Deputy Commissioner of Income-tax, V. Persistent Systems Pvt. Ltd., Pune

ITA 1295/PUN/2015

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 9189 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 9 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-07-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2010-2011
• Appeal Filed On: 23-09-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VIVEK AGGARWAL
• Assessee Lawyers: K VENKATACHALAM
• Keywords: Transfer pricing; International transaction; Wholly owned subsidiary; Avoidance of tax; Onus to prove
• Section: 143(3); 92F; 92E

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B , PUNE , , BEFORE MS. SUSHMA CHOWLA, JM AND SHRI ANIL CHATURVEDI, AM . / ITA NO. 129 5 /P U N/201 5 / ASSESSMENT YEAR : 20 1 0 - 1 1 THE DY . COMMISSIONER OF INCOME TAX , CIRCLE 4, PUNE . / APPELLANT VS. PERSISTENT SYSTEMS PVT. LTD., BHAGEERATH, 402, SENAPATI BAPAT MARG, PUNE 411016 . / RESPONDENT PAN: AA BCP1209Q / APPELLANT BY : SHRI VIVEK AGGARWAL / RESPONDENT BY : SHRI K. VENKATACHALAM / DATE OF HEARING : 10 .0 7 . 2017 / DATE OF PRONOUNCEMENT: 1 2 . 0 7 .201 7 / ORDER PER SUSHMA CHOWLA, J M : TH E APPEAL FILED BY THE REVENUE IS AGAINST THE ORDER OF CIT (A) - 13 , PUNE , DATED 31.07.2015 RELATING TO ASSESSMENT YEAR 20 1 0 - 11 AGAINST ORDER PASSED UNDER SECTION 143(3) OF THE INCOME - TAX ACT , 1961 (IN SHOR T THE ACT) . 2 . THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL : - ITA NO. 12 9 5 /P U N/20 1 5 PERSISTENT SYSTEMS PVT. LTD. 2 1) THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS.8,44,13,198/ - U/S 10A(7) R.W.S. 80IA(10) OF THE ACT WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE ITSELF IN THE COMPARABLE F URNISHED IN ITS TRANSFER PRICING REPORT HAS SHOWN ORDINARY PROFITS MARGIN TO BE OF 9.35% AS AGAINST THE MARGIN OF 27.86% SHOWN BY THE ASSESSEE. 2) THE APPELLANT PRAYS THAT THE ORDER OF THE LD. CIT(A) TO THE EXTENT OF THE ABOVE ISSUE BE HELD TO BE BAD IN L AW AND QUASHED AND THAT OF THE ASSESSING OFFICER BE RESTORED. 3. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE AT THE OUTSET POINTED OUT THAT THE ISSUE RAISED IN THE PRESENT APPEAL IS SQUARELY COVERED BY THE ORDER OF TRIBUNAL IN ASSESSEES OWN CA SE IN APPEALS FILED BY THE REVENUE AGAINST THE ASSESSEE RELATING TO ASSESSMENT YEARS 2006 - 07 TO 2008 - 09. 4. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE PLACED RELIANCE ON THE ORDERS OF AUTHORITIES BELOW. 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. BRIEFLY, IN THE FACTS OF THE CASE, THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION AS IN THE EARLIER YEARS HAD CLAIMED DEDUCTION UNDER SECTION 10A OF THE ACT. THE ASSESSING OFFICER RELYING ON THE FACTS OF EARLIER YEARS BEING SIMILA R TO THE FACTS OF THE INSTANT ASSESSMENT YEAR, HELD THAT THERE WAS CLOSE BUSINESS CONNECTION BETWEEN GROUP COMPANIES WHICH HAD ENABLED THE ASSESSEE TO SHOW MORE THAN ORDINARY PROFITS IN RESPECT OF 10A UNITS. THE ASSESSING OFFICER FROM THE TRANSFER PRICING REPORT NOTED THAT AS AGAINST THE MARGINS OF COMPARABLES AT 9.35%, THE ASSESSEE HAD SHOWN MARGINS OF 27.86%. THE TOTAL TURNOVER OF ASSESSEES TRANSACTION WITH ASSOCIATED ENTERPRISES WAS RS.45,60,41,048/ - . THE ASSESSING OFFICER COMPUTED MORE THAN ORDINARY PROFITS SHOWN BY THE ASSESSEE AT ( 27.86% - 9.35% ) OF RS.45.60 CRORES AT RS.8,44,13,198/ - AND EXCLUDED THE SAME FROM ELIGIBLE PROFITS FOR THE PURPOSE OF COMPUTATION OF DEDUCTION UNDER ITA NO. 12 9 5 /P U N/20 1 5 PERSISTENT SYSTEMS PVT. LTD. 3 SECTION 10A UNIT NO.2 AT PUNE IN ACCORDANCE WITH THE PROVISIONS OF SECT ION 10A(7) OF THE ACT. 6. THE TRIBUNAL IN ITA NOS.946 TO 948/PN/2013, RELATING TO ASSESSMENT YEARS 2006 - 07 TO 2008 - 09, ORDER DATED 23.12.2016 HAD IN ASSESSEES OWN CASE ADJUDICATED THE SAME ISSUE OF COMPUTATION OF PROFITS UNDER SECTION 10A(7) OF THE ACT AND IN TURN, RELYING ON THE RATIO LAID DOWN BY THE PUNE BENCH OF TRIBUNAL IN M/S. HONEYWELL AUTOMATION INDIA LTD. VS. DCIT IN ITA NO.18/PN/2011, RELATING TO ASSESSMENT YEAR 2006 - 07, ORDER DATED 25.02.2015, ALLOWED THE CLAIM OF ASSESSEE AND HELD THAT THERE IS NO MERIT IN RE - COMPUTING THE DEDUCTION UNDER SECTION 10A OF UNIT NO.2, PUNE IN ACCORDANCE WITH THE PROVISIONS OF SECTION 10A(7) OF THE ACT. THE RELEVANT FINDINGS OF THE TRIBUNAL ARE AS UNDER: - 14. NOW, COMING TO THE SECOND ISSUE I.E. COMPUTATION OF P ROFITS UNDER SECTION 10A(7) OF THE ACT. WHERE THE MARGINS SHOWN BY THE ASSESSEE ON ITS TRANSACTIONS WITH ASSOCIATE ENTERPRISES AT 26.986% WAS HIGHER THAN THE BENCHMARKING DONE BY THE ASSESSEE FOR DETERMINING THE ARM'S LENGTH MARGINS AT 12.01%, THE ASSESSI NG OFFICER WAS OF THE VIEW THAT APPLYING THE PROVISIONS OF SECTION 80IA(10) R.W.S. 10A(7) OF THE ACT, THE PROFITS EARNED BY THE ASSESSEE WERE MORE THAN ORDINARY PROFITS. HENCE, AN ADJUSTMENT HAD TO BE MADE WHILE WORKING OUT THE ELIGIBLE PROFIT FOR THE PUR POSE OF COMPUTATION OF DEDUCTION UNDER SECTION 10A OF THE ACT OF PUNE UNIT - I. THE SAID ISSUE IS SQUARELY COVERED BY VARIOUS BENCHES OF TRIBUNAL INCLUDING THE PUNE BENCH OF TRIBUNAL. THE PUNE BENCH OF TRIBUNAL IN M/S. HONEYWELL AUTOMATION INDIA LTD. VS. D CIT (SUPRA) HAD HELD 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 UNDER : - (7) THE PROVISIONS OF SUB - SECTION (8) AND SUB - SECTION (10) OF SECTION 80 - IA SHALL, SO FAR AS MAY BE, APPLY IN RELATION TO THE UNDERTAKING REFERRED TO IN THIS SECTION AS THEY APPLY FOR THE PURPOSES OF THE UNDERTAKING REFERRED TO IN SECTION 80 - IA. 8. FURTHER, SUB - SECTIONS (8 ) AND (10) OF SECTION 80 - IA OF THE ACT REFERRED TO IN SECTION 10A(7) READ AS UNDER : - (8) WHERE ANY GOODS [OR SERVICES] HELD FOR THE PURPOSES OF THE ELIGIBLE BUSINESS