DCIT, Bangalore V. M/s EYGBS India Pvt. Ltd., Bangalore

ITA 218/BANG/2015

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 1340 (ITAT-BANGALORE)
• Duration Of Justice: 5 year(s) 2 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-05-2020
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 26-02-2020
• Assessment Year: 2010-2011
• Appeal Filed On: 25-02-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Transfer pricing; International transaction; Question of law; Wholly owned subsidiary; Avoidance of tax
• Section: 92C; 143(3); 10AA; 10B; 201; 191; 64; 113; 13; 92CA; 92

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, VICE PRESIDENT AND SHRI B R BASKARAN , ACCOUNTANT MEMBER IT (TP) A NO. 218/BANG/2015 ASSESSMENT YEAR: 2010 - 11 THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 3(1)(2), BANGALORE. VS. M/S. EYBGS INDIA PVT. LTD., 3 RD FLOOR, TOWER C, RMZ INFINITY, OLD MADRAS ROAD, BENNIGANAHALLI, K.R. PURAM BANGALORE 560 016. PAN: AABCE 6565A APPELLANT RESPONDENT IT (TP) A NO. 199 /BANG/2015 ASSESSMENT YEAR: 2010 - 1 1 M/S. EYGBS (INDIA) LLP [EARLIER KNOWN AS EYBGS (INDIA) PVT. LTD.], BANGALORE 560 016. PAN: AABCE 6565A VS. THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 3(1)(2), BANGALORE. APPELLANT RESPONDENT REVENUE BY : SHRI MUZAFFAR HUSSAIN, C IT(DR)(ITA T ), BENGALURU A SSESSEE BY : SHRI RAJAN VORA, CA DATE OF HEARING : 26 .0 2 .2020 DATE OF PRONOUNCEMENT : 20 .0 5 .2020 IT(TP)A NOS.218 & 199/BANG/2015 PAGE 2 OF 19 O R D E R PER B R BASKARAN, ACCOUNTANT MEMBER THESE CROSS APPEALS ARE DIRECTED AGAINST THE ASSE SSMENT ORDER DATED 30-12-2014 PASSED BY THE ASSESSING OFFICER FO R ASSESSMENT YEAR 2010-11 U/S 143(3) R.W.S 144 OF THE ACT IN PURSUANC E OF DIRECTIONS GIVEN BY LD DISPUTE RESOLUTION PANEL (DRP). 2. THE FACTS RELATING TO THE CASE ARE DISCUSSED IN BRIEF. THE ASSESSEE IS 100% SUBSIDIARY OF EYGI B.V., NETHERLANDS. IT I S ENGAGED IN THE BUSINESS OF PROVIDING BACK OFFICE SUPPORT SERVICES, WHICH ARE IN THE NATURE OF INFORMATION TECHNOLOGY ENABLED SERVICES (ITES) . THE NATURE OF SERVICES PROVIDED BY THE ASSESSEE TO ITS ASSOCIATED ENTERPRISES (AES) INCLUDES FINANCIAL ANALYSIS AND REPORTING FUNCTIONS SUCH AS STANDARD REPORTING/ANALYSIS, WORK-IN-PROGRESS DETAILS, TIME SHEET DETAILS ETC., ACCOUNTING CENTRE PROCESSING ACTIVITIES/FUNCTIONS S UCH AS ACCOUNTS RECEIVABLE, ACCOUNTS PAYABLE FUNCTIONS, BILLING ANA LYSIS AND INVOICE PREPARATION ETC AND FINANCIAL ASSISTANCE/ADMINISTRA TION FUNCTIONS SUCH AS TIME AND EXPENSES REVIEW, HELPDESK PROVIDING ASSIST ANCE ON EMPLOYEE QUERIES ETC. THE ASSESSEE IS REMUNERATED AT COST P LUS BASIS FOR THE SERVICES PROVIDED TO ITS AES. 3. THE ASSESSEE ADOPTED TNMM METHOD TO BENCHMARK IT S INTERNATIONAL TRANSACTIONS AND ADOPTED OPERATING PROFIT/OPERATING COST (OP/OC) AS PROFIT LEVEL INDICATOR (PLI). THE ASSESSEE MADE TR ANSFER PRICING ADJUSTMENT OF RS.8,11,70,000/- VOLUNTARILY TO ITS F INANCIAL RESULTS. IT ALSO INCLUDED FOREIGN EXCHANGE GAINS AS PART OF ITS OPER ATING INCOME. ACCORDINGLY, IT WORKED OUT THE PLI AT 28.86%. THE ARITHMETIC MEAN OF PLI OF COMPARABLE COMPANIES SELECTED BY THE ASSESSEE WO RKED OUT TO 18.53%. ACCORDINGLY, THE ASSESSEE CLAIMED THAT ITS INTERNAT IONAL TRANSACTIONS WITH THE AES ARE AT ARMS LENGTH. THE TRANSFER PRICING O FFICER (TPO), HOWEVER, IT(TP)A NOS.218 & 199/BANG/2015 PAGE 3 OF 19 REJECTED THE TRANSFER PRICING STUDY OF THE ASSESSEE . BY APPLYING CERTAIN FILTERS, THE TPO SELECTED FOLLOWING SET OF 10 COMPA RABLE COMPANIES:- SL.NO. NAME PLI 1 ACCENTIA TECH NOLOGIES LTD. 43.06% 2 ACROPETAL TECHNOLOGIES LTD. (SEG. ) 22.27% 3 E - CLERX SERVICES LTD. 55.97% 4 FORTUNE INFOTECH LTD. 22.80% 5 ICRA ONLINE LTD. (SEG.) 43.39% 6 INFORMED TECHNOLOGIES I N DIA LT D. 26.1 5% 7 INFOSYS BPO 31. 23% 8 COSMIC GLOBAL LTD. 14.97% 9 SUNDARAM BUSINESS SERVICES LTD. - 12.31 % 10 JEEVAN SCIENTIFIC TECHNOLOGY LTD. (SEG.) 21.05% AVERAGE 26.86% THE AVERAGE MEAN MARGIN OF COMPARABLE COMPANIES SEL ECTED BY THE TPO WAS 26.86%. AFTER GIVING CREDIT FOR WORKING CAPITA L ADJUSTMENT OF 0.23%, THE ADJUSTED MARGIN WAS WORKED OUT BY TPO AT 26.63% . WHILE COMPUTING THE PROFIT MARGIN, THE TPO DID NOT CONSIDER FOREIGN EXCHANGE GAINS AS PART OF OPERATING INCOME. ACCORDINGLY, THE TOTAL AMOUNT OF TRANSFER PRICING ADJUSTMENT WAS WORKED OUT AT RS.10,01,18,202/-. SI NCE THE ASSESSEE HAD VOLUNTARILY ADDED A SUM OF RS.8,11,70,000/- AS VOLU NTARY TRANSFER PRICING ADJUSTMENT, THE TPO PROPOSED ADDITIONAL ADJUSTMENT OF RS.1,89,48,202/-. 