SHELL INDIA MARKETS P.LTD, MUMBAI V. ACIT LTU 2, MUMBAI

ITA 2299/MUM/2018

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 9894 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 2 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Assessment Year: 2011-2012
• Appeal Filed On: 13-04-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A MOHAN
• Assessee Lawyers: PERCY PARDIWALA SENIOR; MADHUR AGGARWAL AR S
• Keywords: Transfer pricing; International transaction; Deemed to accrue or arise in india; Question of law; Initiation of penalty proceedings; Assessment record; Revised return; Set aside
• Section: 271(1)(c); 92C; 143(3); 115JB; 10B; 143(1); 143(2); 48; 13; 263

Judgement Text

SHELL INDIA MARKETS PRIVATE LIMITED VS. CIT - LTU, MUMBAI ITA NOS. 3817/MUM/2017 & 2299/MUM/2018 1 A.Y 2009 - 10 & A.Y 2011 - 12 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH J, MUMBAI BEFORE SHRI PRAMOD KUMAR (VICE PRESIDENT) AND SHRI RAVISH SOOD (JUDICIAL MEMBER) ITA NO. 2299 /MUM/2018 ITA NO. 3817 /MUM/ 2017 ASSESSMENT YEAR S : 2009 - 10 & 2011 - 12 SHELL INDIA MARKETS PRIVATE LIMITED, TRENT HOUSE, 1 ST FLOOR, G BLOCK, PLOT NO. C - 60, BANDRA KURLA COMPLEX, BANDRA EAST, MUMBAI - 400051 VS. COMMISSIONER OF INCOME TAX , LARGE TAXPAYERS UNIT, 29 TH FLOOR, CENTER NO. 1, WORLD TRADE CENTRE, CUFF PARADE, M UMBAI PAN NO. AAICS1404P APPELLANT RESPONDENT ASSESSEE BY : SH. PERCY PARDIWALA, SENIOR ADVOCATE, & SH. MADHUR AGGARWAL, A.RS REVENUE BY : SHRI A. MOHAN, CIT D.R DATE OF HEARING : 16/18.06.2020 DATE OF PRONOUNCEMENT : 30 .06.2020 ORDER PER RAVISH SOOD, JM THE CAPTIONED APPEALS FILED BY THE ASSESSEE COMPANY ARE DIRECTED AGAINST THE RESPECTIVE ORDERS PASSED BY THE COMMISSIONER OF INCOME - TAX (LTU), MUMBAI (HEREINAFTER REFERRED TO AS CIT), FOR A.Y 2009 - 10, DATED 24.03.2017 AND A.Y 2011 - 12, DATED 02.02.2018, WHICH IN TURN ARISES FR OM THE ASSESSMENT ORDE RS PASSED BY THE A.O U/S 143(3) R.W.S 144C(13), DATED 27.02.2015 AND 26.02.2016 FOR THE SAID RESPECTIVE YEARS. AS THE ISSUE INVOLVED IN THE PRESENT APPEALS IS INEXTRICABLY INTERLINKED OR IN FACT INTERWOVEN, SHELL INDIA MARKETS PRIVATE LIMITED VS. CIT - LTU, MUMBAI ITA NOS. 3817/MUM/2017 & 2299/MUM/2018 2 A.Y 2009 - 10 & A.Y 2011 - 12 THEREFORE, THE SAME ARE BEI NG TAKEN UP AND DISPOSED OFF BY WAY OF A COMMON ORDER. WE SHALL FIRST TAKE UP THE APPEAL FOR A.Y 2009 - 10, WHEREIN THE IMPUGNED ORDER HAS BEEN ASSAILED BEFORE US ON THE FOLLOWING GROUNDS: 1. GENERAL 1.1 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT HAS LEGALLY ERRED IN ASSUMING JURISDICTION UNDER SECTION 263 OF THE ACT. THE LEARNED CIT HAS FAILED TO APPRECIATE THAT THE ASSESSMENT ORDER UNDER SECTION 143(3) R.W.S 144C(13) PASSED BY THE ASSESSING OFFICER (AO) WAS N EITHER ERRONEOUS NOR PREJUDICIAL TO THE INTEREST OF THE REVENUE. THE LEARNED CIT FURTHER FAILED TO APPRECIATE THAT THE ASSESSMENT ORDER PASSED BY THE AO WAS PURSUANT TO THE DIRECTIONS OF THE DISPUTE RESOLUTION PANEL - 2, MUMBAI AND HENCE, WAS WITH VALID JUR ISDICTION. 1.2 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT HAS LEGALLY ERRED IN SETTING ASIDE THE ASSESSMENT ORDER PASSED BY THE AO AND DIRECTING HIM TO WITHDRAW THE DEDUCTION CLAIMED BY THE APPELLANT UNDER SECTION 10A A ND 10B OF THE ACT. THE LEARNED CIT FAILED TO APPRECIATE THAT THE ISSUE INVOLVED IS DEBATABLE OR HAS BEEN EXAMINED BY THE AO. 2. WITHOUT PREJUDICE TO THE ABOVE, ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT ERRED IN NOT ALLOWING DEDUCTI ON UNDER SECTION 10A AND 10B OF THE ACT ON SUO - MOTO TRANSFER PRICING (`TP') ADJUSTMENTS. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED C1T HAS LEGALLY ERRED IN NOT DEALING WITH THE DECISION OF CIT V. I - GATE GLOBAL SOLUTION S LTD. (ITA NO. 453/208) DATED 17 JUNE 2014 DECIDED BY THE HON'BLE KARNATAKA HIGH COURT IN FAVOUR OF APPELLANT. THE LEARN ED CIT HAS F AILED TO APPRECIATE THAT THE DECISION OF I - GATE (SUPRA) HAS NOT BOON LITIGATED FURTHER BY THE INCOME - TAX DEPART MENT. ON THE FACTS AND IN THE CIRCUMST ANCES OF THE CASE AND IN LAW, THE LEARNED CIT HAS LEGALLY ERRED IN DENYING THE APPELLAN T DUE DEDUCTION OF. RS. 1,51 41, 483 / - AND RS. 32,1 7,33,266/ - CLAIMED UNDER SECTION 10A AND 10B OF THE ACT RESPECTIVE LY . 