ESSING OFFICER. THE COMMISSIONER WAS OF THE VIEW WAS THAT BECAUSE OF TH E HIGH OPERATING PROFIT MARGIN ON TOTAL COST AT 270%, WHEN COMPARED TO THE OPERATI NG MARGIN ON TOTAL COST OF THE OTHER DIVISION OF THE ASSESSEE AT 7.39%, THE ASSESS ING OFFICER HAD NOT APPLIED HIS MIND IN ALLOWING THE DEDUCTION UNDER SECTION 10A OF THE ACT IN VIEW OF THE PROVISIONS OF SECTION 10A(7) R.W.S. 80IA(8) AND 80I A(10) OF THE ACT. THE TRANSACTIONS WHICH HAVE BEEN UNDERTAKEN BY THE ASSE SSEE IN THE ENGINEERING DESIGN SERVICES WITH ITS ASSOCIATED ENTERPRISES WAS ACCEPTED TO BE AT ARMS LENGTH PRICE BY THE TPO AND NO ADJUSTMENT WAS MADE. THE TPO HAS ALSO NOT GIVEN ANY FINDING THAT THE PROFIT MARKUP ON COST, R EPORTED BY THE ASSESSEE, IN ITS TRANSACTION WITH ITS ASSOCIATED ENTERPRISES WAS IN EXCESS OF THE PROFIT MARKUP OF EXTERNAL COMPARABLES. ON THE OTHER HAND THE TPO HA D APPLIED CUP METHOD IN BENCHMARKING THE TRANSACTION IN THE ENGINEERING DIV ISION AND HAD ACCEPTED THE RESULTS SHOWN BY THE ASSESSEE. IN THE ABSENCE OF A NY ADJUSTMENT HAVING BEEN MADE BY THE TPO, THE ASSESSING OFFICER HAD TO ACCEP T THE ORDER OF THE TPO AS MANDATED BY THE PROVISIONS OF SECTION 92CA(4) OF TH E ACT. THE ASSESSING OFFICER IN CONSEQUENT DETERMINED THE INCOME OF THE ASSESSEE IN CONFIRMITY WITH THE ORDER OF THE TPO. 19. THE ISSUE WHICH ARISES BEFORE US IN THE PRESENT APPEAL IS THAT IN SUCH CIRCUMSTANCES WHERE THE ASSESSEE HAD CLAIMED THE DE DUCTION UNDER SECTION 10A OF THE ACT ON SUCH EXPORTS TO ITS ASSOCIATED ENTERP RISES, CAN THE SAME BE CURTAILED BY INVOKING THE PROVISIONS OF SECTION 10A(7) R.W.S. 80IA(10) OF THE ACT ON THE ITA NO.1148/PUN/2012 SA NOS.16 & 30/PUN/2013 EATON INDUSTRIES P. LTD. 16 PREMISE THAT THE ASSESSEE HAD EARNED HIGHER PROFITS THAN NORMAL ON EXPORTS MADE TO ITS ASSOCIATED ENTERPRISES. 20. IN THE FACTS BEFORE THE TRIBUNAL IN M/S HONEYWE LL AUTOMATION INDIA LIMITED VS. DCIT (SUPRA), THE DISPUTE AROSE VIS--VIS THE E NTITLEMENT OF THE ASSESSEE FOR THE CLAIM OF DEDUCTION UNDER SECTION 10A OF THE ACT WHI CH WAS CURTAILED BASED ON THE PROVISIONS OF SECTION 10A(7) R.W.S. 80IA(10) OF THE ACT. THE TPO IN THE SAID CASE HAD RESTRICTED THE PROFITS ELIGIBLE FOR THE CLAIM O F DEDUCTION UNDER SECTION 10A OF THE ACT, AS THE PROFITS IN RELATION TO THE 10A UNITS WE RE MORE THAN THE ORDINARY PROFITS. THE ASSESSING OFFICER ACCORDINGLY RE-COMPUTED THE A MOUNTS OF PROFIT WHICH HE CONSIDERED AS REASONABLE TO HAVE BEEN DERIVED IN TE RMS OF SECTION 10A(7) R.W.S. 80IA(10) OF THE ACT. THE ASSESSEE IN ITS TRANSFER PRICING STUDY IN THE SAID CASE HAD BENCHMARKED THE INTERNATIONAL TRANSACTION BY SE LECTING THE TNM METHOD. THE TPO ON A REFERENCE BY THE ASSESSING OFFICER PASSED AN ORDER UNDER SECTION 92CA(3) OF THE ACT ACCEPTING THE INTERNATIONAL TRAN SACTION WITH RESPECT TO THE SOFTWARE ENGINEERING SERVICES SEGMENT TO BE AT ARM' S LENGTH. HOWEVER, THE ASSESSING OFFICER WAS OF THE VIEW THAT THE PROFIT M ARGINS IN RESPECT OF THE 10A UNIT WAS SUBSTANTIALLY HIGHER THAN THE PROFIT MARGIN OF THE COMPARABLES CHOSEN BY THE ASSESSEE WHILE CARRYING OUT THE COMPARABILITY ANALY SIS UNDER THE TNM METHOD AND THEREFORE ACCORDING TO HIM THE PROFITS DECLARED BY THE ASSESSEE IN THE 10A UNITS WAS NOT THE ORDINARY PROFITS AND HAD TO BE RESTRICT ED UNDER SECTION 10A(7) R.W.S. 80IA(10) OF THE ACT. 21. WE FIND THAT SIMILAR ISSUE FOR GRANT OF DEDUCTI ON U/S 10A OF THE ACT BY INVOKING PROVISIONS OF SECTION 10A(7) R.W.S. 80-IA( 10) OF THE ACT, AROSE BEFORE THE TRIBUNAL IN M/S. HONEYWELL AUTOMATION INDIA LTD. VS . DCIT (SUPRA). THE TRIBUNAL HAD CONSIDERED THE PROVISIONS OF SECTION 10A(7) OF THE ACT AND IT WAS OBSERVED THAT THE SAID PROVISIONS ARE ATTRACTED WHERE CLOSELY CON NECTED PARTY ARE TAXABLE IN ITA NO.1148/PUN/2012 SA NOS.16 & 30/PUN/2013 EATON INDUSTRIES P. LTD. 17 INDIA. IN THIS REGARD, THE RELEVANT PORTIONS OF TH E ORDER OF THE TRIBUNAL DATED 25.02.2015 (SUPRA) READ AS UNDER :- 7. BEFORE PROCEEDING FURTHER, WE MAY BRIEFLY TOUCH -UPON THE RELEVANT PROVISIONS OF THE ACT, WHICH HAVE A BEARING ON THE CONTROVERSY BEFORE US. SUB- SECTION (7) OF SECTION 10A OF THE ACT READS AS UNDE R :- (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 TH E UNDERTAKING REFERRED TO IN THIS SECTION AS THEY APPLY FOR THE PURPOSES OF THE UNDERTAKING REFERRED TO IN SECTION 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 OTHER BUSINESS CARR IED ON BY THE ASSESSEE, OR WHERE ANY GOODS [OR SERVICES] HELD FOR THE PURPO SES OF ANY OTHER BUSINESS CARRIED ON BY THE ASSESSEE ARE TRANSFERRED TO THE ELIGIBLE BUSINESS AND, IN EITHER CASE, THE CONSIDERATION, IF ANY, FOR SUCH TRANSFER AS RECORDED IN THE ACCOUNTS OF THE ELIGIBLE BUSINESS DOES NOT C ORRESPOND 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, THE P ROFITS AND GAINS OF SUCH ELIGIBLE BUSINESS SHALL BE COMPUTED AS IF THE TRANS FER, IN EITHER CASE, HAD BEEN MADE AT THE MARKET VALUE OF SUCH GOODS [OR SER VICES] AS ON THAT DATE : PROVIDED THAT WHERE, IN THE OPINION OF THE ASSESSING OFFICER , THE COMPUTATION OF THE PROFITS AND GAINS OF THE ELIGIBL E BUSINESS IN THE MANNER HEREINBEFORE SPECIFIED PRESENTS EXCEPTIONAL DIFFICU LTIES, THE ASSESSING OFFICER MAY COMPUTE SUCH PROFITS AND GAINS ON SUCH REASONABLE BASIS 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 CARRYING ON THE ELI GIBLE BUSINESS 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 ASSESSEE MO RE THAN THE ORDINARY PROFITS WHICH MIGHT BE EXPECTED TO ARISE IN SUCH EL IGIBLE BUSINESS, THE ASSESSING OFFICER SHALL, IN COMPUTING THE PROFITS A ND GAINS OF SUCH ELIGIBLE BUSINESS FOR THE PURPOSES OF THE DEDUCTION UNDER TH IS 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 GAINS AS ARE DERIVED BY AN UNDERTAKING FROM THE EXPORT OF ARTICLES OR THINGS OR COMPUTER SOFTWARE FOR A PERIOD OF TEN ASS ESSMENT YEARS BEGINNING WITH THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR I N WHICH THE UNDERTAKING BEGINS TO MANUFACTURE OR PRODUCE SUCH ARTICLES OR THINGS O R COMPUTER SOFTWARE, AS THE CASE MAY BE, WHILE COMPUTING THE TOTAL INCOME OF AN ASSESSEE. SHORN OF OTHER DETAILS, FOR THE PRESENT IT WOULD SUFFICE TO NOTE T HAT THE THREE UNITS OF THE ASSESSEE, NAMELY, UNIT NO.I & II AT PUNE AND UNIT AT CHENNAI ARE RECOGNIZED AS STPI UNITS IN ACCORDANCE WITH THE SOFTWARE TECHNOLOGY PARK SCHEME OF THE GOVERNMENT OF INDIA AND THEY ARE ELIGIBLE FOR THE BENEFITS OF SEC TION 10A OF THE ACT. ITA NO.1148/PUN/2012 SA NOS.16 & 30/PUN/2013 EATON INDUSTRIES P. LTD. 18 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, REPRODUCED ABOVE, EMPOWERS THE A SSESSING OFFICER TO RE- COMPUTE THE PROFITS AND GAINS OF THE ELIGIBLE BUSIN ESS FOR THE PURPOSES OF DEDUCTION U/S 10A OF THE ACT IF IT APPEARS TO HIM THAT THE PR OFITS DECLARED BY THE ASSESSEE ARE MORE THAN THE ORDINARY PROFITS WHICH MIGHT BE EXPEC TED TO ARISE IN SUCH