ARE TRANSFERRED TO ANY OTHER BUSINESS CARRIED ON BY THE ASSESSEE, OR WHERE ANY GOODS [O R SERVICES] HELD FOR THE PURPOSES 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 CORR ESPOND TO THE ITA NO. 12 9 5 /P U N/20 1 5 PERSISTENT SYSTEMS PVT. LTD. 4 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 PROFITS AND GAINS OF SUCH ELIGIBLE BUSINESS SHALL BE COMPUTED AS IF THE TRANSFER, IN EITHER CASE, HAD BEE N MADE AT THE MARKET VALUE OF SUCH GOODS [OR SERVICES] AS ON THAT DATE : PROVIDED THAT WHERE, IN THE OPINION OF THE ASSESSING OFFICER, THE COMPUTATION OF THE PROFITS AND GAINS OF THE ELIGIBLE BUSINESS IN THE MANNER HEREINBEFORE SPECIFIED PRESENTS EXCEPTION AL DIFFICULTIES, 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 GOOD S 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 ELIGIBLE BUSINESS TO WHICH THIS SECTION APPLIES AND ANY OTHER P ERSON, OR FOR ANY OTHER REASON, THE COURSE OF BUSINESS BETWEEN THEM IS SO ARRANGED THAT THE BUSINESS TRANSACTED BETWEEN THEM PRODUCES TO THE ASSESSEE MORE THAN THE ORDINARY PROFITS WHICH MIGHT BE EXPECTED TO ARISE IN SUCH ELIGIBLE BUSINESS, THE ASSESSING O FFICER SHALL, IN COMPUTING THE PROFITS AND GAINS OF SUCH ELIGIBLE BUSINESS FOR THE PURPOSES OF THE DEDUCTION UNDER THIS SECTION, TAKE THE AMOUNT OF PROFITS AS MAY BE REASONABLY DEEMED TO HAVE 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 A SSESSMENT YEARS BEGINNING WITH THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WHICH THE UNDERTAKING BEGINS TO MANUFACTURE OR PRODUCE SUCH ARTICLES OR THINGS OR COMPUTER SOFTWARE, AS THE CASE MAY BE, WHILE COMPUTING THE TOTAL INCOME OF AN ASSESSEE. S HORN OF OTHER DETAILS, FOR THE PRESENT IT WOULD SUFFICE TO NOTE THAT 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 O F INDIA AND THEY ARE ELIGIBLE FOR THE BENEFITS OF SECTION 10A OF THE ACT. 10. THE BONE OF CONTENTION IN THE PRESENT CASE BETWEEN 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, REPRODUC ED ABOVE, EMPOWERS THE ASSESSING OFFICER TO RE - COMPUTE THE PROFITS AND GAINS OF THE ELIGIBLE BUSINESS FOR THE PURPOSES OF DEDUCTION U/S 10A OF THE ACT IF IT APPEARS TO HIM THAT THE PROFITS DECLARED BY THE ASSESSEE ARE MORE THAN THE ORDINARY PROFITS WHICH M IGHT BE EXPECTED TO ARISE IN SUCH AN ELIGIBLE BUSINESS. SO HOWEVER, THE AFORESAID POWER OF THE ASSESSING OFFICER IS SUBJECT TO THE PRE - REQUISITES CONTAINED IN SUB - SECTION (10) OF SECTION 80 - IA OF THE ACT ITSELF. THE CIRCUMSTANCES IN WHICH SUCH A COURSE I S AVAILABLE TO THE ASSESSING OFFICER IS CONTAINED IN SECTION 80 - IA(10) ITSELF. A PERUSAL OF SECTION 10A(7) R.W.S. 80 - IA(10) OF THE ACT WOULD SHOW THAT THE TWO ESSENTIAL CONDITIONS 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 ITA NO. 12 9 5 /P U N/20 1 5 PERSISTENT SYSTEMS PVT. LTD. 5 MAY REASONABLY DEEMED TO HAVE BEEN DERIVED FROM SUCH BUSINESS. NOTABLY, SUCH CONDITIONS ARE (I) EXISTENCE OF A CLOSE CONNECTION BETWEEN THE ASSESSEE CARRYING ON ELIGIBLE BUSIN ESS 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 ORDINARY PROFITS. 11. AT THE OUTSET, IT IS TO BE NOTED THAT THE OPENING 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, THE PRIMARY RULE OF EVIDENCE IS THAT WHAT IS APPARENT IS REAL UNLESS PROVED OTHERWISE BY THE PERSON ALLEGING IT SO. OSTENSIBLY, IF THE ASSESSING OFFICER IS TO INVOKE THE PROVISIONS OF SECTION 10A(7) R.W.S. 80 - IA(10) OF THE ACT THEN THE ONUS IS ON HIM TO JUSTIFY SUCH INVOCATION HAVING REGARD TO THE COGENT MATERIAL AND EVIDENCE ON RECORD. ON THIS ASPECT OF THE MATTER, THERE WAS NO DISPUTE BETWEEN THE RIVAL COUNSELS INASMUCH AS THE LD. CIT - DR QUITE FAIRLY AGREED THAT THE ONUS WAS ON THE ASSESSING OFFICER TO JUSTIFY INVOKING OF SECTION 10A(7) R.W.S. 80 - IA(10) OF THE ACT IN THE FACTS OF A GIVEN CASE. NEVERTHELESS, ON THIS ASPECT, WE MAY ALSO MAKE A REFERENCE 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 HEARING BEFORE US. IN THE CASE BEFORE THE KARNATAKA HIGH COURT, THE ISSUE WAS SIMILAR INASMUCH AS THEREIN, THE ASSESSING OFFICER HAD INVOKED THE PROVISIONS OF SECTION 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 THE 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 OF SECTION 80 - I(9) OF THE ACT ARE TWO - FOL D, NAMELY THAT THERE SHOULD BE A CLOSE CONNECTION 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 MATERIAL TO INDICATE THAT ASSESSEE HAD INDULGED IN AN ARRANGEME NT WITH THE OTHER PERSON SO AS TO PRODUCE TO THE ASSESSEE MORE PROFITS THAN ORDINARILY WHAT PROFITS THE ASSESSEE MIGHT HAVE EXPECTED TO ARISE FROM SUCH BUSINESS. AS PER THE HONBLE KARNATAKA HIGH COURT, IT WAS FOR THE ASSESSING OFFICER TO INDICATE ANY MAT ERIAL OR EVIDENCE TO DISCLOSE ANY SUCH ARRANGEMENT BETWEEN THE ASSESSEE AND THE OTHER PERSON. THE AFORESAID JUDGEMENT OF THE HONBLE KARNATAKA HIGH COURT JUSTIFIES THE ASSERTION OF THE ASSESSEE BEFORE US THAT THE ONUS FOR JUSTIFYING THE INVOKING OF SECTIO N 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 THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. M/S SCHMETZ INDIA PVT. LTD. VIDE INCOME TAX APPEAL NO.450 8 OF 2010 DATED 04.09.2012, WHICH IS ALSO TO THE SIMILAR EFFECT. IN THE CASE BEFORE THE HONBLE BOMBAY HIGH COURT ASSESSEE WAS A WHOLLY OWNED SUBSIDIARY OF A GERMAN COMPANY. IT HAD TWO DIVISIONS ONE AT KANDLA IN THE KANDLA FREE TRADE ZONE, ENGAGED IN T HE MANUFACTURE AND EXPORT OF INDUSTRIAL SEWING MACHINE NEEDLESS; AND OTHER AT MUMBAI, ENGAGED IN TRADING IN INDUSTRIAL SEWING MACHINE NEEDLESS. THE MANUFACTURING DIVISION AT KANDLA EXPORTED ITS ENTIRE PRODUCTION OF INDUSTRIAL MACHINE NEEDLESS TO ITS HOLDI NG COMPANY IN GERMANY. FOR THE ASSESSMENT YEAR 2004 - 05 ITA NO. 12 9 5 /P U N/20 1 5 PERSISTENT SYSTEMS PVT. LTD. 