4. INITIATION OF PENAL TY PRO CEEDINGS UNDER SECTION 271(1)(C) OF THE ACT . SHELL INDIA MARKETS PRIVATE LIMITED VS. CIT - LTU, MUMBAI ITA NOS. 3817/MUM/2017 & 2299/MUM/2018 3 A.Y 2009 - 10 & A.Y 2011 - 12 4.1 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LEARNED CIT HAS LEGALLY ERRED IN DIRECTING THE AO TO INITIATE PENALTY PRO CEEDINGS UNDER SECTION 271(1)(C) INACCURATE PARTICULARS OF INCOME. THE LEARNED CIT HAS FAIL ED TO APPRECIATE THE FACT THAT THE POSITION ADOPTED BY THE APPELLANT IS IN FULLEST CONFORMITY W ITH THE DECISION OF CIT V. I - GATE GLOBAL SOLUTION S LTD. (SUPRA). THE LEARNED CIT HAS FURTHER FAILED TO APPRECIATE THE FACT T HAT THE APPELLANT H. NOT FURNISHED INACCURATE PA RTICULARS OF INCOME IN ITS RETURN OF INCOME. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND OR VARY FROM THE ABOVE GROUNDS OF APPEAL AT OR BEFORE THE TIME OF HEARING. 2. BRIEFLY STATED, THE ASSESSEE COMPA NY WHICH HAS BEEN FORMED AFTER AMALGAMATION OF FIVE COMPANIES OF THE SHELL GROUP ON 1 ST JANUARY 2009 (EFFECTIVE DATE) IS ENGAGED IN THE BUSINESS OF MARKETING MOTOR SPIRIT (PETRO L ) AND HIGH SPEED DIESEL THROUGH RETAIL OUTLETS, PROVIDING SHARED SERVICES TO I TS GROUP COMPANIES WORLDWIDE, MANUFACTURING AND TRADING OF MODIFIED BITUMEN, EMULSION , LUBRICANTS AND COOLANTS AND PROVIDING IT ENABLED SERVICES IN RELATION TO SCIENTIFIC AND TECHNICAL CONSULTANCY TO ITS GROUP COMPANIES. THE ASSESSEE COMPANY HAD E - FILED IT S RETURN OF INCOME FOR A.Y 2009 - 10 ON 30.09.2009, DECLARING A TOTAL LOSS OF RS. 212,01,77,460/ - . SUBSEQUENTLY THE ASSESSEE FILED A REVISED RETURN OF INCOME ON 24.03.2011, DECLARING A TOTAL LOSS OF RS. 204,62,84,368/ - . IN THE REVISED RETURN OF INCOME THE AS SESSEE HAD CLAIMED DEDUCTIONS U/S 10A OF RS.15,141,483/ - AND U/S 10B OF RS. 46 , 24 , 77,668/ - . THE RETURN OF INCOME FILED BY THE ASSESSEE WAS PROCESSED AS SUCH U/S 143(1) OF THE ACT. THEREAFTER, THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY ASSESSMENT U/ S 143(2) OF THE ACT. AS THE ASSESSEE HAD DURING THE YEAR ENTERED INTO INTERNATIONAL TRANSACTIONS WITH ITS ASSOCIATE ENTERPRISES (AES), THEREFORE , A REFERENCE U/S 92C(1) OF THE ACT WAS MADE TO THE ADDL. CIT(TRANSFER PRICING) - II(4), MUMBAI (HEREINAFTER REFER RED TO AS TPO), FOR DETERMINING THE ARMS LENGTH PRICE (ALP) OF SUCH TRANSACTIONS. THE TPO PASSED AN ORDER U/S 92CA(3), DATED 30.01.2013, WHEREIN HE PROPOSED A TRANSFER PRICING ADJUSTMENT OF RS. 15558 , 48 , 96,677/ - . AFTER RECEIVING THE ORDER PASSED BY THE TPO U/S 92CA(3) OF THE ACT, DATED 30.01.2013, THE A.O PASSED A DRAFT ASSESSMENT ORDER U/S SHELL INDIA MARKETS PRIVATE LIMITED VS. CIT - LTU, MUMBAI ITA NOS. 3817/MUM/2017 & 2299/MUM/2018 4 A.Y 2009 - 10 & A.Y 2011 - 12 143(3) R.W.S 144C(1) OF THE ACT, DATED 28.03.2013, WHEREIN HE PROPOSED TO ASSESS THE INCOME OF THE ASSESSEE AT RS. 15109,77,6 4,680/ - (AFTER SETTING OFF THE B/FORWARD LOSSES). SINCE THE ASSESSEE COMPANY DURING THE YEAR HAD SUFFERED AN OVERALL LOSS, THEREFORE, THE A.O IN THE DRAFT ASSESSMENT ORDER HAD INTER ALIA PROPOSED TO DISALLOW THE ASSESSEES CLAIM FOR DEDUCTION S U/SS. 10A AN D 10B OF THE ACT. AGGRIEVED, THE ASSESSEE FILED OBJECTIONS WITH THE DISPUTE RESOLUTION PANEL - 2, MUMBAI. 3. THE DRP VIDE ITS DIRECTIONS U/S 144C(5), DATED 21.01.2015 DISPOSED OFF THE OBJECTIONS OF THE ASSESSEE. OBSERVING, THAT THE HONBLE HIGH COURT OF BO MBAY IN THE CASE OF CIT VS. SCHMETZ INDIA (P) LTD. (2012) 254 CTR 504 (BOM), HAD OBSERVED, THAT WHERE AN INELIGIBLE UNIT SUFFERS A LOSS AND AN ELIGIBLE UNIT ENJOYS PROFIT THE DEDUCTION U/S 10A WAS TO BE COMPUTED WITHOUT SETTING OFF OF THE PROFIT OF THE EL IGIBLE UNITS AGAINST THE LOSSES OF THE UNDERTAKINGS INELIGIBLE FOR SUCH DEDUCTION, THE DRP DIRECTED THE A.O TO ALLOW THE ASSESSEES CLAIM FOR DEDUCTION S U/SS. 10A AND 10B WITHOUT ADJUSTING THE LOSSES OF THE INELIGIBLE UNDERTAKING. THE A.O ON RECEIPT OF THE ORDER PASSED BY THE DRP U/S 144C(5), DATED 21.01.2015, THEREIN PASSED THE FINAL ASSESSMENT ORDER U/S 143(3) R.W.S 144C(13), DATED 27.02.2015 AND ASSESSED THE CURRENT YEAR LOSS OF THE ASSESSEE COMPANY AT ( - ) RS. 1,16,64,867/ - . 