AN ELIGIBLE BUSINESS. SO HOWEVER, THE AFORESAID POWER OF THE A SSESSING 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 IS AVAILAB LE TO THE ASSESSING OFFICER IS CONTAINED IN SECTION 80-IA(10) ITSELF. A PERUSAL O F SECTION 10A(7) R.W.S. 80-IA(10) OF THE ACT WOULD SHOW THAT THE TWO ESSENTIAL CONDITION S ARE TO BE ESTABLISHED BEFORE THE ASSESSING OFFICER CAN PROCEED TO DISREGARD THE PROFITS DECLARED BY THE ASSESSEE AND DETERMINE THE AMOUNT OF PROFITS WHICH MAY REASONABLY DEEMED TO HAVE BEEN DERIVED FROM SUCH BUSINESS. NOTABLY, SUC H CONDITIONS ARE (I) EXISTENCE OF A CLOSE 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 THAN THE O RDINARY 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 EXPRESSION WHERE IT APPEARS TO THE ASSESSING OFFICER THAT . THIS WOULD SHOW THAT THE ONUS IS ON THE ASSESSING OFFICER TO JUSTIFY 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 T HE 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 INA SMUCH AS THE LD. CIT-DR QUITE FAIRLY AGREED THAT THE ONUS WAS ON THE ASSESSING OF FICER TO JUSTIFY INVOKING OF SECTION 10A(7) R.W.S. 80-IA(10) OF THE ACT IN THE F ACTS 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 THE CASE OF CIT VS. H.P. GLOBAL SOFT LTD., 342 ITR 263, WHICH WAS REFERRED TO IN THE COURSE OF HEA RING BEFORE US. IN THE CASE BEFORE THE KARNATAKA HIGH COURT, THE ISSUE WAS SIMI LAR INASMUCH AS THEREIN, 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 CLAIM OF EXEMPTION IN TERMS OF THE THEN PREVAILING SECTION 10A(4) OF THE ACT, AND THE ASSESSMENT YEARS WERE 1995-96 TO 1998-99. THE PROVISIONS OF SECTION 10A(6) R.W.S. 80-I(9) OF THE ACT, WHICH WERE BEFORE THE HONBLE KARNATAKA HIGH COURT ARE QUITE SIMILAR TO T HE PROVISIONS OF SECTION 10A(7) R.W.S. 80-IA(10) OF THE ACT BEFORE US. THE HONBLE KARNATAKA HIGH COURT, UPHELD THE STAND THAT THE REQUIREMENTS OF THE PROVISIONS O F SECTION 80-I(9) OF THE ACT ARE TWO-FOLD, NAMELY THAT THERE SHOULD BE A CLOSE CONNE CTION BETWEEN THE ASSESSEE AND THE OTHER PERSON, WHICH MAY BE A REASON FOR THE ASSESSEE TO EARN HIGHER PROFITS BUT, MORE IMPORTANTLY THERE SHOULD BE MATER IAL TO INDICATE THAT ASSESSEE HAD INDULGED IN AN ARRANGEMENT WITH THE OTHER PERSON SO AS TO PRODUCE TO THE ASSESSEE MORE PROFITS THAN ORDINARILY WHAT PROFITS THE ASSES SEE MIGHT HAVE EXPECTED TO ARISE FROM SUCH BUSINESS. AS PER THE HONBLE KARNATAKA H IGH COURT, IT WAS FOR THE ASSESSING OFFICER TO INDICATE ANY MATERIAL OR EVIDE NCE TO DISCLOSE ANY SUCH ARRANGEMENT BETWEEN THE ASSESSEE AND THE OTHER PERS ON. THE AFORESAID JUDGEMENT OF THE HONBLE KARNATAKA HIGH COURT JUSTI FIES 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 JUDGEMENT OF TH E HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. M/S SCHMETZ INDIA PVT. LTD. VIDE INCOME TAX APPEAL NO.4508 OF 2010 DATED 04.09.2012, WHICH IS ALSO TO THE SIMI LAR EFFECT. IN THE CASE BEFORE THE HONBLE BOMBAY HIGH COURT ASSESSEE WAS A WHOLLY OWN ED SUBSIDIARY OF A GERMAN COMPANY. IT HAD TWO DIVISIONS ONE AT KANDLA IN T HE KANDLA FREE TRADE ZONE, ENGAGED IN THE MANUFACTURE AND EXPORT OF INDUSTRIAL SEWING MACHINE NEEDLESS; AND OTHER AT MUMBAI, ENGAGED IN TRADING IN INDUSTRIAL S EWING MACHINE NEEDLESS. THE MANUFACTURING DIVISION AT KANDLA EXPORTED ITS ENTIR E PRODUCTION OF INDUSTRIAL ITA NO.1148/PUN/2012 SA NOS.16 & 30/PUN/2013 EATON INDUSTRIES P. LTD. 19 MACHINE NEEDLESS TO ITS HOLDING COMPANY IN GERMANY. FOR THE ASSESSMENT YEAR 2004-05 ASSESSEE DECLARED AN INCOME OF RS.20.54 CRO RES FROM ITS MANUFACTURING DIVISION AT KANDLA AND CLAIMED 100% DEDUCTION U/S 1 0A OF THE ACT. DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS, ASSESSING OFF ICER WAS OF THE VIEW THAT ABNORMAL PROFITS HAD BEEN DECLARED IN RESPECT OF TH E 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) O F THE ACT TO HOLD THAT PROFITS OF KANDLA DIVISION WERE ABNORMAL PROFITS. THE TRIBUNA L 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 BETW EEN THE PARTIES WHICH RESULTED IN EXTRAORDINARY PROFITS TO THE RESPONDENT-ASSESSEE S MANUFACTURING DIVISION AT KANDLA. CONSEQUENTLY, THE WORKING OF THE PROFITS B Y THE ASSESSING OFFICER WAS NOT APPROVED. THE AFORESAID ACTION OF THE TRIBUNAL WAS UPHELD BY THE HONBLE BOMBAY HIGH COURT. ON THIS ASPECT, THE BANGALORE BENCH OF THE TRIBUNAL IN THE CASE OF DIGITAL EQUIPMENT INDIA LTD. VS. DCIT, 103 TTJ 329 (BANG.) HAS ALSO HELD THAT THE CONDITIONS OF THE SECTION HAVE TO BE OBJECTIVELY SA TISFIED BY THE ASSESSING OFFICER, BASED ON COGENT REASONING AND EVIDENCE. 12. AT THE TIME OF HEARING, THE LD. REPRESENTATIVE FOR THE ASSESSEE VEHEMENTLY ARGUED THAT THE PROVISIONS OF SECTION 10A(7) R.W.S. 80-IA(10) OF THE ACT ARE INAPPLICABLE IN THE PRESENT CASE BECAUSE THERE IS N O MATERIAL LEAD BY THE REVENUE TO SAY THAT THERE WAS ANY ARRANGEMENT BETWEEN THE A SSESSEE AND THE ASSOCIATED ENTERPRISES WHICH PRODUCED TO THE ASSESSEE MORE THA N THE ORDINARY PROFITS WITHIN THE MEANING OF SECTION 10A(7) R.W.S. 80-IA(10) OF T HE ACT. ACCORDING TO THE LD. REPRESENTATIVE, THE TRANSACTIONS OF THE ASSESSEE BY WAY OF RENDERING SOFTWARE ENGINEERING SERVICES TO ITS ASSOCIATED ENTERPRISES ABROAD ARE NOT ARRANGED SO TO YIELD ANY EXTRAORDINARY PROFITS TO THE ASSESSEE. T HE LD. REPRESENTATIVE POINTED OUT THAT ASSESSEE WAS CHARGING THE SAME RATE FOR SERVIC ES RENDERED TO ASSOCIATED ENTERPRISES 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 SAMPLE COPIES OF INVOI CES RAISED ON THE AND NON- RELATED PARTIES. IT WAS ALSO POINTED OUT WITH REFE RENCE TO THE SUBMISSIONS MADE TO THE ASSESSING OFFICER, WHICH HAVE BEEN REPRODUCED I N 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 PUNE UPTO ASSESS MENT YEAR 2007-08; THAT FOR UNIT NO.II AT PUNE UPTO ASSESSMENT YEAR 2011-12; AND, TH AT FOR CHENNAI UNIT UPTO ASSESSMENT YEAR 2009-10. A STATEMENT SHOWING OPERA TING MARGINS TO TOTAL COST EARNED BY THE ASSESSEE FROM THE STPI UNITS RELATABL E TO THE SOFTWARE ENGINEERING SERVICES SEGMENT WAS FURNISHED TO SHOW THAT EVEN AF TER THE EXPIRY OF THE TAX HOLIDAY PERIOD THE PROFITS OF THE UNITS IS HIGHER T HAN THE OTHER UNITS OF THE ASSESSEE. 