Tata Johnson Controls Automotive Ltd,, Pune V. Dy. Comm. of Income-tax, Pune

ITA 1450/PUN/2011

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 0788 (ITAT-PUNE)
• Duration Of Justice: 4 year(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-12-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 24-02-2016
• Assessment Year: 2006-2007
• Appeal Filed On: 18-11-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MUKULESH DUBE
• Assessee Lawyers: P J PARDIWALA; SOURABH KOTHADE
• Keywords: Related party transaction; Transfer pricing; Business expenditure; International transaction; Earning of tax free income; Question of law; Fair market value; Corroborative evidences; Avoidance of tax; Commercial expediency; Onus to prove; Revised return
• Section: 43B; 143(3); 92F; 92E; 14A; 115JB; 37(1); 37; 144

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A , PUNE , . . , BEFORE MS. SUSHMA CHOWLA, JM AND SHRI R.K. PANDA, AM . / ITA NO. 1450 /PN/201 1 / ASSESSMENT YEAR : 200 6 - 0 7 TATA JOHNSON CONTROLS AUTOMOTIVE LIMITED, PLOT NO.1, SURVEY NOS.235 & 245, HINJEWADI, TAL. MULSHI, PUNE 41 10 27 . / APPELLANT PAN: AA ACT6342D VS. THE DY. COMMISSIONER OF INCOME TAX, CIRCLE 7, PUNE . / RESPONDENT . / ITA NO. 1454 /PN/201 1 / ASSESSMENT YEAR : 200 6 - 0 7 / ASSESSMENT YEAR : 200 6 - 0 7 THE DY. COMMISSIONER OF INCOME TAX, CIRCLE 7, PUNE . / APPELLANT VS. TATA JOHNSON CONTROLS AUTOMOTIVE LIMITED, PLOT NO.1, SURVEY NOS.235 & 245, HINJEWADI, TAL. MULSHI, PUNE 411027 . / RESPONDENT PAN: AA ACT6342D ASSESSEE BY : S /S HRI P.J. PARDIWALA AND SOURABH KOTHADE DEPARTMENT BY : SHRI MUKULESH DUBE, CIT / DATE OF HEARING : 1 0 .0 9 .2015 / DATE OF PRONOUNCEMENT: 09 . 1 2 .2015 2 ITA NO. 1450 /PN/201 1 ITA NO. 1454 /PN/201 1 TATA JOHNSON CONTROLS AUTOMOTIVE PVT. LTD. / ORDER PER SUSHMA CHOWLA, JM : THE CROSS - APPEALS FILED BY THE ASSESSEE AND THE REVENUE ARE AGAINST THE ORDER OF CIT(A) - III , PUNE , DATED 31 .0 3 .201 1 RELATING TO ASSESSMENT YEAR 20 0 6 - 0 7 PASSED AGAINST ORDER UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) . 2. THE CROSS - APPEALS FILED BY THE ASSESSEE AND THE REVENUE WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS CONSOLID ATED ORDER FOR THE SAKE OF CONVENIENCE. 3 . THE ASSESSEE IN ITA NO. 1450 /PN/201 1 HAS RAISED THE FOLLOWING GROUNDS OF APPEAL : - 1. THE LEARNED CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF RS.62,81,822 BEING PROVISION MADE FOR LEAVE SALARY. 2. THE LEARNED CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF ADMINISTRATIVE SERVICE CHARGES PAID TO TATA AUTOCOMP SYSTEMS LTD. ('TACO') TO THE EXTENT OF RS.1,50,63,122 OUT OF RS.2,00,84,162 UNDER SECTION 40(A)(2)(B) OF THE INCOME - TAX ACT ON THE GROUNDS TH AT THE SAME IS EXCESSIVE AND UNREASONABLE HAVING REGARD TO SERVICES RENDERED BY TACO AND THE LEGITIMATE BUSINESS NEEDS OF THE APPELLANT. 3. THE LEARNED CIT(A) ERRED IN MAKING THE FOLLOWING OBSERVATIONS: A ) ... THE APPELLANT COMPANY WAS INCORPORATED IN JANUARY 1996 AND THE INITIAL START - UP PHASE OF THE COMPANY INCLUDING LAND ACQUISITION, CONSTRUCTION OF FACTORY PREMISES ETC. IS ALREADY OVER AND THEREFORE, QUESTION OF AVAILING ANY SERVICES BY THE APPELLANT FROM TACO, DURING THE YEAR ON ACCOUNT OF START - UP PHASE OF THE COMPANY DOES NOT ARISE ... B ) EXCEPT FURNISHING THE ABOVE E - MAIL CORRESPONDENCE BETWEEN THE TWO GROUP CONCERNS, NO OTHER DOCUMENTARY EVIDENCE WAS FILED BY THE APPELLANT TO SHOW THAT SERVICES WERE ACTUALLY RENDERED BY TACO TO THE APPELLANT DURING THE YEAR ... C ) FURTHER, ON PERUSAL OF THE E - MAILS, IT WAS OBSERVED THAT SOME OF THE E - MAILS ARE TOO VAGUE AND GENERAL ... 3 ITA NO. 1450 /PN/201 1 ITA NO. 1454 /PN/201 1 TATA JOHNSON CONTROLS AUTOMOTIVE PVT. LTD. D ) THE E - MAIL CORRESPONDENCE DOES NOT ESTABLISH CONCLUSIVELY THAT SERVICES AND SUPPORT TO THE EXTENT CLAIMED BY THE APPELLANT WERE RECEIVED FROM TACO DURING THE YEAR ... E ) THE PAYMENTS TO TACO AT A FIXED PERCENTAGE OF THE TURNOVER IRRESPECTIVE OF ACTUAL SERVICES RENDERED IN A PARTICULAR YEAR ARE NOT AT ALL JUSTIFIED . .. F ) THERE COULD BE BUSINESS EXPEDIENCY TO AVAIL THE SERVICES OF TACO IN THE INITIAL FORMATIVE YEARS OF THE COMPANY I.E. DURING START - UP PHASE BUT ONCE THE COMPANY IS WELL ESTABLISHED, IT CANNOT BE SAID THAT THE EXPENDITURE TO THE EXTENT CLAIMED BY THE APPELLANT AT A FIXED PERCENTAGE OF TURNOVER WAS INCURRED ON ACCOUNT OF BUSINESS EXPEDIENCY ... THE APPELLANT OBJECTS TO THE ABOVE OBSERVATIONS WHICH ARE CONTRARY TO THE FACTS OF THE CASE AND IN LAW. 4 . THE LEARNE D CIT (A) ERRED IN CONFIRMING THE DISALLOWANCE OF INTEREST EXPENSES OF RS.16,88,425 AND INDIRECT EXPENSES OF RS.89,433, AGGREGATING TO RS.17,77,858 UNDER SECTION 14A OF THE INCOME - TAX ACT. 5 . THE LEARNED CIT(A) ERRED IN CONFIRMING THE REDUCTION OF TELECOMMUNICATION EXPENSES AND EXPENSES ATTRIBUTABLE TO TECHNICAL SERVICES FROM THE EXPORT TURNOVER AS WELL AS TOTAL TURNOVER, 'WHILE COMPUTING DEDUCTION UNDER SECTION 10A OF THE INCOME - TAX ACT . 6 . EACH ONE OF THE ABOVE GROUNDS OF APPEAL IS WITHOUT PREJUDICE TO THE OTHER. 7 . THE APPELLANT CRAVES LEAVE TO ADD, TO AMEND, TO ALTER, TO SUBSTITUTE, AND TO 7 . THE APPELLANT CRAVES LEAVE TO ADD, TO AMEND, TO ALTER, TO SUBSTITUTE, AND TO WITHDRAW ANY OR ALL OF THE ABOVE GROUNDS OF APPEAL. 4 . THE REVENUE IN ITA NO.145 4 /PN/2011 HAS RAISED THE FOLLOWING GROUNDS OF APPEAL : - 1) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE CIT(A) - III, PUNE HAS ERRED IN GRANTING RELIEF OF RS.3,15,88,352/ - U/S. 10A TO THE ASSESSEE. 2) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE CIT(A) - III, PUNE HAS ERRED IN GRANTING RELIEF OF RS.50,21,040/ - U/S. 4 0A(2)(A) OF THE ACT. 3) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE CIT(A) - III, PUNE HAS ERRED IN REDUCING THE DISALLOWANCE U/S.14A TO RS.17,77,858/ - FROM RS.81,33,223/ - , THUS GRANTING RELIEF OF RS.63,55,365/ - . 5. THE ISSUE IN GROUND OF APPEAL NO.1 RAISED BY THE ASSESSEE IS AGAINST THE DISALLOWANCE OF RS.62,81,822/ - BEING PROVISION MADE FOR LEAVE SALARY. 6. BRIEFLY, IN THE FACTS OF THE PRESENT CASE, THE ASSESSEE WAS ENGAGED IN SYSTEM SOFTWARE CONVERSION, PROJECT FEASIBILITY STUDIES, CD/CAM/FEA AND 4 ITA NO. 1450 /PN/201 1 ITA NO. 1454 /PN/201 1 TATA JOHNSON CONTROLS AUTOMOTIVE PVT. LTD. APPLICATION RE - ENGINEERING WITH RESPECT TO AUTOMOTIVE SEATING AND INTERIORS. THE ASSESSEE HAD FURNISHED RETURN OF INCOME DECLARING TOTAL INCOME AT RS. 12,96,12,266/ - . THE ASSESSING OFFICER ISSUED A QUESTIONNAIRE TO THE ASSESSEE VI S - - VIS DISALLOWANCE OF RS. 62,81,822/ - UNDER THE PROVISIONS OF CLAUSE (F) OF SECTION 43B OF THE ACT. THE ASSESSEE IN REPLY, POINTED OUT THAT THE RETURN OF INCOME FOR THE YEAR UNDER REFERENCE WAS FILED ON 27.10.2006 THROUGH E - FILING AND DISALLOWANCE OF RS.62,81,822/ - WAS REPORTED UNDER ANNEXURE VII TO THE TAX AUDIT REPORT, UNDER THE PROVISIONS OF CLAUSE (F) OF SECTION 43B OF THE ACT. HOWEVER, WHILE FILING THE RETURN OF INCOME, THE SAID AMOUNT WAS INADVERTENTLY REMAINED TO BE ADDED TO TH E TAXABLE INCOME. IN VIEW THEREOF, THE CLAIM FOR EXEMPTION UNDER SECTION 10A OF THE ACT WAS ALSO REVISED TO RS. 3,75,86,141/ - FROM RS.3,57,39,653/ - . THE ASSESSEE IN THIS REGARD TRIED TO FILE REVISED RETURN THROUGH E - FILING BEFORE 31.03.2008. HOWEVER, THE SAME WAS NOT ACCEPTED AND REVISED PAPER RETURN WAS FILED BY THE ASSESSEE. THE ASSESSING OFFICER HOWEVER, REJECTED CLAIM OF THE ASSESSEE SINCE THE ASSESSEE HAD NOT ADDED THE SAID AMOUNT TO THE TAXABLE INCOME WHILE FILING THE ORIGINAL RETURN OF INCOME. SE CONDLY, THE REVISED RETURN OF INCOME WAS FILED ONLY WHEN THE ASSESSEE WAS SPECIFICALLY ASKED ABOUT THE DISALLOWANCE OF RS. 62,81,822/ - . THE SAID ADDITION WAS CONFIRMED BY THE CIT(A), AGAINST WHICH THE ASSESSEE IS IN APPEAL. 7. THE LEARNED AUTHORIZED REPRE SENTATIVE FOR THE ASSESSEE AFTER TAKING US THROUGH THE FACTUAL ASPECTS OF THE ISSUE, POINTED OUT THAT THE HONBLE CALCUTTA HIGH COURT IN EXIDE INDUSTRIES VS. UNION OF INDIA, REPORTED IN 292 ITR 470 ( CAL ) HAS STRUCK DOWN CLAUSE (F) OF SECTION 43B OF THE ACT AND THE APPEAL AGAINST THE SAME, WAS PENDING BEFORE THE HONBLE SUPREME COURT. HE FURTHER POINTED OUT THAT IN USHODAYA ENTERPRISES PVT. LTD. VS. ACIT IN ITA NO.26/HYD/2011 AND ITO VS. USHODAYA ENTERPRISES PVT. LTD. IN ITA NO.100/HYD/2012 , RELATING TO ASSESSMENT YEAR 2008 - 09 , VIDE ORDER DATED 22.10.2014 AND ALSO IN DCIT VS. M/S. ERNST & 5 ITA NO. 1450 /PN/201 1 ITA NO. 1454 /PN/201 1 TATA JOHNSON CONTROLS AUTOMOTIVE PVT. LTD. YOUNG PVT. LTD. IN ITA NO.1159/KOL/2012 & ORS, AND M/S. ERNST & YOUNG PVT. LTD. VS. DCIT IN ITA NO.792/KOL/2011 & ORS. , VIDE ORDER DATED 30.04.2014, THE MATTER HAS BEEN REMITTED BACK TO THE FILE OF ASSESSING OFFICER TO DECIDE THE SAME IN LINE WITH THE DECISION OF HONBLE CALCUTTA HIGH COURT IN EXIDE INDUSTRIES VS. UNION OF INDIA (SUPRA) . 8. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE ON THE OTHER HAND, RELIED ON THE ORDER OF CIT(A). 9. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. IN THE FACTS OF THE PRESENT ISSUE RA ISED VIDE GROUND OF APPEAL NO.1, THE AUDITOR IN THE AUDIT REPORT HAD POINTED OUT THE DISALLOWANCE ON ACCOUNT OF PROVISION FOR LEAV E ENCASHMENT, IN VIEW OF THE CLAUSE (F) OF SECTION 43B OF THE ACT. THE ASSESSEE HOWEVER, IN THE ORIGINAL RETURN OF INCOME FILED BY IT, HAD NOT DISALLOWED THE SAID AMOUNT. ON 31.03.2008, THE ASSESSEE COULD NOT UPLOAD E - REVISED RETURN OF INCOME AND HENCE, 31.03.2008, THE ASSESSEE COULD NOT UPLOAD E - REVISED RETURN OF INCOME AND HENCE, RETURN OF INCOME WAS PHYSICALLY FILED BEFORE THE ASSESSING OFFICER , WHEREIN THE SAID AMOUNT WAS ADDED TO THE INCOME OF ASSESSEE WHEN THE DEDUCTION UNDER SECTION 10A OF THE ACT WAS REVISED . HOWEVER, THE CLAIM OF THE ASSESSEE BEFORE US IS THAT IN VIEW OF THE SAID PROVISIONS HAVING BEEN STRUCK DOWN BY THE HONBLE CALCUTTA HIGH COURT IN EXIDE INDUSTRIES VS. UNION OF INDIA (SUPRA), NO SUCH DISALLOWANCE IS WARRANTED. THE LEARNED AUTHORIZED REP RESENTATIVE FOR THE ASSESSEE ON THE OTHER HAND, FAIRLY POINTED OUT THAT THE OPERATION OF JUDGMENT OF THE HONBLE CALCUTTA HIGH COURT HAS BEEN STAYED BY THE HONBLE SUPREME COURT. AN ALTERNATE PLEA WAS RAISED BEFORE US TO REMIT THE ISSUE BACK TO THE FILE O F ASSESSING OFFICER WITH DIRECTION TO APPLY THE RATIO LAID DOWN BY THE HONBLE SUPREME COURT IN EXIDE INDUSTRIES VS. UNION OF INDIA (SUPRA). 6 ITA NO. 1450 /PN/201 1 ITA NO. 1454 /PN/201 1 TATA JOHNSON CONTROLS AUTOMOTIVE PVT. LTD. 10. WE FIND TH AT HYDERABAD BENCH OF TRIBUNAL IN USHODAYA ENTERPRISES PVT. LTD. VS. ACIT AND ITO VS. USHODAYA ENTE RPRISES PVT. LTD. (SUPRA) , ON SIMILAR FACTS AND CIRCUMSTANCES, HAVE ACCEPTED THE PLEA OF THE ASSESSEE AND REMITTED THE ISSUE BACK TO THE FILE OF ASSESSING OFFICER WITH DIRECTION TO APPLY THE DECISION OF HONBLE SUPREME COURT IN EXIDE INDUSTRIES VS. UNION O F INDIA (SUPRA) . IN CASE CLAUSE (F) TO SECTION 43B OF THE ACT IS STRUCK DOWN, THEN NO DISALLOWANCE ON ACCOUNT OF PROVISION FOR LEAVE ENCASHMENT IS TO BE MADE IN THE HANDS OF ASSESSEE. HOWEVER, THE SAID ISSUE IS PENDING FOR ADJUDICATION BEFORE THE HONBLE SUPREME COURT. ACCORDINGLY, WE REMIT THE ISSUE BACK TO THE FILE OF ASSESSING OFFICER TO DECIDE THE ISSUE IN LINE WITH THE RATIO LAID DOWN BY THE HONBLE SUPREME COURT IN EXIDE INDUSTRIES VS. UNION OF INDIA (SUPRA) . THE GROUND OF APPEAL NO.1 RAISED BY TH E ASSESSEE IS THUS, ALLOWED FOR STATISTICAL PURPOSES. 