4. THE LD DRP DIRECTED THE AO/TPO TO EXCLUDE CERTAI N COMPARABLE COMPANIES. IT IS PERTINENT TO NOTE THAT THE AO HAD ALLOWED DEDUCTION U/S 10AA TO THE ASSESSEE. WHILE COMPUTING DEDUCTION, T HE AO HAD EXCLUDED TELECOMMUNICATION EXPENSES & FOREIGN TRAVEL EXPENSE S FROM EXPORT TURNOVER ONLY. THE LD DRP HELD THAT THE SAID AMOUN T SHOULD BE EXCLUDED FROM TOTAL TURNOVER ALSO. THE DRP ALSO HELD THAT TH E FOREIGN EXCHANGE GAINS SHALL FORM PART OF OPERATING INCOME. THE LD D RP ALSO NOTICED THAT THE ASSESSEE HAS CLAIMED DEDUCTION U/S 10AA AGAINST THE VOLUNTARY TRANSFER PRICING ADJUSTMENT OF RS.8.11 CRORES MADE BY THE AS SESSEE. THE LD DRP IT(TP)A NOS.218 & 199/BANG/2015 PAGE 4 OF 19 NOTICED THAT THE ASSESSEE HAS NOT FURNISHED ANY DET AILS AS TO HOW THE ABOVE SAID AMOUNT WAS WORKED OUT BY THE ASSESSEE. FURTHER THE PROVISIONS OF SEC.10AA ALSO MANDATE THAT THE EXPORT CONSIDERATION SHOULD BE BROUGHT INTO INDIA IN ORDER TO CLAIM DEDUCTION U /S 10AA OF THE ACT. THE LD DRP NOTICED THAT THE ASSESSEE HAS CLAIMED DEDUCT ION U/S 10AA IN RESPECT OF ITS GURGAON UNIT AND THE SAID UNIT HAS A CTUALLY INCURRED LOSS. THE ASSESSEE HAS SHOWN PROFIT BY MAKING VOLUNTARY T RANSFER PRICING ADJUSTMENT, REFERRED ABOVE. ACCORDINGLY THE LD DRP HELD THAT THE ASSESSEE IS NOT ELIGIBLE FOR DEDUCTION U/S 10AA OF THE ACT AND ACCORDINGLY DIRECTED THE AO TO DISALLOW THE CLAIM. THE AO, A CCORDINGLY, PASSED THE FINAL ASSESSMENT ORDER IN PURSUANCE OF DIRECTIONS G IVEN BY LD DRP. 5. AGGRIEVED BY THE DIRECTIONS GIVEN BY LD DRP, BOT H THE PARTIES ARE IN APPEAL BEFORE US. 6. WE SHALL FIRST TAKE UP THE APPEAL FILED BY THE R EVENUE. GROUND NO.1,11 & 12 ARE GENERAL IN NATURE. THE GROUND NO. 2 & 3 RELATE TO THE DIRECTION OF LD DRP TO ALLOW DEDUCTION OF TELECOMMU NICATION EXPENSES AND FOREIGN TRAVEL EXPENSES FROM TOTAL TURNOVER ALSO WH ILE COMPUTING DEDUCTION U/S 10A/10AA OF THE ACT. WE NOTICE THAT THE LD DRP HAS FOLLOWED THE BINDING DECISION RENDERED BY THE HONBLE JURISDICTI ONAL HIGH COURT IN THE CASE OF TATA ELXSI LTD (2011)(247 CTR 334)(KAR.) IN GIVING THE SAID DIRECTION. SINCE THE LD DRP HAS FOLLOWED THE DECIS ION RENDERED BY THE JURISDICTIONAL HIGH COURT IN DIRECTING THE AO TO EX CLUDE TELECOMMUNICATION & FOREIGN TRAVEL EXPENSES BOTH FROM EXPORT TURNOVER AND TOTAL TURNOVER WHILE COMPUTING DEDUCTION U/S 10A/10AA OF THE ACT, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE SAID DIRECTION. 7. IN GROUND NO.4 AND 5, THE REVENUE IS AGGRIEVED I N EXCLUSION OF TWO COMPARABLE COMPANIES, VIZ., M/S E-CLERX SERVICES LT D AND M/S ACROPETAL TECHNOLOGIES LTD. IT(TP)A NOS.218 & 199/BANG/2015 PAGE 5 OF 19 8. WITH REGARD TO M/S E-CLERX SERVICES LTD, THE LD DRP NOTICED THAT THE FUNCTIONS PERFORMED BY THIS COMPANY HAS BEEN EXAMIN ED BY THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF M/S MAERSK GLO BAL CENTRES (INDIA) PRIVATE LIMITED VS. ACIT (ITA NO.7466/MUM/2012) AND THE SPECIAL BENCH HAS GIVEN A FINDING THAT THE ABOVE SAID COMPANY IS MAINLY ENGAGED IN PROVIDING HIGH-END SERVICES INVOLVING SPECIALISED K NOWLEDGE AND DOMAIN EXPERTISE IN THE FIELD AND HENCE THE SAME CANNOT BE COMPARED WITH A COMPANY ENGAGED IN PROVIDING LOW END SERVICES TO TH E GROUP CONCERNS. THE CO-ORDINATE BENCH OF TRIBUNAL HAS HELD IN THE C ASE OF SYMPHONY MARKETING SOLUTIONS INDIA P LTD (ITA NO.1316/BANG/2 012) THAT M/S E-CLERX SERVICES LTD IS ENGAGED IN KPO (KNOWLEDGE PROCESS O UTSOURCING) SERVICES. WE NOTICE THAT THE LD DRP HAS CONSIDERED THE ASSESSEE HEREIN AS A LOW END SERVICE PROVIDER AND ACCORDINGLY FOLLO WED THE ABOVE SAID DECISIONS. THE LD D.R SUBMITTED THAT THE TPO HAS N OT CONSIDERED THIS COMPANY AS ENGAGED IN PROVIDING KPO SERVICES. HOWE VER, THE NATURE OF SERVICES PROVIDED THIS COMPANY HAS BEEN EXAMINED BY THE SPECIAL BENCH AS WELL AS CO-ORDINATE BENCHES. ACCORDINGLY, THE LD DRP HAS DIRECTED THE AO TO EXCLUDE THIS COMPANY. SINCE THE LD DRP HAS F OLLOWED THE DECISIONS RENDERED BY THE SPECIAL BENCH AS WELL AS CO-ORDINAT E BENCHES, WE DO NOT FIND ANY REASON TO INTERFERE WITH ITS DECISION REND ERED ON THIS COMPARABLE COMPANY. 9. WITH REGARD TO M/S ACROPETAL TECHNOLOGIES LTD, T HE LD D.R SUBMITTED THAT THE LD DRP HAS APPLIED ON SITE FILT ER AND EMPLOYEE COST FILTER FOR EXCLUDING THIS COMPANY. THE LD D.R SUBM ITTED THAT THE TPO HAS NOT APPLIED THESE FILTERS AND HENCE THE LD DRP WAS NOT RIGHT IN APPLYING THESE FILTERS. THE LD A.R, ON THE CONTRARY, SUBMIT TED THAT THIS COMPANY HAS BEEN HELD TO BE NOT COMPARABLE FOR AN ITES COMPANY BY THE CO-ORDINATE BENCH IN THE CASE OF TESCO HINDUSTAN SERVICE CENTRE P LTD (IT(TP)A NOS. 191 & 569/BANG/2015 DATED 25-01-2017). IN THE ABOV E SAID CASE, THE CO- IT(TP)A NOS.218 & 199/BANG/2015 PAGE 6 OF 19 ORDINATE BENCH HAS EXCLUDED THIS COMPANY BY FOLLOWI NG THE DECISION RENDERED BY ANOTHER CO-ORDINATE BENCH IN THE CASE O F KODIAK NETWORKS (INDIA) P LTD VS. DCIT (IT(TP)A NO.1540/BANG/2012), WHEREIN IT WAS HELD THAT M/S ACROPETAL TECHNOLOGIES LTD (SEG.) IS FUNCT IONALLY DIFFERENT AND CANNOT BE COMPARED WITH A COMPANY PROVIDING CAPTIVE SERVICES. FURTHER, IN THE CASE OF SYMPHONY MARKETING SOLUTIONS INDIA ( P) LTD (IT(TP)A NO.1316/BANG/2012 DATED 14.08.2013 FOR AY 2008-09), THE CO-ORDINATE BENCH HAS HELD AS UNDER:- 12.......AS