14. IN THIS CONTEXT, A REFERENCE HAS ALSO BEEN MADE TO THE COMMERCIAL REASONS EXPLAINED BEFORE THE ASSESSING OFFICER FOR THE HIGH PROFITS EARNED BY THE ASSESSEES STPI UNIT. FROM THE SUBMISSIONS FURNISH ED TO THE ASSESSING OFFICER, WHICH HAVE BEEN REPRODUCED IN PARA 2.6 OF THE ASSES SMENT ORDER, IT IS REVEALED THAT REASONS WERE ADVANCED TO JUSTIFY THE HIGHER MA RGINS OF THE STPI UNITS. FIRSTLY, IT WAS CONTENDED THAT THERE WAS SUBSTANTIAL COST SA VINGS IN TERMS OF COSTS ON SALES, MARKETING, SALE PROMOTION AND ADVERTISEMENT BECAUSE MAJORITY OF THE BUSINESS IN THE ENGINEERING SERVICES SEGMENT WAS WITH AFFILIATE S ONLY. SECONDLY, IT WAS POINTED OUT THAT ASSESSEE IS IN THE BUSINESS OF IT ENABLED SERVICES RENDERING ENGINEERING CONSULTANCY SERVICES IN EXECUTION OF INDUSTRIAL AUT OMATION AND BUILDING AUTOMATION AND CONTROL PROJECTS AND IT DOES NOT INCUR MUCH PRO DUCT DEVELOPMENT COSTS OR INVESTMENTS WHICH ARE USUALLY INCURRED BY OTHER SOF TWARE COMPANIES. THIRDLY, IT WAS POINTED OUT THAT THE SALARY LEVELS IN THE CASE OF THE ASSESSEE ARE MUCH LOWER THAN OTHER SOFTWARE COMPANIES BECAUSE ASSESSEE WAS HIRING ELECTRONICS AND PROCESS ENGINEERING GRADUATES/DIPLOMA HOLDERS AND N OT SOFTWARE PROFESSIONALS. IT ITA NO.1148/PUN/2012 SA NOS.16 & 30/PUN/2013 EATON INDUSTRIES P. LTD. 20 IS ALSO POINTED OUT THAT ASSESSEE HAS A LOWER RATE OF IDLE STAFF AS IT WORKS MOSTLY ON IN-HOUSE HONEYWELL TECHNOLOGY AND THEREFORE THE PRO DUCTIVITY OF THE EMPLOYEES IS MUCH HIGHER THAN OTHER SOFTWARE COMPANIES. FURTHER , IT WAS ALSO POINTED OUT THAT ASSESSEE WAS REIMBURSED ALL THE COSTS, LIKE FOREIGN TRAVEL AND LIVING EXPENSES INCURRED ABROAD BY ITS EMPLOYEES IN THE COURSE OF R ENDERING ENGINEERING/SOFTWARE SERVICES. ASSESSEE WAS ALSO REIMBURSED INCIDENTAL EXPENSES INCURRED BY IT VIZ. VISA COSTS, WORK PERMIT COSTS, ETC. AND THEREFORE T HE 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 RE MAINS UNALTERED. ALL THESE POINTS, WHICH WERE RAISED BEFORE THE ASSESSING OFFI CER, HAVE BEEN REITERATED BEFORE US TO SHOW THAT THE HIGHER PROFITS ARE NOT ATTRIBUT ABLE TO ANY ARRANGEMENT 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-EXCHANGE WHEREI N THE OVERSEAS HONEYWELL ENTITIES OWNED 81.24% OF SHAREHOLDING AND THE PUBLI C SHAREHOLDING IS TO THE EXTENT OF 18.76%. IT WAS POINTED OUT THAT INITIALLY TATA GROUP WAS ALSO OWNING 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 PATTE RN HAD CHANGED FROM NOVEMBER, 2004 ONWARDS WHEN THE TATA GROUP GAVE UP ITS SHAREHOLDING IN THE ASSESSEE COMPANY. ON THE BASIS OF THE AFORESAID SH AREHOLDING PATTERN, A PLEA SETUP BY THE ASSESSEE IS THAT IF THERE WAS ANY MANI PULATION OF PROFITS BY ASSESSEE CHARGING HIGHER RATES TO ITS OVERSEAS HONEYWELL GRO UP ENTITIES RESULTING IN SHIFTING OF PROFITS FROM OVERSEAS ENTITIES TO THE ASSESSEE-C OMPANY, IT WOULD NOT BE A PRUDENT EXERCISE BY THE HONEYWELL GROUP BECAUSE IT DOES BENEFIT THE HONEYWELL GROUP AS A WHOLE. SINCE THERE IS A SIGNIFICANT PUB LIC SHAREHOLDING IN THE ASSESSEE COMPANY, IT WOULD MEAN THAT THE ANY EXTRAORDINARY B ENEFIT PASSED ON BY OVERSEAS HONEYWELL GROUP ENTITIES TO ASSESSEE WOULD RESULT I N A LOSS FOR HONEYWELL GROUP ON AN OVERALL BASIS TO THE EXTENT OF PUBLIC SHAREHOLDI NG IN THE ASSESSEE COMPANY. IT WAS, THEREFORE, CONTENDED THAT IN SUCH A SCENARIO, IT COULD NOT BE SAID THAT THERE WAS ANY ARRANGEMENT BETWEEN THE ASSESSEE AND THE OV ERSEAS HONEYWELL ENTITIES TO PRODUCE HIGHER PROFITS TO THE ASSESSEE. IN SUPP ORT OF SUCH PROPOSITION, RELIANCE HAS BEEN PLACED ON THE DECISIONS OF THE MUMBAI BENC H OF THE TRIBUNAL IN THE CASE OF ITO VS. ZYDUS NYCOMED HEALTHCARE (ITA NOS.4013/M UM/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 10A(7) R.W.S. 8 0-IA(10) OF THE ACT CANNOT BE COMPUTED RELYING UPON THE TRANSFER PRICING DOCUMENT S PREPARED BY THE ASSESSEE. THE LD. REPRESENTATIVE POINTED OUT THAT HAVING REGA RD TO THE INTENTION OF THE TRANSFER PRICING PROVISIONS, THE MARGINS DETERMINED UNDER THE TNM METHOD ARE TO BE TAKEN AS INDICATIVE OF THE LEAST PROFITS THAT MU ST 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 BY 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 TH E PRESENT CASE. THE LD. CIT-DR SUBMITTED THAT SECTION 80-IA(10) OF THE ACT PLACED MUCH LIGHTER BURDEN OF PROOF ON THE ASSESSING OFFICER BECAUSE OF THE PRESENCE OF TH E 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 WHEN IT APPEAR S TO HIM, AND IT IS NOT SUBJECT TO THE ASSESSING OFFICERS BELIEF OR SATISFACTION AS I S 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, IN CO MPUTING THE PROFITS 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 T O HAVE BEEN DERIVED TO SAY THAT IT DOES NOT REQUIRE THE ASSESSING OFFIC ER TO PRECISELY DETERMINE THE ELIGIBLE PROFITS, BUT ONLY A PRIMA-FACIE SATISFACTI ON ABOUT PRESENCE OF MORE THAN THE ORDINARY PROFITS WOULD SUFFICE. IT IS SOUGHT TO BE EMPHASIZED THAT BECAUSE OF THE ITA NO.1148/PUN/2012 SA NOS.16 & 30/PUN/2013 EATON INDUSTRIES P. LTD. 21 PRESENCE OF THE WORDS .AS MAY BE REASONABLY DEEM ED 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 COMPUTING TAX AVOIDANC E. AS PER THE LD. CIT-DR, SIMILAR TO THE TRANSFER PRICING PROVISIONS, THE SAI D PROVISION DOES NOT REQUIRE A PRECISE ACCURACY ON THE PART OF THE ASSESSING OFFIC ER. AT THIS POINT, 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) WHER EIN THE WORD APPEARS HAS BEEN UNDERSTOOD TO IMPLY A PRIMA-FACIE SATISFACTI ON OF THE ASSESSING OFFICER. THEREFORE, IT IS SOUGHT TO BE MADE OUT THAT A PRIMA -FACIE SATISFACTION 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 WIT H THE ASSOCIATED ENTERPRISE AND IN SUPPORT OF THE SAME RELIANCE HAS BEEN PLACED ON THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF BANK OF INDIA LTD. VS. AHMEDABAD MANUFACTURING & CALICO, (1972) 42 COMPCAS 211 (BOMXDPB-P-42), WHE REIN 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 UN DERSTANDING, AND THE WORD ARRANGEMENT HAS, AS ITS PRIMARY MEANING, TH E ACTION OF ARRANGING. AS A MATTER 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 PROVISION OF IT ENABLED ENGINEERING/SOFTWARE SERVICES, IT IS TO BE UNDERSTOOD AS AN ARRANGEMENT WITHIN THE MEANING OF SECTION 80-IA(10) OF THE ACT. ACCORDING TO HIM, THE REQUIR EMENTS 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. THEREFORE, ACCORDING TO HIM , IN THE PRESENT CASE, THE ASSESSING OFFICER IS JUSTIFIED TO INVOKE SECTION 10 A(7) R.W.S. 80-IA(10) OF THE ACT INASMUCH AS THE PROFIT MARGIN OF THE ASSESSEES STP I UNITS IS 80.06% AS AGAINST 17.06% OF THE COMPARABLE SELECTED BY THE ASSESSEE I TSELF IN ITS TRANSFER PRICING STUDY. AS PER THE LD. CIT-DR, WHEN THE ARRANGEMENT HAS LED TO RESULTING INTO MORE THAN ORDINARY PROFITS, NECESSARY 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 OUT THAT EVEN THE SAFE HARBOR RULES ISSUED BY THE CBDT WITH RESPECT TO THE TRANSFER PRICING ASSESSMENT PROVIDE FOR 20% OPERATING PROFIT AS AN ACCEPTABLE PROFIT IN IT ENABLED SERVICES SEGMENT AN D THEREFORE THAT WAS A GOOD BENCHMARK AS TO WHAT CONSTITUTES ORDINARY PROFITS IN THE ASSESSEES IMPUGNED LINE OF BUSINESS. THE LD. CIT-DR ALSO MADE A SUBMISSION THAT EVEN IF THE COMPUTATION OF EXCESS PROFITS DONE BY THE ASSESSING OFFICER BAS ED ON THE MARGIN OF THE COMPARABLE IS NOT FOUND TO BE A GOOD METHODOLOGY, Y ET THE FAILURE OF COMPUTATION PROCESS BY THE ASSESSING OFFICER WOULD NOT VITIATE THE INVOKING SECTION 10A(7) R.W.S. 80-IA(10) OF THE ACT IN THE PRESENT CASE. T HE EXCESS PROFITS ACCORDING TO HIM CAN BE COMPUTED BY AN APPROPRIATE METHOD BY REMANDI NG 