6 ASSESSEE DECLARED AN INCOME OF RS.20.54 CRORES FROM ITS MANUFACTURING DIVISION AT KANDLA AND CLAIMED 100% DEDUCTION U/S 10A OF THE ACT. DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS, ASSESSING OFFI CER WAS OF THE VIEW THAT ABNORMAL PROFITS HAD BEEN DECLARED IN RESPECT OF THE KANDLA DIVISION, ONLY IN VIEW OF THE INCOME THEREFROM BEING EXEMPT U/S 10A OF THE ACT, AND THAT THE TRADING DIVISION AT MUMBAI SHOWED A LOSS OF RS.70.29 LACS. THE ASSESSING OFFI CER INVOKED THE PROVISIONS OF SECTION 10A(7) R.W.S. 80 - IA(10) OF THE ACT TO HOLD THAT PROFITS OF KANDLA DIVISION WERE ABNORMAL PROFITS. THE TRIBUNAL DISAGREED WITH THE ASSESSING OFFICER. THE TRIBUNAL, INTER - ALIA, HELD THAT THE ASSESSING OFFICER HAS NOT B EEN ABLE TO PROVE THAT ANY ARRANGEMENT HAD BEEN ARRIVED BETWEEN THE PARTIES WHICH RESULTED IN EXTRAORDINARY PROFITS TO THE RESPONDENT - ASSESSEES MANUFACTURING DIVISION AT KANDLA. CONSEQUENTLY, THE WORKING OF THE PROFITS BY THE ASSESSING OFFICER WAS NOT AP PROVED. 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 T HE SECTION HAVE TO BE OBJECTIVELY SATISFIED 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 T HE ACT ARE INAPPLICABLE IN THE PRESENT CASE BECAUSE THERE IS NO MATERIAL LEAD BY THE REVENUE TO SAY THAT THERE WAS ANY ARRANGEMENT BETWEEN THE ASSESSEE AND THE ASSOCIATED ENTERPRISES WHICH PRODUCED TO THE ASSESSEE MORE THAN THE ORDINARY PROFITS WITHIN TH E MEANING OF SECTION 10A(7) R.W.S. 80 - IA(10) OF THE 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 EXTRAORD INARY PROFITS TO THE ASSESSEE. THE LD. REPRESENTATIVE POINTED OUT THAT ASSESSEE WAS CHARGING THE SAME RATE FOR SERVICES RENDERED TO ASSOCIATED ENTERPRISES AS WELL AS TO THE NON - RELATED PARTIES. THE DETAILS OF RATES CHARGED BY THE ASSESSEE TO THE THIRD PA RTIES VIS - - VIS THE RELATED PARTIES HAVE ALSO BEEN PLACED IN THE PAPER BOOK ALONG WITH SAMPLE COPIES OF INVOICES RAISED ON THE AND NON - RELATED PARTIES. IT WAS ALSO POINTED OUT WITH REFERENCE TO THE SUBMISSIONS MADE TO THE ASSESSING OFFICER, WHICH HAVE BEE N REPRODUCED IN PARA 2.6 OF THE ASSESSMENT ORDER, THAT THE ASSESSEE HAS CONTINUED TO CHARGE SIMILAR RATES EVEN AFTER THE TAX HOLIDAY PERIOD OF STPI UNIT HAD ENDED. 13. AT THE TIME OF HEARING, IT WAS EXPLAINED THAT THE TAX HOLIDAY U/S 10A OF THE ACT WAS A VAILABLE FOR UNIT NO.I AT PUNE UPTO ASSESSMENT YEAR 2007 - 08; THAT FOR UNIT NO.II AT PUNE UPTO ASSESSMENT YEAR 2011 - 12; AND, THAT FOR CHENNAI UNIT UPTO ASSESSMENT YEAR 2009 - 10. A STATEMENT SHOWING OPERATING MARGINS TO TOTAL COST EARNED BY THE ASSESSEE FROM THE STPI UNITS RELATABLE TO THE SOFTWARE ENGINEERING SERVICES SEGMENT WAS FURNISHED TO SHOW THAT EVEN AFTER THE EXPIRY OF THE TAX HOLIDAY PERIOD THE PROFITS OF THE UNITS IS HIGHER THAN THE OTHER UNITS OF THE ASSESSEE. 14. IN THIS CONTEXT, A REFERENCE HAS ALSO BEEN MADE TO THE COMMERCIAL REASONS EXPLAINED BEFORE THE ASSESSING OFFICER FOR THE HIGH PROFITS EARNED BY THE ASSESSEES STPI UNIT. FROM THE SUBMISSIONS FURNISHED TO THE ASSESSING OFFICER, WHICH HAVE BEEN REPRODUCED IN PARA 2.6 OF THE ASSESSMENT ORDE R, IT IS REVEALED THAT REASONS WERE ADVANCED TO JUSTIFY THE HIGHER MARGINS OF THE STPI UNITS. FIRSTLY, IT WAS CONTENDED ITA NO. 12 9 5 /P U N/20 1 5 PERSISTENT SYSTEMS PVT. LTD. 7 THAT THERE WAS SUBSTANTIAL COST SAVINGS IN TERMS OF COSTS ON SALES, MARKETING, SALE PROMOTION AND ADVERTISEMENT BECAUSE MAJORITY OF THE BUSINESS IN THE ENGINEERING SERVICES SEGMENT WAS WITH AFFILIATES ONLY. SECONDLY, IT WAS POINTED OUT THAT ASSESSEE IS IN THE BUSINESS OF IT ENABLED SERVICES RENDERING ENGINEERING CONSULTANCY SERVICES IN EXECUTION OF INDUSTRIAL AUTOMATION AND BUILDING AUTO MATION AND CONTROL PROJECTS AND IT DOES NOT INCUR MUCH PRODUCT DEVELOPMENT COSTS OR INVESTMENTS WHICH ARE USUALLY INCURRED BY OTHER SOFTWARE COMPANIES. THIRDLY, IT WAS POINTED OUT THAT THE SALARY LEVELS IN THE CASE OF THE ASSESSEE ARE MUCH LOWER THAN OTHE R SOFTWARE COMPANIES BECAUSE ASSESSEE WAS HIRING ELECTRONICS AND PROCESS ENGINEERING GRADUATES/DIPLOMA HOLDERS AND NOT SOFTWARE PROFESSIONALS. IT IS ALSO POINTED OUT THAT ASSESSEE HAS A LOWER RATE OF IDLE STAFF AS IT WORKS MOSTLY ON IN - HOUSE HONEYWELL TEC HNOLOGY AND THEREFORE THE PRODUCTIVITY 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 RENDERING ENGINEERING/SOFTWARE SERVICES. ASSESSEE WAS ALSO REIMBURSED INCIDENTAL EXPENSES INCURRED BY IT VIZ. VISA COSTS, WORK PERMIT COSTS, ETC. AND THEREFORE THE COST OF SALES WAS ON LOWER SIDE, AS A RESULT OF WHICH THE PERCENTAGE OF OPERA TING PROFIT TO TOTAL COST SHOWS A HIGHER PERCENTAGE, ALTHOUGH THE IMPACT ON PROFIT REMAINS UNALTERED. ALL THESE POINTS, WHICH WERE RAISED BEFORE THE ASSESSING OFFICER, HAVE BEEN REITERATED BEFORE US TO SHOW THAT THE HIGHER PROFITS ARE NOT ATTRIBUTABLE TO ANY ARRANGEMENT WITH ASSOCIATED ENTERPRISES BUT DUE TO BUSINESS REASONS. 15. APART THEREFROM, IT HAS ALSO BEEN POINTED OUT THAT ASSESSEE IS A PUBLIC LIMITED COMPANY LISTED ON THE STOCK - EXCHANGE WHEREIN THE OVERSEAS HONEYWELL ENTITIES OWNED 81.24% OF SHAREH OLDING AND THE PUBLIC 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 HONEYWELL ENTITIES HELD 41% AND THE BALANCE 19% WAS HELD BY THE PUBLIC. TH IS PATTERN HAD CHANGED FROM NOVEMBER, 2004 ONWARDS WHEN THE TATA GROUP GAVE UP ITS SHAREHOLDING IN THE ASSESSEE COMPANY. ON THE BASIS OF THE AFORESAID SHAREHOLDING PATTERN, A PLEA SETUP BY THE ASSESSEE IS THAT IF THERE WAS ANY MANIPULATION OF PROFITS BY A SSESSEE CHARGING HIGHER RATES TO ITS OVERSEAS HONEYWELL GROUP ENTITIES RESULTING IN SHIFTING OF PROFITS FROM OVERSEAS ENTITIES TO THE ASSESSEE - COMPANY, 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 PUBLIC SHAREHOLDING IN THE ASSESSEE COMPANY, IT WOULD MEAN THAT THE ANY EXTRAORDINARY BENEFIT PASSED ON BY OVERSEAS HONEYWELL GROUP ENTITIES TO ASSESSEE WOULD RESULT IN A LOSS FOR HONEYWELL GROUP ON AN OVERALL BASIS TO THE EXTENT OF PUBLIC SHAREHOLDING 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 OVERSEAS HONEYWELL ENTITIES TO PRODUCE HIGHER PROFITS TO T HE ASSESSEE. IN SUPPORT OF SUCH PROPOSITION, RELIANCE HAS BEEN PLACED ON THE DECISIONS OF THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF ITO VS. ZYDUS NYCOMED HEALTHCARE (ITA NOS.4013/MUM/208, 4206/MUM/2009 AND 4343/MUM/2009 DATED 31.10.2013). 