FAR AS ACROPETAL TECHNOLOGIES LTD IS C ONCERNED, THIS COMPANY DOES THE BUSINESS OF EXPORT OF SOFTWAR E SERVICES. IT IS ALSO SEEN FROM SEGMENTAL REVENUE OF THIS COMP ANY (NOTE 15 TO THE NOTES ON ACCOUNTS TO ANNUAL REPORT 07-08) THAT IT DERIVES INCOME FROM ENGINEERING DESIGN SERVICES AND SOFTWARE DEVELOPMENT SERVICES. IT IS ALSO PERTINENT TO POIN T OUT THAT BEFORE THE TPO, THE ASSESSEE RAISED AN OBJECTION TH AT THIS COMPANY PERFORMS DIFFERENT FUNCTIONS AND MAINLY ENG AGED IN THE AREA OF SOFTWARE DEVELOPMENT SERVICES AND ENGIN EERING DESIGN SERVICES. THE TPO IN HIS ORDER HAS OBSERVED THAT THE SERVICES RENDERED BY THIS COMPANY FALL IN THE DEFIN ITION OF ITES. 13. WE HAVE CONSIDERED THE SUBMISSIONS OF THE LEARN ED COUNSEL FOR THE ASSESSEE. ON A PERUSAL OF THE NOTE NO.15 OF NOTES TO ACCOUNTS WHICH GIVES SEGMENTAL REVENUE OF THIS COMPANY, IT IS CLEAR THAT THE MAJOR SOURCE OF INCOM E FOR THIS COMPANY IS FROM PROVIDING ENGINEERING DESIGN SERVIC E AND INFORMATION TECHNOLOGY SERVICES. THE FUNCTIONS PERF ORMED BY THE ENGINEERING DESIGN SERVICES SEGMENT OF THE COMP ANY CANNOT BE CONSIDERED AS COMPARABLE TO THE ITES/BPO FUNCTIONS PERFORMED BY THE ASSESSEE. THE PERFORMANC E OF ENGINEERING DESIGN SERVICES IS REGARDED AS PROVIDIN G HIGH END SERVICES AMONG THE BPO WHICH REQUIRES HIGH SKIL L WHEREAS THE SERVICES PERFORMED BY THE ASSESSEE ARE ROUTINE LOW END ITES FUNCTIONS. WE THEREFORE HOLD THAT THIS COMPANY COULD NOT HAVE BEEN SELECTED AS A COMPARABLE, ESPEC IALLY WHEN IT PERFORMS ENGINEERING DESIGN SERVICES WHICH ONLY A KNOWLEDGE PROCESS OUTSOURCING [KPO] WOULD DO AND NO T A BUSINESS PROCESS OUTSOURCING [BPO]. IT(TP)A NOS.218 & 199/BANG/2015 PAGE 7 OF 19 WE NOTICE THAT THE CO-ORDINATE BENCHES ARE CONSISTE NTLY HOLDING THAT M/S ACROPETAL TECHNOLOGIES LTD CANNOT BE CONSIDERED AS A COMPARABLE COMPANY, SINCE IT PERFORMS DIFFERENT FUNCTIONS. WE HAVE ALSO GONE THROUGH THE ANNUAL REPORT OF THIS COMPANY PLACED IN THE PAP ER BOOK. IN PART B OF NOTES ON ACCOUNTS (PAGE 1025 OF PAPER BOOK), IT IS STATED THAT THE COMPANY IS ENGAGED IN THE DEVELOPMENT OF COMPUTER S OFTWARE. SO IT APPEARS THAT THE NATURE OF ENGINEERING DESIGN SERVI CES PROVIDED BY THE ABOVE SAID COMPANY IS IN THE FORM OF DEVELOPMENT CO MPUTER SOFTWARE AND IT MAY BE IN THE NATURE OF HIGH END SERVICES. HOWEV ER, THE ASSESSEE HEREIN IS PROVIDING LOW END ITES SERVICES. ACCORDINGLY, F OLLOWING THE DECISION RENDERED BY THE CO-ORDINATE BENCHES, WE HOLD THAT T HIS COMPANY CANNOT BE CONSIDERED TO BE A GOOD COMPARABLE. ACCORDINGLY WE UPHOLD THE DECISION RENDERED BY LD DRP ON THIS COMPANY. 10. GROUND NO.6 AND 7 URGED BY THE REVENUE RELATE T O THE WORKING CAPITAL ADJUSTMENT GIVEN BY THE TPO AND MODIFIED BY LD DRP. THE CONTENTION OF THE REVENUE IS WHETHER WORKING CAPITA L ADJUSTMENT COULD BE GIVEN OR NOT. WE HAVE EARLIER NOTICED THAT THE TPO HAS GRANTED REBATE TOWARDS WORKING CAPITAL ADJUSTMENT TO THE TUNE OF 0 .23%. THE CONTENTION OF THE ASSESSEE BEFORE LD DRP WAS THAT THE TPO HAS ACT UALLY WORKED OUT THE WORKING CAPITAL ADJUSTMENT AT 0.64%, BUT GRANTED TH E REBATE ONLY TO THE TUNE OF 0.23%. THE LD DRP, HENCE, DIRECTED THE TPO TO CORRECT THE MISTAKE, IF ANY. SINCE THE DIRECTION GIVEN BY LD D RP RELATES TO CORRECTION OF MISTAKE ONLY, WE DO NOT FIND ANY INFIRMITY IN THE D IRECTION SO GIVEN. 11. GROUND NO.8 AND 9 URGED BY THE REVENUE RELATE T O THE QUESTION AS TO WHETHER THE FOREIGN EXCHANGE GAIN CAN BE TAKEN AS O PERATING INCOME OR NOT. THE TPO WAS OF THE VIEW THAT THE FOREIGN EXCH ANGE GAIN CANNOT BE CONSIDERED AS PART OF OPERATING INCOME. THE LD DRP , FOLLOWING THE DECISION RENDERED BY THE CO-ORDINATE BENCH IN THE C ASE OF SAP LABS INDIA IT(TP)A NOS.218 & 199/BANG/2015 PAGE 8 OF 19 (P) LTD VS. ACIT (2011)(44 SOT 156)(BANG.) HELD THA T THE FOREIGN EXCHANGE GAIN SHOULD BE CONSIDERED AS PART OF OPERATING INCO ME. THE REVENUE IS AGGRIEVED. 12. WE HEARD THE PARTIES ON THIS ISSUE AND PERUSED THE RECORD. WE NOTICE THAT THE LD DRP HAS FOLLOWED THE DECISION RE NDERED BY THE CO- ORDINATE BENCH IN THE CASE OF SAP LABS INDIA (P) LT D (SUPRA). IDENTICAL VIEW HAS ALSO BEEN EXPRESSED BY ANOTHER CO-ORDINATE BENC H IN THE CASE OF CISCO SYSTEMS (INDIA) PRIVATE LTD (IT(TP)A NO.271/B ANG/2014 DATED 14.08.2014. ACCORDINGLY, WE DO NOT FIND ANY INFIR MITY IN THE DIRECTION GIVEN BY LD DRP ON THIS ISSUE. 13. GROUND NO.10 URGED BY THE REVENUE RELATES TO TH E DIRECTION GIVEN BY LD DRP TO APPLY EXPORT FILTER IN ITES SEGMENT. THE CONTENTION OF THE REVENUE IS THAT THE SAID DIRECTION ACTUALLY AMOUNTS TO SETTING ASIDE THE DRAFT ORDER AND HENCE THE SAME IS BEYOND THE SCOPE OF THE DRP. WE NOTICE THAT THE LD DRP HAS APPLIED THE EXPORT FILTER ON ALL THE COMPARABLE COMPANIES AND SINCE ONE OF THE COMPARABLE COMPANIES SELECTED BY THE TPO NAMED M/S SUNDARAM BUSINESS SERVICES LTD FAILED THIS FILT ER, THE LD DRP HAS DIRECTED FOR EXCLUSION OF THE SAME. 14. WE HEARD THE PARTIES AND NOTICE THAT THE LD DRP HAS APPLIED THE EXPORT FILTER ON ALL THE COMPARABLES AND ACCORDINGL Y RENDERED ITS DECISION. HENCE WE ARE OF THE VIEW THAT THE SAID ACTION WILL NOT AMOUNT TO SETTING ASIDE THE DRAFT ORDER AS CONTENDED BY THE REVENUE. 