4. AFTER THE CULMINATION OF A SSESSMENT PROCEEDINGS THE CIT CALLED FOR THE ASSESSMENT RECORDS OF THE ASSESSEE. ON A PERUSAL OF THE RECORDS, IT WAS OBSERVED BY THE CIT THAT THE ASSESSEE COMPANY IN ITS RETURN OF INCOME HAD CLAIMED DEDUCTION S U/S 10A OF RS. 1,51,41,483/ - AND U/S 10B OF R S. 46,24,77,668/ - . IT WAS NOTICED BY THE CIT THAT THOUGH THE A.O IN THE BACKDROP OF THE OVERALL LOSS SUFFERED BY THE ASSESSEE DURING THE YEAR HAD DISALLOWED ITS CLAIM FOR DEDUCTIONS U/SS. 10A AND 10B OF THE ACT, IN HIS DRAFT ASSESSMENT ORDER , BUT THEREAFTE R, AS PER THE DIRECTIONS OF THE DRP THE SAID DEDUCTIONS WERE ALLOWED WITHOUT ADJUSTING THE LOSSES OF THE INELIGIBLE UNDERTAKING. TO SUM UP, IT WAS OBSERVED BY THE CIT THAT PURSUANT TO THE DIRECTIONS OF THE DRP, THE DEDUCTIONS U/S 10A AND 10B WERE SHELL INDIA MARKETS PRIVATE LIMITED VS. CIT - LTU, MUMBAI ITA NOS. 3817/MUM/2017 & 2299/MUM/2018 5 A.Y 2009 - 10 & A.Y 2011 - 12 ALLOWED Q UA THE ELIGIBLE UNDERTAKINGS OF THE ASSESSEE. ON A SCRUTINY OF THE WORKING OF DEDUCTION U/S 10 A , IT WAS NOTICED BY THE CIT THAT THE ASSESSEE COMPANY HAD ADDED A N AMOUNT OF RS. 6,01,40,750/ - TOWARDS DEEMED MARK - UP OF 10% OF THE SALES BILL REVENUE OF ITS TRANSACTIONS WITH THE RELATED OVERSEAS PARTIES. IN THE BACKDROP OF THE AFORE SAID FACT, THE CIT HELD A CONVICTION THAT THE ADDITION ON ACCOUNT OF DEEMED MARK UP WAS MADE BY THE ASSESSEE IN ORDER TO BRING THE INTERNATIONAL TRANSACTIONS WITHIN ARMS LENGTH PR ICE. OBSERVING, THAT AS PER THE PROVISO TO SEC. 92C(4) OF THE ACT, THE AFORESAID ADDITION MADE BY THE ASSESSEE WOULD NOT QUALIFY FOR DEDUCTION U/S 10 A OF THE ACT., THE CIT WAS OF THE VIEW THAT INCLUSION OF THE DEEMED MARK UP FOR COMPUTING THE DEDUCTION U /S 10 A WAS IRREGULAR AB INITIO. ON THE BASIS OF HIS AFORESAID OBSERVATION, THE CIT RECOMPUTED THE DEDUCTION ADMISSIBLE U/S 10B I.E AFTER EXCLUSION OF THE DEEMED INCOME, AND OBSERVED THAT AFTER EXCLUDING THE AMOUNT OF DEEMED MARK UP THERE WAS A LOSS OF (RS. 4,34,17,343/ - ) IN THE HANDS OF THE ELIGIBLE UNIT. RESULTANTLY, THE CIT CONCLUDED THAT THE A.O WHILE FRAMING THE ASSESSMENT HAD VIDE HIS ORDER PASSED U/S. U/S 143(3) R.W.S 144C(13), DATED 27.02.2015 WRONGLY ALLOWED THE DEDUCTION U/S 10 A OF RS. 15,14,1483/ - , AS CLAIMED BY THE ASSESSEE . ON A SIMILAR FOOTING, IT WAS OBSERVED BY THE CIT THAT THE ASSESSEE COMPANY HAD ADDED AN AMOUNT OF RS. 35,61,05,259/ - TOWARDS DEEMED MARK UP OF 10% OF THE TRANSACTIONS WITH THE RELATED OVERSEAS PARTIES. IN THE BACKDROP OF THE A FORESAID FACT, THE CIT HELD A CONVICTION THAT THE ADDITION ON ACCOUNT OF DEEMED MARK UP WAS MADE BY THE ASSESSEE IN ORDER TO BRING THE INTERNATIONAL TRANSACTIONS WITHIN ARMS LENGTH PRICE. OBSERVING, THAT AS PER PROVISIO TO SEC. 92C(4) OF THE ACT, THE AF ORESAID ADDITION MADE BY THE ASSESSEE WOULD NOT QUALIFY FOR DEDUCTION U/S 10B OF THE ACT, THE CIT WAS OF THE VIEW THAT INCLUSION OF THE S AID DEEMED MARK UP FOR COMPUTING THE DEDUCTION U/S 10B WAS IRREGULAR AB INITIO. ON THE BASIS OF HIS AFORESAID OBSERVATI ON THE CIT RECOMPUTED THE DEDUCTION ADMISSIBLE U/S 10B I.E AFTER EXCLUSION OF THE DEEMED INCOME AT RS. 14,07,44,02/ - . IT WAS THUS NOTICED BY THE CIT, THAT THE A.O WHILE FRAMING THE ASSESSMENT HAD VIDE HIS ORDER PASSED U/S 143(3) R.W.S 144C(13), DATED 27.02 .2015 ALLOWED AN EXCESS DEDUCTION U/S 10B OF RS. 32,17,33,266/ - [RS. SHELL INDIA MARKETS PRIVATE LIMITED VS. CIT - LTU, MUMBAI ITA NOS. 3817/MUM/2017 & 2299/MUM/2018 6 A.Y 2009 - 10 & A.Y 2011 - 12 46,24,77,668/ - (DEDUCTION U/S 10B ALLOWED BY THE A.O) {MINUS} RS. 14,07,44,402/ - (DEDUCTION U/S 10B WHICH AS PER THE CIT WAS ALLOWABLE TO THE ASSESSEE)]. 5. IN THE BACKDROP OF HIS AFORESAID OBSERVATIONS, THE CIT HOLDING A PRIMA FACIE VIEW THAT THE ORDER PASSED BY THE A.O WAS ERRONEOUS IN SO FAR IT WAS PREJUDICIAL TO THE INTEREST OF THE REVENUE ISSUED A SHOW CAUSE NOTICE (FOR SHORT SCN) TO THE ASSESSEE U/S 263 OF THE ACT, THEREIN CALLING UPON IT TO EXPLAIN AS TO WHY THE ASSESSMENT ORDER PASSED BY THE A.O U/S 143(3) R.W.S 144C(13), DATED 27.02.2015 MAY NOT BE REVISED FOR WITHDRAWING THE EXCESS DEDUCTION S U/S 10A OF RS. 15,14,1483/ - AND U/S 10B OF RS. 32,17,33 ,266/ - THAT WAS WRONGLY ALLOWED BY THE A.O. IN REPLY, THE ASSESSEE OBJECTED TO THE ASSUMPTION OF JURISDICTION BY THE CIT U/S 263 OF THE ACT. AS IS DISCERNIBLE FROM THE RECORDS, THE ASSESSEE HAD OBJECTED TO THE PROPOSED WITHDRAWAL OF THE DEDUCTIONS WHICH WE RE ALLOWED BY THE A.O U/SS. 10A AND 10B OF THE ACT, ON MULTIPLE GROUNDS VIZ. (I). THAT AS THE ISSUE AS REGARDS THE PROPOSED DENIAL OF DEDUCTION S U/SS. 10A AND 10B BY THE A.O, VIDE HIS DRAFT ASSESSMENT ORDER U/S 143(3) R.W.S 144C(1) OF THE ACT, DATED 28.03. 