11. THE ISSUE IN GROUNDS OF APPEAL NO.2 AND 3 RAISED BY THE ASSESSEE AND GROUND OF APPEAL NO.2 RAISED BY THE REVENUE IS IN RELATION TO THE DISALLOWANCE GROUND OF APPEAL NO.2 RAISED BY THE REVENUE IS IN RELATION TO THE DISALLOWANCE COMPUTED BY APPLYING THE PROVISIONS OF SECTION 40A(2)(B) OF THE ACT. 12. BRIEFLY, IN THE FACTS RELATING TO THE ISSUE, THE ASSESSEE HAD CLAIMED AN EXPENDITURE OF RS.2,00,84,162/ - ON ACCOUNT OF PAYMENT MADE TO TATA AUTOCOMP SYSTEMS LTD. (IN SHORT TACO) ON ACCOUNT OF ADMINISTRATIVE SUPPORT SERVICES TAKEN. THE SAID CONCERN WAS A RELATED PARTY OF THE ASSESSEE COVERED UNDER SECTION 40A(2)(B) OF THE ACT. THE SAID DECLARATION WAS MADE BY THE ASSESSEE IN THE TAX AUDIT REPORT ITSELF. THE CLAIM OF THE ASSESSE E WAS THAT THE SAID PAYMENT WAS BEING MADE TO TACO IN LIEU OF ADMINISTRATIVE SUPPORT AGREEMENT ENTERED INTO BETWEEN THE ASSESSEE AND TACO DATED 02.02.2005. THE ASSESSEE FURTHER EXPLAINED THAT THE SAID AGREEMENT WAS ENTERED INTO IN THE YEAR OF ITS INCORPOR ATION. THE ASSESSING OFFICER ON THE PERUSAL OF AGREEMENT NOTED THAT TACO WAS TO PROVIDE SERVICES AT THE START - UP PHASE AND OPERATING PHASE. THE ASSESSING OFFICER 7 ITA NO. 1450 /PN/201 1 ITA NO. 1454 /PN/201 1 TATA JOHNSON CONTROLS AUTOMOTIVE PVT. LTD. WAS OF THE VIEW THAT THE SERVICES DURING START - UP PHASE WERE ONE TIME SERVICES AND WERE NOT REPETITIVE. HOWEVER, THE SERVICES MENTIONED IN THE OPERATING PHASE COULD BE REPETITIVE. THE ASSESSING OFFICER FROM THE AGREEMENT NOTED THAT THE SERVICES MENTIONED FOR OPERATING PHASE WERE GENERAL IN NATURE AND NO SPECIALIZED SERVICES REQUIRING HIGH TECHN ICAL AND PROFESSIONAL KNOWLEDGE WAS PRESCRIBED. FURTHER, THE ASSESSEE HAD TO REIMBURSE ALL THE EXPENDITURE INCURRED BY TACO, IF INCURRED, FOR GETTING ANY PROFESSIONAL SERVICES FROM OUTSIDE SOURCES FOR THE ASSESSEE. THE ASSESSING OFFICER ALSO OBSERVED THAT THE ASSESSEE WAS PAYING SALARY TO TECHNICAL, ADMINISTRATIVE AND MARKING STAFF AND WAS ALSO INCURRING ADMINISTRATI VE EXPENSES LIKE ADVERTISEMENTS, SALES PROMOTION, AUDIT FEES, ETC. THE ASSESSING OFFICER WAS OF THE VIEW THAT WHERE THE ASSESSEE ITSELF W AS INCURRING THE EXPENDITURE BOTH DIRECT AND INDIRECT OVERHEADS REQUIRED FOR RUNNING OF THE ORGANIZATION, THEN THE FEES PAYABLE BY THE ASSESSEE FIXED AT A PERCENTAGE TO THE TOTAL TURNOVER, MERITS TO BE DIS ALLOWED. THE ASSESSING OFFICER OBJECTED TO THE AFO RESAID PAYMENT BY CHARGE ON PRE - DETERMINED PERCENTAGE OF TURNOVER, WHICH AS PER THE ASSESSING OFFICER, WAS NOT ABOVE DOUBT FOR THE JUSTIFICATION OF SUCH EXPENDITURE. THE CONTENTION OF THE ASSESSEE THAT THE EXPENSES WERE INCURRED FOR THE SERVICES AVAILED W AS NOT ACCEPTED, IN VIEW OF THE NATURE OF SERVICES SUPPOSED TO BE PROVIDED BY TACO, BEING ADMINISTRATIVE SERVICES. THE ASSESSEE WAS ASKED TO PRODUCE DETAILS OF SERVICES AND DOCUMENTARY EVIDENCE FOR THE SERVICES TAKEN FROM TACO AND REASONABLE MARKET PRICE. IN REPLY, THE ASSESSEE FURNISHED COPY OF POLICY DOCUMENTS AND COPIES OF FEW E - MAIL COMMUNICATIONS ON 21.12.2009 AND 24.12.2009 . IT WAS CLAIMED BY THE ASSESSEE THAT TACO PROVIDES SERVICES IN THE AREA OF HUMAN RESOURCE DEVELOPMENT IN APPOINTING MANPOWER , IN FINANCE LIKE BANKING, PRODUCT PRICING, ETC. THE ASSESSING OFFICER NOTED THAT NO OTHER DOCUMENTARY EVIDENCE WAS PRODUCED BY THE ASSESSEE TO SUBSTANTIATE THE CLAIM OF SERVICES AND EXPENSES THEREOF. THE ASSESSING OFFICER FURTHER OBSERVED AS UNDER: - 8 ITA NO. 1450 /PN/201 1 ITA NO. 1454 /PN/201 1 TATA JOHNSON CONTROLS AUTOMOTIVE PVT. LTD. ON T HE CONTRARY, IT M AY BE NOTICED THAT THE ASSESSEE COMPANY HAD INCURRED AN EXPENDI TUR E OF RS.15 ,66,820 / - FOR THE RECRUITMENT OF THE NEW EMPLOYEES, RS 11 , 13,465/ - FOR THE CAMPUS INTERVIEWS, TRAVELLING EXPENSES REIMB U RSEMENT TO NEW EMPLOYEES ETC. THE COPIES OF THE EMAILS SUBMITTED BY THE ASSESSEE SHOWS COMMUNICATION BETWEEN T ACO AND THE ASSESSEE. THE OFFICIAL FROM TACO COMMUNICATING IN THE SAID EMAIL WAS NOT AWARE OF THE BANKS IN WHICH THE ASSESSEE WAS DE A L I NG WITH AND IT WILL BE DIFFICULT TO ACCEPT THAT TACO IS HELPING THE ASSESSEE IN RAI SING THE CAPITAL REQUIRED. IN FACT THE ASSESSEE HAD NOT R A ISED ANY BO R RO W ED CAPITAL DURING THE YEAR. IT WAS CLAIMED BY THE ASSESSEE THAT TACO WAS TO ADVISE THE COMPANY ON PRICING POLICIES ETC SO T HAT THERE WILL BE COST EFFECT IVENESS IN THE ASSESSEE S BUSINESS. HOW E VER THE ASSESSEE BY ITS LETTER DATED 15 TH DECEMBER 2009 HAD STATED THAT THE OPERATING MARGINS OF TH E ASSESSE E HAD DROPPED FROM 12.67% IN A.Y.2005 - 06 TO 7.52% DURING THE CURRENT ASSESSMENT YEAR. THIS SHOWS THAT THERE WERE NO SERVICES RECEIVED BY THE ASSESSEE ON PRICING OR OTHER RELATED MATTERS IN INCREASING THE COST EFF E CTIVE BENEFIT OF THE ASSESSEE. FURTHER THE COMPANY HAD MADE P AYMENT OF RS.2 1, 99,017/ - FOR TECHNICAL CO NSULTANCY ETC FOR WHIC H IT WAS STATED THAT TACO WAS PROVIDING THE SERVICES. THE ASSESSEE HA D PRODUCED A EMAIL COMMUNICATION TO SHOW THAT TACO WAS INVOLV ED IN THE INT ER NAL AUDIT OF THE ASSESSEE. HOWEVER IT CAN BE SEEN FR OM THE A UDITORS REPORT OF THE ASSESSEE THAT THE ASSESSEE IS HAVING AN INTERNAL AUD I T SYSTEM COMMENSURATE WITH ITS SIZE AND NATURE OF ITS BU SINESS. FURTH E R THE ASSESSEE HAD INCURRED AN EXPENDITURE OF PAY MENT TO AU DITORS A MOUNTING TO RS.12.22 LACS. JUST THE CLAIM OF EXPENDI TUR E WILL NOT ENTITLE THE ASSESSEE TO DEDUCTION OF ANY EXPENDITURE. AS H EL D I N C I T VS. DELHI SAFE DEPOSIT CO LTD 133 I TR 756 (SC), THE ASSES S EE HAD TO PROVE THE DIRECT COMMERCIAL EXPEDIENCY AND IMMEDIAT E EFFECT TO THE TRADE, WHICH THE ASSESSEE HAD F AILED TO DO SO. 13. THE ASSESSING OFFICER THEREAFTER, OBSERVED AS UNDER: SINCE THE ASSESSEE H AD NOT SUBSTANTIATED THE SERVICES AVAILED FROM TACO EVEN AFTER GI V ING REPEATED OP PORTUNITIES, IT WILL BE JUST AND FAIR TO CONCLUDE THAT T HE ASSESSEE HAD NOT AVAILED ANY SERVICES FROM TACO. IT WAS HELD IN C I T VS. SOUTHERN SEA FOODS 215 ITR 176 (MAD) THAT PRODUCTION OF DOCUMENTARY EVIDENCE IS MANDATORY FOR CLAIMING THE EXPENDITURE, I N THE PRESENT CA SE THE ASSESSEE HAD FAILED IN DOING S O. 14. AS PER THE ASSESSI NG OFFICER, THE ASSESSEE HAD FAILED TO PRODUCE ANY DOCUMENTARY EVIDENCE TO SUBSTANTIATE ITS CLAIM AND HENCE, HE FAILED TO DISCHARGE THE ONUS ON THE ISSUE, SINCE THE PAYMENTS WERE BEING MADE TO A RELATED PARTY AND IN THE ABSENCE OF ANY DETAILS OF SERVICES O BTAINED, THE ASSESSEE CLAIM OF EXPENDITURE PAID TO TACO AMOUNTING TO RS.2,00,84,162/ - WAS NOT ACCEPTED UNDER SECTION 40A(2)(A) OF THE ACT. 15. BEFORE THE CIT(A), THE CLAIM OF THE ASSESSEE WAS THAT PURSUANT TO THE AGREEMENT BETWEEN THE PARTIES, TACO HAD APPOINTED CHIEF INTERNAL AUDITOR AND 9 ITA NO. 1450 /PN/201 1 ITA NO. 1454 /PN/201 1 TATA JOHNSON CONTROLS AUTOMOTIVE PVT. LTD. TREASURY OFFICER FOR ITS GROUP COMPANIES, WHO PERIODICALLY VISIT TACO GROUP COMPANIES. IT WAS FURTHER STATED BY THE ASS ESSEE THAT THE CHIEF INTERNAL AUDITOR REVIEW S THE INTERNAL PROCESSES THAT WERE IN PLACE, REPORTS GENERATED FROM SUCH PROCESSES, TRANSACTIONS BETWEEN THE GROUP COMPANIES, CO - ORDINATES INTERNAL AUDIT PROCEDURES OF THE ASSESSEE, MAKING PRESENTATIONS BEFORE AU DIT COMMITTEE OF THE ASSESSEE, ETC. WHILE TREASURY OFFICER PROVIDES VARIOUS TYPES OF SERVICES IN RELATION TO THE FIELD OF FINANCE AND ITS MANAGEMENT. THE ASSESSEE FURNISHED BROAD AREAS IN WHICH SERVICES WERE BEING RENDERED BY TACO AS ENLISTED AT PAGE 18 O F THE APPELLATE ORDER AND ALSO G AVE DETAILED DESCRIPTION OF THE SERVICES REN DERED BY TACO IN THE ABOVE AREAS ALONG WITH SUPPORTING EVIDENCE BEFORE THE CIT(A). ON THE ASPECT OF BUSINESS EXIGENCY, THE CLAIM OF THE ASSESSEE WAS THAT IT WAS OF 50:50 JOINT VEN TURE BETWEEN TACO AND JOHNSON CONTROL INC. ( JCI ) AND JCI BEING THE EQUAL PARTNER IN THE JOINT VENTURE, WOULD HAVE AGREED TO ENTER INTO SUCH AN AGREEMENT, ONLY IF THE ASSESSEE HAD RECEIVED SOME SERVICES AND BENEFITS OUT OF IT. AS A MATTER OF COMMERCIAL P RUD ENCE, JCI WOULD NOT HAVE AGREED TO THE PAYMENT TERMS UNLESS JOINT VENTURE I.E. THE ASSESSEE HAD RECEIVED THE SERVICES FROM TACO UNDER THE SAID AGREEMENT. RELIANCE WAS PLACED ON SERIES OF DECISIONS BEFORE THE CIT(A). THE ASSESSEE ALSO DISPUTED THE OBSERVATIONS OF ASSESSING OFFICER THAT NO DOCUMENTARY EVIDENCE WAS PRODUCED BY THE ASSESSEE DURING THE ASSESSMENT PROCEEDINGS AND POINTED OUT THAT ADEQUATE PROOF WAS PRODUCED BEFORE THE ASSESSING OFFICER, WHICH WAS NOT CONSIDERED BY HIM . IT WAS ALSO POINT ED OUT THAT THE SAID AGREEMENT WAS IN PLACE SINCE INCEPTION OF THE ASSESSEE JOINT VENTURE AND SIMILAR QUERY WAS RAISED IN ASSESSMENT YEAR 2002 - 03 AND THE AMOUNT WAS ALLOWED IN THE CASE OF ASSESSEE. FURTHER, THE ASSESSEE ALSO POINTED OUT THAT THE SERVICE C HARGES PAID BY THE ASSESSEE TO TACO HAVE BEEN OFFERED TO TAX AS INCOME IN THE HANDS OF TACO IN ITS RETURN OF INCOME FILED. THE CIT(A) THEREAFTER, VIDE PARA 5.3 ONWARDS TOOK NOTE OF RELEVANT PROVISIONS OF SECTION 40A OF THE ACT AND TERMS AND 10 ITA NO. 1450 /PN/201 1 ITA NO. 1454 /PN/201 1 TATA JOHNSON CONTROLS AUTOMOTIVE PVT. LTD. CONDITIONS OF THE AGREEMENT AND NOTED THAT TACO HAD AGREED TO SUPPORT THE ASSESSEE IN VARIOUS ACTIVITIES DURING START - UP PHASE AND ALSO DURING OPERATING PHASE , S INCE THE BUSINESS HAD STARTED IN SUPPORT SERVICES HAD TO BE RENDERED BY TACO, THEN THEY WERE IN THE OPERATING P HA SE OF THE COMPANY . THE AREAS OF ACTIVITIES ARE ENLISTED UNDER PARA 5.3.1 AT PAGES 25 AND 26 OF APPELLATE ORDER AND THE CIT(A) OBSERVED AS UNDER: - AS POINTED OUT BY THE ASSESSING OFFICER, EXCEPT FURNISHING THE ABOVE E - MAIL CORRESPONDENCE BETWEEN THE TWO GROUP CONCERNS, NO OTHER DOCUMENTARY EVIDENCE WAS FILED BY THE APPELLANT TO SHOW THAT SERVICES WERE ACTUALLY RENDERED BY TACO TO THE APPELLANT DURING THE YEAR. THE APPELLANT HAS ALSO NOT FURNISHED THE BREAK - UP OF EXPENSES INCURRED FOR EACH OF THE SUPP ORT SERVICES, IF ANY, RENDERED BY TACO DURING THE YEAR. FURTHER, ON PERUSAL OF THE E - MAILS, IT WAS OBSERVED THAT SOME OF THE E - MAILS ARE TOO VAGUE AND GENERAL, FOR INSTANCE IN THE E - MAIL DATED 16/12/2003 (APB 102) UNDER THE SUBJECT, AGREEMENT FOR CASH, THE OFFICIAL FROM TACO COMMUNICATING IN THE SAID EMAIL WAS NOT AWARE OF THE BANKS IN WHICH THE APPELLANT WAS DEALING WITH AND IT IS DIFFICULT TO ACCEPT THAT TACO WAS EXTENDING SUPPORT TO THE APPELLANT IN RAISING THE CAPITAL REQUIRED. AS STATED BY THE ASSE SSING OFFICER, THE APPELLANT HAD NOT RAISED ANY BORROWED CAPITAL DURING THE YEAR. THUS, THE E - MAIL CORRESPONDENCE DOES NOT ESTABLISH CONCLUSIVELY THAT SERVICES AND SUPPORT TO THE EXTENT CLAIMED BY THE APPELLANT WERE RECEIVED FROM TACO DURING THE YEAR AND THE PAYMENT TO THE EXTENT OF RS.2.00 CRORES IS LEGITIMATE BUSINESS EXPENDITURE. 16. THE CIT(A) QUESTIONED THE REASONABLENESS OF PAYMENT MADE TO TACO FOR SOME OF SERVICES RENDERED I.E. @ 1% OF TOTAL TURNOVER. THE CIT(A) WAS OF THE VIEW THAT EVEN IF NO SE RVICES WERE RENDERED BY TACO IN A PARTICULAR AREA, THE AMOUNT WOULD BE PAYABLE AND IN SUCH CASES, IT COULD NOT BE SAID THAT THE EXPENDITURE WAS INCURRED DUE TO BUSINESS EXIGENCY. THE CIT(A) ALSO NOTED THAT THE ASSESSEE HAD INCURRED SUBSTANTIAL EXPENDITURE TOWARDS PAYMENT OF SALARY TO TECHNICAL, ADMINISTRATIVE AND MARK ET ING STAFF AT RS. 29.20 CRORES AND VARIOUS OTHER EXPENSES INCLUDING THE EXPENDITURE OF RS.15,66,820/ - FOR RECRUITMENT OF EMPLOYEES AND RS.11,13,465/ - FOR CAMPUS INTERVIEWS, ETC. I N ADDITION T O THE FEES @ 1% OF TURNOVER, THE ASSESSEE HAD TO REIMBURSE THE EXPENDITURE, IF ANY, INCURRED BY TACO FOR GETTING ANY PROFESSIONAL SERVICES FROM EXTERNAL SOURCES. THE CIT(A) WAS OF THE VIEW THAT THE SAID EXPENDITURE WAS NO DOUBT EXCESSIVE AND / OR UNREASONABLE HAVING REGARD TO THE SERVICES RENDERED BY TACO OR LEGITIMATE NEEDS OF THE 11 ITA NO. 1450 /PN/201 1 ITA NO. 1454 /PN/201 1 TATA JOHNSON CONTROLS AUTOMOTIVE PVT. LTD. BUSINESS OF THE ASSESSEE. THE CIT(A) FURTHER HELD THAT THERE COULD BE BUSINESS EXIG ENCY TO AVAIL THE SERVICES OF TACO IN INITIAL FORMATIVE YEARS OF THE COMPANY. HOWEVER, ONCE THE COMPANY WAS WELL ESTABLISHED I.E. WHEREIN IT HAD DEVELOPED ITS ESTABLISHMENT, EMPLOYEES AND BASIC INFRASTRUCTURE AND THIS BEING AFTER SEVEN YEARS OF FORMATION O F COMPANY, THE EXPENDITURE INCURRED AT FIXED PERCENTAGE OF TURNOVER WAS NOT ON ACCOUNT OF BUSINESS EXIGENCY . THE CLAIM OF THE ASSESSEE THAT SIMILAR EXPENSES WERE ALSO ALLOWED IN ASSESSMENT YEAR 2002 - 03 WAS BR USHED ASIDE AS PRINCIPLE OF RES - JUDICATA DO NOT APPLY AND ALSO IN VIEW OF THE CIRCUMSTANCES OF THE CASE, WHEREIN THE ASSESSING OFFICER HAD EXAMINED THE CLAIM OF THE ASSESSEE IN DETAIL WITH REFERENCE TO THE TERMS AND CONDITIONS OF AGREEMENT AND NATURE OF SERVICES RENDERED BY TACO. THE OTHER ARGUMENT OF THE ASSESSEE THAT TACO HAD ALREADY PAID THE TAXES ON SAID FEES, THEREFORE, THE DISALLOWANCE WOULD AMOUNT TO DOUBLE TAXATION, WAS DISMISSED. SINCE, TACO ADMITTEDLY HAD OFFERED NIL INCOME AFTER SET OFF OF BROUGHT FORWARD LOSSES UNDER REGULAR PROVISIONS AND ONLY PAID TAXES ON THE BOOK PROFITS UNDER SECTION 115JB OF THE ACT, THEREFORE, THE SAME WAS NOT REVENUE NEUTRAL IN THE SENSE THAT TACO HAD PAID TAXES ONLY AT 10% ON THE BOOK PROFITS UNDER SECTION 115JB OF THE ACT. IN VIEW THEREOF, THE CIT(A) OBSERVED THA T IN VIEW OF THE EVIDENCE PRODUCED BY THE ASSESSEE IN THE FORM OF VARIOUS CORRESPONDENCE, PRIMA FACIE CASE IS BUILT UP BY THE ASSESSEE THAT IT HAD RECEIVED CERTAIN SERVICES FROM TACO DURING THE YEAR , THOUGH NOT TO THE EXTENT OF EXPENDITURE LISTED IN THE AGREEMENT IN THIS REGARD AND 25% OF THE EXPENDITURE WAS ALLOWED AS BUSINESS EXPENDITURE IN THE HANDS OF ASSESSEE AT RS. 50,21,040/ - AND DISALLOWANCE WAS UPHELD TO THE EXTENT OF RS. 50,66,122/ - . 