16. APART FROM THE AFORESAID, IT HAS BEEN VEHEMENTLY ARGUED THAT ORDINARY PROFITS FOR THE PURPOSES OF SECTION 10A(7) R.W.S. 80 - IA(10) OF THE ACT CANNOT BE COMPUTED RELYING UPON THE TRANSFER PRICING DOCUMENTS ITA NO. 12 9 5 /P U N/20 1 5 PERSISTENT SYSTEMS PVT. LTD. 8 PREPARED BY THE ASSESSEE. THE LD. REPRESENTATIVE POINTED OUT THAT HAVING REGARD 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 MUST BE RETAINED IN INDIA AND IT CANNOT BE USED TO BENCHMARK THE ORDINARY PROF ITS 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 - I A(10) OF THE ACT. 17. THE LD. CIT - DR HAS MADE DETAILED SUBMISSIONS IN SUPPORT OF THE INVOKING OF SECTION 10A(7) R.W.S. 80 - IA(10) OF THE ACT IN THE PRESENT CASE. THE LD. CIT - DR SUBMITTED THAT SECTION 80 - IA(10) OF THE ACT PLACED MUCH LIGHTER BURDEN OF PROOF ON THE ASSESSING OFFICER BECAUSE OF THE PRESENCE OF THE EXPRESSION IT APPEARS IN SECTION 80 - IA(10) OF THE ACT. ACCORDING TO THE LD. CIT - DR, SECTION 80 - IA(10) CAN BE INVOKED BY THE ASSESSING OFFICER WHEN IT APPEARS TO HIM, AND IT IS NOT SUBJECT TO THE ASSESSING OFFICERS BELIEF OR SATISFACTION AS IS THE CASE WITH INVOKING OF SECTION 147/148, ETC.. THE FOLLOWING PORTION OF SECTION 80 - IA(10) OF THE ACT WAS EMPHASIZED ..THE ASSESSING OFFICER SHALL, IN COMPUTING THE PROFITS AND GAINS OF SUCH ELIGIBLE BUSINESS FOR THE PURPOSES OF THE DEDUCTION UNDER THIS SECTION, TAKE THE AMOUNT OF PROFITS AS MAY BE REASONABLY DEEMED TO HAVE BEEN DERIVED TO SAY THAT IT DOES NOT REQUIRE THE ASSESSING OFFICER TO PRECISELY DETERMINE THE ELIGIBLE PROFITS, BUT ONLY A PRI MA - FACIE SATISFACTION ABOUT PRESENCE OF MORE THAN THE ORDINARY PROFITS WOULD SUFFICE. IT IS SOUGHT TO BE EMPHASIZED THAT BECAUSE OF THE PRESENCE OF THE WORDS .AS MAY BE REASONABLY DEEMED TO HAVE BEEN DERIVED. IN SECTION 80 - IA(10) OF THE ACT, A MUCH LIGHTER BURDEN OF PROOF IS PUT ON THE ASSESSING OFFICER FOR COMPUTING TAX AVOIDANCE. AS PER THE LD. CIT - DR, SIMILAR TO THE TRANSFER PRICING PROVISIONS, THE SAID PROVISION DOES NOT REQUIRE A PRECISE ACCURACY ON THE PART OF THE ASSESSING OFFICER. AT THIS P OINT, THE LD. CIT - DR RELIED UPON THE DECISION OF THE HONBLE KERALA HIGH COURT IN THE CASE OF ABDUL VAHAB P. VS. ACIT, (2012) 249 CTR 102 (KERALA) WHEREIN THE WORD APPEARS HAS BEEN UNDERSTOOD TO IMPLY A PRIMA - FACIE SATISFACTION 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 ARRANGEMENT USED IN SECTION 80 - I A(10) OF THE ACT IS TO BE UNDERSTOOD AS ANY AGREEMENT WITH 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), WHEREIN IT HAS BEEN HELD AS UNDER : - THE WORD ARRANGE HAS, AS ONE OF ITS MEANING, IN THE SHORTER OXFORD DICTIONARY, EDITION, TO COME TO AN AGREEMENT OR UNDERSTANDING, AND THE WORD ARRANGEMENT HAS, AS ITS PRIMA RY MEANING, THE 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 AGREEMENT BETWEE N 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. ITA NO. 12 9 5 /P U N/20 1 5 PERSISTENT SYSTEMS PVT. LTD. 9 ACCORDING TO HIM, THE REQUIREMENTS OF SECTION 80 - IA(10) OF THE ACT ARE SATISFIED IF THERE EXISTS AN ARRANGEMENT WHICH LEADS TO PRODUCTION OF MORE THAN ORDINARY PROFITS. THEREFORE, ACCORDING TO HIM, IN THE PRESENT CASE, THE ASSESSING OFFICER IS JUSTIFIED TO INVOKE SECTION 10A(7) R.W.S. 80 - IA(10) OF THE ACT INA SMUCH AS THE PROFIT MARGIN OF THE ASSESSEES STPI UNITS IS 80.06% AS AGAINST 17.06% OF THE COMPARABLE SELECTED BY THE ASSESSEE ITSELF IN ITS TRANSFER PRICING STUDY. AS PER THE LD. CIT - DR, WHEN THE ARRANGEMENT HAS LED TO RESULTING INTO MORE THAN ORDINARY P ROFITS, NECESSARY CONDITION FOR INVOKING SECTION 80 - IA(10) OF THE ACT IS SATISFIED. 20. APART FROM THE AFORESAID SUBMISSIONS, THE LD. CIT - DR HAS MADE OTHER PLEAS ALSO TO JUSTIFY THE RESTRICTION OF DEDUCTION U/S 10A OF THE ACT. IN THIS CONTEXT, HE HAS POI NTED 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 AND THEREFORE THAT WAS A GOOD BENCHMARK AS TO WHAT CONSTITUT ES 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 BASED ON THE MARGIN OF THE COMPARABLE IS NOT FOUND TO BE A GOOD METHODOLO GY, YET 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. THE EXCESS PROFITS ACCORDING TO HIM CAN BE COMPUTED BY AN APPROPRIATE METHOD BY REMANDING TH E 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 ORDINARY PROFITS IN THE ELIGIBLE BUSINESS. COMPARABLE COMPANIES ARE IN THE SAME LINE OF THE BUSINESS AND HAVING SIMILAR FUNCTIONS PERFORMED, ASSETS EMPLOYED AND RISKS ASSUMED AS THE ASSESSEE, THEREFORE, COMPARABLE COMPANIES ARE CARRYING ON ELIGIBLE BUSINESS, AND THUS THE PROFITS MARGIN OF COMPARABLE REFLECT ORDINARY PROFITS. 21. WITH REGARD TO THE ASSESSEES PLEA THAT EVEN AFTER THE EXPIRY OF SECTION 10A BENEFITS, ASSESSEE WAS DECLARING HEALTHY PROFITS, THE LD. CIT - DR POINTED OUT THAT WHAT MATTERS IN FUTURE YEARS IS THE ACTUAL AMOUNT OF THE TAXES PAID AND NOT MERELY THE PROFITS GENERATED IN THE UNIT. IT WAS ALSO CONTENDED THAT THE FACT THAT ASSESSEE 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 TH E ASSESSEE BEING REIMBURSED THE TRAVELLING COSTS, ETC. CANNOT BE RESPONSIBLE FOR ASSESSEES HIGH PROFIT WHICH ARE NOT OF AN ORDINARY LEVEL. THE LD. CIT - DR POINTED OUT THAT 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 BY THE ASSESSEE FOR THE SERVICES RENDERED. IN ANY CASE, IT IS POINTED OUT THAT REIMBURSEMENT OF EXPENSES IS A PROFIT NEUTRAL TRANSACTION AND DOES NOT IMPACT THE PROFITABILITY OF TH E ASSESSEE. 