2013, WAS A SUBJECT MATTER OF OBJECTION BEFORE THE DRP, THEREFORE, THE SAME THEREAFTER COULD NOT BE A SUBJECT MATTER OF PROCEEDINGS U/S 263 OF THE ACT; (II). THAT THE TWIN CONDITIONS REQUIRED FOR INVOKING REVISIONAL JURISDICTION U/S 263 VIZ. (A). THE ORDER OF THE A.O SOUGHT TO BE REVISED IS ERRONEOUS; AND (II). IT IS PREJUDICIAL TO THE INTEREST OF THE REVENUE, HAD NOT BEEN SATISFIED; (III). THAT THE A.O AFTER MAKING NECESSARY ENQUIRIES AS REGARDS THE ENTITLEMENT OF THE ASSESSEE TOWARDS CLAIM OF DEDUCTION S U /SS. 10A AND 10B OF THE ACT, HAD ONLY AFTER BEING SATISFIED ALLOWED THE SAME; (IV). THAT THE CIT WAS MISCONSTRUING THE PROVISO TO SEC. 92C(4), AS THE SAME WOULD COME INTO PLAY AND DIVEST AN ASSESSEE OF THE TAX - HOLIDAY BENEFIT WHERE THE ADDITION IS MADE BY THE A.O PURSUAN T TO AN ADJUSTMENT REFERRED BY THE TPO; AND (V). THAT THE ALLOWING OF THE ASSESSEES CLAIM FOR DEDUCTION S U/SS. 10A AND 10B WAS SUPPORTED BY THE JUDGMENT OF THE HONBLE HIGH COURT OF KARNATAKA IN T H E CASE OF CIT VS. I - GATE GLOBAL SOLUT IONS LTD. (ITA NO. 452/2008), DATED 17.06.201 4 , AND THE ORDERS OF THE TRIBUNAL VIZ. SUMTOTAL SYSTEMS INDIA PVT. LTD. VS. DCIT SHELL INDIA MARKETS PRIVATE LIMITED VS. CIT - LTU, MUMBAI ITA NOS. 3817/MUM/2017 & 2299/MUM/2018 7 A.Y 2009 - 10 & A.Y 2011 - 12 (ITA NO. 255/HYD/20015); DATED 23.09.2016 AND AUSTIN MEDICAL SOLUTIONS PVT. LTD. VS. ITO [IT(TP) A. NO. 542/BANG/2012), DATED 17.07.2016. HOWEVER, THE CIT DID NOT FIND FAVOR WITH THE SUBMISSIONS OF THE ASSESSEE AND DIRECTED THE A.O TO WITHDRAW THE AFORESAID DEDUCTIONS IN LIGHT OF THE OBSERVATIONS RECORDED IN THE ORDER PASSED U/S 263 OF THE ACT. 6. AGGRIEVED, THE ASSESSEE HAS CHALLENGED THE ORDER PASSED BY THE CIT IN APPEAL BEFORE US. THE LD. AUTHORISED REPRESENTATIVE (FOR SHORT A.R) FOR THE ASSESSEE AT THE VERY OUTSET OF HEARING OF THE APPEAL SUBMITTED THAT THE CIT HAD WRONGLY ASSUMED JURISDICTION AND REVISED THE ORDER U/S 263 OF THE ACT. IT WAS SUBMITTED BY THE LD. A.R THAT THE CIT HAD MISCONCEIVED THE SCOPE AND GAMUT OF THE PROVISO TO SEC. 92C(4) OF THE ACT. IT WAS SUBMITTED BY HIM THAT THE PROVISO TO SUB - SECTION (4) CONTEMPLATED DENIAL OF TH E T AX - HOLIDAY BENEFIT ONLY IN A SITUATION WHERE THE ADDITION WAS MADE BY THE A.O PURSUANT TO AN ADJUSTMENT MADE BY THE TPO. ACCORDINGLY, IT WAS SUBMITTED BY THE LD. A.R THAT THE PROVISO TO SUB - SECTION (4) OF SEC. 92C(4) DID NOT CONTEMPLATE WITHDRAWAL OF A TAX - HOLIDAY BENEFIT WHERE A SUO MOTTO ADJUSTMENT WAS MADE BY AN ASSESSEE IN ITS RETURN OF INCOME. IT WAS SUBMITTED BY THE LD. A.R , THAT IN ORDER TO FORTIFY HIS AFORESAID CLAIM THOUGH THE ASSESSE E IN ITS REPLY DATED 16.12.2016 TO THE SCN ISSUED BY THE CIT, HAD AT PARA 2.20 SPECIFICALLY RELIED UPON THE JUDGMENT OF THE HONBLE HIGH COURT OF KARNATAKA IN THE CASE OF CIT VS. I - GATE GLOBAL SOLUTIONS LTD. (ITA NO. 452/2008), DATED 17.06.2015 AND THE ORDERS OF THE TRIBUNALS VIZ. SUMTOTAL SYSTEMS INDIA PVT. LT D. VS. DCIT (ITA NO. 255/HYD/20015); DATED 23.09.2016 AND AUSTIN MEDICAL SOLUTIONS PVT. LTD. VS. ITO [IT(TP) A. NO. 542/BANG/2012), DATED 17.07.2016, HOWEVER, NO REFERENCE TO THE SAID JUDICIAL PRONOUNCEMENTS WAS MADE BY THE REVISIONAL AUTHORITY IN HIS O RDER PASSED U/S 263 OF T HE ACT . I T WAS VEHEMENTLY SUB MI TTED BY THE LD. A.R, THAT AS THE IMPLICIT VIEW TAKEN BY THE A.O AS REGARDS THE ENTITLEMENT OF THE ASSESSEE TOWARDS CLAIM OF TAX - HOLIDAY ON SUO MOTTO ADJUSTMENT MADE BY THE ASSESSEE IN ITS RETURN OF INCOME WAS SUPPORTED BY THE JUDGMENT OF THE HONBLE HIGH COURT OF KARNATAKA IN THE CASE OF CIT VS. I - GATE GLOBAL SOLUTIONS LTD. (ITA NO. 452/2008), DATED 17.06.2015, SHELL INDIA MARKETS PRIVATE LIMITED