15. WE SHALL NOW TAKE UP THE APPEAL OF THE ASSESSEE . THE MAIN GROUND URGED BY THE ASSESSEE RELATES TO THE REJECTION OF C LAIM FOR DEDUCTION U/S 10AA OF THE ACT ON THE AMOUNT OF TRANSFER PRICING A DJUSTMENT VOLUNTARILY MADE BY THE ASSESSEE. IT(TP)A NOS.218 & 199/BANG/2015 PAGE 9 OF 19 16. THE ADDITIONAL GROUNDS RELATE TO THE INCLUSION/ EXCLUSION OF CERTAIN COMPARABLE COMPANIES. THE LD A.R SUBMITTED THAT TH E ASSESSEE MAY NOT PRESS THE ADDITIONAL GROUNDS, IF THE REVENUES APPE AL IS DISMISSED. SINCE WE HAVE DISMISSED THE APPEAL OF THE REVENUE IN THE EARLIER PARAGRAPHS, THE ADDITIONAL GROUNDS URGED BY THE ASSESSEE ARE NOT AD JUDICATED, AS THE SAME WOULD BE ACADEMIC IN NATURE. 17. WE HAVE NOTICED EARLIER THAT THE ASSESSEE HAD M ADE TRANSFER PRICING ADJUSTMENT OF RS.8,11,70,000/- VOLUNTARILY AND ADDE D THE SAME TO THE TOTAL INCOME WHILE FILING RETURN OF INCOME. THE ASSESSEE ALSO CLAIMED DEDUCTION U/S 10AA OF THE ACT ON THE PROFITS OF BUSINESS ARRI VED AT AFTER INCLUSION OF ABOVE SAID AMOUNTS. THE LD DRP TOOK THE VIEW THAT THE ASSESSEE DID NOT FURNISH THE DETAILS AS TO HOW THE ABOVE SAID FIGURE WAS ARRIVED AT BY THE ASSESSEE. IT FURTHER TOOK THE VIEW THAT THE ASSESS EE WILL NOT BE BRINGING THE ABOVE SAID AMOUNT IN FOREIGN EXCHANGE WITHIN THE PE RIOD PRESCRIBED IN SEC.10AA OF THE ACT, WHICH IS ONE OF THE MANDATORY CONDITIONS FOR ALLOWING DEDUCTION UNDER THAT SECTION. THE LD DRP ALSO NOTI CED THAT THE ELIGIBLE UNIT HAS ACTUALLY INCURRED LOSS AND HENCE THE ASSESSEE I S NOT ELIGIBLE TO CLAIM DEDUCTION U/S 10AA OF THE ACT. HOWEVER, THE ASSESS EE, BY MAKING VOLUNTARY TRANSFER PRICING ADJUSTMENT, IS ATTEMPTIN G TO AVAIL DEDUCTION U/S 10AA OF THE ACT AND THE SAME SHOULD NOT BE PERMITTE D. THE LD DRP ALSO HELD THAT THE TRANSFER PRICING ADJUSTMENT DETERMINE D BY THE TPO IS ADDED TO THE TOTAL INCOME FOR TAX PURPOSES, IRRESPECTIVE OF THE PROFITS/LOSS OF 10A/10AA UNITS AND WHETHER THEY ARE ELIGIBLE FOR DE DUCTION UNDER THOSE SECTIONS OR NOT. FURTHER THE LD DRP ALSO PROCEEDED ON THE GROUND THAT THE ASSESSEE DID NOT DETERMINE THE VOLUNTARY T.P ADJUST MENT IN ITS TRANSFER PRICING STUDY. ACCORDINGLY, THE LD DRP HELD THAT T HE DECISION RENDERED BY THE CO-ORDINATE BENCH IN THE CASE OF I-GATE GLOBAL SOLUTIONS LTD (2007)(112 TTJ 1002) IS DISTINGUISHABLE. ACCORDINGLY THE LD DRP DIRECTED THE AO TO IT(TP)A NOS.218 & 199/BANG/2015 PAGE 10 OF 19 DISALLOW THE DEDUCTION CLAIMED U/S 10AA IN RESPECT OF VOLUNTARY TRANSFER PRICING ADJUSTMENT. 18. WE HEARD THE PARTIES ON THIS ISSUE AND PERUSED THE RECORD. THE LD A.R SUBMITTED THAT THE LD DRP WAS FACTUALLY NOT COR RECT IN OBSERVING THAT THE ASSESSEE DID NOT FURNISH DETAILS OF VOLUNTARY T RANSFER PRICING ADJUSTMENT. IT HAS ADDED THE AMOUNT OF VOLUNTARY T P ADJUSTMENT WHILE COMPUTING THE REVISED MARGIN OF THE ASSESSEE, WHICH IS PLACED AT PAGE 680 OF THE PAPER BOOK. HE FURTHER SUBMITTED THAT THE A SSESSEE HAS ARRIVED AT THE AMOUNT OF VOLUNTARY T.P ADJUSTMENT IN A SCIENTI FIC MANNER BY COMPARING THE MARGINS OF COMPARABLE COMPANIES SELECTED BY THE ASSESSEE. ACCORDINGLY HE SUBMITTED THAT THE LD DRP WAS NOT JU STIFIED IN OBSERVING THAT THE SAME IS AN ADHOC AMOUNT. HE FURTHER SUBMI TTED THAT THE CO- ORDINATE BENCH HAS HELD IN THE CASE OF I-GATE GLOBA L SOLUTIONS LTD (SUPRA) HAS HELD THAT THE ASSESSEE IS ELIGIBLE FOR DEDUCTIO N U/S 10AA ON THE AMOUNT OF VOLUNTARY TP ADJUSTMENT. HE SUBMITTED THAT THE DECISION OF THE TRIBUNAL IN THE ABOVE SAID CASE HAS SINCE BEEN UPHELD BY THE HONBLE HIGH COURT OF KARNATAKA. HE FURTHER SUBMITTED THAT THE PUNE BENC H OF TRIBUNAL HAS RENDERED A DECISION IN FAVOUR OF THE ASSESSEE IN TH E CASE OF APOORVA SYSTEMS (P) LTD (2018)(92 TAXMANN.COM 82) BY CONSID ERING THE DECISION RENDERED IN THE CASE OF I-GATE GLOBAL SOLUTIONS LTD . ON THE CONTRARY, THE LD D.R SUPPORTED THE ORDER PASSED BY LD DRP ON THIS ISSUE. 