22. BEFORE WE PROCEED FURTHER, IT WOULD BE APPROPRIATE 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 CIRCULAR 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, REFERENCE HAS BEEN MADE TO THE FOLLOWING CONTENTS OF THE CIRCULAR : - ITA NO. 12 9 5 /P U N/20 1 5 PERSISTENT SYSTEMS PVT. LTD. 10 THE PROVISIONS OF SUB - SECTION (8) AND SUB - SECTION (9) OF SECTION 80 - I WILL ALSO APPLY IN RELATION TO THE INDUSTRIAL UNDERTAKING REFERRED TO IN THE NEW SECTION 10A AS THEY APPLY IN RELATION TO AN INDUSTRIAL UNDERTAKING REFERRED TO UNDER SECTION 80 - I. UNDER THE APPLIED SUB - SECTION (8) OF SECTION 80 - I, IT IS PROVIDED THAT WH ERE AN ASSESSEE HAS SEVERAL UNITS, SOME IN THE FREE TRADE ZONE AND SOME OUTSIDE, THE PROFITS OF THE UNIT IN THE FREE TRADE ZONE WILL BE COMPUTED AFTER TAKING THE COST OF THE GOODS TRANSFERRED TO OR FROM THE UNIT ON THE BASIS OF THE MARKET VALUE OF SUCH GOO DS. THE APPLIED SUB - SECTION (9) OF SECTION 80 - I EMPOWERS THE INCOME - TAX OFFICER TO DETERMINE THE REASONABLE PROFITS THAT COULD BE ATTRIBUTED TO THE QUALIFYING UNDERTAKING IN THE FREE TRADE ZONE IN CASES WHERE, OWING TO THE CLOSE CONNECTION BETWEEN THE ASS ESSEE AND ANY OTHER PERSONS OR FOR ANY OTHER REASON, THE COURSE OF THE BUSINESS IS SO ARRANGED THAT THE INDUSTRIAL UNDERTAKING SET UP IN THE FREE TRADE ZONE DERIVES MORE THAN ORDINARY PROFITS WHICH MAY BE EXPECTED TO ARISE IN THAT BUSINESS. THIS PROVISION HAS BEEN MADE WITH A VIEW TO AVOIDING ABUSE OF THE NEW TAX CONCESSIONS BY MANIPULATION OF PROFITS BETWEEN ASSOCIATE CONCERNS OR DIFFERENT UNITS OF THE SAME CONCERN. [UNDERLINED FOR EMPHASIS BY US] 23. QUITE CLEARLY, THE PROVISIONS OF SECTION 10A(7) OF TH E ACT INTEND TO PLUG ABUSE OF TAX CONCESSION BY MANIPULATION OF PROFITS BETWEEN ASSOCIATED CONCERNS OR BETWEEN DIFFERENT UNITS OF THE SAME CONCERN. THE OBJECTIVE OF THE AFORESAID PROVISION IS THAT THE TAX CONCESSIONS ARE NOT ABUSED BY MANIPULATION OF PROF ITS. IN OUR CONSIDERED OPINION, THE AFORESAID EXPLANATION IN THE CBDT CIRCULAR (SUPRA) SIGNIFIES THE LEGISLATIVE INTENT AND IT IS ALSO MANIFESTED IN THE LANGUAGE OF SECTION 10A(7) R.W.S. 80 - IA(10) OF THE ACT. WE SAY SO FOR THE REASON THAT THE PHRASEOLOGY OF SECTION 80 - IA(10) OF THE ACT ITSELF SUGGESTS THAT THE PROFITS AND GAINS OF AN ELIGIBLE BUSINESS CANNOT BE TINKERED WITH BY THE ASSESSING OFFICER MERELY BECAUSE THEY ARE MORE THAN THE ORDINARY PROFITS OR THAT THEY ARE QUITE HIGH. THE EXISTENCE OF SUBST ANTIAL OR MORE THAN ORDINARY PROFITS BY ITSELF DOES NOT SUFFICIENTLY EMPOWER THE ASSESSING OFFICER TO DISREGARD THEM AND DETERMINE THE PROFITS WHICH HE MAY CONSIDER TO BE REASONABLY DEEMED TO HAVE BEEN DERIVED THEREFROM. THE PRESENCE OF THE EXPRESSION TH E COURSE OF BUSINESS IS SO ARRANGED . THAT THE BUSINESS TRANSACTED PRODUCES TO THE ASSESSEE MORE THAN ORDINARY PROFITS IS SIGNIFICANT AND ITS UNDERSTANDING HAS TO BE PREFACED BY THE LEGISLATIVE OBJECTIVE OF PLUGGING ABUSE OF THE TAX CONCESS IONS 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 CONJUNCTION WITH THE LEGISLATIVE INTENT THAT THERE SHOULD NOT BE ANY ABUSE OF TAX CONCESSIO N 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 TRANSACTED BETWEEN TWO ENTI TIES IS SO ARRANGED, WHICH PRODUCES TO THE ASSESSEE MORE THAN THE ORDINARY PROFITS WHICH MIGHT BE EXPECTED TO ARISE IN SUCH ELIGIBLE BUSINESS. THE EMPHASIS IS TO ESCHEW THOSE MORE THAN THE ORDINARY PROFITS WHICH ARE AS A RESULT OF A BUSINESS BETWEEN TWO CLOSELY CONNECTED CONCERNS HAVING BEEN ARRANGED WITH THE INTENT OF ABUSE OF THE TAX CONCESSION. OSTENSIBLY, IN THE PRESENT CASE, THE REVENUE WOULD HAVE TO JUSTIFY THAT THE COURSE OF BUSINESS BETWEEN ASSESSEE AND THE ASSOCIATED ENTERPRISES HAS BEEN SO AR RANGED WHICH PRODUCES TO THE ASSESSEE ITA NO. 12 9 5 /P U N/20 1 5 PERSISTENT SYSTEMS PVT. LTD. 11 MORE THAN THE ORDINARY PROFITS WHICH MIGHT BE EXPECTED TO ARISE IN 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 CONNECTI ON BETWEEN THE 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 THERE BEING ANY MATERIAL TO SAY THAT THE COURSE OF BUSINESS BETWEEN THEM IS SO ARRAN GED TO ABUSE THE TAX CONCESSIONS GRANTED U/S 10A OF THE ACT BY MANIPULATING PROFITS BETWEEN ASSOCIATED PERSONS. OSTENSIBLY, THE SAME IS REQUIRED TO BE DEMONSTRATED ON THE BASIS OF A COGENT MATERIAL AND EVIDENCE. IN OTHER WORDS, THE PRESENCE OF THE EXPRE SSION SO ARRANGED HAS TO BE UNDERSTOOD IN THE CONTEXT OF THE ABUSE OF TAX CONCESSION WHICH IS SOUGHT TO BE PLUGGED BY THE PROVISIONS OF SECTION 10A(7) R.W.S. 80 - IA(10) OF THE ACT. 24. ON THIS ASPECT, THE LD. CIT - DR HAD VEHEMENTLY ARGUED, BASED ON THE JUD GEMENT OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF BANK OF INDIA LTD. (SUPRA) THAT THE MEANING OF THE WORD ARRANGED IN SECTION 80 - IA(10) OF THE ACT HAS TO BE UNDERSTOOD TO MEAN AN AGREEMENT OR AN UNDERSTANDING BETWEEN THE PARTIES CONCERNED. THE RELE VANT PORTION OF THE DECISION OF THE HONBLE BOMBAY HIGH COURT HAS BEEN REPRODUCED IN THE EARLIER PART OF THIS ORDER, ACCORDING TO WHICH, IT IS SAID THAT THE TERM ARRANGEMENT IN PLAIN LANGUAGE MEANS ANY AGREEMENT OR UNDERSTANDING BETWEEN THE PARTIES CONCERN ED. ON THIS BASIS, THE LD. CIT - DR SUBMITTED THAT UNDENIABLY THERE IS AN AGREEMENT BETWEEN THE ASSESSEE AND THE ASSOCIATED ENTERPRISES WHEREBY THE SERVICES HAVE BEEN PROVIDED BY THE ASSESSEE TO THEM AND THEREFORE THE SAME IS TO BE UNDERSTOOD AS AN ARRANGE MENT WITHIN THE MEANING OF SECTION 10A(7) R.W.S. 80 - IA(10) OF THE ACT. ALONG WITH THE AFORESAID, IT HAS ALSO BEEN EMPHASIZED, ON THE BASIS OF THE LANGUAGE OF SECTION 80 - IA(10) OF THE ACT THAT, THE ASSESSING OFFICER IS NOT REQUIRED TO BE PROVE THAT THERE IS AN ARRANGEMENT FOR PRODUCING MORE THAN ORDINARY PROFITS. WHEREAS, AS PER THE LD. CIT - DR, SECTION PROVIDES THAT ARRANGEMENT LEADING TO PRODUCTION OF MORE THAN ORDINARY PROFIT WILL SATISFY THE NECESSARY CONDITION OF SECTION 80 - IA(10) OF THE ACT. THUS, A CCORDING TO THE LD. CIT - DR, IN THE INSTANT CASE 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 SECTION 80 - IA(10) OF THE ACT ONLY SEEKS TO ENSU RE THAT THERE WAS AN AGREEMENT BETWEEN THE ASSESSEE AND ASSOCIATED ENTERPRISE. 