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 COMPUTING OF MORE THAN ORDINAR Y PROFITS IN THE ELIGIBLE BUSINESS. COMPARABLE COMPANIES ARE IN THE SAME LINE OF THE BU SINESS AND HAVING SIMILAR FUNCTIONS PERFORMED, ASSETS EMPLOYED AND RISKS ASSU MED AS THE ASSESSEE, THEREFORE, COMPARABLE COMPANIES ARE CARRYING ON ELI GIBLE BUSINESS, AND THUS THE PROFITS MARGIN OF COMPARABLE REFLECT ORDINARY PROFI TS. 21. WITH REGARD TO THE ASSESSEES PLEA THAT EVEN AF TER THE EXPIRY OF SECTION 10A BENEFITS, ASSESSEE WAS DECLARING HEALTHY PROFITS, T HE LD. CIT-DR POINTED OUT THAT WHAT MATTERS IN FUTURE YEARS IS THE ACTUAL AMOUNT O F THE TAXES PAID AND NOT MERELY THE PROFITS GENERATED IN THE UNIT. IT WAS ALSO CON TENDED THAT THE FACT THAT ASSESSEE ITA NO.1148/PUN/2012 SA NOS.16 & 30/PUN/2013 EATON INDUSTRIES P. LTD. 22 HAS RENDERED SERVICES TO THE NON-RELATED PARTIES AT THE SAME RATES IS ALSO NOT RELEVANT FOR THE PURPOSES 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 THE TRAVELLING COSTS, ETC. CANNOT BE RESPONSIBLE FOR AS SESSEES HIGH PROFIT WHICH ARE NOT OF AN ORDINARY LEVEL. THE LD. CIT-DR POINTED OUT T HAT IF CERTAIN PART OF THE EXPENDITURE IS BEING INCURRED BY THE OTHER PARTIES THEN THE COST OF SUCH EXPENDITURE WOULD CERTAINLY BE REDUCED FROM THE PRICE CHARGED B Y 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 NOT IMPACT THE PROFITA BILITY OF THE ASSESSEE. 22. BEFORE WE PROCEED FURTHER, IT WOULD BE APPROPRI ATE TO EXAMINE THE SCOPE AND INTENT OF THE PROVISIONS OF SECTION 10A(7) R.W. S. 80-IA(10) OF THE ACT. IN THIS CONTEXT, A REFERENCE HAS BEEN MADE TO THE CBDT CIRC ULAR NO.308 DATED 29.06.2008 WHEREIN THE REASONS FOR INTRODUCTION OF SUB-SECTION (7) TO SECTION 10A OF THE ACT HAS BEEN EXPLAINED. IN-PARTICULAR, REFEREN CE HAS BEEN 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 INDUSTRIAL UNDERTAKIN G REFERRED TO IN THE NEW SECTION 10A AS THEY APPLY IN RELATION TO AN INDUSTR IAL UNDERTAKING REFERRED 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 T HE 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 SUCH GOODS. TH E 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 UNDERTAKING IN THE FREE TRADE ZONE IN CASES WHERE, OWING TO THE CL OSE CONNECTION BETWEEN THE ASSESSEE AND ANY OTHER PERSONS OR FOR ANY OTHER REASON, THE COURSE OF THE BUSINESS IS SO ARRANGED THAT THE INDUSTRIAL UND ERTAKING 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 MA DE WITH A VIEW TO AVOIDING ABUSE OF THE NEW TAX CONCESSIONS BY MANIPU LATION OF PROFITS BETWEEN ASSOCIATE CONCERNS OR DIFFERENT UNITS OF TH E 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 MANIPULATION OF PROFITS BETWEEN ASSOCIATED CONCERNS OR BETWEEN DIFFERENT UNITS OF THE SAME CONCERN. THE O BJECTIVE OF THE AFORESAID PROVISION IS THAT THE TAX CONCESSIONS ARE NOT ABUSE D BY MANIPULATION OF PROFITS. IN OUR CONSIDERED OPINION, THE AFORESAID EXPLANATION I N THE CBDT CIRCULAR (SUPRA) SIGNIFIES THE LEGISLATIVE INTENT AND IT IS ALSO MAN IFESTED 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 80-IA(10) OF THE ACT ITSELF SUGGESTS THA T THE PROFITS AND GAINS OF AN ELIGIBLE BUSINESS CANNOT BE TINKERED WITH BY THE AS SESSING OFFICER MERELY 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 T HE PROFITS WHICH HE MAY CONSIDER TO BE REASONABLY DEEMED TO HAVE BEEN DERIV ED THEREFROM. THE PRESENCE OF THE EXPRESSION THE COURSE OF BUSINESS IS S O ARRANGED . THAT THE BUSINESS TRANSACTED PRODUCES TO THE ASSES SEE MORE THAN ORDINARY PROFITS IS SIGNIFICANT AND ITS UNDERSTANDING HAS T O BE PREFACED BY THE LEGISLATIVE OBJECTIVE OF PLUGGING ABUSE OF THE TAX CONCESSIONS GRANTED U/S 10A OF THE ACT BY MANIPULATION OF PROFITS BETWEEN ASSOCIATED PARTIES. IN OTHER WORDS, THE IMPORT OF THE EXPRESSION SO ARRANGED HAS TO BE READ IN CONJ UNCTION WITH THE LEGISLATIVE INTENT THAT THERE SHOULD NOT BE ANY ABUSE OF TAX CO NCESSION BY MANIPULATION OF PROFITS. THEREFORE, SECTION 10A(7) R.W.S. 80-IA(10 ) OF THE ACT CAN BE INVOKED ONLY WHERE IT IS SHOWN THAT THE COURSE OF BUSINESS IS SO ARRANGED WHICH REFLECTS AN ABUSE OF TAX CONCESSION WHEREBY THE BUSINESS TRANSA CTED BETWEEN TWO ENTITIES IS SO ARRANGED, WHICH PRODUCES TO THE ASSESSEE MORE TH AN THE ORDINARY PROFITS WHICH MIGHT BE EXPECTED TO ARISE IN SUCH ELIGIBLE BUSINES S. THE EMPHASIS IS TO ESCHEW ITA NO.1148/PUN/2012 SA NOS.16 & 30/PUN/2013 EATON INDUSTRIES P. LTD. 23 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 THE TAX CONCESSION. OSTENSIBLY, IN THE PRESENT CAS E, THE REVENUE WOULD HAVE TO JUSTIFY THAT THE COURSE OF BUSINESS BETWEEN ASSESSE E AND THE ASSOCIATED ENTERPRISES HAS BEEN SO ARRANGED WHICH PRODUCES T O THE ASSESSEE MORE THAN THE ORDINARY PROFITS WHICH MIGHT BE EXPECTED TO ARISE I N SUCH ELIGIBLE BUSINESS WITH THE INTENTION OF ABUSING THE TAX CONCESSION GRANTED IN SECTION 10A OF THE ACT. THE MERE EXISTENCE OF (I) A CLOSE CONNECTION BETWEEN TH E ASSESSEE AND THE OTHER PERSON; AND, (II) MORE THAN ORDINARY PROFITS IS NOT SUFFICIENT TO JUSTIFY INVOKING OF SECTION 80-IA(10) OF THE ACT IN THE ABSENCE OF THER E 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 IS REQUIRED TO BE DE MONSTRATED ON THE BASIS OF A COGENT MATERIAL AND EVIDENCE. IN OTHER WORDS, THE PRESENCE OF THE EXPRESSION SO ARRANGED HAS TO BE UNDERSTOOD IN THE CONTEXT OF TH E ABUSE OF TAX CONCESSION WHICH IS SOUGHT TO BE PLUGGED BY THE PROVISIONS OF SECTIO N 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 COURT IN THE C ASE OF BANK OF INDIA LTD. (SUPRA) THAT THE MEANING OF THE WORD ARRANGED IN SECTION 80-IA(10) OF THE ACT HAS TO BE UNDERSTOOD TO MEAN AN AGREEMENT OR AN UNDERST ANDING BETWEEN THE PARTIES CONCERNED. THE RELEVANT PORTION OF THE DECISION OF THE HONBLE BOMBAY HIGH COURT HAS BEEN REPRODUCED IN THE EARLIER PART OF THIS ORD ER, ACCORDING TO WHICH, IT IS SAID THAT THE TERM ARRANGEMENT IN PLAIN LANGUAGE MEANS A NY AGREEMENT OR UNDERSTANDING BETWEEN THE PARTIES CONCERNED. ON TH IS BASIS, THE LD. CIT-DR SUBMITTED THAT UNDENIABLY THERE IS AN AGREEMENT BET WEEN THE ASSESSEE AND THE ASSOCIATED ENTERPRISES WHEREBY THE SERVICES HAVE BE EN PROVIDED BY THE ASSESSEE TO THEM AND THEREFORE THE SAME IS TO BE UNDERSTOOD AS AN ARRANGEMENT WITHIN THE MEANING OF SECTION 10A(7) R.W.S. 80-IA(10) OF THE A CT. ALONG WITH THE AFORESAID, IT HAS ALSO BEEN EMPHASIZED, ON THE BASIS OF THE LANGU AGE OF SECTION 80-IA(10) OF THE ACT THAT, THE ASSESSING OFFICER IS NOT REQUIRED TO BE PROVE THAT THERE IS AN ARRANGEMENT FOR PRODUCING MORE THAN ORDINARY PROFIT S. WHEREAS, AS PER THE LD. CIT-DR, SECTION PROVIDES THAT ARRANGEMENT LEADING T O PRODUCTION OF MORE THAN ORDINARY PROFIT WILL SATISFY THE NECESSARY CONDITIO N OF SECTION 80-IA(10) OF THE ACT. THUS, ACCORDING TO THE LD. CIT-DR, IN THE INSTANT C ASE THERE IS AN ARRANGEMENT AND IT HAS LEAD TO PRODUCTION OF MORE THAN THE ORDINARY PROFITS. ACCORDING TO THE LD. CIT-DR, THE MEANING OF THE WORDS SO ARRANGED IN S ECTION 80-IA(10) OF THE ACT ONLY SEEKS TO ENSURE THAT THERE WAS AN AGREEMENT BE TWEEN THE ASSESSEE AND ASSOCIATED ENTERPRISE. 