19. WE NOTICE THAT AN IDENTICAL ISSUE HAS BEEN EXAM INED BY THE PUNE BENCH OF TRIBUNAL IN THE CASE OF APOORVA SYSTEMS (P ) LTD (SUPRA). FOR THE SAME OF CONVENIENCE, WE EXTRACT BELOW THE RELEVANT OBSERVATIONS MADE BY THE PUNE BENCH IN THE ABOVE SAID CASE:- 15. NOW, COMING TO THE SECOND CLAIM OF DEDUCTION UNDE R SECTION 10B/10A OF THE ACT ON TP ADJUSTMENT OF RS. 64,07,399/-. THE ASSESSEE ON ITS OWN MOTION HAD OFFERED ADJUSTME NT ON ACCOUNT OF TRANSFER PRICING PROVISION TO THE EXTENT OF RS. IT(TP)A NOS.218 & 199/BANG/2015 PAGE 11 OF 19 64,07,399/-. THE COMPUTATION OF INCOME IS PLACED AT PAGE 40 OF THE PAPER BOOK. THE ASSESSEE CLAIMS THAT ON THE AFO RESAID ADDITIONAL INCOME OFFERED, IT IS ENTITLED TO CLAIM THE BENEFIT OF DEDUCTION UNDER SECTION 10B/10A OF THE ACT. WE MAY POINT HEREIN ITSELF THAT IN THE RETURN OF INCOME, THE ASS ESSEE HAD CLAIMED THE SAID DEDUCTION UNDER SECTION 10B OF THE ACT. HO WEVER, DURING THE COURSE OF HEARING BEFORE THE AUTHORITIES BELOW, THE SAID CLAIM WAS REVISED TO 10A DEDUCTION. THE QUESTION THUS, WH ICH ARISES BEFORE US IS WHETHER THE ASSESSEE IS ENTITLED TO CL AIM 10A DEDUCTION ON THE ADDITIONAL TP ADJUSTMENT OFFERED B Y THE ASSESSEE ON ITS OWN MOTION IN THE RETURN OF INCOME. THE ASSE SSEE WAS 100% EXPORT ORIENTED UNIT WHICH WAS CAPTIVE SERVICE PROVIDER TO ITS ASSOCIATED ENTERPRISES. THE TOTAL EXPORTS WE RE TO THE ASSOCIATED ENTERPRISES AND THE PLEA OF ASSESSEE IN THIS REGARD IS THAT FOREIGN EXCHANGE DUE ON EXPORTS HAS BEEN RECEI VED IN INDIA IN TIME. IN ORDER TO ADJUDICATE THE ISSUE, WE NEED TO TAKE INTO CONSIDERATION THE PROVISIONS OF SECTION STARTING WI TH SECTION 92(1) OF THE ACT. THE CHAPTER X OF THE ACT LAYS DOWN THE SPECIAL PROVISIONS RELATING TO AVOIDANCE OF TAX. UNDER SECT ION 92 OF THE ACT, ANY INCOME ARISING FROM INTERNATIONAL TRANSACT IONS SHALL BE COMPUTED HAVING REGARD TO THE ARM'S LENGTH PRICE. I N OTHER WORDS, SECTION PROVIDES COMPUTATION OF INCOME FROM INTERNA TIONAL TRANSACTIONS HAVING REGARD TO THE ARM'S LENGTH PRIC E. THE INCOME WHICH IS SO COMPUTED IN RESPECT OF INTERNATIONAL TR ANSACTIONS ENTERED INTO BY THE ASSESSEE IS NOTIONAL INCOME IN THE HANDS OF ASSESSEE. THIS IS THE BASIC POINT WHICH HAS TO BE K EPT IN MIND WHILE ADJUDICATING THE ISSUE RAISED IN THE PRESENT APPEAL. 16. UNDER SECTION 92CA OF THE ACT, WHERE A PERSON HAS ENTERED INTO AN INTERNATIONAL TRANSACTION IN ANY PREVIOUS Y EAR WITH ITS ASSOCIATED ENTERPRISES, THEN IN ORDER TO BENCHMARK THE ARM'S LENGTH PRICE OF SUCH AN INTERNATIONAL TRANSACTION A ND TO COMPUTE ITS ARM'S LENGTH PRICE UNDER SECTION 92C OF THE ACT , REFERENCE IS TO BE MADE TO THE TPO BY THE ASSESSING OFFICER UNDER T HE SPECIFIED CONDITIONS, WHO IN TURN HAS TO COMPUTE THE SAID ARM 'S LENGTH PRICE IN THE HANDS OF ASSESSEE. 17. SECTION 92C(4) OF THE ACT PROVIDES THAT WHERE AN A RM'S LENGTH PRICE IS DETERMINED UNDER SUB-SECTION (3), THEN THE ASSESSING OFFICER MAY COMPUTE TOTAL INCOME OF ASSESSEE HAVING REGARD TO THE ARM'S LENGTH PRICE SO DETERMINED. IN OTHER WORD S, THE IT(TP)A NOS.218 & 199/BANG/2015 PAGE 12 OF 19 ASSESSING OFFICER IS EMPOWERED TO COMPUTE TOTAL INC OME OF ASSESSEE IN RELATION TO INTERNATIONAL TRANSACTIONS UNDERTAKEN BY THE ASSESSEE WITH ITS ASSOCIATED ENTERPRISES. THE P ROVISO THEREIN PROVIDES THAT NO DEDUCTION UNDER SECTION 10A/10AA O R 10B OR CHAPTER VI-A OF THE ACT SHALL BE ALLOWED IN RESPECT OF SUCH AMOUNT OF INCOME, BY WHICH THE TOTAL INCOME OF ASSE SSEE HAD BEEN ENHANCED AFTER COMPUTATION OF ARM'S LENGTH PRI CE OF INTERNATIONAL TRANSACTIONS. THE INCOME SO DETERMINE D BY THE ASSESSING OFFICER BY FOLLOWING THE PROCEDURE LAID D OWN IN CHAPTER IS TO BE ADDED AS ADDITIONAL INCOME OF ASSE SSEE, ON WHICH NO DEDUCTION UNDER SECTION 10A/10AA OR CHAPTER VI-A OF THE ACT IS TO BE ALLOWED. 18. HOWEVER, IN THE FACTS OF PRESENT CASE BEFORE US, I T IS NOT THE ASSESSING OFFICER OR TPO WHO HAS DETERMINED THE ADD ITIONAL INCOME ON ACCOUNT OF TRANSFER PRICING PROVISIONS. T HE ASSESSEE ON ITS OWN MOTION HAS OFFERED ADDITIONAL INCOME ON ACC OUNT OF TRANSFER PRICING PROVISIONS TO THE EXTENT OF RS. 64 ,07,399/-. THE SAID INCOME WAS OFFERED AS PART OF BUSINESS PROFITS OF ASSESSEE AND WAS DECLARED AS INCOME FROM BUSINESS IN THE COM PUTATION OF INCOME FILED BY THE ASSESSEE. THE ISSUE WHICH ARISE S IS WHETHER ON SUCH ADDITIONAL INCOME, THE ASSESSEE IS ENTITLED TO CLAIM THE BENEFIT OF SECTION 10B/10A OF THE ACT. IN THE FIRST INSTANCE, IN THE PARAS HEREINABOVE, THE ASSESSEE IS FOUND TO BE ENTI TLED TO CLAIM THE DEDUCTION UNDER SECTION 10A OF THE ACT, WHICH H AS ALSO BEEN ALLOWED TO THE ASSESSEE IN EARLIER YEARS. CONSEQUEN TLY, WE RESTRICT OUR OBSERVATIONS TO THE AFORESAID CLAIM WHETHER TO BE ALLOWED OR NOT IN THE CASE OF ASSESSEE UNDER SECTION 10A OF TH E ACT. IN THIS REGARD, THERE IS NEED TO LOOK AT THE COMPUTATION PR OVISIONS PROVIDED IN SUB-SECTION (4) TO SECTION 10A OF THE A CT. THE SAID SUB-SECTION READS AS UNDER: '10(A)(1).. (2) & (3) ** ** ** (4) FOR THE PURPOSES OF SUB-SECTIONS (1) AND (1A), THE PROFITS DERIVED FROM EXPORT OF ARTICLES OR THINGS OR COMPUT ER SOFTWARE SHALL BE THE AMOUNT WHICH BEARS TO THE PROFITS OF T HE BUSINESS OF THE UNDERTAKING, THE SAME PROPORTION AS THE EXPORT TURNOVER IN IT(TP)A NOS.218 & 199/BANG/2015 PAGE 13 OF 19 RESPECT OF SUCH ARTICLES OR THINGS OR COMPUTER SOFT WARE BEARS TO THE TOTAL TURNOVER OF THE BUSINESS CARRIED ON BY TH E UNDERTAKING.' 