17. THE ASSESSEE BY WAY OF GROUNDS OF APPEAL NO.2 AND 3 HAS RAI SED THE ISSUE AGAINST THE ADDITIONS SUSTAINED BY THE CIT(A) AND THE REVENUE IS IN APPEAL AGAINST PARTIAL ALLOWANCE OF THE EXPENDITURE TO THE ASSESSEE. 12 ITA NO. 1450 /PN/201 1 ITA NO. 1454 /PN/201 1 TATA JOHNSON CONTROLS AUTOMOTIVE PVT. LTD. 18. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE AFTER TAKING US THROUGH THE FACTUAL ASPECTS OF THE ISSUE POINTED OUT THAT TACO WAS A HOLDING COMPANY OF ALL JOINT VENTURE COMPANIES AND IT WAS TO PROVIDE ADMINISTRATIVE SERVICES TO ALL THE JOINT VENTURE COMPANIES AND THE ASSESSEE WAS ONE SUCH COMPANY. AS PER THE AGREEMENT, REMUNERATION WAS FIXED AT 1 % OF TURNOVER AND ALSO THIRD PARTY COST HAD TO BE REIMBURSED. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT IN ASSESSMENT YEAR 2002 - 03 , FIRST TIME A QUERY WAS RAISED WITH REGARD TO THE SAID EXPENDITURE, BUT NO DISALLOWANCE WAS MA DE. HOWEVER, IN THE PRESENT CASE, ENTIRE EXPENDITURE WAS DISALLOWED BY THE ASSESSING OFFICER AND CIT(A) BY INVOKING THE PROVISIONS OF SECTION 40A(2)(A) OF THE ACT , ONLY ALLOWED 25% OF THE EXPENSES. OUR ATTENTION WAS DRAWN TO THE COPY OF AGREEMENT PLACED AT PAGES 42 TO 60 OF THE PAPER BOOK AND REFERENCE WAS MADE TO VARIOUS CLAUSES AND THE LIST OF SERVICES TO BE RENDERED BY TACO. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE FURTHER REFERRED TO VARIOUS COMMUNICATIONS PLACED IN PAPER BOOK AND POINT ED OUT THAT VARIOUS SERVICES WERE RENDERED BY TACO. 19. THE NEXT CONTENTION OF THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE WAS THAT THE CIT(A) HAD ACCEPTED THAT SERVICES WERE RENDERED. HOWEVER, THE CLAIM WAS ALLOWED ONLY TO THE EXTENT OF 25% . IT WAS STRESSED BY HIM THAT WHERE THE TEST OF COMMERCIAL EXIGENCY HAS BEEN FULFILLED BY THE CONCERN, THEN THE REASONABLENESS OF EXPENDITURE HAS TO BE SEEN FROM THE VIEW POINT OF BUSINESSMAN. RELIANCE IN THIS REGARD WAS PLACED ON THE FOLLOWING RATIOS: - 1. CIT VS. WALCHAND AND CO. PRIVATE LTD., (1967) 65 ITR 381 (SC) 2. J.K. WOOLLEN MANUFACTURERS VS. CIT (1969) 72 ITR 612 (SC) 3. TATA SONS LTD. VS. CIT (1950) 18 ITR 460 (BOM). 20. FURTHER, REFERENCE WAS MADE TO THE RATIO LAID DOWN BY COCHIN BENCH OF TRIBUNAL IN HARRISONS MALAYALAM LTD. VS. ACIT (2008) 19 SOT 363 (COCHIN) , 13 ITA NO. 1450 /PN/201 1 ITA NO. 1454 /PN/201 1 TATA JOHNSON CONTROLS AUTOMOTIVE PVT. LTD. WHEREIN ALSO REMUNERATION WAS PAID AT FIXED PERCENTAGE OF TURNOVER. ANOTHER RELIANCE WAS PLACED ON THE RATIO LAID DOWN BY THE HONBLE BOMBAY HIGH COURT IN CIT VS. INDO SAUDI SERVICES (TRAVEL) (P.) LTD. (2008) 219 CTR 562 (BOM) . FURTHER, THERE WAS NO QUESTION OF EVASION OF TAXES SINCE TACO WAS PAYING TAXES UNDER SECTION 115JB OF THE ACT. THE LEARNED AUTHORIZED REPRESENTAT IVE FOR THE ASSESSEE FURTHER EXPLAINED THAT THE ASSESSEE WAS NOT A SUBSIDIARY OF TATA GROUP, BUT WAS A JOINT VENTURE COMPANY BETWEEN TWO INDEPENDENT COMPANIES AND WHY WOULD ONE COMPANY ALLOW O THER PART OF JOINT VENTURE COMPANY TO SIPHON PROFITS. HE FURTH ER POINTED OUT THAT SIMILAR EXPENSES WERE ALLOWED IN EARLIER YEARS AND FROM ASSESSMENT YEAR 2013 - 14, NO SUCH EXPENDITURE HAS BEEN CLAIMED AS TACO EXITED. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE PLACED RELIANCE ON THE RATIO LAID DOWN BY MUMB AI BENCH OF TRIBUNAL IN DRESSER - RAND INDIA (P.) LTD. VS. ADDL.CIT (2011) 13 TAXMANN.COM 82 (MUM.) AND P OINTED OUT THAT IN ANY EVENT , THERE IS NO BASIS FOR ALLOWANCE OF 25% OF EXPENDITURE AND THE ENTIRE EXPENSES MERITS TO BE ALLOWED. 21. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE ON THE OTHER HAND, STRESSED THAT IN VIEW OF SERVICES RENDERED BY TACO, EVEN THE ALLOWANCE OF 25% WAS ON HIGHER SIDE. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE FURTHER REFERRED TO THE TE RMS OF AGREEMENT AND POINTED OUT THAT THE BUSINESS OF ASSESSEE HAD ALREADY BEEN STARTED AND THE SERVICES, IF ANY, HAD TO BE PROVIDED FOR OPERATING PHASE THOUGH THERE WAS LIST OF MANY SERVICES , BUT FEW E - MAILS FILED BY THE ASSESSEE REFERRED TO FEW SERVICES RENDERED BY TACO AND CONSEQUENTLY, THERE WAS NO NEED TO PAY SUCH HIGH REMUNERATION TO TACO. 22. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE IN REJOINDER REFERRING TO THE PROVISIONS OF SECTION 40A(2)(B) OF THE ACT POINTED OUT THAT THE SAID 14 ITA NO. 1450 /PN/201 1 ITA NO. 1454 /PN/201 1 TATA JOHNSON CONTROLS AUTOMOTIVE PVT. LTD. SECTI ON PRESCRIBED EXPENDITURE TO BE ALLOWED TO A RELATED PARTY AT MARKET VALUE. THE ASSESSING OFFICER HAD INVOKED THE SAID PROVISIONS AN D NOT ALLOWED ANY EXPENDITURE, WHEREAS THE CIT(A) ALLOWED ONLY 25% OF THE EXPENDITURE. THE LEARNED AUTHORIZED REPRESENTATI VE FOR THE ASSESSEE DURING THE COURSE OF HEARING ALSO FURNISHED SUMMARY OF SERVICES RENDERED BY TACO FOR THE YEAR UNDER CONSIDERATION, IN TURN REFERRING TO THE COMMUNICATION PLACED ON RECORD I.E. THE CORRESPONDENCE EXCHANGED BETWEEN TACO AND THE ASSESSEE C OMPANY AND THE NATURE OF EXPENDITURE. 23. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. IN THE FACTS OF THE PRESENT CASE AS REFERRED TO BY US IN THE PARAS HEREINABOVE, THE ASSESSEE WAS A JOINT VENTURE COMPANY WITH 50:50 SHARE BETWEEN TACO AND JOHNSON CONTROL INC. AFTER FORMATION OF JOINT VENTURE COMPANY, IT WAS ENGAGED IN THE BUSINESS OF PROVIDING SERVICES ON ACCOUNT OF AUTOMOBILE SECTOR I.E. SEATING SYSTEMS FOR MOTOR CARS . E QUAL CONTROL WAS BETWEEN TWO I.E. TACO AND JOHNSON CONTROL INC. AN AGREEMENT WAS ENTERED INTO BETWEEN THE ASSESSEE AND TACO FOR PROVIDING ADMINISTRATIVE SERVICES BOTH ON ACCOUNT OF START - UP PHASE AND OPERATING PHASE. THE SAID AGREEMENT WAS IN PLACE FOR THE PAST SEVERAL YEARS AND AS PER THE TERMS AND COND ITIONS OF THE AGREEMENT, THE ASSESSEE WAS TO PAY REMUNERATION TO TACO @ 1% OF TURNOVER IN ADDITION TO REIMBURSING ALL THE EXTERNAL COSTS INCURRED BY TACO, IF ANY. THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION HAD PAID SUM OF RS. 2,00,84,162/ - TO TACO AN D THE QUESTION OF ITS DEDUCTIBILITY H AS ARIS E N BY WAY OF PRESENT GROUNDS OF APPEAL RAISED. THE ASSESSING OFFICER WAS OF THE VIEW THAT SINCE TACO WAS A RELATED PARTY, IN VIEW OF THE PROVISIONS OF SECTION 40A(2)(B) OF THE ACT , THE SAID EXPENDITURE HAS TO BE LOOKED INTO ACCORDINGLY. THE ASSESSEE FURNISHED CERTAIN INFORMATION BEFORE THE ASSESSING OFFICER. HOWEVER, THE ASSESSING OFFICER WAS OF THE VIEW THAT THERE WAS NO JUSTIFICATION IN THE CLAIM OF ASSESSEE SINCE THE 15 ITA NO. 1450 /PN/201 1 ITA NO. 1454 /PN/201 1 TATA JOHNSON CONTROLS AUTOMOTIVE PVT. LTD. ASSESSEE HAD ESTABLISHED ITS ADMINISTRATIVE SET UP AND WAS ALSO INCURRING EXPENDITURE ON PROFESSIONAL SERVICES AND OTHER EXPENSES AND THERE WAS NO MERIT IN THE CLAIM OF ASSESSEE VIS - - VIS SAID EXPENDITURE BEING PAID TO TACO. THE CIT(A) ALSO REFERRED TO THE PROVISI ONS OF SECTION 40A(2)(A) OF THE ACT AND AFTER CONSIDERING THE VARIOUS EVIDENCES FILED BY THE ASSESSEE, WAS OF THE VIEW THAT CERTAIN SERVICES HAVE BEEN RENDERED BY TACO AND HE WAS OF THE VIEW THAT ONLY 25% OF THE EXPENDITURE HAS TO BE ALLOWED IN THE HANDS O F ASSESSEE. BOTH THE ASSESSEE AND THE REVENUE ARE IN APPEAL AGAINST THE SAID ORDER OF CIT(A). 24. THE FIRST ISSUE TO BE ADDRESSED IN THIS REGARD IS WHETHER IN ORDER TO JUDGE COMMERCIAL EXIGENCY OF THE AGREEMENT AND THE QUANTUM OF REMUNERATION PAID IN V IEW OF THE TERMS OF AGREEMENT ENTERED INTO BETWEEN TWO PARTIES, CAN THE REASONABLENESS OF EXPENDITURE BE VIEWED BY THE AUTHORITIES OR REASONABLENESS HAS TO BE ESTABLISHED FROM THE VIEW POINT OF BUSINESSMAN. THE FIRST ASPECT IN THIS REGARD IS THAT WHERE TH ERE IS A JOINT VENTURE BETWEEN TWO CONCERNS TO THE EXTENT OF 50:50 AND ADDITIONAL REMUNERATION IS BEING PAID BY JOINT VENTURE COMPANY FORMULATED BY THEM TO ONE OF THE CONCERNS, THEN THE ISSUE HAS TO BE SEEN FROM THE VIEW POINT OF OTHER CONCERN WHO IS PART OF JOINT VENTURE AND IS INCURRING 50% COST OF THE SAID REMUNERATION PAID. THERE IS A COMMERCIAL AGREEMENT BETWEEN THE ASSESSEE AND TACO, UNDER WHICH CERTAIN SERVICES HAD TO BE PROVIDED BY TACO, FOR WHICH REMUNERATION WAS DUE TO THEM. THE LIST OF SERVICES ARE ENLISTED IN THE AGREEMENT AND UNDOUBTEDLY, THE SAID AGREEMENT HAS BEEN IN FORCE FOR MORE THAN 7 YEARS AND THE AMOUNTS HAVE BEEN PAID AND ALLOWED AS EXPENDITURE IN THE HANDS OF ASSESSEE FROM YEAR TO YEAR. IN THE ENTIRETY OF THE ABOVE SAID FACTS AND CI RCUMSTANCES, WE FIND NO MERIT IN THE ORDER OF ASSESSING OFFICER IN HOLDING THAT THE ENTIRE EXPENDITURE MERITS TO BE DISALLOWED IN THE HANDS OF THE ASSESSEE, SINCE THE QUANTUM OF REMUNERATION HAS BEEN FIXED AT PERCENTAGE OF TURNOVER. THE 16 ITA NO. 1450 /PN/201 1 ITA NO. 1454 /PN/201 1 TATA JOHNSON CONTROLS AUTOMOTIVE PVT. LTD. EXPLANATION OF THE ASSESSEE BEFORE US WAS THAT TACO WAS THE HOLDING COMPANY OF ALL JOINT VENTURE COMPANIES AND IT WAS PROVIDING THE SAID SERVICES TO ALL THE JOINT VENTURES AND THE ASSESSEE WAS ONE SUCH JOINT VENTURE, TO WHICH THE SAID SERVICES WERE PROVIDED. THE REMUNERATI ON PAID IN THIS REGARD IS ALLOWABLE IN THE HANDS OF ASSESSEE AS THE SAME IS PAID ON ACCOUNT OF BUSINESS EXIGENCY. 2 5 . NOW, COMING TO THE QUANTUM OF REMUNERATION WHICH IS TO BE ALLOWED IN THE HANDS OF ASSESSEE. BOTH THE AUTHORITIES BELOW HAVE CONSIDERED THE RELATED PARTY TRANSACTION AS REFERRED TO IN SECTION 40A(2) OF THE ACT. THE SAID PROVISIONS OF THE ACT LAY DOWN THAT THE SERVICES TO A RELATED PARTY, AS ENVISAGED IN SECTION 40A(2)(B) OF THE ACT , SHALL NOT BE ALLOWED AS DEDUCTION UNDER SECTION 40A(2)(A) OF THE ACT , W HERE THE ASSESSING OFFICER IS OF THE OPINION THAT SUCH EXPENDITURE IS EXCESSIVE OR UNREASONABLE HAVING REGARD TO THE MARKET VALUE OF THE GOODS , SERVICES OR FACILITIES FOR WHICH PAYMENT IS MADE . HOWEVER, WHERE THE EXPENDITURE IS INCURRED FOR THE LEGITIMATE NEEDS OF THE BUSINESS, THE SAME IS TO BE ALLOWED AS AN EXPENDITURE IN THE HANDS OF ASSESSEE. THOUGH, UNDER THE ACT, PART OF EXPENDITURE WHICH IS EXCESSIVE OR UNREASONABLE HAVING REGA RD TO THE MARKET VALUE OF THE SERVICES, CAN BE DISALLOWED IN THE HANDS OF ASSESSEE, BUT IN ORDER TO INVOKE THE SAID PROVISIONS OF THE ACT, FIRST STEP IS TO FIND OUT FAIR MARKET VALUE OF THE SERVICES, FOR SUCH INVOKING OF THE POWERS, THE ASSESSING OFFICER I S NOT EMPOWERED TO SIT IN THE SEAT OF BUSINESSMAN TO DECIDE THE MERITS OF QUANTUM OF CLAIM TO BE ALLOWED IN THE HANDS OF ASSESSEE. THE AUTHORITIES BELOW IN THE PRESENT CASE HAVE NOT DISPUTED THE TERMS OF AGREEMENT, BUT WERE OF THE VIEW THAT REMUNERATION P AID AT A PERCENTAGE OF TURNOVER, IN VIEW OF THE ASSESSEE HAVING ESTABLISHED ITS BUSINESS, WAS EXCESSIVE. THE CONTENTION OF THE ASSESSEE ON THE OTHER HAND WAS THAT FOR SMOOTH RUNNING OF ITS BUSINESS, SERVICES WERE PROVIDED BY TACO, WHICH WERE AS TERMS OF T HE AGREEMENT. 