25. WE HAVE CAREFULLY EXAMINED THE AFORESAID CONTEN TIONS OF THE LD. CIT-DR. IN OUR CONSIDERED OPINION, THE IMPORT OF THE EXPRES SION ARRANGED IN SECTION 80- IA(10) OF THE ACT IS NOT TO BE UNDERSTOOD IN ITS PL AIN LANGUAGE BUT THE SAME HAS TO 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 THE WORDS ..THE COURSE OF BUSINES S BETWEEN THEM IS SO ARRANGED THAT THE BUSINESS TRANSACTED BETWEEN THEM PRODUCES TO THE ASSESSEE MORE THAN THE ORDINARY PROFITS WHICH MIGHT BE EXPEC TED TO ARISE IN SUCH ELIGIBLE BUSINESS . THEREFORE, IT WOULD NECESSARILY MEAN THAT THE ARRANGEMENT REFERRED TO IS AN ARRANGEMENT OF THE COURSE OF BUSI NESS WHICH PRODUCES TO THE ASSESSEE MORE THAN THE ORDINARY PROFITS WITH THE IN TENT OF ABUSING THE TAX CONCESSION. THUS, THE WORD ARRANGED IN THE SECTI ON DOES NOT ENVISAGE A SIMPLE ARRANGEMENT, BUT A ARRANGEMENT OF THE COURSE OF BU SINESS TRANSACTED WHICH PRODUCES TO THE ASSESSEE MORE THAN ORDINARY PROFITS WHICH MIGHT BE EXPECTED TO ARISE IN SUCH A BUSINESS WITH THE INTENT OF ABUSING THE TAX CONCESSIONS. THEREFORE, THE MEANING OF THE WORDS SO ARRANGED HAVE TO BE U NDERSTOOD 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 ENTERPRISES FOR TRA NSACTING BUSINESS IS NOT ENOUGH TO INVOKE SECTION 80-IA(10) OF THE ACT. ITA NO.1148/PUN/2012 SA NOS.16 & 30/PUN/2013 EATON INDUSTRIES P. LTD. 24 26. IN-FACT, EVEN THE HONBLE BOMBAY HIGH COURT IN THE CASE OF BANK OF INDIA LTD. (SUPRA) HAS ALSO APPRECIATED THE CONTEXTUAL ME ANING OF THE EXPRESSION ARRANGEMENT. THE ISSUE BEFORE THE HONBLE BOMBAY HIGH COURT WAS WITH REGARD TO THE SCHEME OF RE-CONSTRUCTION OR ARRANGEMENT CON TAINED IN SECTION 391(1) OF THE COMPANIES ACT, 1956. IN THE CONTEXT OF SECTION 391 (1) OF THE COMPANIES ACT, 1956, THE HONBLE HIGH COURT WAS DEALING WITH THE M EANING OF THE WORD ARRANGEMENT. AFTER HAVING EXPLAINED THE MEANING OF THE TERM ARRANGEMENT IN PLAIN LANGUAGE, WHICH WE HAVE REFERRED EARLIER, THE HONBLE HIGH COURT WENT ON TO SAY AS UNDER IN THE CONTEXT OF THE WORD ARRANGEMEN T QUA SECTION 391(1) OF THE COMPANIES ACT, 1956 :- SECTION 391(1) , HOWEVER, IN ANY OPINION SOMEWHAT RESTRICTS THIS O THERWISE UNLIMITED IMPORT OF THE TERM ARRANGEMENT IN SO FA R AS THE SAID SECTION APPLIES ONLY TO AN AGREEMENT OR UNDERSTANDING BETWE EN 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 COMPANY AND IT S 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 CONTEXT OF SECTION 391(1) OF THE COMPANIES ACT, 1956 TO MEAN THAT IT MUST BE AN AGRE EMENT OR UNDERSTANDING WHICH AFFECTS THE RIGHTS BETWEEN THE COMPANY AND IT S CREDITORS OR ANY CLASS OF THEM AND BETWEEN THE COMPANY AND ITS MEMBERS OR ANY CLAS S OF THEM. BY THE SAME ANALOGY IN THE PRESENT CONTEXT, WE HAVE TO UNDERSTA ND THE MEANING OF THE EXPRESSION AS ARRANGED IN SECTION 10A(7) R.W.S. 8 0-IA(10) OF THE ACT TO MEAN A SITUATION WHEREBY THE COURSE OF BUSINESS HAS BEEN S O ARRANGED THAT THE BUSINESS TRANSACTED PRODUCES TO THE ASSESSEE MORE THAT THE O RDINARY PROFITS WITH AN INTENT TO ABUSE THE TAX CONCESSIONS GRANTED IN SECTION 10A OF THE ACT. MOREOVER, IF ONE IS TO UNDERSTAND THE IMPORT OF THE EXPRESSION SO ARRANGE D IN SECTION 80-IA(10) OF THE ACT AS CANVASSED BY THE LD. CIT-DR, IT WOULD MEAN T HAT 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 THAN TH E ORDINARY PROFITS WOULD SUFFICE. IN OTHER WORDS, AS PER THE REVENUE, THE E XISTENCE OF CLOSE CONNECTION AND HIGH PROFITS WOULD LEAD TO A PRESUMPTION THAT THERE IS AN ARRANGEMENT WITHIN THE MEANING OF SECTION 80-IA(10) OF THE ACT. THE AFORE SAID PLEA, IN OUR VIEW, NOT ONLY BELIES THE LANGUAGE OF SECTION 80-IA(10) BUT ALSO T HE LEGISLATIVE INTENT WHICH SEEKS TO CURTAIL THE ABUSE OF TAX CONCESSION BY MANIPULAT ION OF PROFITS BETWEEN ASSOCIATED CONCERNS. THEREFORE, AN ARRANGEMENT WHI CH IS REFERRED TO IN SECTION 10A(7) R.W.S. 80-IA(10) OF THE ACT HAS TO BE ONE WH ICH IS PREFACED BY AN INTENTION TO ABUSE THE TAX CONCESSIONS, AS PER THE INTENDMENT OF THE LEGISLATURE. THEREFORE, EXISTENCE OF A MERE AGREEMENT TO DO BUSINESS IS NOT ENOUGH TO FULFILL THE REQUIREMENT OF SECTION 10A(7) R.W.S. 80-IA(10) OF T HE ACT IN THE CONTEXT OF THE WORDS 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 OFFICER 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 D ECISION OF THE BANGALORE BENCH OF THE TRIBUNAL IN THE CASE OF DIGITAL EQUIPMENT INDIA LTD. (SUPRA), WHEREIN SIMILAR ARGUMENT FROM THE SIDE OF THE REVENUE HAS BEEN ADDR ESSED. THE BANGALORE BENCH OF THE TRIBUNAL WAS DEALING WITH INVOKING OF SECTION 10A(6) R.W.S. 80-I(9) OF THE 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 REVENUE BEFORE US. THE FOLLOWING DISCUSSION IS RELEVANT :- THE REQUIREMENTS UNDER THE SECTION ARE : (A) THERE MUST BE A CLOSE CONNECTION BETWEEN THE AP PELLANT AND OTHER PERSON. ITA NO.1148/PUN/2012 SA NOS.16 & 30/PUN/2013 EATON INDUSTRIES P. LTD. 25 (B) THE COURSE OF BUSINESS BETWEEN THEM SHOULD BE S O ARRANGED THAT IT PRODUCES TO THE APPELLANT MORE THAN THE ORDINARY PR OFITS FROM SUCH BUSINESS. TO SATISFY THE ABOVE TEST THE AO HAS TO ADDUCE EVID ENCE AND REASONS COGENTLY AND THE SAME IS OPEN TO VERIFICATION BY TH E APPELLATE AUTHORITIES. THE PRIMARY RULE OF EVIDENCE IS THAT 'WHAT IS APPAR ENT IS REAL' UNLESS PROVED OTHERWISE BY THE PERSON ALLEGING IT OTHERWISE. THE MANNER OF SATISFACTION OUTLINED IN THE SECTION SHOULD BE BASED ON EVIDENCE AND NOT ON SURMISE OR SUSPICION. THE QUESTION IS NOT WHETHER THE ONUS IS LIGHT OR HEAVY BUT WHETHER THE AO HAS DISCUSSED OBJECTIVELY THE CONDIT IONS MENTIONED IN THE SECTION TO DISTURB THE RESULTS DECLARED BY THE APPE LLANT. 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 SUBSTANTIAL PROFIT DOES NOT GIVE RISE TO ANY VALID VIEW THAT THERE COULD BE ANY ARRANGEMENT. IT IS A CASE O F JOINT VENTURE LISTED INDIAN COMPANY, WHERE ALL ARRANGEMENTS ARE OPEN FOR SCRUTINY AND ACCEPTANCE NOT ONLY BY DIGITAL GROUP WORLDWIDE BUT ALSO FROM JOINT VENTURE PARTNERS AND SHAREHOLDERS. DIGITAL GROUP OVERSEAS W ILL NOT PAY UNDUE SUM, WHICH IT CANNOT RECOUP ENTIRELY TO EXCLUSION OF OTH ERS. 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 TH E PROFITS EARNED IS COMPARABLE WITH THE PROFITS EARNED BY OTHER COMPANI ES IN THE SAME INDUSTRY. HENCE THERE IS NO CASE FOR FURTHER VERIFI CATION. THE AO HAS COMPARED THE PROFIT OF SOFTWARE UNIT WITH THAT OF H ARDWARE UNIT. THUS THE FOUNDATION ITSELF IS ON WRONG PREMISE. THERE CANNOT BE COMPARISON BETWEEN AN ORANGE AND AN APPLE. IT IS KNOWN FACT THAT PROFI TABILITY OF SOFTWARE UNITS IS ALWAYS HIGHER THAN HARDWARE UNIT. THE TEST WHETHER THE APPELLANT HAS EARNED MORE THAN ORDINARY PROFITS, IN THIS CASE, TH E ANSWER IS OBVIOUS NO, EVEN AS FOUND BY THE AO. WHEN THE PROFITS EARNED AR E REASONABLE AND NOT EXCESSIVE, THERE IS NO REASON TO SUSTAIN THE ADDITI ON FURTHER THERE IS NO EVIDENCE OF EXISTENCE OF ANY ARRANGEMENT AS CONTEMP LATED 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 HA S DISCUSSED OBJECTIVELY THE CONDITIONS MENTIONED IN THE SECTION TO DISTURB THE RESULTS DECLARED BY THE APPELLANT. 