19. AS PER SAID SUB-SECTION, THE PROFITS DERIVED FROM THE EXPORT OF ARTICLES OR THINGS OR COMPUTER SOFTWARE, SHALL BE T HE AMOUNT WHICH BEARS TO THE PROFITS OF BUSINESS OF THE UNDER TAKING, THE SAME PROPORTION AS THE EXPORT TURNOVER IN RESPECT O F SUCH ARTICLES OR THINGS OR COMPUTER SOFTWARE, BEARS TO THE TOTAL TURNOVER OF BUSINESS CARRIED ON BY THE UNDERTAKING. THUS, THE F IRST STEP WE HAVE TO LOOK AT THE PROFITS DERIVED FROM EXPORT OF ARTICLES OR THINGS OF COMPUTER SOFTWARE AND THE PROFITS OF BUSI NESS OF UNDERTAKING. THE ADDITIONAL INCOME IS ON THE BASIS OF ARTIFICIAL/NOTIONAL INCOME COMPUTED IN THE HANDS OF ASSESSEE UNDER THE PROVISIONS OF SECTION 92(1) OF THE ACT. T HE CASE OF CIT(A) IS THAT THE ASSESSEE HAS FAILED TO BRING INT O COUNTRY THE EXPORT PROCEEDS IN FOREIGN EXCHANGE IN RESPECT OF S UCH ADDITIONAL INCOME OFFERED AND CONSEQUENTLY, NO DEDUCTION UNDER SECTION 10A OF THE ACT IS TO BE ALLOWED. THE CONNECTED ASPE CT OF THE ISSUE IS THAT THERE IS NO DISPUTE IN THE MINDS OF A UTHORITIES BELOW THAT IT IS PROFITS OF BUSINESS. SUCH PROFIT OF BUSI NESS IS NEITHER EXPORT TURNOVER NOR THE TOTAL TURNOVER OF ASSESSEE BUT IS ARTIFICIAL INCOME WHICH NEEDS TO BE TAXED IN THE HANDS OF ASSE SSEE. CONSEQUENTLY, WE HOLD THAT THE SAID ARTIFICIAL INCO ME CANNOT BE PART OF EXPORT TURNOVER OR TOTAL TURNOVER THOUGH IT WILL BE PART OF PROFITS OF BUSINESS. SIMILE WHICH FOLLOWS I S THAT IN THE ABSENCE OF IT BEING OFFERED AS EXPORT TURNOVER OR T OTAL TURNOVER, THEN THERE COULD NOT BE ANY CONDITION FOR GETTING FOREIGN EXCHANGE TO INDIA. THE ASSESSEE HAS COMPUTED THE ADDITIONAL INCOME BY FOLLOWING THE TRANSFER PRICING PROVISIONS AND HAS OFFERED THE SAME TO TAX AS ITS BUSINESS PRO FITS. ONCE IT HAS BEEN SO OFFERED TO TAX, IT FORMS PART OF PROFITS OF BUSINESS AND WHILE COMPUTING THE DEDUCTION UNDER SECTION 10A(4) OF THE ACT, THE SAID PROFITS HAVE TO BE TAKEN INTO CONSIDERATIO N AND THE DEDUCTION SO COMPUTED. 20. WE FIND THAT ON SIMILAR FACTS THE BANGALORE BENCH OF TRIBUNAL IN THE CASE OF IGATE GLOBAL SOLUTIONS LTD. ( SUPRA ) HAD ALLOWED THE DEDUCTION UNDER SECTION 10A OF THE ACT IN RESPECT O F TRANSFER PRICING ADJUSTMENT SUO-MOTO OFFERED BY THE ASSESSEE. THE RELEVANT FINDINGS OF TRIBUNAL ARE AS UNDER: IT(TP)A NOS.218 & 199/BANG/2015 PAGE 14 OF 19 '17. WE HAVE HEARD BOTH THE PARTIES. BEFORE PROCEED ING FURTHER, IT WILL BE RELEVANT TO REPRODUCE SECTION 10A(1). 'SECTION 10A. SPECIAL PROVISION IN RESPECT OF NEWLY ESTABLISHED UNDERTAKINGS IN FREE TRADE ZONE, ETC.(1) SUBJECT T O THE PROVISIONS OF THIS SECTION A DEDUCTION OF SUCH PROF ITS AND GAINS AS ARE DERIVED BY AN UNDERTAKING FROM THE EXPORT OF AR TICLES OR THINGS OR COMPUTER SOFTWARE FOR A PERIOD OF TEN CONSECUTIV E ASSESSMENT YEARS BEGINNING WITH THE ASSESSMENT YEAR RELEVANT T O THE PREVIOUS YEAR IN WHICH THE UNDERTAKING BEGINS TO MANUFACTURE OR PRODUCE SUCH ARTICLES OR THINGS OR COMPUTER SOFTWARE, AS TH E CASE MAY BE, SHALL BE ALLOWED FROM THE TOTAL INCOME OF THE ASSES SEE : PROVIDED THAT WHERE IN COMPUTING THE TOTAL INCOME O F THE UNDERTAKING FOR ANY ASSESSMENT YEAR, ITS PROFITS AN D GAINS HAD NOT BEEN INCLUDED BY APPLICATION OF THE PROVISIONS OF T HIS SECTION AS IT STOOD IMMEDIATELY BEFORE ITS SUBSTITUTION BY THE FI NANCE ACT, 2000, THE UNDERTAKING SHALL BE ENTITLED TO DEDUCTIO N REFERRED TO IN THIS SUB-SECTION ONLY FOR THE UNEXPIRED PERIOD OF T HE AFORESAID TEN CONSECUTIVE ASSESSMENT YEARS : PROVIDED FURTHER THAT WHERE AN UNDERTAKING INITIALL Y LOCATED IN ANY FREE TRADE ZONE OR EXPORT PROCESSING ZONE IS SU BSEQUENTLY LOCATED IN A SPECIAL ECONOMIC ZONE, BY REASON OF CO NVERSION OF SUCH FREE TRADE ZONE POR EXPORT PROCESSING ZONE INT O A SPECIAL ECONOMIC ZONE, THE PERIOD OF TEN. CONSECUTIVE ASSES SMENT YEARS REFERRED TO IN THIS SUB-SECTION SHALL BE RECKONED F ROM THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WH ICH THE (UNDERTAKING BEGAN TO. MANUFACTURE OR PRODUCE SUCH ARTICLES OR THINGS OR COMPUTER SOFTWARE) IN SUCH FREE TRADE ZON E OR EXPORT PROCESSING ZONE : PROVIDED ALSO THAT FOR THE ASSESSMENT YEAR BEGINNIN G ON THE 1-4- 2003, THE DEDUCTION UNDER THIS SUB-SECTION SHALL BE NINETY PER CENT OF THE PROFITS AND GAINS DERIVED BY AN UNDERTA KING FROM THE EXPORT OF SUCH ARTICLES OR THINGS OR COMPUTER SOFTW ARE : PROVIDED ALSO THAT NO DEDUCTION UNDER THIS SECTION SHALL BE ALLOWED TO ANY UNDERTAKING FOR THE ASSESSMENT YEAR BEGINNING ON THE 1-4-2010 AND SUBSEQUENT YEARS.' IT(TP)A NOS.218 & 199/BANG/2015 PAGE 15 OF 19 18. SECTION 10A(4) HAS ALSO BEEN AMENDED WITH EFFEC T FROM 1-4- 2001. BEFORE AMENDMENT, THE PROFIT DERIVED FROM EXP ORT OF ARTICLES OR THINGS WAS THE AMOUNT WHICH BEARS TO TH E PROFIT OF THE BUSINESS, THE SAME, PROPORTION AS THE EXPORT TURNOV ER IN RESPECT OF SUCH ARTICLE OR THING OR COMPUTER SOFTWARE, BEARS T O THE TOTAL TURNOVER OF THE BUSINESS. WITH EFFECT FROM 1-4-2001 , INSTEAD OF PROFITS OF THE BUSINESS, THE WORDS 'PROFIT OF THE B USINESS OF THE UNDERTAKING HAVE BEEN SUBSTITUTED. THE WORD 'UNDERT AKING' HAS NOT BEEN DEFINED UNDER SECTION 10A. THE WORDS 