17 ITA NO. 1450 /PN/201 1 ITA NO. 1454 /PN/201 1 TATA JOHNSON CONTROLS AUTOMOTIVE PVT. LTD. 2 6 . WE FIND SI MILAR ISSUE OF ALLOWABILITY OF EXPENDITURE PURSUANT TO AGREEMENT BETWEEN THE ASSESSEE AND THE THIRD PARTY , AROSE BEFORE COCHIN BENCH OF TRIBUNAL IN HARRISONS MALAYALAM LTD. VS. ACIT (SUPRA) AND THE FACTUAL ASPECTS OF THE CASE WERE AS UNDER: - 16. THE NEXT ISSUE IS IN RESPECT OF THE DISALLOWANCE OF FEES PAID TO M/S. R.P.G. ENTERPRISES LTD. ( RPGEL' FOR SHORT) AND THIS ISSUE ARISES IN ALL THE APPEALS BEFORE US. THE ID. CA SUBMITTED THA T THE ASSESSEE IS ENGAGED IN MULTIPLE BUSINESS ACTIVITIES LIKE TEA AND RUBBER CULTIVATION BY TECHNOLOGY, STRUCTURAL, CIVIL, MECHANICAL AND ELECTRICAL ENGINEERING, TRADING IN TEA, COFFEE, SPICES AND EXPORT OF THE SAME ESTATE SUPPLIES AND TRADING, CLEARING A ND SHIPPING, AIR TRAVEL AND AIR CARGO. THE ASSESSEE - COMPANY HAS ENTERED INTO AN AGREEMENT DATED 8 - 8 - 1994 WITH M/S. RPGEL TO ACQUIRE THE NON - EXCLUSIVE LICENCE TO USE 'RPG' LOGO OWNED BY RPGEL FOR THE PURPOSE OF ASSESSEE'S BUSINESS INCLUDING IN RELATION TO O R UPON ITS PRODUCTS, LABEL, LETTER - HEAD, BROCHURE, PAMPHLETS AND ADVERTISEMENT MATERIALS, ETC., THE ID. CA REFERRED TO THE COPY OF AGREEMENT WHICH IS PLACED AT PAGES 162 TO 167 OF THE PAPER BOOK. IT IS FURTHER ARGUED THAT THE SAID RPGEL HAS ITS OBJECTIVES, DEVELOPMENT OF CODE OF CONDUCT AND CREATION OF GOODWILL WHICH COULD BE SUITABLY IDENTIFIED TO THE PUBLIC MIND AND THE LOGO 'RPG' IS HAVING A HIGH GOODWILL IN THE MARKET. IT IS FURTHER SUBMITTED, THAT DUE TO THE USE OF THE LOGO RPGEL PROVIDES THE INFRASTRU CTURE FOR DEVELOPING CERTAIN CODE OF CONDUCT AND TO OPERATE AND RUN THE ORGANIZATION FOR PROMOTING AND MONITORING STANDARD INDUSTRIAL, COMMERCIAL AND TRADE PRACTICES IN THE PURSUIT OF ATTAINMENT OF EXCELLENCE IN QUALITY OF THEIR PRODUCTS AND SERVICES. THE COSTS OF RENDERING THE GROUP RESOURCES WERE SHARED BY THE LICENSEE COMPANIES AND THAT ENABLES THE LICENSEE COMPANY LIKE THE PRESENT ASSESSEE TO AVAIL THE BENEFITS OF THE GROUP RESOURCES WITHOUT INCURRING THE FULL COST OF SUCH FACILITIES. THE TOTAL ACTUAL THE GROUP RESOURCES WITHOUT INCURRING THE FULL COST OF SUCH FACILITIES. THE TOTAL ACTUAL E XPENSES OF THE CORPORATE CENTRE ARE SHARED BY LICENSEE COMPANY IN RELATION TO THEIR SIZE AND PROFITABILITY AND THE SAME ARE PAID BY THE COMPANIES LIKE THE ASSESSEE'S WHO ARE THE LICENSEES TO RPGEL AS A LICENSE FEE. AS PER THE AGREEMENT THE LICENSEES UTILIS ED THE BENEFITS OF THE EXPERTISE DEVELOPED AS A GROUP RESOURCES BY RPGEL IN THE IMPORTANT FIELD LIKE HRD, STRATEGIC PLANNING, CORPORATE FINANCE, MANAGEMENT INFORMATION, TAXATION, QUALITY MANAGEMENT, PROJECT DEVELOPMENT, INFORMATION TECHNOLOGY AND CORPORATE GOVERNANCE, ETC. THE SAID RPGEL WITH GROUP RESOURCES ARE HAVING TALENTED AND HIGHLY QUALIFIED EXPERTS IN DIVERSIFIED FIELDS AND ASSESSEE AND OTHER COMPANIES WHO ARE LICENSEES AVAILED, THE EXPERTISE IN THE REQUIRED FIELD FOR THE EXCELLENCE IN THE CORPORATE MANAGEMENT AS WELL AS PROMOTING BUSINESS STANDARDS. HE FURTHER SUBMITTED THAT IF THE ASSESSEE HAS TO ACQUIRE THIS EXPERTISE, THE COST OF INFRASTRUCTURE WILL BE 10 TIMES MORE THAN THE LICENSE FEE PAID AND CERTAINLY IT IS IN THE NATURE OF BUSINESS EXPEDIENC Y AND THE SAME IS ALLOWABLE. HE FURTHER ARGUED THAT THE CIT(A) HAS NOT DISPUTED THE NATURE OF THE EXPENSES AS CAPITAL OR REVENUE. THE ONLY RESERVATION OF THE CIT(A) IS THAT IT IS NOT AN ALLOWABLE EXPENDITURE. THE ID. CA RELIED ON THE FOLLOWING PRECEDENTS : - ( I ) CIT VS. DELHI SAFE DEPOSIT CO. LTD. (1982) 133 ITR 750 (SC) ( II ) SASOON J. DAVID & CO. LTD. VS. CIT (1979) 118 ITR 261 (SC) ( III ) BOMBAY STEAM NAVIGATION CO. (1953) (P.) LTDD. VS. CIT (1965) 56 ITR 52 (SC) ( IV ) CIT VS. MALAYALAM PLANTATIONS LTD. (1964) 53 ITR 140 (SC) 17. 18. 19. 18 ITA NO. 1450 /PN/201 1 ITA NO. 1454 /PN/201 1 TATA JOHNSON CONTROLS AUTOMOTIVE PVT. LTD. 20. THE AUTHORITIES BELOW HAVE NOT DISPUTED THE TERMS OF THE AGREEMENT BUT IT APPEARS FROM THE REASONS GIVEN BY THE CIT(A) THAT THE SAID PAYMENT WAS NOT REQUIRED AT ALL. THE CONCEPT OF BUSINESS IS CHANGING DUE TO GLOBALIZATION. THE MARKET STRATEGIES OF THE CORPORATE ORGANIZATIONS ARE ALSO CHANGING FAST. IF ANY BUSINESS HOUSE IS REQUIRED TO STAND IN THE MARKET, THEN IT HAS TO IMPROVE THE QUALITY OF THE PRODUCTS AND IMPROVEMENT OF THE QUALITY OF THE PRODUCTS AS WELL AS THE MARKET STRAT EGIES WILL DEPEND ON L OT OF SUPPORTING INFRASTRUCTURE. THE CONTENTION OF THE ASSESSEE IS THAT RPGEL IS ONE OF THE LOGO HAVING GOODWILL IN THE MAR KET AND USE OF GOODWILL GIVES AN INDICATION TO THE BUYERS AND CONSUMERS THAT THE ASSESSEE COMPANY IS HAVING THE BACK UP OF EXCE LL ENCE WITH CODE OF CONDUCT AND QUALITY. IN THE CHANGING SCENARIO OF GLOBALIZATION, ONE CANNOT GO WITH THE CONSERVATIVE CONCEPT OF THE EARLY FIFTIES. AS FAR AS HRD IS CONCERNED, IT HAS GAINED IMPORTANCE IN THE INDUSTRIAL AND BUSINESS WORLD. WE FIND FORCE IN THE ARGUMENT OF THE ID. CA THAT RPGEL IS HAVING THE INFRASTRUCTURE WHICH IS USED BY THE ASSESSEE - COMPANY FOR THE DEVELOPMENT OF ITS BUSINESS. WHETHER ANY PARTICULAR PAYMENT IS ON ACCOUNT OF BUSINESS EXPEDIENCY OR NOT IS TO BE CONSIDERED FOR ALLOWING THE SAME UNDER SECTION 37 OF THE ACT. 21. ANOTHER ASPECT TO BE CONSIDERED HERE IS THAT SECTION 37 PROVIDES THAT ANY EXPENDITURE WHOLLY AND EXCLUSIVELY INCURRED FOR THE PURPOSE OF BUSINESS BUT IT DOES NOT MEAN THAT THE SAID EXPRESSION CONTEMPL ATES THAT THE SAID EXPENDITURE MUST BE INCURRED NECESSARILY FOR THE PURPOSE OF BUSINESS. 22. IN THE CASE OF SASOON J. DAVID & CO. (P.) LTD. (SUPRA), THE HON'BLE SUPREME COURT HAS HELD THAT THE EXPRESSION 'WHOLLY AND EXCLUSIVELY' USED IN SECTION 10(2)(XV) OF INDIAN INCOME - TAX ACT, 1922 DOES NOT MEAN 'NECESSARILY'. ORDINARILY IT IS FOR THE ASSESSEE TO DECIDE, WHETHER ANY EXPENDITURE SHOULD BE INCURRED IN THE COURSE OF HIS OR ITS BUSINESS. SUCH EXPENDITURE MAY BE INCURRED VOLUNTARILY AND WITHOUT ANY NECESSITY AND IF IT IS INCURRED FOR PROMOTING THE BUSINESS AND TO EARN PROFIT THEN HE CAN CLAIM THE DEDUCTION EVEN THOUGH THERE WAS NO COMPELLING PROFIT THEN HE CAN CLAIM THE DEDUCTION EVEN THOUGH THERE WAS NO COMPELLING NECESSITY TO INCUR SUCH EXPENDITURE (HEAD NOTES). THE PRINCIPLES LAID DOWN BY THE HON'BLE SUPREME COURT WHILE INTERPRETING SECTION 10(2)(XV) OF THE 1922 ACT ARE SQUARELY APPLICABLE TO SECTION 37(1) OF 1961 ACT. IN OUR OPINION, THE PAYMENTS MADE BY THE ASSESSEE TO RPGEL IS AN ALLOWABLE EXPENDITURE UNDER SECTION 37(1) OF THE ACT. WE, THEREFORE, SET ASIDE THE ORDER O F THE CIT(A) ON THIS ISSUE IN ALL THE ASSESSMENT YEARS BEFORE US AND DIRECT THE ASSESSING OFFICER TO DELETE THE ADDITIONS . 2 7 . IN T HE FACTS OF THE CASE BEFORE COCHIN BENCH OF TRIBUNAL, THE REMUNERATION WAS ALSO FIXED AT PRESCRIBED RATE O N TURNOVER AS REF ERRED TO IN PARA 16 OF THE DECISION. 28. NEXT ASPECT OF THE ISSUE, WHERE THE PAYMENTS HAVE BEEN MADE TO TACO, ON WHICH TAXES HAVE BEEN PAID BY TACO, DISALLOW ANCE MADE IN THE HANDS OF ASSESSEE WOULD RESULT IN DOUBLE TAXATION. ADMITTEDLY, THE CONCERN TACO HAS FURNISHED NIL RETURN OF INCOME UNDER NORMAL PROVISIONS, BUT HAS PAID TAXES UNDER SECTION 115JB OF THE ACT. THE HONBLE BOMBAY HIGH COURT IN CIT VS. INDO SAUDI 19 ITA NO. 1450 /PN/201 1 ITA NO. 1454 /PN/201 1 TATA JOHNSON CONTROLS AUTOMOTIVE PVT. LTD. SERVICES (TRAVEL) (P.) LTD. (2008) 219 CTR 562 (BOM) HAVE CONSIDERED FACTS OF THAT CASE , WHICH READ AS UNDER: - 3. THE RELEVANT FACTS GIVING RISE TO THE PRESENT APPEALS ARE BRIEFLY SET OUT HEREUNDER: - ( I ) THE ASSESSEES BUSINESS IS THAT OF BEING GENERAL SALES AGENTS OF SAUDI ARABIAN AIRLINES. THE ASSESSEE EARNED COMMISSION @ 12 PER CENT FROM SAUDI ARABIAN AIRLINES ON THE TICKETS BOOKED/SOLD BY THEM. THE ASSESSEE APPOINTED SEVERAL AGENTS INCLUDING THEIR SISTER CONCERN, VIZ., M/S MIDDLE EAST INTER NATIONAL AND PAID INCENTIVE COMMISSION TO SUCH AGENTS, BY WAY OF HANDLING CHARGES. ( II ) FOR THE ASST. YRS. 1991 - 92 AND 1992 - 93 THE AO BY HIS ORDERS DATED 25 TH MARCH, 1994 AND 31ST JAN., 1995 RESPECTIVELY HELD THAT THE INCENTIVE COMMISSION PAID TO M / S MIDDLE EAST INTERNATIONAL (SISTER CONCERN OF THE ASSESSEE) WAS HALF PER CENT MORE THAN OTHER SUB - AGENTS. THE AO INVOKED SECTION 40A ( 2) OF THE IT ACT AND DISALLOWED THE EXCESS COMMISSION PAID TO THE ASSESSEE'S SISTER CONCERN @ 1/2 PER CENT. THE CIT(A) BY ORDERS DA TED 5TH JAN., 1995 AND 14TH NOV., 1995 CONFIRMED THE DISALLOWANCE FOR ASST. Y RS 1991 - 92 AND 1992 - 93 RESPECTIVELY. ( III ) THE ASSESSEE CARRIED THE MATTER FURTHER BY FILING AN APPEAL BEFORE THE TRIBUNAL. INITIALLY THE TRIBUNAL BY ITS COMMON ORDER DATED 3RD APRIL, 1997 DISMISSED THE ASSESSEE'S APPEALS FOR THE ASST. YRS. 1991 - 92 AND 1992 - 93. THEREAFTER THE ASSESSEE FILED AN APPLICATION UNDER SECTION 254 OF THE IT ACT, 1961 BEFORE THE TRIBUNAL AND TRIBUNAL BY ITS ORDER DATED 3RD MARCH, 1999 1961 BEFORE THE TRIBUNAL AND TRIBUNAL BY ITS ORDER DATED 3RD MARCH, 1999 ALLOWED THE SAID APPLICATIO N OF THE ASSESSEE ARISING OUT OF THE TRIBUNAL'S ORDER DATED 3RD APRIL, 1997. THEREAFTER THE TRIBUNAL BY ITS ORDER DATED 21 ST OCT., 1999 ALLOWED THE APPEAL OF THE ASSESSEE PARTLY AND DELETED THE ADDITIONS WHICH WERE EARLIER CONFIRMED. ( IV ) THE APPELLANT (REVENUE) BEING AGGRIEVED BY THE TRIBUNAL'S ORDER DATED 21ST OCT., 1999 FILED THE ABOVE APPEALS, INTER ALIA CONTENDING THAT THE TRIBUNAL WAS NOT RIGHT IN LAW IN ALLOWING THE ASSESSEE'S CLAIM OF INCENTIVE COMMISSION PAID TO ITS SISTER CONCERN WHICH WAS HALF PER CENT MORE THAN THE OTHER SUB - AGENTS AND WHICH HAS BEEN CORRECTLY DISALLOWED IN TERMS OF SECTION 40A(2)(B) OF THE ACT. 2 9 . THE HONBLE BOMBAY HIGH COURT HELD AS UNDER: - 4. WE HAVE HEARD THE LEARNED ADVOCATES APPEARING FOR BOTH SIDES. WE HAVE ALSO PERUSED THE ORDER PASSED BY THE TRIBUNAL DATED 21ST OCT., 1999 WHICH IS IMPUGNED BY THE REVENUE IN THE PRESENT APPEALS. WE FIND THAT THE FOLLOWING FACTS WERE ESTABLISHED BEFORE THE TRIBUNAL AND THE SAME HAVE BEEN ACCEPTED BY THE REVENUE EVEN BEFORE US. (I ) THAT THE ASSESSEE APART FROM PAYING HANDLING CHARGES @ 9 1/2 PER CENT TO ITS SISTER CONCERN, HAVE PAID HANDLING CHARGES AT THE SAME RATE TO OTHER AGENTS VIZ., M / S A.K.TRAVELS, M / S OM TRAVELS AND M / S JET AGE TRAVELS. 20 ITA NO. 1450 /PN/201 1 ITA NO. 1454 /PN/201 1 TATA JOHNSON CONTROLS AUTOMOTIVE PVT. LTD. (II) FOR ASST. YRS. 1986 - 87 AND 1987 - 88 THE ASSESSEE HAD PAID THE HANDLING CHARGES @ 10 PER CENT TO THE SISTER CONCERN OF THE ASSESSEE AND SUCH CHARGES PAID WERE CONSIDERED TO BE REASONABLE BY THE APPELLANT. (III) FOR ASST.YRS. 1989 - 90 AND 1990 - 91 THE ASSESSEE HAD REDUCED THE PAYMENT OF HANDLING CHARGES TO 9 1/2 PER CENT TO ITS SISTER CONCERN. THE AO HAS CONSIDERED THE PAYMENT OF COMMISSION TO THE SISTER CONCERN IN THE ASST. YR. 1989 - 90 AND ALLOWED THE CLAIM AFTER DUE SCRUTINY. FOR ASST. YR. 1990 - 91 ALSO THE CLAIM OF THE ASSESSEE @ 9 1/2 PER CENT HAS BEEN ALLOWED THOUGH THE SAME HAS NOT BEEN DEALT WITH BY THE AO SPECIFICALLY IN THE ORDER. (IV) FOR ASST.YRS. 1993 - 94 AND 1994 - 95 THE ASSESSMENT HAS BEEN MADE BY THE AO UNDER SECTION 143(3) AND HANDLING CHARGES PAID TO THE SISTER CONCERN @ 9 .5 PER CENT HAVE BEEN CONSIDERED TO BE REASONABLE AND ALLOWED. (IV) THE SISTER CONCERN OF THE ASSESSEE M/S MIDDLE EAST INTERNATIONAL IS ALSO ASSESSED TO TAX AND INCOME ASSESSED FOR THE ASST. YR. 1991 - 92 IS RS.9,38,510 AND FOR ASST.YR. 1992 - 93 IS RS.14,65 ,880 AND THE SAID ASSESSMENT ORDERS HAVE BEEN PLACED ON RECORD. (V) UNDER THE CBDT CIRCULAR NO. 6 - P, DATED 6TH JULY, 1968 IT IS STATED THAT NO DISALLOWANCE IS TO BE MADE UNDER SECTION 40A(2) IN RESPECT OF THE PAYMENTS MADE TO THE RELATIVES AND SISTER CONCERNS WHERE THERE IS NO ATTEMPT TO EVADE TAX. 5. IN VIEW OF THE AFORESAID ADMITTED FACTS WE ARE OF THE VIEW THAT THE TRIBUNAL WAS CORRECT IN COMING TO THE CONCLUSION THAT THE CIT(A) WAS WRONG IN DISALLOWING HALF PER CENT COMMISSION PAID TO THE SISTER CONCERN OF THE ASSESSEE DURING THE ASST. YRS.1991 - 92 AND 1992 - 93. THE LEARNED ADVOCATE APPEARING FOR THE APPELLANT WAS ALSO NOT IN A POSITION TO POINT OUT HOW THE APPEARING FOR THE APPELLANT WAS ALSO NOT IN A POSITION TO POINT OUT HOW THE ASSESSEE EVADED PAYMENT OF TAX BY ALLEGED PAYMENT OF HIGHER COMMISSION TO ITS SISTER CONCERN SINCE THE SISTER CONCERN WAS ALSO PAYING TAX AT HIGHER RATE AND COPIES OF THE ASSESSMENT ORDERS OF THE SISTER CONCERN WERE TAKEN ON RECORD BY THE TRIBUNAL. 6. WE, THEREFORE, ANSWER THE ABOVE QUESTION OF LAW RAISED IN THESE APPEALS IN AFFIRMATIVE AND DISMISS THE ABOVE APPEALS FILED BY THE APPELLANT . THERE WILL, HOWEVER, BE NO ORDER AS TO COSTS. 30 . APPLYING THE ABOVE RATIO LAID DOWN BY THE HONBLE BOMBAY HIGH COURT IN CIT VS. INDO SAUDI SERVICES (TRAVEL) (P.) LTD. (SUPRA) TO THE FACTS OF THE PRESENT CASE, WHERE ADMITTEDLY TACO HAD PAID TAXES UNDER SECTION 115JB OF THE ACT, WE REVERSE THE FINDINGS OF CIT(A) THAT THERE WAS EVASION OF TAXES BY THE ASSESSEE IN MAKING SUCH PAYMENT. 