22. THE OTHER ASPECT NOTED BY THE TRIBUNAL WAS THE ARRANGEMENT BETWEEN THE PARTIES FOR EARNING MORE THAN ORDINARY PROFITS WHER EIN ONUS WAS UPON THE DEPARTMENT TO PROVE THAT AN ARRANGEMENT EXISTED. T HE FINDINGS OF THE TRIBUNAL ARE AS UNDER :- 30. NOW, THE CASE OF THE ASSESSING OFFICER IS THAT THE PROFITS DERIVED BY THE ASSESSEE FROM THE ELIGIBLE BUSINESS ARE MORE THAN T HE ORDINARY PROFITS AND THEREFORE HE IS EMPOWERED TO ARRIVE AT WHAT COULD B E A REASONABLE PROFIT FROM SUCH ELIGIBLE BUSINESS AND SUCH PROFIT BE TAKEN AS REASO NABLY DEEMED TO HAVE BEEN DERIVED FROM THE ELIGIBLE BUSINESS FOR THE PURPOSES OF COMPUTING THE DEDUCTION U/S 10A OF THE ACT. WE FIND THAT IN THE ENTIRE ASSESSM ENT ORDER, THERE IS NO MATERIAL OR ANY EVIDENCE 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 ASSESSEE MO RE THAN THE ORDINARY PROFITS. ITA NO.1148/PUN/2012 SA NOS.16 & 30/PUN/2013 EATON INDUSTRIES P. LTD. 26 31. NO DOUBT, THERE IS A CLOSE CONNECTION BETWEEN A SSESSEE AND THE ASSOCIATED ENTERPRISES AND TO THAT EXTENT SECTION 1 0A(7) R.W.S. 80-IA(10) OF THE ACT HAS BEEN RIGHTLY EXAMINED BY THE INCOME-TAX AUTHORI TIES. THE SECOND ASPECT THAT THE COURSE OF BUSINESS WAS SO ARRANGED SO AS TO RES ULT IN MORE THAN ORDINARY PROFITS IS NOT AT ALL FORTHCOMING FROM THE ORDER OF THE ASS ESSING 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 P ROFITS 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 P ROFIT MARGINS OF THE ASSESSEE ARE SUBSTANTIALLY HIGHER THAN THE AVERAGE OPERATING MAR GIN OF THE COMPARABLES SELECTED BY THE ASSESSEE IN ITS TRANSFER PRICING STUDY. THI S HAS FORMED THE BASIS FOR THE ASSESSING OFFICER TO SAY THAT ASSESSEE HAS EARNED M ORE THAN ORDINARY PROFITS WHICH MIGHT BE EXPECTED TO ARISE IN SUCH A BUSINESS . BE THAT AS 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 PROFITS. HOWEVER, FRO M THE SIDE OF THE REVENUE, IT WAS POINTED OUT THAT THE TRANSFER PRICING COMPARABILITY ANALYSIS ITSELF SUGGESTS 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 WHETH ER THE SAME CAN BE CONSIDERED AS A MATERIAL TO INDICATE THAT THE COURSE OF BUSINE SS BETWEEN THE ASSESSEE AND 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 CONTEXT, WE MAY REFER TO THE DECISION OF THE C HENNAI BENCH OF THE TRIBUNAL IN THE CASE OF VISUAL GRAPHICS COMPUTING SERVICES INDI A (P) LTD. VS. ACIT, 148 TTJ 621 (CHENNAI), WHEREIN FOLLOWING DISCUSSION IS RELE VANT :- WE HEARD BOTH SIDES IN DETAIL AND CONSIDERED THE I SSUE. AS FAR AS THE PRESENT CASE IS CONCERNED, THE TRANSFER PRICING OFF ICER HAS MADE A CATEGORICAL FINDING THAT THE OPERATING PROFIT REPOR TED BY THE ASSESSEE IS HIGHER THAN THE PROFIT WORKED OUT ON THE BASIS OF A RM'S LENGTH PRICE. THE TRANSFER PRICING OFFICER, THEREFORE, CONCLUDED THAT NO TRANSFER PRICING ADJUSTMENT IS CALLED FOR IN THE PRESENT CASE. THE A SSESSING OFFICER HAS MADE THE REFERENCE TO THE TRANSFER PRICING OFFICER UNDER SECTION 92CA. THE REFERENCE IS MADE FOR THE PURPOSE OF COMPUTING INCO ME ARISING FROM AN INTERNATIONAL TRANSACTION WITH REGARD TO THE ARM'S LENGTH PRICE AS PROVIDED IN SECTION 92. THEREFORE, IT IS TO BE SEEN THAT THE SC OPE AND EXTENT OF REFERENCE MADE BY THE ASSESSING OFFICER TO THE TRANSFER PRICI NG OFFICER IS CONFINED TO THE SINGULAR PURPOSE STATED IN SECTION 92. SECTIONS 92A, 92B, 92C, 92CB, 92D, 92E AND SECTION 92F ARE ALL PRECISELY DEFINING AND FACILITATING PROVISIONS ULTIMATELY FOR THE PURPOSE OF COMPUTING THE INCOME AS STATED IN SECTION 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 TRAN SACTIONS HAVING REGARD TO THE ARM'S LENGTH PRICE SO AS TO CONFIRM THAT THE RE IS NO AVOIDANCE OF TAX BY AN ASSESSEE. THEREFORE, WHERE IN A CASE, THE TRA NSFER PRICING OFFICER SUGGESTS THAT THE OPERATING PROFIT DECLARED BY AN A SSESSEE IS COMPATIBLE TO THE ARM'S LENGTH PRICE NORMS AND NO ADJUSTMENT IS N ECESSARY, THE OPERATION OF ALL THOSE PROVISIONS COME TO AN END. IF THE, ASS ESSING OFFICER HAS TO MAKE ANY OTHER ADJUSTMENT TOWARDS COMPUTING DEDUCTION AV AILABLE UNDER SECTION 10A, THE COMPUTATION HAS TO BE MADE IN THE CONTEXT OF SECTION 10A(7) READ WITH SECTION 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 P ROCEDURES FOR COMPUTING THE INCOME OTHER THAN THE INCOME ARISING OUT OF INT ERNATIONAL TRANSACTIONS WITH ASSOCIATE ENTERPRISE. THE SECOND SEGMENT CONSI STS OF RULES AND PROCEDURES IN CONNECTION WITH COMPUTATION OF INCOME FROM INTERNATIONAL TRANSACTIONS WITH ASSOCIATE ENTERPRISES ON THE BASI S OF THE ARM'S LENGTH PRICE. THE SECOND SEGMENT RELATING TO COMPUTATION O F THE ARM'S LENGTH PRICE, IS A SET OF RULES FOR THE PURPOSES OF TRANSFER PRIC ING MATTERS AND THOSE ITA NO.1148/PUN/2012 SA NOS.16 & 30/PUN/2013 EATON INDUSTRIES P. LTD. 27 PROCEDURES AND RULES CAN BE USED ONLY FOR THE PURPO SE SERVING THE OBJECT OF SECTION 92. WHEN THE TRANSFER PRICING OFFICER STATE S THAT THERE IS NO NEED OF TRANSFER PRICING ADJUSTMENT, THE MATTER SHOULD END THERE AND ANY OTHER ADJUSTMENT THAT THE ASSESSING OFFICER WOULD LIKE TO MAKE WITH REFERENCE TO THE FIRST SEGMENT MUST BE MADE INDEPENDENT OF THE O RDER OF THE TRANSFER PRICING OFFICE UNDER SECTION 92CA. TO STATE IN SIMPLE TERMS, THE TRANSFER PRICING REGI ME IS DIFFERENT FROM REGULAR COMPUTATION OF INCOME. SECTION 10A BELONGS TO THAT PART OF REGULAR COMPUTATION OF INCOME AND IT SHOULD BE COMPUTED IND EPENDENT 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 PROFIT GENERATED OU T 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 APPELLATE TRIBUNAL, CHENNA I 'A' BENCH IN THE CASE OF TWEEZERMAN (INDIA) P. LTD. V. ADDL. CIT [2010] 4 ITR (TRIB) 130 (CHENNAI) (133 TTJ 308) HAS CONSIDERED THE MATTER I N DETAIL AND HELD THAT THE REDUCTION OF ELIGIBLE PROFITS OF AN ASSESSEE 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 OFFI CER'S ORDER IS UNSUSTAINABLE. THE TRIBUNAL HAS HELD THAT THE ASSES SING OFFICER WAS NOT JUSTIFIED TO INVOKE THE PROVISIONS OF SECTION 80-IA (10) READ WITH SECTION 10B(7) SO AS TO REDUCE THE ELIGIBLE PROFITS ON THE BASIS OF THE ARM'S LENGTH PRICE COMPUTED BY THE TRANSFER PRICING OFFICER WITH OUT SHOWING HOW HE DETERMINED THAT THE ASSESSEE HAD SHOWN MORE THAN 'O RDINARY PROFITS'. AS RIGHTLY ARGUED BY LEARNED SENIOR COUNSEL THE ARM 'S LENGTH PRICE IS DETERMINED ON THE BASIS OF THE MOST APPROPRIATE MET HOD. 