'INDU STRIAL UNDERTAKING' HAVE BEEN DEFINED IN THE BOOK LAW LEXI CON BY VENKATARAMIYA, AT P. 1133 IT HAS BEEN DEFINED AS UN DER : 'THE EXPRESSION 'INDUSTRIAL UNDERTAKING' MUST HAVE A TECHNICAL AND ECONOMIC CONTENT. AN INDUSTRIAL UNDERTAKING WOU LD NORMALLY BE IN ITS ORDINARY EXCITATION SOME INDUSTRIAL CONCE RN OR ENTERPRISE FOR ADVENTURE WHICH IS UNDERTAKING TO BE DONE BY TH E PERSON CONCERNED. THE DEFINITION OF 'INDUSTRIAL UNDERTAKIN G IN SECTION 3(D) OF THE INDUSTRIAL DEVELOPMENT AND REGULATION A CT. 1951, MEANS ANY UNDERTAKING PERTAINING TO A SCHEDULED IND USTRY CARRIED ON IN ONE OR MORE FACTORIES BY ANY PERSON OR AUTHOR ITY INCLUDING GOVERNMENT. CIT V. TEXTILE MACHINERY CORPN. LTD. [1971] 11 ITJ 105 AT PP. 112, 113 (CAL.) 75 CWN 186 (CAL.): AIR 1 971 CAL. 1, SEE ALSO UNION OF INDIA V. SAKSERIA COTTON MILLS LTD. [1973] 75 BOM. L.R. 100 AT P. 105.' 19. INDUSTRIAL UNDERTAKING HAS BEEN DEFINED IN SECT ION 33B OF THE INCOME-TAX ACT FOR THAT SECTION. AS PER THIS DEFINI TION, INDUSTRIAL UNDERTAKING' MEANS AN UNDERTAKING, WHICH IS MAINLY ENGAGED IN THE BUSINESS OF GENERATION OR DISTRIBUTION OF ELECT RICITY OR ANOTHER FORM OF POWER OR IN THE CONSTRUCTION OF SHIPS OR IN THE MANUFACTURE OR PROCESSING OF GOODS OR IN MINING. HE NCE, THE MEANING OF 'INDUSTRIAL UNDERTAKING' IS NOT RESTRICT ED TO ONE UNIT. THE UNDERTAKING IS TO BE CONSIDERED AS CONSISTING O F A NUMBER OF UNITS PROVIDED ALL THE UNITS ARE ENGAGED IN ANY OF THE ACTIVITIES MENTIONED IN EXPLANATION TO SECTION 33B. INDUSTRIAL UNDERTAKING HAS ALSO BEEN DEFINED IN EXPLANATION TO SECTION 10( 15). 20. BEFORE US, IT HAS NOT BEEN CLARIFIED THAT PUNE UNIT IS AN INDEPENDENT UNIT AND IS IN NO WAY RELATED WITH THE ACTIVITIES CARRIED OUT AT BANGALORE OR CHENNAI UNIT. IN ABSENC E OF THE FACTS, IT IS NOT POSSIBLE TO SAY THAT PUNE UNIT WAS AN IND EPENDENT IT(TP)A NOS.218 & 199/BANG/2015 PAGE 16 OF 19 UNDERTAKING ENGAGED IN THE BUSINESS OF SOFTWARE DEV ELOPMENT, WHICH WAS IN NO WAY RELATED TO THE SOFTWARE DEVELOP MENT DONE AT BANGALORE OR CHENNAI UNIT. IN CASE, THE PUNE UNIT I S FOUND TO BE INDEPENDENT, THEN LOSS FROM SUCH UNIT IS TO BE INDE PENDENTLY CALCULATED. IN CASE SUCH UNIT IS ASSOCIATED WITH TH E ACTIVITIES, WHICH ARE CARRIED OUT AT BANGALORE OR CHENNAI UNIT, THEN PUNE UNIT WILL BE CONSIDERED AS PART OF THAT UNDERTAKING . HENCE, THE ISSUE OF ASCERTAINING AS TO WHETHER PUNE UNIT WAS A N INDEPENDENT UNIT OR A UNIT ASSOCIATED WITH ACTIVITIES OF OTHER TWO UNITS IS RESTORED BACK ON THE FILE OF THE ASSESSING OFFICER. IN CASE IT IS FOUND THAT IT IS PART OF THE OTHER TWO UNITS AND IS ASSOCIATED WITH THE ACTIVITIES DONE IN OTHER TWO UNITS, THEN IT WIL L BE CONSIDERED AS PART OF THE SAME UNDERTAKING AND LOSS WILL BE ADJUS TED. HOWEVER, IN CASE, IF IT IS FOUND, IT IS AN INDEPENDENT UNIT, THEN IT WILL BE TREATED AS INDEPENDENT UNDERTAKING AND THE ASSESSEE CANNOT BE FORCED TO HAVE EXEMPTION IN RESPECT OF SUCH INDEPEN DENT UNDERTAKING. IN THAT CASE THE LOSS WILL (NOT) BE AD JUSTED AGAINST OTHER INCOME. 21. THE LAST GRIEVANCE IS IN RESPECT OF NOT ALLOWIN G DEDUCTION UNDER SECTION 10A ON THE ADJUSTMENT MADE BY THE ASS ESSEE TO THE ARM'S LENGTH PRICE. 22. IN THE INSTANT CASE, THE ASSESSEE COMPANY ENTER ED INTO TRANSACTION WITH ASSOCIATED ENTERPRISE. THE ASSESSE E COMPANY DETERMINED ARM'S LENGTH PRICE AND ACCORDINGLY MADE ADJUSTMENT TO THE INCOME BECAUSE ARM'S LENGTH PRICE DETERMINED WAS MORE THAN THE CONSIDERATION, AT WHICH THE TRANSACTIONS W ERE SHOWN IN THE BOOKS OF ACCOUNT. THE DEDUCTION UNDER SECTION 1 0A HAS NOT BEEN ALLOWED AS PER PROVISO TO SECTION 92C(4). AS P ER THIS PROVISO, NO DEDUCTION UNDER SECTION 10A OR 10B OR U NDER CHAPTER VI-A IS TO BE ALLOWED IN RESPECT OF AMOUNT OF INCOM E, BY WHICH THE TOTAL INCOME OF THE ASSESSEE IS ENHANCED AFTER COMPUTATION OF INCOME UNDER THE SUB-SECTION. THE. LEARNED AUTHORIS ED REPRESENTATIVE DURING THE COURSE OF PROCEEDINGS HAS REFERRED TO THE WORD 'ENHANCED'. IN CASE THE INCOME IS ENHANCED , THEN DEDUCTION IS NOT PERMISSIBLE. HOWEVER, IN THE INSTA NT CASE, INCOME HAS NOT BEEN ENHANCED BECAUSE THE SAME WAS A LREADY RETURNED BY THE ASSESSEE. IN THE MEMO EXPLAINING TH E PROVISIONS OF FINANCE BILL, 2006, IT HAS BEEN MENTIONED AS UND ER : IT(TP)A NOS.218 & 199/BANG/2015 PAGE 17 OF 19 [2006] 201 CTR (ST) 147 : [2006] 281 ITR (ST) 196 'UNDER SUB-SECTION (4), IT HAS BEEN PROVIDED THAT O N THE BASIS OF ARM'S LENGTH PRICE SO DETERMINED, THE ASSESSING OFF ICER MAY COMPUTE THE TOTAL INCOME OF AN ASSESSEE. THE FIRST PROVISO TO SUB- SECTION (4) PROVIDES THAT WHERE THE TOTAL INCOME OF THE ASSESSEE AS COMPUTED BY ASSESSING OFFICER IS HIGHER THAN THE IN COME DECLARED BY THE ASSESSEE, NO DEDUCTION UNDER SECTIO N 10A OR SECTION 10B OR UNDER CHAPTER VI-A WILL BE ALLOWED I N RESPECT OF THE AMOUNT OF INCOME, BY WHICH THE TOTAL INCOME OF THE ASSESSEE IS ENHANCED AFTER COMPUTATION OF INCOME UNDER SUB-S ECTION.' 