25. WE HAVE CAREFULLY EXAMINED THE AFORESAID CONTENTIONS OF THE LD. CIT - DR. IN OUR CONSIDERED OPINION, THE IMPORT OF THE EXPRESSION ARRANGED IN SECTION 80 - IA(10) OF THE ACT I S NOT TO BE UNDERSTOOD IN ITS PLAIN 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 W ORDS .. THE COURSE OF BUSINESS BETWEEN THEM IS SO ARRANGED THAT THE BUSINESS TRANSACTED BETWEEN THEM PRODUCES TO THE ASSESSEE MORE THAN THE ORDINARY PROFITS WHICH MIGHT BE EXPECTED TO ARISE IN SUCH ELIGIBLE BUSINESS . THEREFORE, IT WOULD NECESSARILY MEAN THAT THE ARRANGEMENT REFERRED TO IS AN ARRANGEMENT OF THE COURSE OF BUSINESS WHICH PRODUCES TO THE ASSESSEE MORE THAN THE ORDINARY PROFITS WITH THE INTENT OF ABUSING THE TAX CONCESSION. THUS, THE WORD ARRANGED IN THE SECTION DOES NOT ENVISAGE A S IMPLE ARRANGEMENT, BUT A ARRANGEMENT OF THE COURSE OF BUSINESS 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. ITA NO. 12 9 5 /P U N/20 1 5 PERSISTENT SYSTEMS PVT. LTD. 12 THEREFORE, THE MEANI NG OF THE WORDS SO ARRANGED HAVE TO BE UNDERSTOOD IN THE CONTEXT IN WHICH THEY ARE PLACED IN SECTION 80 - IA(10) OF THE ACT. A MERE AGREEMENT BETWEEN THE ASSESSEE AND THE ASSOCIATED ENTERPRISES FOR TRANSACTING BUSINESS IS NOT ENOUGH TO INVOKE SECTION 80 - I A(10) OF THE ACT. 26. IN - FACT, EVEN THE HONBLE BOMBAY HIGH COURT IN THE CASE OF BANK OF INDIA LTD. (SUPRA) HAS ALSO APPRECIATED THE CONTEXTUAL MEANING OF THE EXPRESSION ARRANGEMENT. THE ISSUE BEFORE THE HONBLE BOMBAY HIGH COURT WAS WITH REGARD TO THE SCHEME OF RE - CONSTRUCTION OR ARRANGEMENT CONTAINED 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 MEANING OF THE WORD ARRANGEMENT. AFTER HAVING EXP LAINED 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 ARRANGEMENT QUA SECTION 391(1) OF THE COMPANIES ACT, 1956 : - SECTION 391(1) , HOWEVE R, IN ANY OPINION SOMEWHAT RESTRICTS THIS OTHERWISE UNLIMITED IMPORT OF THE TERM ARRANGEMENT IN SO FAR AS THE SAID SECTION APPLIES ONLY TO AN AGREEMENT OR UNDERSTANDING BETWEEN THE COMPANY AND ITS CREDITORS OR ANY CLASS OF THEM, OR BETWEEN THE COMPANY AN D ITS MEMBERS OR ANY CLASS OF THEM, OR BETWEEN THE COMPANY AND ITS MEMBERS OR ANY CLASS OF THEM, WHICH WOULD NECESSARILY MEAN THAT IT MUST BE AN AGREEMENT OR UNDERSTANDING WHICH AFFECTS THEIR RIGHTS [UNDERLINED FOR EMPHASIS BY US] 27. THE AFORESAID CLEARL Y POINTS OUT THAT THE HONBLE 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 AGREEMENT OR UNDERSTANDING WHICH AFFECTS THE RIGHTS BETWEEN THE COMPANY AND ITS CREDI TORS OR ANY CLASS OF THEM AND BETWEEN THE COMPANY AND ITS MEMBERS OR ANY CLASS OF THEM. BY THE SAME ANALOGY IN THE PRESENT CONTEXT, WE HAVE TO UNDERSTAND THE MEANING OF THE EXPRESSION AS ARRANGED IN SECTION 10A(7) R.W.S. 80 - IA(10) OF THE ACT TO MEAN A S ITUATION WHEREBY THE COURSE OF BUSINESS HAS BEEN SO ARRANGED THAT THE BUSINESS TRANSACTED PRODUCES TO THE ASSESSEE MORE THAT THE ORDINARY PROFITS WITH AN INTENT TO ABUSE THE TAX CONCESSIONS GRANTED IN SECTION 10A OF THE ACT. MOREOVER, IF ONE IS TO UNDERST AND THE IMPORT OF THE EXPRESSION SO ARRANGED IN SECTION 80 - IA(10) OF THE ACT AS CANVASSED BY THE LD. CIT - DR, IT WOULD MEAN THAT FOR THE PURPOSES OF FULFILLMENT OF THE CONDITIONS PRESCRIBED IN SECTION 10A(7) R.W.S. 80 - IA(10) OF THE ACT, EXISTENCE OF MERE CLOSE CONNECTION AND MORE THAN THE ORDINARY PROFITS WOULD SUFFICE. IN OTHER WORDS, AS PER THE REVENUE, THE EXISTENCE 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 AFORESAID PLEA, IN OUR VIEW, NOT ONLY BELIES THE LANGUAGE OF SECTION 80 - IA(10) BUT ALSO THE LEGISLATIVE INTENT WHICH SEEKS TO CURTAIL THE ABUSE OF TAX CONCESSION BY MANIPULATION OF PROFITS BETWEEN ASSOCIATED CONCERNS. THEREFORE, AN ARRANGEM ENT WHICH IS REFERRED TO IN SECTION 10A(7) R.W.S. 80 - IA(10) OF THE ACT HAS TO BE ONE WHICH IS PREFACED BY AN INTENTION TO ABUSE THE TAX CONCESSIONS, AS PER THE INTENDMENT OF THE LEGISLATURE. THEREFORE, EXISTENCE OF A MERE AGREEMENT TO DO BUSINESS IS NOT E NOUGH TO FULFILL THE REQUIREMENT OF SECTION 10A(7) R.W.S. 80 - IA(10) OF THE ACT IN THE CONTEXT OF THE WORDS THE COURSE OF BUSINESS BETWEEN THEM IS SO ARRANGED. ITA NO. 12 9 5 /P U N/20 1 5 PERSISTENT SYSTEMS PVT. LTD. 13 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 DECISION OF THE BANGALORE BENCH OF THE TRIBUNAL I N THE CASE OF DIGITAL EQUIPMENT INDIA LTD. (SUPRA), WHEREIN SIMILAR ARGUMENT FROM THE SIDE OF THE REVENUE HAS BEEN ADDRESSED. 