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 PRO FITS TO DETERMINE WHAT IS 'ORDINARY PROFITS' 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 T HE ELIGIBLE PROFITS OF THE ASSESSEE UNDER SECTION 10A. THE SAID ADJUSTMENT MAD E BY THE ASSESSING AUTHORITY IN COMPUTING THE DEDUCTION UNDER SECTION 10A IS ACCORDINGLY, 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 EXISTS ANY ARRANGEMENT WHICH H AS RESULTED IN MORE THAN ORDINARY PROFITS QUA THE REQUIREMENTS OF SECTION 10 A(7) R.W.S. 80-IA(10) OF THE ACT. EVEN IF IT IS ACCEPTED THAT THE DIFFERENCE BETWEEN THE OPERATING 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 ESTABLISH ON THE BASIS OF SUBSTANTIVE EV IDENCE AND CORROBORATIVE MATERIAL THAT QUA SECTION 10A R.W.S. 80-IA(10) OF THE ACT, T HE COURSE OF BUSINESS BETWEEN THE ASSESSEE AND THE ASSOCIATED ENTERPRISES IS SO A RRANGED THAT THE BUSINESS TRANSACTED BETWEEN THEM PRODUCES TO THE ASSESSEE MO RE THAN THE ORDINARY PROFITS WITH THE INTENT OF ABUSING TAX CONCESSION. QUITE C LEARLY, IN THE ENTIRE ASSESSMENT ORDER, THERE IS NO WHISPER OF ANY MATERIAL OR EVIDE NCE IN THIS REGARD. IN-FACT, THE APPROACH OF THE ASSESSING OFFICER IS QUITE MISDIREC TED AS THE FOLLOWING DISCUSSION IN HIS ORDER SHOWS :- ACCORDINGLY, THE SECTION ONLY ENCUMBERS THE A.O. T O EXAMINE IF THE PROFITS DERIVED FROM THE ELIGIBLE BUSINESS BY THE ASSESSEE IS MORE THAN THE ORDINARY PROFITS, THEN THE A.O. HAS TO ARRIVE AS TO WHAT COULD BE THE REASONABLE PROFIT FROM THE SUCH ELIGIBLE BUSINESS A ND SUCH PROFIT HAS TO BE ITA NO.1148/PUN/2012 SA NOS.16 & 30/PUN/2013 EATON INDUSTRIES P. LTD. 28 THEN TAKEN AS REASONABLY DEEMED TO HAVE BEEN DERIVE D FROM THE ELIGIBLE BUSINESS FOR THE PURPOSES OF COMPUTING DEDUCTION UN DER THE SECTION. 33. THE AFORESAID DISCUSSION IN THE ASSESSMENT ORDE R REVEALS THAT AS PER THE ASSESSING OFFICER, THE EXISTENCE OF CLOSE CONNECTIO N AND MORE THAN ORDINARY PROFITS IS ENOUGH TO ASSUME AN ARRANGEMENT AS CONTEMPLATED U/S 80-IA(10) OF THE ACT. THE AFORESAID UNDERSTANDING, IN OUR VIEW, IS DIRECT LY CONTRARY TO THE JUDGEMENT OF THE HONBLE KARNATAKA HIGH COURT IN THE 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 ARRAN GEMENT HAD BEEN ARRIVED BETWEEN THE PARTIES WHICH RESULTED IN HIGHER PROFIT S. CONSEQUENTLY, THE RE-WORKING OF THE PROFITS BY ASSESSING OFFICER BY INVOKING SEC TION 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 C LAIM OF RS.36,35,09,382/- IS HEREBY SET-ASIDE. THUS, ASSESSEE SUCCEEDS ON THIS ASPECT. 23. NOW COMING TO THE FACTS OF THE PRESENT CASE WHE RE THE ASSESSEE HAD SHOWN PROFITS FROM ITS ENGINEERING DESIGN & DEVELOPMENT S ERVICES WHICH WAS AN STPI UNIT AND HAD SHOWN THE NET PROFIT RANGE OF 72.98%, AND THE INTERNATIONAL TRANSACTION OF THE ASSESSEE WITH ITS ASSOCIATED ENT ERPRISES HAD BEEN ACCEPTED BY THE TPO IN HIS REPORT UNDER SECTION 92CA OF THE ACT TO BE AT ARMS LENGTH AND THE ASSESSING OFFICER HAD ADOPTED THE SAID PROFIT MARGI NS AND AFTER VERIFICATION HAD ALLOWED THE CLAIM OF DEDUCTION UNDER SECTION 10A OF THE ACT IN RESPECT OF THE ACTIVITY OF RENDERING ENGINEERING DESIGN SERVICES. THE QUESTION IS WHETHER DEDUCTION CLAIMED UNDER SECTION 10A OF THE ACT COUL D BE CURTAILED. THE ANSWER IS NO IN VIEW OF THE RATIO LAID DOWN BY THE TRIBUNAL IN HONEYWELL TURBO TECHNOLOGIES (INDIA) PVT. LTD. VS. DCIT IN ITA NO.2584/PUN/2012 ORDER DATED 10-02-2017 WHICH HAS BEEN APPLIED BY THE TRIBUNAL FURTHER IN TATA JO HNSON CONTROLS AUTOMOTIVE LIMITED VS. DCIT (SUPRA). THE ONUS IS UPON THE DEP ARTMENT TO PROVE THAT THERE EXISTED AN ARRANGEMENT BETWEEN THE ASSESSEE AND ITS ASSOCIATED ENTERPRISES TO EARN MORE THAN ORDINARY PROFITS AND IN THE ABSENCE OF THE SAID ONUS HAVING BEEN DISCHARGED BY THE DEPARTMENT AND FOLLOWING THE PARI TY OF REASONING AS IN HONEYWELL TURBO TECHNOLOGIES (INDIA) PVT. LTD. VS. DCIT AND T ATA JOHNSON CONTROLS AUTOMOTIVE LIMITED VS. DCIT (SUPRA), WE FIND NO MER IT IN THE ORDER OF THE COMMISSIONER PASSED UNDER SECTION 263 OF THE ACT IN HOLDING THAT THE ASSESSING ITA NO.1148/PUN/2012 SA NOS.16 & 30/PUN/2013 EATON INDUSTRIES P. LTD. 29 OFFICER WHILE GRANTING DEDUCTION UNDER SECTION 10A OF THE ACT HAS PASSED THE SAID ORDER WITHOUT ANY APPLICATION OF MIND. SIMILAR ISS UE OF INVOKING OF JURISDICTION UNDER SECTION 263 OF THE ACT BY THE COMMISSIONER CURTAILI NG THE DEDUCTION UNDER SECTION 10B(7) R.W.S. 80IA(8) AND 80IA(10) OF THE ACT AROSE BEFORE THE TRIBUNAL IN SPICER INDIA LTD. VS. CIT (SUPRA) AND THE TRIBUNAL VIDE OR DER DATED 08-07-2015 IN SIMILAR CIRCUMSTANCES HAD REVERSED THE ORDER OF THE COMMISS IONER PASSED UNDER SECTION 263 OF THE ACT. 24. WHERE THE ASSESSING OFFICER IN HIS ORDER CONSID ERED THE CLAIM OF ASSESSEE UNDER SECTION 10A OF THE ACT AND ALLOWED THE SAME, MERELY BECAUSE THE COMMISSIONER IS NOT AGREEABLE TO THE VIEW ADOPTED B Y THE ASSESSING OFFICER, THE EXERCISE OF JURISDICTION UNDER SECTION 263 BY THE C OMMISSIONER CANNOT BE UPHELD. WE PLACE RELIANCE ON THE RATIO LAID DOWN BY THE HON BLE SUPREME COURT IN THE CASE OF MALABAR INDUSTRIAL COMPANY LTD. VS. CIT 243 ITR 83 (SC) AND CIT VS. MAX INDIA LTD. 295 ITR 282 (SC). IN ORDER TO INVOKE THE PROVISIONS OF SECTION 263 OF THE ACT, THE ORDER MUST BE BOTH ERRONEOUS AND PREJU DICIAL TO THE INTEREST OF REVENUE. WHERE THE COMMISSIONER DOES NOT AGREE WIT H THE VIEW OF THE ASSESSING OFFICER THE SAME CANNOT BE BASIS/JUSTIFICATION FOR INVOKING THE PROVISIONS OF SECTION 263 OF THE ACT. FURTHER, THE OPINION OF THE COMMIS SIONER WAS NOT FORMED ON ANY OTHER MATERIAL BUT ON THE BASIS OF THE ORDER PASSED BY THE TPO UNDER SECTION 92CA OF THE ACT, WITHOUT MAKING ANY ADJUSTMENTS. ACCORD INGLY, THERE IS NO MERIT IN THE EXERCISE OF JURISDICTION UNDER SECTION 263 OF THE A CT AND WE HOLD SO. IN THIS REGARD, WE FIND SUPPORT FROM THE RATIO LAID DOWN BY THE PUN E BENCH OF THE TRIBUNAL IN M/S. SEMCO ELECTRIC PVT. LTD. VS. ACIT (SUPRA). 25. ANOTHER ASPECT OF THE ORDER OF COMMISSIONER IS THAT IT HAS NOT GIVEN ANY FINDING AND HAS DIRECTED THE ASSESSING OFFICER TO A PPLY THE PROVISIONS OF SECTION 10A(7) R.W.S. 80IA(10) OF THE ACT WITH RESPECT TO O PERATING PROFIT MARGIN TO COST, ITA NO.1148/PUN/2012 SA NOS.16 & 30/PUN/2013 EATON INDUSTRIES P. LTD. 30 SHOWN BY THE ENGINEERING DESIGN AND DEVELOPMENT SER VICES AT 270%, VIS--VIS, OPERATING PROFIT MARGIN TO COST SHOWN BY BUSINESS S UPPORT SERVICES AT 7.39% OR ANY OTHER SUITABLE BENCHMARK FOUND AFTER FRESH SEAR CH, IF THE BUSINESS SUPPORT SERVICES WAS FOUND TO BE NOT COMPARABLE TO THE ENGI NEERING DESIGN AND DEVELOPMENT SERVICES, AS VEHEMENTLY ARGUED BY THE A SSESSEE. THE ORDER OF THE COMMISSIONER PASSED UNDER SECTION 263 OF THE ACT IN THE ABOVE SAID CIRCUMSTANCES LACKS JURISDICTION FOR NOT COMING TO A CONCLUSION AND DIRECTING THE ASSESSING OFFICER TO MAKE ENQUIRIES AND ALSO CARRY OUT FRESH SEARCH, IF NECESSARY. UNDER THE GARB OF EXERCISE OF JURISDICTION UNDER SE CTION 263 OF THE ACT THE COMMISSIONER CANNOT ASK THE ASSESSING OFFICER TO MA KE FISHING AND ROVING ENQUIRIES. IN