31. ANOTHER ASPECT OF THE ISSUE RAISED IS THE OBSERVATIONS OF REVENUE AUTHORITIES THAT NO SERVICES HAVE BEEN RENDERED BY ASSOCIATE ENTERPRISES AND IF ANY SERVICES 21 ITA NO. 1450 /PN/201 1 ITA NO. 1454 /PN/201 1 TATA JOHNSON CONTROLS AUTOMOTIVE PVT. LTD. HAVE BEEN RENDERED, THEY ARE NOT SUFFICIENT TO JUSTIFY THE PAYMENT. THE ASSESSEE BEFORE US HAS F ILED COMPILATION OF PAPERS INCLUDING THE COPIES OF REPORTS, E - MAILS AND OTHER DOCUMENTS EVIDENCING THE RENDERING OF SERVICES FROM DA Y TO DA Y . ALL THESE DOCUMENTS WERE NOT CONSIDERED BY THE AUTHORITIES BELOW AND WE FIND NO MERIT IN THE ORDERS OF REVENUE AU THORITIES IN BRUSHING ASIDE THOSE DOCUMENTS IN A SUMMARY MANNER WITHOUT PROPERLY ANALYZING THE SAME. WE FIND IN SIMILAR CIRCUMSTANCES, THE MUMBAI BENCH OF TRIBUNAL IN DRESSER - RAND INDIA (P.) LTD. VS. ADDL.CIT (SUPRA) HAD OBSERVED AS UNDER: - 8. WE FIND TH AT THE BASIC REASON OF THE TRANSFER PRICING OFFICER'S DETERMINATION OF ALP OF THE SERVICES RECEIVED UNDER COST CONTRIBUTION ARRANGEMENT AS 'NIL' IS HIS PERCEPTION THAT THE ASSESSEE DID NOT NEED THESE SERVICES AT ALL, AS THE ASSESSEE HAD SUFFICIENT EXPERTS OF HIS OWN WHO WERE COMPETENT ENOUGH TO DO THIS WORK. FOR EXAMPLE, THE TRANSFER PRICING OFFICER HAD POINTED OUT THAT THE ASSESSEE HAS QUALIFIED ACCOUNTING STAFF WHICH COULD HAVE HANDLED THE AUDIT WORK AND IN ANY CASE THE ASSESSEE HAS PAID AUDIT FEES TO EXT ERNAL FIRM. SIMILARLY, THE TRANSFER PRICING OFFICER WAS OF THE VIEW THAT THE ASSESSEE HAD MANAGEMENT EXPERTS ON ITS ROLLS, AND, THEREFORE, GLOBAL BUSINESS OVERSIGHT SERVICES WERE NOT NEEDED. IT IS DIFFICULT TO UNDERSTAND, MUCH LESS APPROVE, THIS LINE OF RE ASONING. IT IS ONLY ELEMENTARY THAT HOW AN ASSESSEE CONDUCTS HIS BUSINESS IS ENTIRELY HIS PREROGATIVE AND IT IS NOT FOR THE REVENUE AUTHORITIES TO DECIDE WHAT IS NECESSARY FOR AN ASSESSEE AND WHAT IS NOT. AN ASSESSEE MAY HAVE ANY NUMBER OF QUALIFIED ACCOUN TANTS AND MANAGEMENT NOT. AN ASSESSEE MAY HAVE ANY NUMBER OF QUALIFIED ACCOUN TANTS AND MANAGEMENT , EXPERTS ON HIS ROLLS, AND YET HE MAY DECIDE TO ENGAGE SERVICES OF OUTSIDE EXPERTS FOR AUDITING AND MANAGEMENT CONSULTANCY; IT IS NOT FOR THE REVENUE OFFICERS TO QUESTION ASSESSEE'S WISDOM IN DOING SO. THE TRANSFER PRICING OFFICER WAS NOT ONLY GOING MUCH BEYOND HIS POWERS IN QUESTIONING COMMERCIAL WISDOM OF ASSESSEE'S DECISION TO TAKE BENEFIT OF EXPERTISE OF DRESSER RAND US, BUT ALSO BEYOND THE POWERS OF THE ASSESSING OFFICER. WE DO NOT APPROVE THIS APPROACH OF THE REVENUE AUTHORITIES. WE HAVE FURTHER NOTICED THAT THE TRANSFER PRICING OFFICER HAS MADE SEVERAL OBSERVATIONS TO THE EFFECT THAT, AS EVIDENT FROM THE ANALYSIS OF FINANCIAL PERFORMANCE, THE ASSESSEE DID NOT BENEFIT, IN TERMS OF FINANCIAL RESULTS, FROM THESE SERVICES. THIS ANALY SIS IS ALSO COMPLETELY IRRELEVANT, BECAUSE WHETHER A PARTICULAR EXPENSE ON SERVICES RECEIVED ACTUALLY BENEFITS AN ASSESSEE IN MONETARY TERMS OR NOT EVEN A CONSIDERATION FOR ITS BEING ALLOWED AS A DEDUCTION IN COMPUTATION OF INCOME, AND, BY NO STRETCH OF LO GIC, IT CAN HAVE DETERMINING ARM'S LENGTH PRICE OF THAT SERVICE. WHEN EVALUATING THE ARM'S LENGTH PRICE OF A SERVICE, IT IS WHOLLY IRRELEVANT AS TO WHETHER THE ASSESSEE BENEFITS FROM IT OR NOT; THE REAL QUESTION WHICH IS TO BE DETERMINED IN SUCH CASES IS W HETHER THE PRICE OF THIS SERVICE IS WHAT AN INDEPENDENT ENTERPRISE WOULD HAVE PAID FOR THE SAME. SIMILARLY, WHETHER THE AE GAVE THE SAME SERVICES TO THE ASSESSEE IN THE PRECEDING YEARS WITHOUT ANY CONSIDERATION OR NOT IS ALSO IRRELEVANT. THE AE MAY HAVE G IVEN THE SAME SERVICE ON GRATUITOUS BASIS IN THE EARLIER PERIOD, BUT THAT DOES NOT MEAN THAT ARM'S LENGTH PRICE OF THESE SERVICES IS 'NIL'. THE AUTHORITIES BELOW HAVE BEEN SWAYED BY THE CONSIDERATIONS WHICH ARE NOT AT ALL RELEVANT IN THE CONTEXT OF DETERMI NING THE ARM'S LENGTH PRICE OF THE COSTS INCURRED BY THE ASSESSEE IN COST CONTRIBUTION ARRANGEMENT. WE HAVE ALSO NOTED THAT THE STAND OF THE REVENUE AUTHORITIES IN THIS CASE IS THAT NO SERVICES WERE RENDERED BY THE AE AT ALL, AND THAT SINCE THERE IS NO EVI DENCE OF SERVICES HAVING BEEN RENDERED AT ALL, THE ARM'S LENGTH PRICE OF THESE SERVICES IS 'NIL'. THE DISPUTE RESOLUTION PANEL HAS ALSO CONFIRMED THESE FINDINGS OF THE TRANSFER 22 ITA NO. 1450 /PN/201 1 ITA NO. 1454 /PN/201 1 TATA JOHNSON CONTROLS AUTOMOTIVE PVT. LTD. PRICING OFFICER AND THE ASSESSING OFFICER. HOWEVER, WE HAVE NOTED THAT VIDE LET TER DATED 25TH JANUARY 2010 (ACKNOWLEDGED TO HAVE BEEN RECEIVED IN DRP OFFICE ON 28 TH JANUARY 2010), THE ASSESSEE HAS FILED A HUGE COMPILATION OF PAPERS, RUNNING INTO ALMOST THREE HUNDRED PAGES, INCLUDING COPIES OF REPORTS, EMAILS AND OTHER DOCUMENTS EVIDE NCING THE RENDERING OF SERVICES. YET, THE DRP SIMPLY BRUSHED ASIDE THESE DOCUMENTS BY SIMPLY OBSERVING THAT 'THE DRP HAS PERUSED THE SUBMISSIONS OF THE ASSESSEE AND THE DOCUMENTS. IN VIEW OF THE DRP, SUCH DOCUMENTS DO NOT PROVE THE RECEIPT OF SERVICES BY T HE ASSESSEE ASCERTAINED (ASSERTED ?) TO BE PROVIDED BY ITS AE, AND, ACCORDINGLY, THE ACTION OF THE AO IN TREATING THE COST OF SUCH SERVICES AT ZERO IS CONFIRMED'. ALL THESE EVIDENCES WERE BEFORE THE DRP, BUT THERE IS NOT EVEN A WHISPER ABOUT WHAT WAS THE N ATURE OF THESE DOCUMENTS, WHY DOES THE DRP FIND THESE DOCUMENTS TO BE NOT SATISFACTORY, WHAT IS THE KIND OF EVIDENCE THAT WAS NECESSARY TO PROVE THE FACTUM OF SERVICES HAVING BEEN AVAILED, AND WHAT PRECISELY IS THE REASON THAT THESE DOCUMENTS CANNOT BE REL IED UPON. THE SOUL OF AN ORDER IS IN ITS REASONING, AND UNLESS THE REASONS FOR COMING TO A CONCLUSION IN THE ORDER ARE NOT SET OUT, IT IS NOT POSSIBLE TO DO A MEANINGFUL SCRUTINY OF THE ORDER, BUT WE FIND NO REASONING AT ALL IN THE ORDER PASSED BY THE DRP. WE MAY IN THIS REGARD REFER TO THE OBSERVATIONS MADE BY HON'BLE SUPREME COURT IN THE CASE OF UNION OF INDIA V. MOHANLAL CAPOOR AIR 1974 SC 87, WHEREIN THEIR LORDSHIPS HAVE, INTER ALIA, OBSERVED AS FOLLOWS: 'IF THE STATUTE REQUIRES RECORDING OF REASONS, THEN IT IS THE STATUTORY REQUIREMENT AND, THEREFORE, THERE IS NO SCOPE FOR FURTHER INQUIRY. BUT EVEN WHEN THE STATUTE DOES NOT IMPOSE SUCH AN OBLIGATION IT IS NECESSARY FOR THE QUASI - JUDICIAL AUTHORITIES TO RECORD REASON AS IT IS ONLY VISIBLE SAFEGUARD AGA INST POSSIBLE INJUSTICE AND ARBITRARINESS AND AFFORDS PROTECTION TO THE PERSON ADVERSELY AFFECTED. REASONS ARE THE LINKS BETWEEN THE MATERIAL ON WHICH CERTAIN CONCLUSIONS ARE BASED AND THE ACTUAL CONCLUSIONS. THEY DISCLOSE HOW THE MIND IS APPLIED TO THE SU BJECT - MATTER FOR A DECISION, WHETHER IT IS PURELY ADMINISTRATIVE OR QUASI JUDICIAL. THEY SHOULD REVEAL WHETHER IT IS PURELY ADMINISTRATIVE OR QUASI JUDICIAL. THEY SHOULD REVEAL RATIONAL NEXUS BETWEEN THE FACTS CONSIDERED AND THE CONCLUSION REACHED. ONLY IN THIS WAY CAN OPINIONS OR DECISIONS RECORDED BE SHOWN TO BE MANIFESTLY JUS T AND REASONABLE. ' 9. IN OUR CONSIDERED VIEW, IT IS NOT OPEN TO DISPUTE RESOLUTION PANEL TO REJECT THE OBJECTIONS OF THE ASSESSEE IN A SUMMARY MANNER WITHOUT PROPERLY ANALYZING THE OBJECTIONS OF THE ASSESSEE AND DEALING WITH EVIDENCES FI LED BY THE ASSESS EE. UNDER SECTION 144 C (6), THE DISPUTE RESOLUTION PANEL CAN ISSUE DIRECTIONS AFTER, INTER ALIA, CONSIDERING OBJECTIONS OF THE ASSESSEE AND EVIDENCES FILED BY THE ASSESSEE. THAT EXERCISE IS CLEARLY NOT DONE. IN THE CASE OF VODAFONE ESSAR LTD. V. DISPUTE R ESOLUTION PANEL II [2011] 196 TAXMAN 423 / [20I0] 8 TAXMANN.COM 297, HON'BLE DELHI HIGH COURT HAS OBSERVED THAT, 'WHEN A QUASI JUDICIAL AUTHORITY (LIKE THE DRP) DEALS WITH A LIS, IT IS OBLIGATORY ON ITS PART TO ASCRIBE COGENT AND GERMANE REASONS AS THE SAM E IS THE HEART AND SOUL OF THE MATTER. AND FURTHER, THE SAME ALSO FACILITATES APPRECIATION WHEN THE ORDER IS CALLED IN QUESTION BY THE SUPERIOR FORUM'. YET, MORE OFTEN THAN NOT, THE ORDERS PASSED BY THE DISPUTE RESOLUTION PANELS, LIKE ONE BEFORE US, ARE NOT ONLY WANTING IN TERMS OF THEIR ANALYSIS OF FACTS AND LAW AND LACKING IN REASONS FOR ARRIVING AT CONCLUSIONS, THESE ORDERS ALSO OFFER US NO ASSISTANCE IN ANY MANNER AT ALL. IN THIS VIEW OF THE MATTER, WE DEEM IT FIT AND PROPER TO REMIT THE MATTER TO THE FILE OF THE ASSESSING OFFICER FOR FRESH ADJUDICATION ON THE QUESTION, OF SERVICES HAVING BEEN ACTUALLY RENDERED, IN THE LIGHT OF EVIDENCES FILED BY THE ASSESSEE. 3 2. NOW, COMING TO THE CASE OF QUANTUM OF REMUNERATION TO BE ALLOWED IN THE HANDS OF ASSESSEE , W HERE THE CIT(A) HAS ALLOWED EXPENDITURE @ 25% OF TOTAL 23 ITA NO. 1450 /PN/201 1 ITA NO. 1454 /PN/201 1 TATA JOHNSON CONTROLS AUTOMOTIVE PVT. LTD. EXPENSES AND NO BASIS HAS BEEN GIVEN BY THE CIT(A) TO ALLOW THE SAID EXPENDITURE @ 25% OF THE TOTAL. THERE IS NO BASIS FOR MEASURING SUCH SERVICES AND I N THE ABSENCE OF ANY EVIDENCE BROUGHT ON RECORD TO ESTABLISH THAT THE EXPENDITURE INCURRED BY THE ASSESSEE WAS EXCESSIVE I.E. MORE THAN MA RKET VALUE OF THE SAID SERVICES, WE FIND NO MERIT IN THE ORDERS OF AUTHORITIES BELOW IN INVOKING PROVISIONS OF SECTION 40A(2)(A) OF THE ACT. ACCORDINGLY, WE MODIFY THE ORDER OF CIT(A) AND DIRECT THE ASSESSING OFFICER TO ALLOW THE EXPENDITURE IN TOTALITY IN THE HANDS OF THE ASSESSEE AS THE SAID EXPENDITURE HAS BEEN LAID DOWN IN TERMS OF THE AGREEMENT AGREED UPON BETWEEN THE PARTIES AND IS FOR CARRYING ON OF THE BUSINESS OF THE ASSESSEE MORE EFFICIENTLY AND IS ALLOWABLE AS BUSINESS EXPENDITURE. THE GROUNDS OF APPEAL NO.2 AND 3 RAISED BY THE ASSESSEE ARE ALLOWED AND GROUND OF APPEAL NO.2 RAISED BY THE REVENUE IS DISMISSED. 3 3 . THE ISSUE IN GROUND OF APPEAL NO .4 RAISED BY THE ASSESSEE IS AGAINST DISALLOWANCE MADE UNDER SECTION 14A OF THE ACT. THE REVENUE IS ALSO IN APPEAL VIDE GROUND OF APPEAL NO.3 AGAINST PARTIAL ALLOWANCE OF DISALLOWANCE MADE UNDER SECTION 14A OF THE ACT. 3 4 . BRIEFLY, IN THE FACTS RELATING TO THE ISSUE, THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAD MADE INVESTMENT IN MUTUAL FUNDS DURING THE YEAR AND HAD ALSO RECEIVED DIVIDEND OF RS.9,71,214/ - , WHICH WAS CLAIMED AS EXEMPT. IN VIEW OF THE SAID EXEMPT INCOME IN THE HANDS OF ASSESSEE, THE A SSESSING OFFICER WAS OF THE VIEW THAT THE PROVISIONS OF SECTION 14A OF THE ACT AND RULE 8D OF INCOME TAX RULES, 1962 (IN SHORT THE RULES) WERE APPLICABLE FOR THE CURRENT ASSESSMENT YEAR. THE TOTAL INVESTMENT IN MUTUAL FUNDS WAS RS. 34,12,89,000/ - . EVEN THOUGH, THERE WERE NO BALANCES OF INVESTMENT AT THE OPENING AND CLOSING OF THE YEAR , T HE AMOUNT INVESTED BY THE ASSESSEE DURING THE YEAR FOR EARNING THE EXEMPT INCOME WAS 24 ITA NO. 1450 /PN/201 1 ITA NO. 1454 /PN/201 1 TATA JOHNSON CONTROLS AUTOMOTIVE PVT. LTD. CONSIDERED TO ARRIVE AT THE AVERAGE VALUE OF INVESTMENTS AS REQUIRED UNDER RULE 8D OF THE RULES. THE ASSESSING OFFICER COMPUTED THE DISALLOWANCE OF INTEREST UNDER 8D (2) (II) OF THE RULES AT RS.72,80,000/ - AND WORKED OUT THE DISALLOWANCE UNDER RULE 8D (2) (II I ) OF RULES AT ONE HALF PERCENTAGE OF AVERAGE VALUE OF INVESTMENTS AT RS.8,53,223/ - , RESULTING IN TOTAL DISALLOWANCE OF RS.81,33,223/ - . 3 5 . BEFORE THE CIT(A), THE PLEA OF THE ASSESSEE WAS THAT IT HAD MADE INVESTMENTS IN LIQUID MUTUAL FUNDS FOR A SHORT PERIOD OF TIME, OUT OF SURPLUS FUNDS AVAILABLE WITH IT , WHICH WERE DERIVED BY WAY OF INT ERNAL ACCRUALS . THE ASSESSEE HAD EARNED PROFIT BEFORE TAX OF RS.144.21 LAKHS FOR THE FINANCIAL YEAR 2005 - 06 AND THE RESERVES OF THE ASSESSEE AS ON 31.03.2006 STOOD AT RS.503.67 LAKHS. THE CLAIM OF THE ASSESSEE WAS THAT NO PART OF THE LOAN FUND WAS UTILIZED FOR MAKING INVESTMENTS IN TAX - FREE SECURITIES AND THEREFORE, THE INTEREST COST COULD NOT BE CONSIDERED WH ILE DETERMINING THE EXPENSES ATTRIBUTABLE TO TAX - FREE INCOME. FURTHER, RELIANCE WAS PLACED ON THE RATIO LAID DOWN BY THE HONBLE BOMBAY HIGH COURT IN GODREJ & BOYCE MFG. CO. LTD. VS. DCIT IN ITA N O.626/10 AND W.P. NO.758/10, JUDGMENT DATED 12.08.2010, WHE REIN IT WAS HELD THAT THE PROVISIONS OF RULE 8D OF THE RULES WOULD APPLY PROSPECTIVELY W.E.F. ASSESSMENT YEAR 2008 - 09 . THE CIT(A) HELD THAT IN VIEW OF THE DECISION OF HONBLE BOMBAY HIGH COURT (SUPRA) , PROVISIONS OF RULE 8D OF THE RULES WERE NOT APPLICABL E FOR THE YEAR UNDER CONSIDERATION I.E. ASSESSMENT YEAR 2006 - 07 . HOWEVER, IT WAS FURTHER OBSERVED BY THE CIT(A) THAT WHETHER THE AMOUNT OF EXPENDITURE DISALLOWED BY THE ASSESSING OFFICER WAS OTHERWISE REASONABLE HAVING REGARD TO THE NATURE OF EXEMPT INCOM E , WAS TO BE SEEN . IN VIEW OF THE APPLICATION OF PROVISIONS OF SECTION 14A OF THE ACT AND SEPARATE ACCOUNTS WERE NOT BEING MAINTAINED BY THE ASSESSEE IN RESPECT OF DIFFERENT ACTIVITIES, THE CIT(A) WAS OF THE VIEW THAT ESTIMATION WAS REQUIRED TO BE MADE ON REASONABLE BASIS TO ASCERTAIN THE EXPENDITURE RELATABLE TO EXEMPT INCOME. THE CIT(A) COMPUTED THE 25 ITA NO. 1450 /PN/201 1 ITA NO. 1454 /PN/201 1 TATA JOHNSON CONTROLS AUTOMOTIVE PVT. LTD. PRORATA INTEREST DISALLOWABLE IN THE HANDS OF THE ASSESSEE AND WORKED OUT THE SAME AT RS.16,88,425/ - AS AGAINST RS.72,80,000/ - WORKED OUT BY THE ASSE SSING OFFICER . FURTHER, THE PRORATA INDIRECT EXPENSES DISALLOWED IN THE HANDS OF THE ASSESSEE WERE RS. 89,433/ - BY THE CIT(A). 