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 199 5 - 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 APPELLANT AND OT HER PERSON. (B) THE COURSE OF BUSINESS BETWEEN THEM SHOULD BE SO ARRANGED THAT IT PRODUCES TO THE APPELLANT MORE THAN THE ORDINARY PROFITS FROM SUCH BUSINESS. TO SATISFY THE ABOVE TEST THE AO HAS TO ADDUCE EVIDENCE AND REASONS COGENTLY AND THE SAME IS OPEN TO VERIFICATION BY THE APPELLATE AUTHORITIES. THE PRIMARY RULE OF EVIDENCE IS THAT 'WHAT IS APPARENT 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 N OT ON SURMISE OR SUSPICION. THE QUESTION IS NOT WHETHER THE ONUS IS LIGHT OR HEAVY BUT WHETHER THE AO HAS DISCUSSED OBJECTIVELY THE CONDITIONS MENTIONED IN THE SECTION TO DISTURB THE RESULTS DECLARED BY THE APPELLANT. IN THIS CASE, THE AO HAS FAILED TO AD DUCE ANY EVIDENCE OR REASON TO SATISFY 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 OF 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 WILL NOT PAY UNDUE SUM, WHICH IT CANNOT RECOUP ENTIRELY TO EXCLUSION OF OTHERS. HENCE NOTHING CAN BE ARR ANGED TO THE EXCLUSIVE BENEFIT OF OVERSEAS PARTNER. ONE CANNOT PRESUME THE EXISTENCE OF CLOSE CONNECTION OR POSSIBILITY OF AN ARRANGEMENT FOR EARNING MORE THAN ORDINARY PROFITS. IN THIS CASE THE PROFITS EARNED IS COMPARABLE WITH THE PROFITS EARNED BY OTHER COMPANIES IN THE SAME INDUSTRY. HENCE THERE IS NO CASE FOR FURTHER VERIFICATION. THE AO HAS COMPARED THE PROFIT OF SOFTWARE UNIT WITH THAT OF HARDWARE UNIT. THUS THE FOUNDATION ITSELF IS ON WRONG PREMISE. THERE CANNOT BE COMPARISON BETWEEN AN ORANGE AND A N APPLE. IT IS KNOWN FACT THAT PROFITABILITY OF SOFTWARE UNITS IS ALWAYS HIGHER THAN HARDWARE UNIT. THE TEST WHETHER THE APPELLANT HAS EARNED MORE THAN ORDINARY PROFITS, IN THIS CASE, THE ANSWER IS OBVIOUS NO, EVEN AS FOUND BY THE AO. WHEN THE PROFITS EARN ED ARE REASONABLE AND NOT EXCESSIVE, THERE IS NO REASON TO SUSTAIN THE ADDITION FURTHER THERE IS NO EVIDENCE OF EXISTENCE OF ANY ARRANGEMENT AS CONTEMPLATED UNDER S. 80 - 1(9). 29. QUITE CLEARLY, AS PER THE TRIBUNAL THE QUESTION IS NOT WHETHER THE ONUS IS L IGHT OR HEAVY BUT WHETHER THE ASSESSING OFFICER HAS DISCUSSED ITA NO. 12 9 5 /P U N/20 1 5 PERSISTENT SYSTEMS PVT. LTD. 14 OBJECTIVELY THE CONDITIONS MENTIONED IN THE SECTION TO DISTURB THE RESULTS DECLARED BY THE APPELLANT. 30. NOW, THE CASE OF THE ASSESSING OFFICER IS THAT THE PROFITS DERIVED BY THE ASSESSEE FROM THE ELIGIBLE BUSINESS ARE MORE THAN THE ORDINARY PROFITS AND THEREFORE HE IS EMPOWERED TO ARRIVE AT WHAT COULD BE A REASONABLE PROFIT FROM SUCH ELIGIBLE BUSINESS AND SUCH PROFIT BE TAKEN AS REASONABLY 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 ASSESSMENT 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 MORE THAN THE ORDINARY PROFITS. 31. NO DOUBT, THERE IS A CLOSE CONNECTION BETWEEN ASSESSEE AND THE ASSOCIATED ENTERPRISES AND TO THAT EXTENT SECTION 10A(7) R.W.S. 80 - IA(10) OF THE ACT HAS BEEN RIGHTLY EXAMINED BY THE INCOME - TAX AUTHORITIES. THE SECOND ASPECT THAT THE COURSE OF BUSINESS WAS SO ARRANGED SO AS TO RESULT IN MORE THAN ORDINARY PROFITS IS NOT AT ALL FORTHCOMING FROM THE ORDER OF THE ASSESSING OFFICER. THERE IS NO MA TERIAL OR EVIDENCE REFERRED TO IN THE ASSESSMENT ORDER TO INDICATE THAT THE COURSE OF BUSINESS HAS BEEN SO ARRANGED SO AS TO INFLATE PROFITS WITH THE INTENT TO ABUSE TAX CONCESSION U/S 10A OF THE ACT. AT THIS POINT, WE MAY MAKE A REFERENCE TO THE STAND OF THE ASSESSING OFFICER THAT THE OPERATING PROFIT MARGINS OF THE ASSESSEE ARE SUBSTANTIALLY HIGHER THAN THE AVERAGE OPERATING MARGIN OF THE COMPARABLES SELECTED BY THE ASSESSEE IN ITS TRANSFER PRICING STUDY. THIS HAS FORMED THE BASIS FOR THE ASSESSING OFFI CER TO SAY THAT ASSESSEE HAS EARNED MORE 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 BUSINESS HAS BEEN SO ARRANGED TO RESULT IN MORE THAN ORDINARY PROF ITS. HOWEVER, FROM 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 ORDINARILY ACCEPTED MARGIN IN THIS LINE OF BUSINESS. THE MOOT QUESTI ON IS AS TO WHETHER THE SAME CAN BE CONSIDERED AS A MATERIAL TO INDICATE THAT THE COURSE OF BUSINESS 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 CHENNAI BENCH OF THE TRIBUNAL IN THE CASE OF VISUAL GRAPHICS COMPUTING SERVICES INDIA (P) LTD. VS. ACIT, 148 TTJ 621 (CHENNAI), WHEREIN FOLLOWING DISCUSSION IS RELEV ANT : - WE HEARD BOTH SIDES IN DETAIL AND CONSIDERED THE ISSUE. AS FAR AS THE PRESENT CASE IS CONCERNED, THE TRANSFER PRICING OFFICER HAS MADE A CATEGORICAL FINDING THAT THE OPERATING PROFIT REPORTED BY THE ASSESSEE IS HIGHER THAN THE PROFIT WORKED OUT ON THE BASIS OF ARM'S LENGTH PRICE. THE TRANSFER PRICING OFFICER, THEREFORE, CONCLUDED THAT NO TRANSFER PRICING ADJUSTMENT IS CALLED FOR IN THE PRESENT CASE. THE ASSESSING OFFICER HAS MADE THE REFERENCE TO THE TRANSFER PRICING OFFICER UNDER SECTION 92CA. THE REFERENCE IS MADE FOR THE PURPOSE OF COMPUTING INCOME 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 SCOPE AND EXTENT OF REFERENCE MADE BY THE ASSESSING OFFICE R TO THE TRANSFER PRICING OFFICER IS CONFINED TO THE SINGULAR PURPOSE STATED IN SECTION 92. SECTIONS 92A, 92B, 92C, 92CB, 92D, 92E ITA NO. 12 9 5 /P U N/20 1 5 PERSISTENT SYSTEMS PVT. LTD. 15 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 SUCH, ENACTED FOR THE PURPOSE OF COMPUTING INCOME FROM INTERNATIONAL TRANSACTIONS HAVING REGARD TO THE ARM'S LENGTH PRICE SO AS TO CONFIRM THAT THERE IS NO AVOIDANCE OF TAX BY AN ASSESSEE. THEREFORE, WHERE IN A CASE, THE TRANSFER PRICING OFFICER SUGGESTS THAT THE OPERATING PROFIT DECLARED BY AN ASSESSEE IS COMPATIBLE TO THE ARM'S LENGTH PRICE NORMS AND NO ADJUSTMENT IS NECESSARY , THE OPERATION OF ALL THOSE PROVISIONS COME TO AN END. IF THE, ASSESSING OFFICER HAS TO MAKE ANY OTHER ADJUSTMENT TOWARDS COMPUTING DEDUCTION AVAILABLE 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 ASSESSMENT, IT HAS GOT TWO SEGMENTS. THE FIRST SEGMENT CONSISTS OF RULES AND PROCEDURES FOR COMPUTING THE INCOME OTHER THAN THE INCOME ARISING OUT OF INTERNATIONAL TRANSACTIONS WITH ASSOCIATE ENTERPRI SE. THE SECOND SEGMENT CONSISTS OF RULES AND PROCEDURES IN CONNECTION WITH COMPUTATION OF INCOME FROM INTERNATIONAL TRANSACTIONS WITH ASSOCIATE