VS. CIT - LTU, MUMBAI ITA NOS. 3817/MUM/2017 & 2299/MUM/2018 8 A.Y 2009 - 10 & A.Y 2011 - 12 THEREFORE, THE SAME COULD NOT BE CATEGORIZED AS A MISTAKEN VIEW OF LAW, WHICH WOULD HAVE JUSTIFIED INVOKING OF THE REVISIONAL JURISDICTION BY THE CIT U/S 263 OF THE ACT. T HE LD. A.R SUBMITTED THAT THE VIEW TAKEN BY THE A.O WAS ALSO FOUND TO BE IN CONFORMITY WITH CERTAIN ORDERS OF THE TRIBUNAL VIZ. ITAT, HYDERABAD IN SUMTOTAL S YSTEMS INDIA PVT. LTD. VS. DCIT (ITA NO. 255/HYD/20015); DATED 23.09.2016 AND ITAT, BANGALORE IN AUSTIN MEDICAL SOLUTIONS PVT. LTD. VS. ITO [IT(TP) A. NO. 542/BANG/2012), DATED 17.07.2016. APART FROM THAT, IT WAS SUBMITTED BY THE LD. A.R THAT THE VIEW AD OPTED BY THE CIT BLATANTLY MILITATED AGAINST THE LITERAL INTERPRETATION OF SEC. 92C(4) OF THE ACT. IT WAS FURTHER SUBMITTED BY THE LD. A.R THAT A SIMILAR ORDER U/S 263 PASSED BY THE CIT ON IDENTICAL FACTS IN THE ASSESSEES OWN CASE FOR A.Y 2010 - 11 IN ITA N O. 4911/MUM/2018 FOR A.Y 2010 - 11 HA D BEEN SET ASIDE BY THE TRIBUNAL, VIDE ITS RECENT ORDER DATED 15.01.2020. ACCORDINGLY, IT WAS SUBMITTE D BY T HE LD. A.R THAT THE MATTER WAS SQUARELY COVERED BY THE AFORESAID ORDER PASSED BY THE TRIBUNAL IN THE ASSESSEES O WN CASE. 7. PER CONTRA, THE LD. DEPARTMENTAL REPRESENTATIVE (FOR SHORT D.R) RELIED ON THE ORDER PASSED BY THE CIT U/S 263 OF THE ACT. FURTHER, DRAWING SUPPORT FROM THE ORDER S OF THE TRIBUNAL IN THE CASE OF VIZ. (I). AGILIGYS I.T SERVICES INDIA PVT. LTD.; AND (II). DELOITTE CONSULTING INDIA PVT. LTD VS. ITO [ITA NO. 157/MUM/2012) , AS HAD BEEN RELIED UPON BY THE CIT IN HIS ORDER PASSED U/S 263 OF THE ACT, IT WAS SUBMITTED BY TH E LD. D.R THAT THE PROVISO TO SUB - SECTION (4) OF SEC. 92C WAS CLEARLY TRIGGERED IN THE BACKDROP OF THE FACT PATTERN OF THE CA S E UNDER CONSIDERATION. 8. WE HAVE HEARD THE AUTHORIZED REPRESENTATIVES FOR BOTH THE PARTIES, PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIAL AVAILABLE ON RECORD, AS WELL AS THE JUDICIAL PRONOUNCEMENTS RELIED UPON BY THEM. THE LIMITED ISSUE INVOLVED IN THE PRESENT APPEAL IS AS TO WHETHER THE CIT IN EXERCISE OF HIS REVISIONAL JURISDICTION U/S 263 WAS JUSTIFIED IN LAW AND THE FACTS OF THE CASE IN WITHDRAWING THE ASSESSEES CLAIM OF DEDUCTION S U/SS. 10A AND 10B OF THE ACT, TO THE EXTENT THE SAME WERE RELATABLE TO THE SUO MOTTO ADDITION OF DEEMED MARK - SHELL INDIA MARKETS PRIVATE LIMITED VS. CIT - LTU, MUMBAI ITA NOS. 3817/MUM/2017 & 2299/MUM/2018 9 A.Y 2009 - 10 & A.Y 2011 - 12 UP MADE BY THE ASSESSEE IN ITS RETURN OF INCOME. AS OBSERVED BY US HERE INABOVE, THE CIT HOLDING A CONVICTION THAT AS PER THE PROVISO TO SEC. 92C(4), THE SUO MOTTO ADDITION MADE BY THE ASSESSEE TOWARDS DEEMED MARK - UP HAVING REGARD TO THE ALP OF THE INTERNATIONAL TRANSACTIONS WOULD NOT QUALIFY FOR DEDUCTION S U/SS. 10A AND 10B OF THE ACT, HAD THUS , VIDE HIS ORDER PASSED U/S 263 DIRECTED THE A.O TO WITHDRAW THE SAID DEDUCTIONS ON SUCH DEEMED INCOME. IN FACT, THE CIT BACKED BY HIS AFORESAID CONVICTION HAD EVEN QUANTIFIED THE AMOUNT OF SUCH EXCESS DEDUCTION S U/SS. 10A AND 10B OF T HE ACT, WHICH AS PER HIM WAS ERRONEOUSLY ALLOWED BY THE A.O WHILE FRAMING THE ASSESSMENT VIDE HIS ORDER PASSED U/S 143(3) R.W.S 144C(13), DATED 27.02.2015. WE HAVE GIVEN A THOUGHTFUL CONSIDERATION TO THE ISSUE BEFORE US AND ARE UNABLE TO PERSUADE OURSELVES TO SUBSCRIBE TO THE VIEW TAKEN BY THE CIT. ON A PERUSAL OF THE RECORDS, WE FIND THAT THE ASSESSEE IN THE COURSE OF THE REVISIONAL PROCEEDINGS HAD EMPHASIZED BEFORE THE CIT THAT ITS CLAIM FOR DEDUCTION S U/SS. 10A AND 10B WAS RIGHTLY ALLOWED BY THE A.O VIDE HIS ORDER PASSED U/S 143(3) R.W.S 144C(13), DATED 27.02.2015. IN ORDER TO BUTTRESS ITS SAID CLAIM, THE ASSESSEE IN ITS REPLY DATED 16.12.2016 TO THE SCN, DATED 09.11.2016 ISSUED BY THE CIT, HAD AT PARA 2.20 SPECIFICALLY RELIED UPON THE JUDGMENT OF T HE HONBLE HIGH COURT OF KARNATAKA IN THE CASE OF CIT VS. I - GATE GLOBAL SOLUTIONS LTD. (ITA NO. 452/2008), DATED 17.06.2015 AND THE ORDERS OF THE TRIBUNALS VIZ. SUMTOTAL SYSTEMS INDIA PVT. LTD. VS. DCIT (ITA NO. 255/HYD/20015); DATED 23.09.2016 AND AUS TIN MEDICAL SOLUTIONS PVT. LTD. VS. ITO [IT(TP) A. NO. 542/BANG/2012), DATED 17.07.2016 . IN FACT, WE FIND THAT EVEN THE COPIES OF THE JUDGMENT OF THE HIGH COURT AND THE ORDERS OF THE TRIBUNAL FORMED PART OF THE AFORESAID REPLY OF THE ASSESSEE, AS ANNEXURE 19 TO 21 . HOWEVER, VERY STRANGELY, WE FIND THAT NO REFERENCE TO THE SAID JUDICIAL PRONOUNCEMENT S /ORDERS WAS MADE BY THE REVISIONAL AUTHORITY IN HIS ORDER PASSED U/S 263 OF THE ACT. BE THAT AS IT MAY, WE FIND THAT THE IMPLICIT VIEW TAKEN BY THE A.O AS REGA RDS THE ENTITLEMENT OF THE ASSESSEE TOWARDS CLAIM OF DEDUCTION U/SS. 10A AND 10B ON THE SUO MOTTO ADDITION MADE BY THE ASSESSEE TOWARDS DEEMED MARK - UP, IS SQUARELY COVERED BY THE JUDGMENT OF THE HONBLE HIGH COURT OF KARNATAKA IN THE CASE OF CIT VS. I - GAT E GLOBAL SHELL INDIA MARKETS PRIVATE LIMITED VS. CIT - LTU, MUMBAI ITA NOS. 3817/MUM/2017 & 2299/MUM/2018 10 A.Y 2009 - 10 & A.Y 2011 - 12 SOLUTIONS LTD. (ITA NO. 452/2008), DATED 17.06.201 4 . IN THE SAI D CASE, IT WAS OBSERVED BY THE HONBLE HIGH COURT THAT THE A.O WAS IN ERROR IN RELYING ON SEC. 92C(4) TO A CASE WHERE THE ARMS LENGTH PRICE WAS DETERMINED BY THE ASSESSEE, WHEREAS THE SAID PROVISION APPLIE D TO A CASE WHERE THE ARMS LENGTH PRICE WAS DETERMINED BY THE A.O. IT WAS OBSERVED BY THE HIGH COURT, AS UNDER: 6 IN SO FAR AS SUBSTANTIAL QUESTION OF LAW NO. 4 IS CONCERNED, THE ERROR COMMITTED BY THE ASSESSING OFFICER WAS RELYING ON SECTION 92C(4) TO A CASE WHERE ARMS LENGTH PRICE WAS DETERMINED BY THE ASSESSEE, WHEREAS THE SAID PROVISION APPLIES TO A CASE WHERE ARMS LENGTH PRICE WAS DETERMINED BY THE ASSESSING AUTHORITY, THAT MISTAKE HAS BEEN CORRECTED BY THE TRIBUNAL, SET ASI DE THE ORDER PASSED BY THE COMMISSIONER AS WELL AS THE ASSESSING AUTHORITY. AS SUCH, THE HONBLE HIGH COURT VIDE ITS AFORESAID ORDER HAD CONCLUDED THAT THE PROVIS O OF SEC. 92C( 4) WOULD THOUGH BE APPLICABLE IN A CASE WHERE THE ALP WAS DETERMINED BY THE A.O, BUT THE SAME CANNOT BE EXTENDED TO DETERMINATION OF THE SAME BY THE ASSESSEE. APART FROM THAT, WE FIND THAT A SIMILAR VIEW HAD BEEN TAKEN BY THE ITAT, HYDERABAD B BENCH IN S UMTOTAL SYSTEMS INDIA (P) LTD. VS. DCIT (2017) 186 TTJ 14 (HYD) AND ITAT, BANGALORE IN THE CASE OF AUSTIN MEDICAL SOLUTIONS PVT. LTD. VS. ITO [IT(TP) A. NO. 542/BANG/2012), DATED 17.07.2016 . ALSO, A SIMILAR VIEW HAD BEEN ADOPTED BY THE ITAT PUNE B BENC H , IN THE CASE OF APPROVA SYSTEMS PVT. LTD. VS. DCIT [ITA NO. 1051/PUN/2015, DATED 12.03.2018] . IN THE BACKDROP OF THE AFORESAID FACTS, WE ARE UNABLE TO COMPREHEND AS TO HOW THE VIEW OF THE A.O AS REGARDS ALLOWING OF THE ASSESSEES CLAIM FOR DEDUCTIONS U/ SS. 10A AND 10B OF THE ACT, WHICH AS OBSERVED BY US HEREINABOVE IS FOUND TO BE IN CONFORMITY WITH THE VIEW TAKEN BY THE HONBLE HIGH COURT OF KARNATAKA IN THE CASE OF CIT VS. I - GATE GLOBAL SOLUTIONS LTD. (ITA NO. 452/2008), DATED 17.06.2014, COULD BE HELD TO BE ERRONEOUS. IN FACT, WE FIND THAT THE AFORESAID ORDER OF THE HIGH COURT OF KARNATAKA IN THE CASE OF I - GATE GLOBAL SOLUTIONS LTD. (SUPRA), DATED 17.06.2014, WAS AVAILABLE ON THE DATE WHEN THE ASSESSMENT WAS FRAMED BY THE A.O, VIDE HIS ORDER PASSED U/S 143(3) R.W.S 144C(13), DATED 27.02.2015. AT THIS STAGE, WE MAY ALSO OBSERVE THAT NO JUDGMENT OF ANY SHELL INDIA MARKETS PRIVATE LIMITED VS. CIT - LTU, MUMBAI ITA NOS. 3817/MUM/2017 & 2299/MUM/2018 11 A.Y 2009 - 10 & A.Y 2011 - 12 HIGH COURT TAKING A CONTRARY VIEW HAS BEEN BROUGHT TO OUR NOTICE BY THE LD. D.R. BE THAT AS IT MAY, WE HOLD STRONG CONVICTION THAT AS THE IMPLICIT VIEW OF THE A.O WHILE ALLOWING THE ASSESSEES CLAIM FOR DEDUCTION U/SS. 10A AND 10B OF THE ACT, CANNOT BE HELD TO BE ERRONEOUS, THEREFORE, THE CIT WAS DIVESTED OF EXERCISING HIS REVISIONAL JURISDICTION U/S 263 OF THE ACT. APART FROM THAT, WE FIND THAT AN ORDER P ASSED BY THE CIT UNDER SEC. 263 OF THE ACT, ON IDENTICAL FACTS , IN THE ASSESSEES OWN CASE FOR THE IMMEDIATELY SUCCEEDING YEAR I.E A.Y 2010 - 11 HAD BEEN SET ASIDE BY THE TRIBUNAL, VIDE ITS ORDER PASSED IN SHELL INDIA MARKETS PVT. LTD. VS . CIT, LTU, MUMBAI [ITA NO. 4911/MUM/2018, DATED 15.01.2020]. IN ITS SAID ORDER, IT WAS INTER ALIA OBSERVED BY THE TRIBUNAL THAT IN THE BACKDROP OF THE ORDER OF THE HONBLE HIGH COURT OF KARNATAKA IN THE CASE OF CIT VS. I - GATE GLOBAL SOLUTIONS LTD. (ITA NO . 