3 6 . THE ASSESSEE IS IN APPEAL AGAINST THE PART RELIEF GIVEN BY THE CIT(A). 3 7 . THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT WHERE THE INVESTMENT WAS MADE OUT OF SURPLUS AVAILABLE WITH THE ASSESSEE, THERE WAS NO QUESTION OF DISALLOWING ANY INTEREST EXPENSES. IT WAS FURTHER POINTED OUT BY HIM THAT THE CIT(A) HAD GONE ON THE PRESUMPTION THAT THE ENTIRE I NVESTMENT WAS OUT OF BORROWED FUNDS. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE FURTHER POINTED OUT THAT EVEN AT BEST IF THE PRORATA DISALLOWANCE OF INTEREST WAS WORKED OUT, THEN THE SAME WORKS TO RS.1,31,700/ - . IN RESPECT OF INDIRECT EXPENSE S AND THE PRORATA DISALLOWANCE, OUR ATTENTION WAS DRAWN TO THE LIST OF EXPENSES UNDER PARA PRORATA DISALLOWANCE, OUR ATTENTION WAS DRAWN TO THE LIST OF EXPENSES UNDER PARA 6.3.10 AND IT WAS POINTED OUT THAT THERE WAS NO MERIT IN CONSIDERING THE AFORESAID EXPENDITURE AS BEING RELATABLE TO THE EARNING OF DIVIDEND INCOME I.E. EXPENDITURE ON RENT, REPAIRS AND MAINTENANCE, RATES AND TAXES, TRAVELLING, PAYMENT TO AUDITORS AND MISCELLANEOUS EXPENSES TOTALING RS. 29.75 CRORES. 3 8 . THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE ON THE OTHER HAND, PLACED RELIANCE ON THE ORDER OF ASSESSING OFFICER IN WORKING OUT DISALLOWANCE UNDER SECTION 14A OF THE ACT. 3 9 . WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE DISALLOWANCE UNDER SECTION 14A OF THE ACT WAS MADE BY THE ASSESSING OFFICER BY APPLYING PROVISIONS OF RULE 8D OF THE RULES. HOWEVER, IN VIEW OF THE RATIO LAID DOWN BY THE HONBLE BOMBAY HIGH COURT IN GODREJ & BOYCE MFG. CO. LTD. VS. DCIT 26 ITA NO. 1450 /PN/201 1 ITA NO. 1454 /PN/201 1 TATA JOHNSON CONTROLS AUTOMOTIVE PVT. LTD. (SUPRA) , WE UPHOLD THE ORDER OF CIT(A) THAT THE PROVISIONS OF RULE 8D OF THE RULES ARE NOT APPLICABLE TO THE INSTANT ASSESSMENT YEAR I.E. 2006 - 07 , AS THE HONBLE BOMBAY HIGH COURT LAID DOWN THAT THE SAID PROVISIONS ARE APPLICABLE FROM ASSESSMENT YEAR 2008 - 09. THE SECOND ISSUE RAISED BEFORE US IS WHETHER IN THE ABSENCE OF PROVISIONS OF RULE 8D OF THE RULES, CAN ANY DISALLOWANCE BE MADE UNDER THE PROVISIONS OF SECTION 14A OF THE ACT. THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION HAD MADE SHORT TERM INVESTMENT IN LIQUID FUNDS AND HAD EARNED DIVIDEND INCOME OF RS.9,71,214/ - . THE CASE OF THE ASSESSEE BEFORE THE AUTHORITIES BELOW W AS THAT IT HAD SUFFICIENT INTEREST - FREE FUNDS AVAILABLE WITH IT, WHICH IN TURN WERE INVESTED FOR A SHORT PERIOD, AGAINST WHICH DIVIDEND INCOME WAS DECLARED. EVEN BEFORE THE CIT(A), SIMILAR PLEA WAS RAISED AND THE CIT(A) HAS NOTED THAT MIXED FUNDS AVAILABL E WITH THE ASSESSEE. HOWEVER, WHILE WORKING OUT THE DISALLOWANCE ON ACCOUNT OF INTEREST RELATABLE TO EARNING OF EXEMPT INCOME, THE ENTIRE INTEREST EXPENDITURE WAS WORKED OUT BASED ON ASSUMPTION THAT THE INVESTMENT WAS MADE OUT OF BORROWED FUNDS. IT IS AD MITTED FACT THAT THE INVESTMENTS WERE MADE DURING THE YEAR AND WERE ALSO REDEEMED DURING THE YEAR AND THERE WAS NIL INVESTMENT BOTH AT THE OPENING AND CLOSE OF THE YEAR. THE QUESTION WHICH ARISES FOR ADJUDICATION IS WHETHER IN SUCH CIRCUMSTANCES, WHERE TH E ASSESSEE HAS SUFFICIENT INTEREST - FREE FUNDS BY WAY OF RESERVES AND SURPLUSES, DISALLOWANCE WAS MERITED IN THE CASE. THE ASSESSEE HA D ALSO MADE AN ALTERNATE PLEA OF PRORATA DISALLOWANCE OF RS.1,31,700/ - ON ACCOUNT OF PERCENTAGE OF INVESTMENT ATTRIBUTABLE TO BORROWED FUNDS BY WORKING OUT AVERAGE HOLDING OF THE ASSESSEE FOR THE YEAR. WE FIND MERIT IN THE SAID PLEA OF THE ASSESSEE AND ACCORDINGLY, DIRECT THE ASSESSING OFFICER TO DISALLOW SUM OF RS.1,31,700/ - UNDER SECTION 14A OF THE ACT ON ACCOU NT OF INTEREST ATTRIBUTABLE TO THE EXEMPT INCOME. IN RESPECT OF ADMINISTRATIVE EXPENSES ATTRIBUTABLE TO EARNING OF THE EXEMPT INCOME, WE RESTRICT THE DISALLOWANCE TO RS.50,000/ - . ACCORDINGLY, THE GROUND OF APPEAL NO.4 27 ITA NO. 1450 /PN/201 1 ITA NO. 1454 /PN/201 1 TATA JOHNSON CONTROLS AUTOMOTIVE PVT. LTD. RAISED BY THE ASSESSEE IS PARTLY ALL OWED AND THE GROUND OF APPEAL NO.3 RAISED BY THE REVENUE IS DISMISSED. 40 . THE GROUND OF APPEAL NO.5 RAISED BY THE ASSESSEE IS NOT PRESSED, HENCE THE SAME IS DISMISSED AS NOT PRESSED. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE ARE THUS, PARTLY ALLOWED. 41 . NOW, COMING TO THE GROUND OF APPEAL NO.1 RAISED BY THE REVENUE I.E. AGAINST RELIEF GRANTED UNDER SECTION 10A OF THE ACT . 42 . BRIEFLY, IN THE FACTS RELATING TO THE ISSUE, THE ASSESSING OFFICER HAD MADE ADJUSTMENT TO THE TOTAL TURNOVER AND EXPORT TURNOVER, WHILE COMPUTING DEDUCTION UNDER SECTION 10A OF THE ACT WITH REGARD TO TELE - COMMUNICATION EXPENSES AND EXPENSES ATTRIBUTABLE TO TECHNICAL SERVICES AND ALSO ADJUSTMENT TO THE EXPORT TURNOVER WHILE COMPUTING AFORESAI D DEDUCTION WITH REGARD TO EXPORT REALIZATION. TURNOVER WHILE COMPUTING AFORESAI D DEDUCTION WITH REGARD TO EXPORT REALIZATION. FURTHER, T HE ASSESSING OFFICER HAD NOTED THAT THE ASSESSEE HAD CLAIMED EXEMPTION UNDER SECTION 10A OF THE ACT AND HAD ALSO TOOK NOTE OF THE PROVISIONS OF SECTION 10 A (7) R.W.S. 80IA(1 0 ) OF THE ACT . THE ASSESSING OFFICER OBSERVED THAT OPERATING PROFIT MARGINS EARNED BY THE ENGINEERING DIVISION OF THE ASSESSEE COMPANY W ERE 7.52%, WHEREAS THE ARITHMETIC MEAN OF THE PROFIT MARGINS EARNED BY COMPARABLE COMPANIES WAS 1.20%. THE ASSESSEE HAD CLAIMED THE EXEMPT ION UNDER SECTION 10A OF THE ACT AT RS.3,75,86,141/ - IN RESPECT OF ENGINEERING DIVISION. THE ASSESSING OFFICER IN VIEW OF SECTION 80IA(10) OF THE ACT OBSERVED THAT THE ASSESSEE HAD EARNED HIGH ER PROFIT AS COMPARED TO OTHER COMPARABLE COMPANIES AND IN THIS REGARD, SHOW CAUSE NOTICE WAS ISSUED TO THE ASSESSEE. THE ASSESSING OFFICER IN VIEW OF THE TRANSFER PRICING STUDY REPORT SUBMITTED BY THE ASSESSEE FOR BENCHMARKING ITS SERVICE SEGMENT, OBSERVED THAT THE PROFIT MARGINS IN RESPECT OF 10A UNITS W ERE SUBSTAN TIALLY HIGHER THAN COMPARABLES CHOSEN BY THE ASSESSEE 28 ITA NO. 1450 /PN/201 1 ITA NO. 1454 /PN/201 1 TATA JOHNSON CONTROLS AUTOMOTIVE PVT. LTD. COMPANY IN THIS LINE OF BUSINESS. IN VIEW OF THE PROVISIONS OF SECTION 10A(7) OF THE ACT, THE PROFIT OF 10A UNITS WERE RESTRICTED TO ORDINARY PROFITS IN SUCH ELIGIBLE BUSINESS I.E. AS AGAINST THE PROFI TS SHOWN BY THE COMPARABLES AT 1.20%, THE MARGINS OF 7.52% WAS SHOWN BY THE ASSESSEE AND HENCE, THE EXCESS PROFIT OF 3,15,88,352/ - WAS HELD TO BE NOT ELIGIBLE FOR DEDUCTION UNDER SECTION 10A OF THE ACT. THE ASSESSING OFFICER HELD THAT THE ORDINARY PROFITS WHICH MAY BE EXPECTED IN ITS BUSINESS OF ENGINEERING DIVISION WERE TO THE TUNE OF RS. 59,97,789/ - AND THE SAME WERE HELD TO BE ELIGIBLE FOR DEDUCTION UNDER SECTION 10A OF THE ACT. 4 3 . THE CIT(A) CONSIDERED THE ISSUE UNDER PARAS 4 TO 4.3.3 AT PAGES 5 TO 16 OF THE APPELLATE ORDER AND HELD THAT THERE IS NO MERIT IN THE AFORESAID ADJUSTMENT MADE BY THE ASSESSING OFFICER WHERE THE TPO HAD NOT MADE ANY ADJUSTMENT TO THE INTERNATIONAL TRANSACTIONS VALUE SHOWN BY THE ASSESSEE AND HAD FOUND THE SAM E TO BE AT ARM'S LENGTH PRICE. THE TPO HAD ALSO CONSIDERED THE OPERATING PROFIT MARGIN OF 7.52% AS NORMAL PROFIT MARGINS HAVING INCURRED TO THE AVERAGE MARGIN PROFIT OF 7.90% IN THE LIST OF COMPARABLE CASES FILED BY THE ASSESSEE. THE CIT(A) THUS, HELD TH AT THE ASSESSING OFFICER WAS NOT JUSTIFIED IN RESTRICTING THE PROFITS OF ELIGIBLE UNIT TO RS. 59,97,789/ - FOR THE PURPOSE OF COMPUTING DEDUCTION UNDER SECTION 10A OF THE ACT BY INVOKING THE PROVISIONS OF SECTION 80IA(10) R.W.S. 10A(7) OF THE ACT. 4 4 . THE REVENUE IS IN APPEAL AGAINST THE ORDER OF CIT(A) IN THIS REGARD AND REFERRING TO THE PROVISIONS OF THE ACT, PLACED RELIANCE ON THE ORDER OF ASSESSING OFFICER AND POINTED OUT THAT THE OPERATING MARGINS EARNED BY THE ENGINEERING DIVISION WERE 7.52% AS AG AINST THE MARGINS EARNED BY COMPARABLES AT 1.20% AND HENCE, THE SAID ADDITION IS TO BE UPHELD. 4 5 . THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE ON THE OTHER HAND POINTED OUT THAT THE ISSUE IS SQUARELY COVERED BY THE RATIO LAID DOWN BY THE PUNE 29 ITA NO. 1450 /PN/201 1 ITA NO. 1454 /PN/201 1 TATA JOHNSON CONTROLS AUTOMOTIVE PVT. LTD. B ENCH OF TRIBUNAL IN M/S. HONEYWELL AUTOMATION INDIA LTD. VS. DCIT IN ITA NO.18/PN/2011 , RELATING TO ASSESSMENT YEAR 2006 - 07 , WHEREIN VIDE ORDER DATED 25.02.2015 THE TRIBUNAL HAD HELD THAT IN THE ABSENCE OF ANY ARRANGEMENT ARRIVED AT BETWEEN THE PARTIES, WHICH RESULTED IN HIGHER PROFITS, THERE WAS NO MERIT IN RE - WORKING THE PROFITS BY INVOKING THE PROVISIONS OF SECTION 10A R.W.S. 80IA(10) OF THE ACT. 4 6 . WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF SYSTEM SOFTWARE CONVERSION AND APPLICATION OF RE - ENGINEERING WITH RESPECT TO AUTOMOTIVE SEATING AND INTERIORS. THE ASSESSEE HAD CLAIMED DEDUCTION UNDER SECTION 10A OF THE ACT IN RESPECT OF ITS PROFITS OF THE UNDERTAKING. THE TPO HAD ACCEPTED THE INTER NATIONAL TRANSACTIONS OF THE ASSESSEE WITH ITS ASSOCIATE ENTERPRISES TO BE AT ARM'S LENGTH PRICE. IN THE ABSENCE OF ANY ADJUSTMENTS HAVING BEEN MADE BY THE TRANSFER PRICING OFFICER, THE ASSESSING OFFICER HAD TO ACCEPT THE ORDER OF THE TPO AS MANDATED BY T HE PROVISIONS OF SECTION 92CA(4) OF THE ACT, WHEREIN THE TPO HAD ACCEPTED THE EXPORTS AND OTHER INTERNATIONAL TRANSACTIONS WITH THE AE TO BE AT ARM'S LENGTH PRICE WITHOUT ANY ADJUSTMENT. THE ASSESSING OFFICER IN CONSEQUENCE DETERMINED THE INCOME OF THE AS SESSEE INCONFORMITY WITH THE ORDER OF THE TPO. THE ISSUE ARISING BEFORE US IN SUCH CIRCUMSTANCES IS THAT WHERE THE ASSESSEE HAD CLAIMED DEDUCTION UNDER SECTION 10 A OF THE ACT ON SUCH EXPORTS TO ITS AE, CAN THE SAME BE CURTAILED BY INVOKING THE PROVISIONS OF SECTION 10 A (7) R.W.S. 80IA(10) OF THE ACT ON THE PREMISE THAT THE ASSESSEE HAD EARNED HIGHER PROFITS THAN NORMAL ON EXPORTS MADE TO ITS AES , AS COMPARED TO THE COMPARABLES . 4 7. IN THE FACTS BEFORE THE TRIBUNAL IN M/S HONEYWELL AUTOMATION INDIA LIMITE D VS. DCIT (SUPRA), THE DISPUTE AROSE VIS - - VIS THE ENTITLEMENT OF THE ASSESSEE FOR THE 30 ITA NO. 1450 /PN/201 1 ITA NO. 1454 /PN/201 1 TATA JOHNSON CONTROLS AUTOMOTIVE PVT. LTD. CLAIM OF DEDUCTION UNDER SECTION 10A OF THE ACT WHICH 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 OF DEDUCTION UNDER SECTION 10A OF THE ACT, AS THE PROFITS IN RELATION TO THE 10A UNITS WERE MORE THAN THE ORDINARY PROFITS. THE ASSESSING OFFICER ACCORDINGLY RE - COMPUTED THE AMOUNTS OF PROFIT WHICH HE CONSIDER ED AS REASONABLE TO HAVE BEEN DERIVED IN TERMS 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 SELECTING 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 TRANSACTION 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 MARGINS 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 ANALYSIS UNDER THE TNM METHOD AND THEREFORE ACCORDING TO HIM THE PROFITS DECLARED BY THE ASSES SEE IN THE 10A UNITS WAS NOT THE ORDINARY PROFITS AND HAD TO BE RESTRICTED UNDER SECTION 10A(7) R.W.S. 80IA(10) OF THE ACT. 4 8. WE FIND THAT SIMILAR ISSUE FOR GRANT OF DEDUCTION 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 CONNECTED PAR TY ARE TAXABLE IN INDIA. IN THIS REGARD, THE RELEVANT PORTIONS OF THE 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 UNDER : - 31 ITA NO. 1450 /PN/201 1 ITA NO. 1454 /PN/201 1 TATA JOHNSON CONTROLS AUTOMOTIVE PVT. LTD. (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 TH EY 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 EL IGIBLE BUSINESS ARE TRANSFERRED TO ANY OTHER BUSINESS CARRIED ON BY THE ASSESSEE, OR WHERE ANY GOODS [OR 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 CONS IDERATION, IF ANY, FOR SUCH TRANSFER AS RECORDED IN THE ACCOUNTS OF THE ELIGIBLE BUSINESS DOES NOT CORRESPOND TO THE MARKET VALUE OF SUCH GOODS [OR SERVICES] AS ON THE DATE OF THE TRANSFER, THEN, FOR THE PURPOSES OF THE DEDUCTION UNDER THIS SECTION, THE PR OFITS AND GAINS OF SUCH ELIGIBLE BUSINESS SHALL BE COMPUTED AS IF THE TRANSFER, IN EITHER CASE, HAD BEEN MADE AT THE MARKET