ENTERPRISES ON THE BASIS OF THE ARM'S LENGTH PRICE. THE SECOND SEGMENT RELATING TO COMPUTATION OF THE ARM'S LENG TH PRICE, IS A SET OF RULES FOR THE PURPOSES OF TRANSFER PRICING MATTERS AND THOSE PROCEDURES AND RULES CAN BE USED ONLY FOR THE PURPOSE SERVING THE OBJECT OF SECTION 92. WHEN THE TRANSFER PRICING OFFICER STATES THAT THERE IS NO NEED OF TRANSFER PRICING AD JUSTMENT, 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 ORDER OF THE TRANSFER PRICING OFFICE UNDER SECTION 92CA. TO STATE IN SIMPLE TER MS, THE TRANSFER PRICING REGIME IS DIFFERENT FROM REGULAR COMPUTATION OF INCOME. SECTION 10A BELONGS TO THAT PART OF REGULAR COMPUTATION OF INCOME AND IT SHOULD BE COMPUTED INDEPENDENT OF TRANSFER PRICING REGULATIONS AND TRANSFER PRICING ORDERS. IT IS NOT THEREFORE, PERMISSIBLE FOR THE ASSESSING OFFICER TO WORK OUT SECTION 10A DEDUCTION ON THE BASIS OF ARM'S LENGTH PRICE PROFIT GENERATED OUT OF THE ORDER OF THE TRANSFER PRICING OFFICER. IN FACT THESE ISSUES HAVE ALREADY BEEN CONSIDERED IN VARIOUS ORDERS OF THE TRIBUNAL. THE INCOME - TAX APPELLATE TRIBUNAL, CHENNAI '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 IN 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 OFFICER'S ORDER IS UNSUSTAINABLE. THE TRIBUNAL HAS HELD THAT THE ASSESSING OFFICER WAS NOT JUSTIF IED 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 WITHOUT SHOWING HOW HE DETERMINED THAT THE ASSESSEE HAD SHOWN MO RE THAN 'ORDINARY PROFITS'. ITA NO. 12 9 5 /P U N/20 1 5 PERSISTENT SYSTEMS PVT. LTD. 16 AS RIGHTLY ARGUED BY LEARNED SENIOR COUNSEL THE ARM'S LENGTH PRICE IS DETERMINED ON THE BASIS OF THE MOST APPROPRIATE METHOD. THE MOST APPROPRIATE METHOD IS CHOSEN EITHER ON PROFIT BASIS METHOD OR PRICE BASIS METHOD. IN THE LATT ER EASE, PROFITS ARE NOT AT ALL CONSIDERED. IN THAT METHOD, PROFIT IS ONLY A DERIVATIVE OF PRICES. WHEN PROFITS ITSELF IS NOT WORKED OUT, HOW IS IT JUSTIFIED TO ADOPT THE ARM'S LENGTH PRICE PROFITS TO DETERMINE WHAT IS 'ORDINARY 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 THE ELIGIBLE PROFITS OF THE ASSESSEE UNDER SECTION 10A. THE SAID ADJUSTMENT MADE BY THE ASSESSING AUTHORITY IN COMPUTI NG THE DEDUCTION UNDER SECTION 10A IS ACCORDINGLY, DELETED. 32. IN OUR CONSIDERED OPINION, THE RESULT OF THE TRANSFER PRICING ASSESSMENT CAN AT BEST BE TAKEN AS AN INDICATOR FOR THE ASSESSING OFFICER TO INVESTIGATE AS TO WHETHER OR NOT THERE EXISTS ANY AR RANGEMENT WHICH HAS RESULTED IN MORE THAN ORDINARY PROFITS QUA THE REQUIREMENTS OF SECTION 10A(7) R.W.S. 80 - IA(10) OF THE ACT. EVEN IF IT IS ACCEPTED THAT THE DIFFERENCE BETWEEN THE OPERATING MARGINS OF THE ASSESSEE AND THE COMPARABLES SHOW EXISTENCE OF M ORE 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 EVIDENCE AND CORROBORATIVE MATERIAL THAT QUA SECTION 10A R.W.S. 80 - IA(10) OF THE ACT, THE COU RSE OF BUSINESS BETWEEN THE ASSESSEE AND THE ASSOCIATED ENTERPRISES IS SO ARRANGED THAT THE BUSINESS TRANSACTED BETWEEN THEM PRODUCES TO THE ASSESSEE MORE THAN THE ORDINARY PROFITS WITH THE INTENT OF ABUSING TAX CONCESSION. QUITE CLEARLY, IN THE ENTIRE AS SESSMENT ORDER, THERE IS NO WHISPER OF ANY MATERIAL OR EVIDENCE IN THIS REGARD. IN - FACT, THE APPROACH OF THE ASSESSING OFFICER IS QUITE MISDIRECTED AS THE FOLLOWING DISCUSSION IN HIS ORDER SHOWS : - ACCORDINGLY, THE SECTION ONLY ENCUMBERS THE A.O. TO EXAM INE 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 AND SUCH PROFIT HAS TO BE THEN TAKEN AS REASONABL Y DEEMED TO HAVE BEEN DERIVED FROM THE ELIGIBLE BUSINESS FOR THE PURPOSES OF COMPUTING DEDUCTION UNDER THE SECTION. 33. THE AFORESAID DISCUSSION IN THE ASSESSMENT ORDER REVEALS THAT AS PER THE ASSESSING OFFICER, THE EXISTENCE OF CLOSE CONNECTION AND MORE THAN ORDINARY PROFITS IS ENOUGH TO ASSUME AN ARRANGEMENT AS CONTEMPLATED U/S 80 - IA(10) OF THE ACT. THE AFORESAID UNDERSTANDING, IN OUR VIEW, IS DIRECTLY CONTRARY TO THE JUDGEMENT OF THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF H.P. GLOBAL SOFT LTD. (SU PRA) AND OUR DISCUSSION IN THE EARLIER PART OF THIS ORDER. 34. IN VIEW OF THE AFORESAID, WE CONCLUDE BY HOLDING THAT IN THE PRESENT CASE, THE ASSESSING OFFICER HAS NOT PROVED THAT ANY ARRANGEMENT HAD BEEN ARRIVED BETWEEN THE PARTIES WHICH RESULTED IN HIGH ER PROFITS. CONSEQUENTLY, THE RE - WORKING OF THE PROFITS BY ASSESSING OFFICER BY INVOKING SECTION 10A R.W.S. 80 - IA(10) OF THE ACT IS NOT JUSTIFIED. THE ACTION OF THE ASSESSING OFFICER TO RESTRICT THE DEDUCTION U/S 10A OF THE ACT TO RS.7,74,60,281/ - AS AGA INST THE CLAIM OF RS.36,35,09,382/ - IS HEREBY SET - ASIDE. THUS, ASSESSEE SUCCEEDS ON THIS ASPECT. ITA NO. 12 9 5 /P U N/20 1 5 PERSISTENT SYSTEMS PVT. LTD. 17 15. APPLYING THE SAID PARITY OF REASONING, WE UPHOLD THE ORDER OF CIT(A) AND DISMISS THE GROUND OF APPEAL NO.2 RAISED BY THE REVENUE. 7 . THE ISSUE ARISING BEFORE US IS IDENTICAL TO THE ISSUE BEFORE THE TRIBUNAL IN EARLIER YEARS AND EVEN THE ASSESSING OFFICER AND THE CIT(A) HAVE RELIED ON THE ASSESSMENT ORDERS OF EARLIER YEARS AND FOLLOWING THE PARITY OF REASONING AS PER THE ORDER OF TRIBUNAL DATED 23.12.201 6, WE ALLOW THE CLAIM OF ASSESSEE. THE GROUNDS OF APPEAL RAISED BY THE REVENUE ARE THUS, DISMISSED. 8 . IN THE RESULT, THE APPEAL OF REVENUE IS DISMISSED. ORDER PRONOUNCED ON THIS 12 TH DAY OF JU LY , 201 7 . SD/ - SD/ - (ANIL CHATURVEDI ) (SUSHMA CHOWLA ) / ACCOUNTANT MEMBER / JUDICIAL MEMBER / PUNE ; DATED : 12 TH JU LY , 201 7 . GCVSR / COPY OF THE ORDER IS FORWARDED TO : 1. / THE APPEL LANT ; 2. / THE RESPONDENT; 3. ( ) / THE CIT (A) - 13 , PUNE ; 4. / THE CIT (IT/TP) /PR.CIT - 2 , PUNE ; 5. , , / DR B , ITAT, PUNE; 6. / GUARD FILE . / BY ORDER , // TRUE COPY // / SR. PRIVATE SECRETARY , / ITAT, PUNE