ANY CASE THE BASIS FOR THE EXERCISE OF JURISDICTION UNDER SECTION 263 OF THE ACT IS THE RESULT SHOWN BY THE ENGINEERING DESI GN AND DEVELOPMENT SERVICES, I.E. OPERATING PROFIT MARGIN TO COST AT 270%, WHICH ARE TO BE APPLIED WHILE APPLYING THE TNM METHOD. FOR THE SAKE REPETITION IT IS AGAI N POINTED OUT THAT THE TPO HAS NOT APPLIED TNM METHOD BUT HAS APPLIED CUP METHOD. THE INFORMATION WITH REGARD TO OPERATING PROFIT MARGIN OVER COST WAS PRO VIDED TO THE TPO DURING TP ASSESSMENT PROCEEDINGS BUT HAS NOT BEEN APPLIED BY THE TPO. IN ANY CASE WHERE THE ENGINEERING DESIGN & DEVELOPMENT SERVICES WERE BENCHMARKED ON CUP METHOD BY THE TPO, THE SAME ESTABLISHES THE CASE OF THE ASSESSEE THAT THE TWO DIVISIONS ARE SEPARATE AND DISTINCT AND CANNOT BE C OMPARED. IN THE ABSENCE OF SAME, THERE IS NO MERIT IN THE ORDER OF THE COMMISS IONER IN HOLDING THAT THE ASSESSING OFFICER HAS NOT APPLIED HIS MIND IN COMPA RING OPERATING PROFIT MARGIN OVER COST OF TWO SEPARATE DIVISIONS OF THE ASSESSEE . IT MAY ALSO BE POINTED OUT HEREIN ITSELF THAT THE TOTAL TURNOVER OF ENGINEERIN G DESIGN AND DEVELOPMENT SERVICES WAS RS.60.67 CROREES AND UNDER THE DESIGN & DEVELOPMENT SERVICES THE TOTAL TURNOVER OF INTERNATIONAL TRANSACTION WAS ONL Y RS.2.66 CRORES. BECAUSE THE ORDER OF THE TPO IN THIS REGARD HAS BECOME FINAL AN D HAS BEEN ACCEPTED BY THE ITA NO.1148/PUN/2012 SA NOS.16 & 30/PUN/2013 EATON INDUSTRIES P. LTD. 31 ASSESSING OFFICER UNDER WHICH NO ADDITION HAS BEEN MADE IN THE MARGINS SHOWN BY THE ENGINEERING DESIGN AND DEVELOPMENT SERVICES, TH ERE IS NO MERIT IN THE ORDER OF COMMISSIONER IN COMPARING THE OPERATING PROFIT MARG IN TO COST OF THE SAID DIVISION SHOWN AT 270% WITH THE OPERATING PROFIT MARGIN TO C OST SHOWN BY THE BSS SEGMENT AT 7.39%. ACCORDINGLY, THE DIRECTIONS OF THE COMMI SSIONER IN CURTAILING THE DEDUCTION UNDER SECTION 10A OF THE ACT BY APPLYING PROVISIONS OF SECTION 10A(7) R.W.S. 80IA(10) OF THE ACT ARE NOT CORRECT AND ARE REVERSED. THE FINDING OF THE COMMISSIONER THAT THE ASSESSEE HAD SHOWN HIGHER PRO FITS IN STPI UNIT FOR CLAIMING DEDUCTION UNDER SECTION 10A OF THE ACT IS THUS MISP LACED. IN VIEW THEREOF WE FIND NO MERIT IN THE ORDER OF THE COMMISSIONER PASSED UN DER SECTION 263 OF THE ACT AND REVERSING THE SAME WE HOLD THAT THE ASSESSEE IS ENT ITLED TO DEDUCTION UNDER SECTION 10A OF THE ACT IN THE ENTIRETY. 26. THE RELIANCE OF THE LD. DEPARTMENTAL REPRESENTA TIVE FOR THE REVENUE ON THE RATIO LAID DOWN BY THE CHENNAI BENCH IN CAIRN E NERGY INDIA PVT. LTD. VS. DIT-IT (SUPRA) IS NOT APPLICABLE IN VIEW OF THE VARIANCE I N THE FACTS WHEREIN IN THE FACTS BEFORE THE CHENNAI BENCH OF THE TRIBUNAL, THE FINDI NGS WAS THAT THE ASSESSING OFFICER HAD NOT VERIFIED THE CLAIM OF THE ASSESSEE OF DEDUCTION UNDER SECTION 80IB OF THE ACT. IT MAY ALSO BE POINTED OUT HEREIN THAT THE COMMISSIONER WHILE PASSING THE ORDER UNDER SECTION 263 OF THE ACT HAD SET ASID E THE ASSESSMENT ORDER THAT THERE WAS NO APPLICATION OF MIND BY THE ASSESSING O FFICER ON THE DEDUCTION CLAIMED BY THE ASSESSEE. HOWEVER, IN THE PRESENT CASE, THE ASSESSING OFFICER IN DRAFT ASSESSMENT ORDER PASSED UNDER SECTION 143(3) R.W.S. 144C OF THE ACT IN PARAS 3 AND 4 HAS REFERRED TO THE CLAIM OF DEDUCTION UNDER SECTION 10A OF THE ACT OF STPI UNIT AND HAS ALSO REFERRED TO THE FORM NO.56F FURNI SHED BY THE ASSESSEE ALONG WITH RETURN OF INCOME AND THE DETAILED WORKING OF C OMPUTATION OF DEDUCTION UNDER SECTION 10A OF THE ACT. THE ASSESSING OFFICER THER EAFTER NOTES THAT DURING THE COURSE OF ASSESSMENT, THE ASSESSEE HAS ALSO SEPARAT ELY FILED THE SEGMENTAL PROFIT ITA NO.1148/PUN/2012 SA NOS.16 & 30/PUN/2013 EATON INDUSTRIES P. LTD. 32 AND LOSS ACCOUNT VIDE ITS SUBMISSION DATED 10-12-20 09, SHOWING THE COMPUTATION OF INCOME OF STPI UNIT AND THE NON-STPI UNIT. THE ASSESSING OFFICER FURTHER OBSERVED THAT THE CLAIM OF THE ASSESSEE COMPANY UNDER SECTION 10A HAS BEEN VERIFIED FROM THE DETAILS AVAILABLE AND WITH REFERE NCE TO THE PROVISIONS OF SECTION 10A OF THE ACT. THE ASSESSING OFFICER HAS THUS VERIFIED THE CLAIM OF ASSESSEE UNDER SECTION 10A OF THE ACT. THE CASE OF THE COMM ISSIONER THAT THE ASSESSING OFFICER HAS NOT VERIFIED THE CLAIM OF THE ASSESSEE IN VIEW OF THE PROVISIONS OF SECTION 10A R.W.S. 80IA(10) OF THE ACT DOES NOT STA ND IN VIEW OF OUR DISCUSSION IN THE PARAS GIVEN ABOVE AND THE SAME IS ALSO DISMISSE D. 27. ONE MORE ASPECT WHICH HAS BEEN NOTED BY THE COM MISSIONER IS THAT THE ASSESSING OFFICER HAS NOT VERIFIED WHETHER THE COST SHOWN BY THE ASSESSEE IN THE SAID UNIT IS CORRECT OR NOT RESULTING IN SHOWING HI GHER PROFITS IN THE SAID UNIT. THE LD. AUTHORISED REPRESENTATIVE FOR THE ASSESSEE HAS REFERRED TO THE SUBMISSIONS MADE BEFORE THE TPO DURING THE ASSESSMENT PROCEEDIN GS IN THIS REGARD AND THE TPO HAVING ACCEPTED THE PROFIT MARGINS SHOWN BY THE ASSESSEE IN RESPECT OF THE INTERNATIONAL TRANSACTIONS WITH ITS ASSOCIATED ENTE RPRISES TO BE AT ARMS LENGTH PRICE, WE FIND NO MERIT IN THE OBSERVATIONS OF THE COMMISSIONER IN THIS REGARD AND THE SAME ARE DISMISSED. 28. THE LD. DEPARTMENTAL REPRESENTATIVE FOR THE REV ENUE PLACED RELIANCE ON THE RATIO LAID DOWN BY THE HONBLE SUPREME COURT IN CIT VS. MANJUNATHESWARE PACKING PRODUCTS & CAMPHOR WORKS (SUPRA) AND WE FIN D NO MERIT IN THE SAID RELIANCE AS THE ISSUE BEFORE THE HONBLE SUPREME CO URT WAS IN RESPECT OF THE EVIDENCE AVAILABLE ON RECORD WHILE EXERCISING THE J URISDICTION UNDER SECTION 263 OF THE ACT. IT HAS NO RELEVANCE TO THE ISSUE RAISED B EFORE US. ITA NO.1148/PUN/2012 SA NOS.16 & 30/PUN/2013 EATON INDUSTRIES P. LTD. 33 29. FURTHER THE HONBLE BOMBAY HIGH COURT IN CIT VS . M/S. SCHMETZ INDIA PVT. LTD. (SUPRA) WHILE DECIDING THE APPEAL OF THE REVEN UE IN RESPECT OF THE CLAIM OF DEDUCTION UNDER SECTION 10A OF THE ACT WHERE THE IS SUE WAS IN RESPECT OF PROFITS SHOWN IN THE STPI UNIT BEING ABNORMAL HIGH PROFIT D UE TO EXTRAORDINARY ARRANGEMENT BETWEEN THE ASSESSEE AND THE GERMAN COM PANY HAS NOT ENTERTAINED THE SAID ISSUE WHEREIN IDENTICAL ISSUE WAS DECIDED IN ASSESSMENT YEAR 2004-05 VIDE JUDGMENT DATED 04-09-2012 BEING ITA NO.450 OF 2010. 30. ACCORDINGLY WE HOLD THAT THE ORDER PASSED BY CO MMISSIONER UNDER SECTION 263 OF THE ACT IS INVALID AND WE CANCEL THE SAME. SINCE THE MAIN APPEAL IS DISPOSED OFF, BOTH THE STAY APPLICATIONS ARE DISMIS SED. 31. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED AND STAY APPLICATIONS ARE DISMISSED. ORDER PRONOUNCED ON THIS 24 TH DAY OF MARCH, 2017. SD/- SD/- ( ANIL CHATURVEDI ) (SUSHMA CHOWLA) / ACCOUNTANT MEMBER / JUDICIAL MEMBER / PUNE ; DATED : 24 TH MARCH, 2017 . SATISH ( )*+ ,+ / COPY OF THE ORDER IS FORWARDED TO : THE APPELLANT; THE RESPONDENT; THE DIT (INTL. TAXATION), PUNE; THE DRP, PUNE; THE DR A, ITAT, PUNE; GUARD FILE. BY ORDER, ! ' // TRUE COPY // / ASSISTANT REGISTRAR, & , / ITAT, PUNE