VALUE OF SUCH GOODS [OR SERVICES] AS ON THAT DATE : PROVIDED THAT WHERE, IN THE OPINION OF THE ASSESSING OFFICER, THE COMPUTATION OF THE PROFITS AND GAINS OF THE ELIGIBLE BUSINESS IN THE MANNER HEREINBEFORE SPECIFIED PRESENTS EXCEPTIONAL 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 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 ELIGIBLE BUSINESS TO WHICH CONNECTION BETWEEN THE ASSESSEE CARRYING ON THE ELIGIBLE BUSINESS TO WHICH THIS SECTION APPLIES AND ANY OTHER PERSON, OR FOR ANY OTHER REASON, THE COURSE OF BUSINESS BETWEEN THEM IS SO ARRANGED THAT THE BUSINESS TRANSACTED BETWEEN THEM PRODUCES TO THE ASSE SSEE MORE THAN THE ORDINARY PROFITS WHICH MIGHT BE EXPECTED TO ARISE IN SUCH ELIGIBLE BUSINESS, THE ASSESSING OFFICER SHALL, IN COMPUTING THE PROFITS AND GAINS OF SUCH ELIGIBLE BUSINESS FOR THE PURPOSES OF THE DEDUCTION UNDER THIS SECTION, TAKE THE AMOUNT OF PROFITS AS MAY BE REASONABLY DEEMED TO 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 ASSESSMENT YEARS BEGINNING WITH THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WHICH THE UNDERTAKING BEGINS TO MANUFACTURE OR PRODUCE SUCH A RTICLES OR THINGS OR 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 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 OF 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, REPRODUCED 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 TH E ACT IF IT APPEARS TO HIM THAT THE PROFITS DECLARED BY THE ASSESSEE ARE MORE THAN THE ORDINARY PROFITS WHICH MIGHT BE EXPECTED TO ARISE IN SUCH AN ELIGIBLE BUSINESS. SO HOWEVER, THE AFORESAID POWER OF THE ASSESSING OFFICER IS SUBJECT TO THE PRE - REQUISITE S CONTAINED IN SUB - SECTION (10) OF SECTION 80 - IA OF THE ACT ITSELF. THE 32 ITA NO. 1450 /PN/201 1 ITA NO. 1454 /PN/201 1 TATA JOHNSON CONTROLS AUTOMOTIVE PVT. LTD. CIRCUMSTANCES IN WHICH SUCH A COURSE IS 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 SHO W 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 MAY REASONABLY DEEMED TO HAVE BEEN DERIVED FROM SUCH BUSINESS. N OTABLY, SUCH 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 TH E 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, TH ERE 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 A SPECT, 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 YE ARS 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 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 - FOLD, 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 HIGHE R PROFITS BUT, MORE IMPORTANTLY THERE SHOULD BE MATERIAL 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 ASSESSEE MIGHT HAVE EXPECTED TO ARISE FRO M SUCH BUSINESS. AS PER THE HONBLE KARNATAKA HIGH COURT, IT WAS FOR THE ASSESSING OFFICER TO INDICATE ANY MATERIAL OR EVIDENCE TO DISCLOSE ANY SUCH ARRANGEMENT BETWEEN THE ASSESSEE AND THE OTHER PERSON. THE AFORESAID JUDGEMENT OF THE HONBLE KARNATAKA H IGH COURT JUSTIFIES THE ASSERTION OF THE ASSESSEE BEFORE US THAT THE ONUS FOR JUSTIFYING THE INVOKING OF SECTION 80 - IA(10) R.W.S. 10A(7) OF THE ACT IS ON THE REVENUE BASED ON COGENT MATERIAL. AT THIS POINT, WE MAY ALSO MAKE A REFERENCE TO THE JUDGEMENT OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. M/S SCHMETZ INDIA PVT. LTD. VIDE INCOME TAX APPEAL NO.4508 OF 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 SU BSIDIARY OF A GERMAN COMPANY. IT HAD TWO DIVISIONS ONE AT KANDLA IN THE KANDLA FREE TRADE ZONE, ENGAGED IN THE 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 HOLDING COMPANY IN GERMANY. FOR THE ASSESSMENT YEAR 2004 - 05 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 OFFICER 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 33 ITA NO. 1450 /PN/201 1 ITA NO. 1454 /PN/201 1 TATA JOHNSON CONTROLS AUTOMOTIVE PVT. LTD. RS.70.29 LACS. THE ASSESSING OFFICER INVOKED THE PROVISIONS OF SECTION 10A(7) R.W.S. 80 - IA(10) OF THE ACT TO HOLD THAT PROFITS OF KANDLA DIVISION WERE ABNORMAL PROFITS. THE TRIB UNAL DISAGREED WITH THE ASSESSING OFFICER. THE TRIBUNAL, INTER - ALIA, HELD THAT THE ASSESSING OFFICER HAS NOT BEEN ABLE TO PROVE THAT ANY ARRANGEMENT HAD BEEN ARRIVED BETWEEN THE PARTIES WHICH RESULTED IN EXTRAORDINARY PROFITS TO THE RESPONDENT - ASSESSEES MANUFACTURING DIVISION AT KANDLA. CONSEQUENTLY, THE WORKING OF THE PROFITS BY 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 I N 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 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 THE ACT ARE INAPPLICABLE IN THE PRESENT CASE BECAUSE THERE IS NO MATERIAL LEAD BY THE REVENUE TO SAY THAT THERE WAS ANY ARRANGEMENT BETWEEN THE AS SESSEE AND THE ASSOCIATED ENTERPRISES WHICH PRODUCED TO THE ASSESSEE MORE THAN THE ORDINARY PROFITS WITHIN THE 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 RENDERI NG SOFTWARE ENGINEERING SERVICES TO ITS ASSOCIATED ENTERPRISES ABROAD ARE NOT ARRANGED SO TO YIELD ANY EXTRAORDINARY PROFITS TO THE ASSESSEE. THE LD. REPRESENTATIVE POINTED OUT THAT ASSESSEE WAS CHARGING THE SAME RATE FOR SERVICES RENDERED TO ASSOCIATED E NTERPRISES AS WELL AS TO THE NON - RELATED PARTIES. THE DETAILS OF RATES CHARGED BY THE ASSESSEE TO THE THIRD PARTIES VIS - - VIS THE RELATED PARTIES HAVE ALSO BEEN PLACED IN THE PAPER BOOK ALONG WITH SAMPLE COPIES OF INVOICES RAISED ON THE AND NON - RELATED PA RTIES. IT WAS ALSO POINTED OUT WITH REFERENCE TO THE SUBMISSIONS MADE TO THE ASSESSING OFFICER, WHICH HAVE BEEN 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 ST PI UNIT HAD ENDED. 13. AT THE TIME OF HEARING, IT WAS EXPLAINED THAT THE TAX HOLIDAY U/S 10A OF THE ACT WAS AVAILABLE 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 TH E SUBMISSIONS FURNISHED TO THE ASSESSING OFFICER, WHICH HAVE BEEN REPRODUCED IN PARA 2.6 OF THE ASSESSMENT ORDER, IT IS REVEALED THAT REASONS WERE ADVANCED TO JUSTIFY THE HIGHER MARGINS OF THE STPI UNITS. FIRSTLY, IT WAS CONTENDED THAT THERE WAS SUBSTANTI AL 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 ENAB LED SERVICES RENDERING ENGINEERING CONSULTANCY SERVICES IN EXECUTION OF INDUSTRIAL AUTOMATION AND BUILDING AUTOMATION AND CONTROL PROJECTS AND IT DOES NOT INCUR MUCH PRODUCT DEVELOPMENT COSTS OR INVESTMENTS WHICH ARE USUALLY INCURRED BY OTHER SOFTWARE COMP ANIES. 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 NOT SOFTWARE PROFESSIONALS. I T 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 PRODUCTIVITY OF THE EMPLOYEES IS MUCH HIGHER THAN OTHER SOFTWARE COMPANIES. FURTHER, IT WAS ALSO POINTED OUT THAT ASSE SSEE WAS REIMBURSED ALL THE COSTS, LIKE FOREIGN TRAVEL AND LIVING EXPENSES INCURRED ABROAD BY ITS EMPLOYEES IN THE COURSE OF RENDERING ENGINEERING/SOFTWARE 34 ITA NO. 1450 /PN/201 1 ITA NO. 1454 /PN/201 1 TATA JOHNSON CONTROLS AUTOMOTIVE PVT. LTD. SERVICES. ASSESSEE WAS ALSO REIMBURSED INCIDENTAL EXPENSES INCURRED BY IT VIZ. VISA COSTS, WORK PER MIT COSTS, ETC. AND THEREFORE THE COST OF SALES WAS ON LOWER SIDE, AS A RESULT OF WHICH THE PERCENTAGE OF OPERATING 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 PUB LIC LIMITED COMPANY LISTED ON THE STOCK - EXCHANGE WHEREIN THE OVERSEAS HONEYWELL ENTITIES OWNED 81.24% OF SHAREHOLDING 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 ASSESS EE COMPANY TO THE EXTENT OF 40% AND HONEYWELL ENTITIES HELD 41% AND THE BALANCE 19% WAS HELD BY THE PUBLIC. THIS PATTERN HAD CHANGED FROM NOVEMBER, 2004 ONWARDS WHEN THE TATA GROUP GAVE UP ITS SHAREHOLDING IN THE ASSESSEE COMPANY. ON THE BASIS OF THE AFO RESAID SHAREHOLDING PATTERN, A PLEA SETUP BY THE ASSESSEE IS THAT IF THERE WAS ANY MANIPULATION OF PROFITS BY ASSESSEE CHARGING HIGHER RATES TO ITS OVERSEAS HONEYWELL GROUP ENTITIES RESULTING IN SHIFTING OF PROFITS FROM OVERSEAS ENTITIES TO THE ASSESSEE - CO MPANY, 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 B Y 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 TH ERE WAS ANY ARRANGEMENT BETWEEN THE ASSESSEE AND THE OVERSEAS HONEYWELL ENTITIES TO PRODUCE HIGHER PROFITS TO THE 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 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 INDIC ATIVE OF THE LEAST PROFITS THAT MUST BE RETAINED IN INDIA AND IT CANNOT BE USED TO BENCHMARK THE ORDINARY PROFITS AS REFERRED TO IN SECTION 10A(7) R.W.S. 80 - IA(10) OF THE ACT. THE SUM AND SUBSTANCE OF THE PLEA SETUP BY THE ASSESSEE IS THAT THE LEGISLATI VE 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 THE EXPRESSION IT APPEARS IN SECTION 80 - IA(10) OF THE ACT. ACCORDING TO THE LD. CIT - DR, S ECTION 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 PRIMA - 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 35 ITA NO. 1450 /PN/201 1 ITA NO. 1454 /PN/201 1 TATA JOHNSON CONTROLS AUTOMOTIVE PVT. LTD. PRICING PROV ISIONS, THE SAID PROVISION DOES NOT REQUIRE A PRECISE ACCURACY ON THE PART OF THE ASSESSING OFFICER. 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 ) 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 1 0A(7) R.W.S. 80 - IA(10) OF THE ACT. 18. IT IS FURTHER SUBMITTED THAT THE WORD ARRANGEMENT USED IN SECTION 80 - IA(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 D ECISION 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 OXFOR D DICTIONARY, EDITION, TO COME TO AN AGREEMENT OR UNDERSTANDING, AND THE WORD ARRANGEMENT HAS, AS ITS PRIMARY 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 BETWEEN THE ASSESSEE AND THE ASSOCIATED ENTERPRISES FOR PROVISION OF IT ENABLED ENGINEERING/SOFTWARE SERVICES, IT IS TO BE UNDERSTOOD AS AN ARRANGEMEN T WITHIN THE MEANING OF SECTION 80 - IA(10) OF THE ACT. 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, I N THE PRESENT CASE, THE ASSESSING OFFICER IS JUSTIFIED TO INVOKE SECTION 10A(7) R.W.S. 80 - IA(10) OF THE ACT INASMUCH AS THE PROFIT MARGIN OF THE ASSESSEES STPI UNITS IS 80.06% AS AGAINST 17.06% OF THE COMPARABLE SELECTED BY THE ASSESSEE ITSELF IN ITS TRAN SFER PRICING STUDY. AS PER THE LD. CIT - DR, WHEN THE ARRANGEMENT HAS LED TO RESULTING INTO MORE 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. CIT - 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 A N ACCEPTABLE PROFIT IN IT ENABLED SERVICES SEGMENT AND 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 BASED ON THE MARGIN OF THE COMPARABLE IS NOT FOUND TO BE A GOOD METHODOLOGY, 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 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 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 I N 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 PURPO SES OF APPLICATION OF SECTION 10A(7) R.W.S. 80 - IA(10) OF THE ACT. 36 ITA NO. 1450 /PN/201 1 ITA NO. 1454 /PN/201 1 TATA JOHNSON CONTROLS AUTOMOTIVE PVT. LTD. IT WAS ALSO SUBMITTED BY HIM THAT FACT OF THE 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 THE 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 : - 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 UNDERTA KING 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 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 GOODS. THE APPLIED SUB - SECTION (9) OF SECTION 80 - I EMPOWERS THE INCOME - TAX OFFICER TO DETERMINE THE REASONABLE PROFITS THAT COULD BE ATTRIBUTED TO THE QUALIFYING UNDERTAKING IN THE FREE TRADE ZONE IN CASES WHERE, OWING TO THE CLOSE CONNECTION BETWEEN THE ASSESSEE 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 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 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 OBJECTIVE OF THE AFORESAID PROVISION IS THAT THE T AX CONCESSIONS ARE NOT ABUSED BY MANIPULATION OF PROFITS. 