23. FROM THE MEMO EXPLAINING THE PROVISIONS OF FINA NCE BILL, 2006 AS WELL AS FROM THE LITERAL MEANING OF THE WOR D 'ENHANCED', IT IS CLEAR THAT IF INCOME INCREASED, AS A RESULT OF C OMPUTATION OF AIM'S LENGTH PRICE, THEN SUCH INCREASE IS NOT TO BE CONSIDERED FOR DEDUCTION UNDER SECTION 10A.IN THE INSTANT CASE, TH E ASSESSEE HIMSELF HAS COMPUTED THE ARM'S LENGTH PRICES AND HA S DISCLOSED THE INCOME ON THE BASIS OF ARM'S LENGTH PRICES. IT IS NOT A CASE, WHERE THERE IS AN ENHANCEMENT OF INCOME DUE TO DETE RMINATION OF ARM'S LENGTH PRICE. HENCE, IT IS HELD THAT ASSESSEE WAS ENTITLED TO DEDUCTION UNDER SECTION 10A IN RESPECT OF INCOME DE CLARED IN THE RETURN OF INCOME ON THE BASIS OF COMPUTATION OF ARM 'S LENGTH PRICE.' 21. THE HON'BLE HIGH COURT OF KARNATAKA IN ITS ORDER I N THE CASE OF IGATE GLOBAL SOLUTIONS LTD. ( SUPRA ) CONSIDERED THE FOLLOWING SUBSTANTIAL QUESTION OF LAW RAISED BY THE REVENUE. '(4) WHETHER THE TRIBUNAL WAS CORRECT IN HOLDING TH AT DEDUCTION U/S. 10A OF THE ACT IS ALLOWABLE IN RESPECT OF INCO ME COMPUTED ON THE ARM'S LENGTH PRICE BY IGNORING THE PROVISO T O SECTION 92(4) OF THE ACT' 22. THE HON'BLE HIGH COURT IN PARAS 5 AND 6 OF ITS ORD ER HELD AS UNDER: '5. IN SO FAR AS SUBSTANTIAL QUESTION OF LAW NO.4 I S CONCERNED, THE ERROR COMMITTED BY THE ASSESSING OFFICER WAS RELYIN G ON SECTION 92(C)(4) TO A CASE WHERE ARM'S LENGTH PRICE WAS DETERMINED BY THE ASSESSEE, WHEREAS THE SAID PROVIS ION APPLIES TO A CASE WHERE ARM'S LENGTH PRICE WAS DETERMINED BY T HE IT(TP)A NOS.218 & 199/BANG/2015 PAGE 18 OF 19 ASSESSING OFFICER. THAT MISTAKE HAS BEEN CORRECTED BY THE TRIBUNAL BY SETTING ASIDE THE ORDER PASSED BY THE C OMMISSIONER AS WELL AS THE ASSESSING AUTHORITY. 6. IN THAT VIEW OF THE MATTER, WE DO NOT SEE ANY ER ROR COMMITTED BY THE TRIBUNAL IN THE IMPUGNED ORDER. THEREFORE, T HE SAID QUESTION IS ALSO ANSWERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE.' 23. THE ISSUE THUS, HAS BEEN DECIDED BY THE HON'BLE HI GH COURT OF KARNATAKA IN THE CASE OF IGATE GLOBAL SOLUTIONS LTD. ( SUPRA ), WHEREIN THE ASSESSEE'S CLAIM FOR DEDUCTION UNDER SE CTION 10A OF THE ACT IN RESPECT OF SUO-MOTO TP ADJUSTMENT MADE BY THE ASSESSEE, HAS BEEN ALLOWED. 24 . THE BANGALORE BENCH OF TRIBUNAL IN A LATER DECISI ON IN THE CASE OF AUSTIN MEDICAL SOLUTIONS (P.) LTD. ( SUPRA ) HAS APPLIED THE SAID PROPOSITION OF THE HON'BLE HIGH COURT OF KARNA TAKA ( SUPRA ) AND HAD ALLOWED THE DEDUCTION CLAIMED UNDER SECTION 10A OF THE ACT IN RESPECT OF SUO-MOTO TP ADJUSTMENT AMOUNTING TO RS. 28,61,352/- WHILE DETERMINING THE ARM'S LENGTH PRIC E OF INTERNATIONAL TRANSACTIONS. 25. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE RE VENUE ON THE OTHER HAND, HAD PLACED RELIANCE ON THE RATIO LA ID DOWN BY MUMBAI BENCH OF TRIBUNAL IN DELOITTE CONSULTING INDIA PVT. LTD.'S CASE (SUPRA), WHICH DOES NOT STAND BECAUSE OF THE R ATIO LAID DOWN BY THE HON'BLE HIGH COURT OF KARNATAKA ON THE SAID ISSUE. THOUGH THE SAID DECISION IS OF NON-JURISDICTIONAL H IGH COURT, BUT THE SAME IS BINDING ON THE TRIBUNAL IN THE ABSENCE OF ANY CONTRARY DECISION OF THE JURISDICTIONAL HIGH COURT AS HELD BY THE HON'BLE BOMBAY HIGH COURT IN SMT. GODAVARIDEVI SARAF 'S CASE ( SUPRA ). THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE AS SESSEE HAS ALSO PLACED RELIANCE ON VARIOUS DECISIONS OF DI FFERENT BENCHES OF TRIBUNAL FOR THE PROPOSITION THAT THE DECISION O F NON- JURISDICTIONAL HIGH COURT IS BINDING ON THE TRIBUNA L. HOWEVER, THE ISSUE STANDS COVERED BY THE JURISDICTIONAL HIGH COURT AND APPLYING THE SAID PROPOSITION AND IN VIEW OF OUR DE CISIONS IN THE PARAS HEREINABOVE ON OTHER ISSUES RAISED IN THE PRE SENT APPEAL, WE HOLD THAT THE ASSESSEE IS ENTITLED TO CLAIM THE AFO RESAID DEDUCTION UNDER SECTION 10A OF THE AC ON ADDITIONAL INCOME OF FERED ON IT(TP)A NOS.218 & 199/BANG/2015 PAGE 19 OF 19 ACCOUNT OF SUO-MOTO ADJUSTMENT ON ACCOUNT OF TRANSFER PRICING PROVISIONS. THE PROVISIONS OF SECTION 92C(4) OF THE ACT ARE NOT ATTRACTED. THE MODIFIED GROUND OF APPEAL NO.4 RAISE D BY THE ASSESSEE IS THUS, ALLOWED. IDENTICAL VIEW HAS BEEN EXPRESSED BY THE DELHI BENC H OF TRIBUNAL IN THE CASE OF AT KEARNEY INDIA P LTD (ITA NO.2623/DEL/201 5 DATED 21.06.2019). ACCORDINGLY WE HOLD THAT THE ASSESSEE IS ELIGIBLE F OR DEDUCTION U/S 10AA OF THE ACT IN RESPECT OF VOLUNTARY TRANSFER PRICING AD JUSTMENT MADE BY IT. WE DIRECT ACCORDINGLY. 20. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED AND THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON THIS 20 TH DAY OF MAY, 2020. SD/- SD/-0 ( N V VASUDEVAN ) ( B R BASKARAN ) VICE PRESIDENT ACCOUNTANT M EMBER BANGALORE, DATED, THE 20 TH MAY, 2020. / DESAI S MURTHY / COPY TO: 1. REVENUE 2. ASSESSEE 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FIL E BY ORDER ASSISTANT REGISTRAR ITAT, BANGALORE.