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 TH E 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 SUBSTANTIAL OR MORE THAN ORDINARY PROFITS BY ITSELF DOES NOT SUFFICIENTLY EMPOWER THE ASSESSING OFFICER TO DISREGARD THEM AND DETERMINE THE PROFITS WHICH HE MAY CONSIDER TO BE REASONABLY DEEMED TO HAVE BEEN D ERIVED THEREFROM. THE PRESENCE OF THE EXPRESSION THE 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 LEGIS LATIVE 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 CONJUNCTION WITH THE LEGISLATIVE INTEN T THAT THERE SHOULD NOT BE ANY ABUSE OF TAX CONCESSION 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 CONCES SION WHEREBY THE BUSINESS TRANSACTED BETWEEN TWO ENTITIES 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 37 ITA NO. 1450 /PN/201 1 ITA NO. 1454 /PN/201 1 TATA JOHNSON CONTROLS AUTOMOTIVE PVT. LTD. THAN THE ORDINARY PRO FITS 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 AS SESSEE AND THE ASSOCIATED ENTERPRISES HAS BEEN SO ARRANGED WHICH PRODUCES TO THE ASSESSEE 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 CONNECTION 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 ARRANGED 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 EXPRESSION SO ARRANGED HAS TO BE UNDERSTOOD IN THE CONTEXT OF THE ABUSE OF TAX CONCESSION WHICH IS SOUGHT TO BE PLUGGED BY THE PROVISIONS OF SECTION 10A(7) R.W.S. 80 - IA(10) OF THE ACT. 24. ON THIS ASPECT, T HE LD. CIT - DR HAD VEHEMENTLY ARGUED, BASED ON THE JUDGEMENT 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 U NDERSTANDING 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 ORDER, ACCORDING TO WHICH, IT IS SAID THAT THE TERM ARRANGEMENT IN PLAIN LANGUAGE MEANS ANY A GREEMENT OR UNDERSTANDING BETWEEN THE PARTIES CONCERNED. 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 ARRANGEMENT 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 ASSE SSING OFFICER IS NOT REQUIRED TO BE PROVE THAT THERE IS AN ACT THAT, THE ASSE SSING 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 NECESSAR Y CONDITION OF SECTION 80 - IA(10) OF THE ACT. THUS, ACCORDING TO THE LD. CIT - DR, IN THE INSTANT CASE THERE IS AN ARRANGEMENT AND IT HAS LEAD TO PRODUCTION OF MORE THAN THE ORDINARY PROFITS. ACCORDING TO THE LD. CIT - DR, THE MEANING OF THE WORDS SO ARRANGE D IN SECTION 80 - IA(10) OF THE ACT ONLY SEEKS TO ENSURE 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 EX PRESSION ARRANGED IN SECTION 80 - IA(10) OF THE ACT IS 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 T HE TERM ARRANGED BECAUSE IT IS PLACED BETWEEN THE WORDS .. 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 ELI GIBLE 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 SIMPLE 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. THEREFORE, THE MEANING OF THE WORDS SO ARRANGED HAVE TO BE UNDERSTOOD IN THE CONTEXT IN WHICH THEY ARE PLACED IN SECTION 80 - IA(10) OF THE ACT. A MERE AGREEMENT BETWEEN THE ASSESSEE AND THE ASSOCIATED ENTERPRISES FOR TRAN SACTING BUSINESS IS NOT ENOUGH TO INVOKE SECTION 80 - IA(10) OF THE ACT. 38 ITA NO. 1450 /PN/201 1 ITA NO. 1454 /PN/201 1 TATA JOHNSON CONTROLS AUTOMOTIVE PVT. LTD. 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 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 ARRANGEMENT QUA SECTION 391(1) OF THE COMPANIES ACT, 1956 : - SECTION 391(1) , HOWEVER, IN ANY OPINION SOMEWHAT RESTRICTS THIS OTHERWISE UNLIMITED IMPORT OF THE TERM ARRANGEMENT IN SO FAR AS THE SAID SECTION APPLIES ONLY TO AN AGREEMENT OR UNDERSTANDING BETWEEN THE COMPANY AND ITS CRED ITORS OR ANY CLASS OF THEM, OR BETWEEN THE COMPANY AND 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 CLEARLY 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 WH ICH AFFECTS THE RIGHTS BETWEEN THE COMPANY AND ITS CREDITORS OR ANY CLASS OF THEM AND BETWEEN THE COMPANY AND ITS MEMBERS OR ANY CLASS OF THEM. BY THE SAME ANALOGY IN THE PRESENT CONTEXT, WE HAVE TO UNDERSTAND THE MEANING OF THE EXPRESSION AS ARRANGED I N SECTION 10A(7) R.W.S. 80 - IA(10) OF THE ACT TO MEAN A SITUATION 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 UNDERSTAND THE IMPORT OF THE EXPRESSION SO ARRANGED IN SECTION 80 - IA(10) OF THE UNDERSTAND 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 SECTIO N 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 PROF ITS BETWEEN ASSOCIATED CONCERNS. THEREFORE, AN ARRANGEMENT 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. THEREFOR E, 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 THE ACT IN THE CONTEXT OF THE WORDS THE COURSE OF BUSINESS BETWEEN THEM IS SO ARRANGED. 28. AT THIS STAGE, WE MAY ALSO ADDRES S 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 IN 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 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 : 39 ITA NO. 1450 /PN/201 1 ITA NO. 1454 /PN/201 1 TATA JOHNSON CONTROLS AUTOMOTIVE PVT. LTD. (A) THER E MUST BE A CLOSE CONNECTION BETWEEN THE APPELLANT AND OTHER 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 NOT 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 DECLARE D BY THE APPELLANT. IN THIS CASE, THE AO HAS FAILED TO ADDUCE 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 JO INT 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 ARRANGED 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 PROF ITS 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 PR EMISE. THERE CANNOT BE COMPARISON BETWEEN AN ORANGE AND AN 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 O BVIOUS NO, EVEN AS FOUND BY ORDINARY PROFITS, IN THIS CASE, THE ANSWER IS O BVIOUS NO, EVEN AS FOUND BY THE AO. WHEN THE PROFITS EARNED 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 LIGHT OR HEAVY BUT WHETHER THE ASSESSING OFFICER HAS DISCUSSED OBJECTIVELY THE CONDITIONS MENTIONED IN THE SECTION TO DISTURB THE RESULTS DECLARED BY THE APPELLANT. 4 9. THE OTHER ASPECT NOTED BY TH E TRIBUNAL WAS THE ARRANGEMENT BETWEEN THE PARTIES FOR EARNING MORE THAN ORDINARY PROFITS WHEREIN ONUS WAS UPON THE DEPARTMENT TO PROVE THAT AN ARRANGEMENT EXISTED. THE FINDINGS OF THE TRIBUNAL ARE AS UNDER : - 30. NOW, THE CASE OF THE ASSESSING OFFICER I S 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. 40 ITA NO. 1450 /PN/201 1 ITA NO. 1454 /PN/201 1 TATA JOHNSON CONTROLS AUTOMOTIVE PVT. LTD. 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 MATERIAL OR EVIDENCE REFERRED TO IN THE ASSESSMENT ORDER TO INDICATE THAT THE COURSE OF BUSINESS HAS BEEN SO ARRANGED SO AS TO INFLATE PROFITS WITH THE INTENT TO ABUSE TAX CONCESSION U/S 10A OF THE ACT. AT THI S 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 OFFICER 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 PROFITS. 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 M ARGIN IN THIS LINE OF BUSINESS. THE MOOT QUESTION IS AS TO WHETHER THE SAME CAN BE CONSIDERED AS A MATERIAL TO INDICATE THAT THE COURSE OF BUSINESS BETWEEN THE ASSESSEE 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 RELEVANT : - 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 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 OFFICER TO THE TRANSFER PRICING OFFICER IS CONFINED TO THE SINGULAR PURPOSE STATED IN SECTION 92. SECTIONS 92A, 92B, 92C, 92CB, 92D, 92E AND SECTION 92F ARE ALL PRECISELY DEFINING AND FACILITATING PROVISIONS ULTIM ATELY 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 TRANSAC TIONS 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 T HE 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 I NTERNATIONAL TRANSACTIONS WITH ASSOCIATE ENTERPRISE. 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 LENGTH PRICE, IS A SET OF RULES FOR THE PURPOSES OF TRANSFER PRICING MATTERS AND THOSE 41 ITA NO. 1450 /PN/201 1 ITA NO. 1454 /PN/201 1 TATA JOHNSON CONTROLS AUTOMOTIVE PVT. LTD. PROCEDURES AND RULES CAN BE USED ONLY FOR THE PURPOSE SERVING THE OBJECT OF SECTION 92. WHEN THE TRANSFER PRICING OFFICER ST ATES 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 ORDER OF THE TRANSFER PRICING OFFICE UNDER SECTION 92CA. TO STATE IN SIMPLE TERMS, 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 RE GULATIONS 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 H AVE 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 A ND 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 H AS HELD THAT THE ASSESSING 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 WITHOUT SHOWING HOW HE DETERMINED THAT THE ASSESSEE HAD SHOWN MORE THAN 'ORDINARY PROFITS'. AS RIGHTLY ARGUED BY LEARNED SENIOR COUNSEL THE ARM'S LENGTH PRICE IS DETERMINED ON THE BASIS OF THE MOST APPROPRIATE METHOD. THE MOST APPROPRIATE METHOD IS CHOSEN EITHER ON PROFI T BASIS METHOD OR PRICE BASIS METHOD. IN THE LATTER EASE, PROFITS ARE NOT AT ALL CONSIDERED. IN THAT METHOD, METHOD. IN THE LATTER EASE, PROFITS ARE NOT AT ALL CONSIDERED. IN THAT METHOD, PROFIT IS ONLY A DERIVATIVE OF PRICES. WHEN PROFITS ITSELF IS NOT WORKED OUT, HOW IS IT JUSTIFIED TO ADOPT THE ARM'S LENGTH PRICE PROFITS TO DETERM INE 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 COMPUTING 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 ARRANGEMENT 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 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 EVIDENCE AND CORROBORATIVE MATERIAL THAT QUA SECTION 10A R.W.S. 80 - IA(10) OF THE ACT, THE COURSE OF BUSINESS BETWEEN THE ASSESSEE AND THE ASSOCIATED ENTERPRISES IS SO ARRANGED THAT THE BUSINESS TRANSACTED BETWEEN THEM PRODUCES TO THE ASSESSEE MORE THAN THE ORDINARY PROFITS WITH THE INTENT OF ABU SING TAX CONCESSION. QUITE CLEARLY, IN THE ENTIRE ASSESSMENT 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 : - ACC ORDINGLY, THE SECTION ONLY ENCUMBERS THE A.O. TO 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 42 ITA NO. 1450 /PN/201 1 ITA NO. 1454 /PN/201 1 TATA JOHNSON CONTROLS AUTOMOTIVE PVT. LTD. FROM THE SUCH ELIGIBLE BUSIN ESS AND SUCH PROFIT HAS TO BE THEN TAKEN AS REASONABLY 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 KARNATAK A 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 HOLDING THAT IN THE PRESENT CASE, THE ASSESSING OFFICER HAS NOT PROVED THAT ANY ARRANGEMENT HAD BEE N ARRIVED BETWEEN THE PARTIES WHICH RESULTED IN HIGHER PROFITS. CONSEQUENTLY, THE RE - WORKING OF THE PROFITS BY ASSESSING OFFICER BY INVOKING SECTION 10A R.W.S. 80 - IA(10) OF THE ACT IS NOT JUSTIFIED. THE ACTION OF THE ASSESSING OFFICER TO RESTRICT THE DED UCTION U/S 10A OF THE ACT TO RS.7,74,60,281/ - AS AGAINST THE CLAIM OF RS.36,35,09,382/ - IS HEREBY SET - ASIDE. THUS, ASSESSEE SUCCEEDS ON THIS ASPECT. 5 0. NOW, COMING TO THE FACTS OF THE PRESENT CASE, THE ISSUE ARISING IS IN RELATION TO GRANT OF DEDUCTION UNDER SECTION 10 A OF THE ACT BY INVOKING THE PROVISIONS OF SECTION 10 A ( 7 ) R.W.S. 80IA(10) OF THE ACT. THE OPERATING PROFIT MARGINS EARNED BY THE ENGINEERING DIVISION OF THE ASSESSEE COMPANY WERE 7.52%, WHICH WAS ACCEPTED BY THE TPO IN THE REPORT UNDER SE CTION 92CA(4) OF THE ACT. IN THE ABOVE SAID CIRCUMSTANCES, WHERE THE PROFIT MARGINS DECLARED BY THE ASSESSEE HAVE BEEN ACCEPTED TO BE AT ARM'S LENGTH BY THE TPO, NO CURTAILMENT OF DEDUCTION UNDER SECTION 10 A CAN BE MADE BY INVOKING THE PROVISIONS OF SECTI ON 10 A (7) R.W.S. 80IA(10) OF THE ACT, RELYING ON THE RATIO LAID DOWN BY THE TRIBUNAL IN M/S HONEYWELL AUTOMATION INDIA LIMITED VS. DCIT (SUPRA). THE ONUS WAS UPON THE DEPARTMENT TO PROVE THAT AN ARRANGEMENT EXISTED BETWEEN THE ASSESSEE AND ITS AES TO EARN MORE THAN ORDINARY PROFITS AND IN THE ABSENCE OF THE SAID ONUS HAVING BEEN DISCHARGED BY THE DEPARTMENT AND FOLLOWING THE SAME PARITY OF REASONING AS LAID DOWN BY THE TRIBUNAL IN M/S HONEYWELL AUTOMATION INDIA LIMITED VS. DCIT (SUPRA) , WE FIND NO MERIT IN THE ORDER OF ASSESSING OFFICER AND WE UPHOLD THE ORDER PASSED BY CIT(A). THE LD. AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT THE ASSESSING OFFICER HAS GIVEN A FINDING THAT THE PROFIT MARGIN EARNED IN ENGINEERING DIVISION WAS HIGHER THAN THE AVERAGE PROFIT MARGIN OF COMPARABLE AND HAS REDUCED THE DEDUCTION 43 ITA NO. 1450 /PN/201 1 ITA NO. 1454 /PN/201 1 TATA JOHNSON CONTROLS AUTOMOTIVE PVT. LTD. UNDER SECTION 10 A OF THE ACT. WE FIND NO MERIT IN THE STAND OF ASSESSING OFFICER AND UPHOLDING THE ORDER OF CIT(A) , WE ALLOW THE CLAIM OF DEDUCTION UNDER SECTION 10A OF THE ACT. THE GROUNDS OF APPEAL RAISED BY THE REVENUE ARE THUS, DISMISSED. 51 . IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED AND APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED ON THIS 9 TH DAY OF DECEMBER , 2015. SD/ - SD/ - ( R.K. PANDA ) ( SUSHMA CHOWLA ) / ACCOUNTANT MEMBER / JUDICIAL MEMBER / PUNE ; DATED : 9 TH DECEMBER , 2015 . GCVSR / COPY OF THE ORDER IS FORWARDED TO : 1. / THE APPELLANT ; 2. 2. / THE RESPONDENT; 3. ( ) / THE CIT(A) - III , PUNE ; 4. / THE CIT - I V , PUNE ; 5. , , / DR A , ITAT, PUNE; 6. / GUARD FILE . / BY ORDER , // TRUE COPY // / SR. PRIVATE SECRETARY , / ITAT, PUNE