452/2008), DATED 17.06.2014, THE VIEW TAKEN BY THE A.O WHICH IS FOUND TO BE IN CONFORMITY WITH THE SAME, COULD NOT HAVE BEEN HELD TO BE ERRONEOUS BY THE CIT. ON THE BASIS OF OUR AFORESAID OBSERVATIONS, WE ARE OF THE CONSIDERED VIEW THAT THE CIT IN THE TO TALITY OF THE FACTS OF THE CASE HAD GROSSLY ERRED IN ASSUMING JURISDICTION U/S 263, FOR DISLODGING THE VIEW TAKEN BY THE A.O AS REGARDS THE ENTITLEMENT OF THE ASSESSEE TOWARDS DEDUCTIONS U/SS. 10A AND 10B OF THE ACT. 9. RESULTANTLY, THE ORDER PASSE D BY THE CIT U/S 263 OF THE ACT IS SET ASIDE AND THAT PASSED BY THE A.O U/S 143(3) R.W.S 144C(13), DATED 27.02.2015 TO THE EXTENT RELATABLE TO THE ISSUE UNDER CONSIDERATION IS RESTORED. 10. THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ITA NO. 2299/MUM/2018 A.Y 2011 - 12 11. WE SHALL NOW ADVERT TO THE APPEAL OF THE FOR A.Y 2011 - 12, WHEREIN THE IMPUGNED ORDER HAS BEEN ASSAILED BEFORE US ON THE FOLLOWING GROUNDS: 1. GENERAL SHELL INDIA MARKETS PRIVATE LIMITED VS. CIT - LTU, MUMBAI ITA NOS. 3817/MUM/2017 & 2299/MUM/2018 12 A.Y 2009 - 10 & A.Y 2011 - 12 1.1 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT HAS LEGALLY ERRED IN ASSUMING JURISDICTION UNDER SECTION 263 OF THE ACT. THE LEARNED CIT HAS FAILED TO APPRECIATE THAT THE ASSESSMENT ORDER UNDER SECTION 143(3) R.W.S 144C(13) PASSED BY THE ASSESSING OFFICER ('AO') WAS NEITHER ERRONEOUS NOR PREJUDICIAL TO THE INTEREST OF THE REVENUE. THE LEARNED CIT FURTHER FAILED TO APPRECIATE THAT THE ASSESSMENT ORDER PASSED BY THE AO WAS PURSUANT TO THE DIRECTIONS OF THE DISPUTE RESOLUTION P ANEL - 2, MUMBAI AND HENCE, WAS WITH VALID JURISDICTION. 1.2 ON THE FACTS AND AT THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT HAS LEGALLY ERRED IN SETTING ASIDE THE ASSESSMENT ORDER PASSED BY THE AO AND DIRECTING HIM TO WITHDRAW THE DEDUCTION CLAIMED BY THE APPELLANT UNDER SECTION 10B OF THE ACT ON SUO - MOTO TRANSFER PRICING ADJUSTMENTS. THE LEARNED CIT FAILED TO APPRECIATE THAT THE ISSUE INVOLVED IS DEBATABLE OR HAS BEEN EXAMINED BY THE AO. 2. WITHOUT PREJUDICE TO THE ABOVE, ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE CIT ERRED IN NOT ALLOWING DEDUCTION UNDER SECTION 10B OF THE ACT ON SUO - MOTO TRANSFER PRICING (TP) ADJUSTMENTS. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT HAS LEGALLY ERRED IN NOT DEA LING WITH THE DECISION OF CIT VS. I - GATE GLOBAL SOLUTIONS LTD. (ITA NO. 453/2008) DATED 17 JUNE 2014 DECIDED BY THE HON`BLE KARNATAKA HIGH COURT IN FAVOUR OF THE APPELLANT. THE LEARNED CIT HAS TAILED TO APPRECIATE THAT THE DECISION OF 1 - GATE (SUPRA) HAS NOT BEEN LITIGATED FURTHER BY THE INCOME - TAX DEPARTMENT. ON THE FACTS AND M THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT HAS LEGALLY ERRED IN DENYING THE APPELLANT DUE DEDUCTION OF RS. 39,73,71,366/ - , CLAIMED UNDER SECTION 10B OF THE ACT. 4. INITIATION OF PENALTY PROCEEDINGS AND SECTION 271(1)(C) OF THE ACT. 4.1 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LASS, THE TEAMED CIT HAS LEGALLY ERRED IN DIRECTION THE AO TO INITIATE PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) FOR FURNI SHING INACCURATE PARTICULARS OF INCOME. THE LEARNED CIT HAS FAILED TO APPRECIATE THE FACT THAT THE POSITION ADOPTED BY THE APPELLANT IS IN FULLEST CONFORMITY WITH THE DECISION OF CIT V. I - GATE GLOBAL SOLUTIONS LTD. (SUPRA). THE LEARNED CIT HAS FURTHER FAI LED TO APPRECIATE THE FACT THAT THE APPELLANT HAS NOT FURNISHED INACCURATE PARTICULARS OF INCOME IN ITS RETURN OF INCOME. THE APPELLANT CRAVES LEAVES TO ADD, ALTER, AMEND OR VARY FROM THE ABOVE GROUNDS OF APPEAL AT OR BEFORE THE TIME OF HEARING . SHELL INDIA MARKETS PRIVATE LIMITED VS. CIT - LTU, MUMBAI ITA NOS. 3817/MUM/2017 & 2299/MUM/2018 13 A.Y 2009 - 10 & A.Y 2011 - 12 12. BRIE FLY STATED, THE ASSESSEE COMPANY HAD E - FILED ITS RETURN OF INCOME FOR A.Y 2011 - 12 ON 29.11.2011, DECLARING A TOTAL LOSS OF RS. 105,77,29,782/ - IN THE RETURN OF INCOME THE ASSESSEE HAD CLAIMED DEDUCTION U/S 10B OF 145,90,88,649/ - . THE RETURN OF INCOME FILE D BY THE ASSESSEE WAS PROCESSED AS SUCH U/S 143(1) OF THE ACT. THEREAFTER, THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY ASSESSMENT U/S 143(2) OF THE ACT. AS THE ASSESSEE HAD DURING THE YEAR ENTERED INTO INTERNATIONAL TRANSACTIONS WITH ITS ASSOCIATE E NTERPRISES (AES), THEREFORE A REFERENCE U/S 92C(1) OF THE ACT WAS MADE TO THE J CIT(TRANSFER PRICING) - 4(1) , MUMBAI (HEREINAFTER REFERRED TO AS TPO), FOR DETERMINING THE ARMS LENGTH PRICE (ALP) OF SUCH TRANSACTIONS. THE TPO PASSED AN ORDER U/S 92CA(3), DATED 30.01.2015 , WHEREIN HE PROPOSED A TRANSFER PRICING ADJUSTMENT OF RS. 231,97,25,209/ - . AFTER RECEIVING THE ORDER PASSED BY THE TPO U/S 92CA(3) OF THE ACT, DATED 30.01.2013, THE A.O PASSED A DRAFT ASSESSMENT ORDER U/S 143(3) R.W.S 144C(1) OF THE ACT, DATED 02.03.2015 , WHEREIN HE PROPOSED AN ADDITION OF RS. 288,51,96,019/ - . SINCE THE ASSESSEE COMPANY DURING THE YEAR HAD SUFFERED AN OVERALL LOSS, THEREFORE, THE A.O IN THE DRAFT ASSESSMENT ORDER INTER ALIA PROPOSED TO DISALLOW THE ASSESSEES CLAIM FOR DED UCTION U/S 10B OF THE ACT. AGGRIEVED, THE ASSESSEE FILED OBJECTIONS WITH THE DISPUTE RESOLUTION PANEL - 2, MUMBAI. 13. THE DRP VIDE ITS DIRECTIONS U/S 144C(5), DATED 29.12.2015 DISPOSED OFF THE OBJECTIONS OF THE ASSESSEE. OBSERVING, THAT THE HONBLE HIGH C OURT OF BOMBAY IN THE CASE OF CIT VS. SCHMETZ INDIA (P) LTD. (2012) 254 CTR 504 (BOM), HAD HELD , THAT WHERE AN INELIGIBLE UNIT SUFFERS A LOSS AND AN ELIGIBLE UNIT ENJOYS PROFIT, THE DEDUCTION U/S 10A WAS TO BE COMPUTED WITHOUT SETTING OFF OF THE PROFIT OF THE ELIGIBLE UNITS AGAINST THE LOSSES OF THE UNDERTAKINGS INELIGIBLE FOR SUCH DEDUCTION, THE DRP DIRECTED THE A.O TO ALLOW THE ASSESSEES CLAIM FOR DEDUCTION U/SS. 10A AND 10B WITHOUT ADJUSTING THE LOSSES OF THE INELIGIBLE UNDERTAKING. THE A.O ON RECEIPT OF THE ORDER PASSED BY THE DRP U/S 144C(5), DATED 29.12.2015 , THEREIN PASSED THE FINAL ASSESSMENT ORDER U/S 143(3) R.W.S 144C(13), DATED SHELL INDIA MARKETS PRIVATE LIMITED VS. CIT - LTU, MUMBAI ITA NOS. 3817/MUM/2017 & 2299/MUM/2018 14 A.Y 2009 - 10 & A.Y 2011 - 12 26.02.2016 AND ASSESSED THE CURRENT YEAR LOSS OF THE ASSESSEE COMPANY AT RS. NIL UNDER THE NORMAL PROVISIONS AND AT RS. ( - ) 347,33,52,508/ - U/S 115JB OF THE A C T . 14. AFTER THE CULMINATION OF ASSESSMENT PROCEEDINGS THE CIT CALLED FOR THE ASSESSMENT RECORDS OF THE ASSESSEE. ON A PERUSAL OF THE RECORDS, IT WAS OBSERVED BY THE CIT THAT THE ASSESSEE COMPANY IN ITS RETURN OF INCOME HAD CLAIMED DEDUCTION U/S 10 B OF RS. 145 ,90,88,649/ - . IT WAS NOTICED BY THE CIT THAT THOUGH THE A.O IN THE BACKDROP OF THE OVERALL LOSS SUFFERED BY THE ASSESSEE DURING THE YEAR HAD IN THE DRAFT ASSESSMENT ORDER DISALLOWED ITS CLAIM FOR DEDUCTION U/S . 10B OF THE ACT, BUT THEREAFTER, AS PER THE DIRECTIONS OF THE DRP THE SAID DEDUCTION WAS ALLOWED WITHOUT ADJUSTING THE LOSSES OF THE INELIGIBLE UNDERTAKING. TO SUM UP, IT WAS OBSERVED BY THE CIT THAT PURSUANT TO THE DIRECTIONS OF THE DRP THE DEDUCTION U/S 10B WAS ALLOWED BY THE A.O QUA THE ELIGIBLE UNDERTAKING OF THE ASSESSEE. ON A SCRUTINY O F THE WORKING OF DEDUCTION U/S 10 B OF THE ACT , IT WAS OBSERVED BY THE CIT THAT THE ASSESSEE COMPANY HAD ADDED A DEEMED MARK UP OF RS. 51,58,46,895/ - IN RESPECT OF TRANSACTIONS WITH THE RELATED OVERSEAS PARTIES. IN THE BACKDROP OF THE AFORESAID FACT, THE CI T HELD A CONVICTION THAT THE ADDITION ON ACCOUNT OF DEEMED MARK UP WAS MADE BY THE ASSESSEE IN ORDER TO BRING THE INTERNATIONAL TRANSACTIONS WITHIN ARMS LENGTH PRICE. OBSERVING, THAT AS PER THE PROVISO TO SEC. 92C(4) OF THE ACT, THE AFORESAID ADDITION M ADE BY THE ASSESSEE WOULD NOT QUALIFY FOR DEDUCTION U/S 10B OF THE ACT., THE CIT WAS OF THE VIEW THAT INCLUSION OF THE AFORESAID DEEMED MARK UP FOR COMPUTING THE DEDUCTION U/S 10B WAS IRREGULAR AB INITIO. ON THE BASIS OF HIS AFORESAID OBSERVATION THE CIT R ECOMPUTED THE DEDUCTION ADMISSIBLE U/S 10B I.E AFTER EXCLUSION OF THE DEEMED INCOME AT RS. 106,17,17,283/ - . IT WAS THUS NOTICED BY THE CIT, THAT THE A.O WHILE FRAMING THE ASSESSMENT HAD VIDE HIS ORDER PASSED U/S 143(3) R.W.S 144C(13), DATED 26.02.2016 ALLO WED AN EXCESS DEDUCTION U/S 10B OF RS. 39,73,71,366/ - [RS. 145,90,88,649/ - (DEDUCTION U/S 10B ALLOWED BY THE A.O) {MINUS} RS. 106,17,17,283/ - (DEDUCTION U/S 10B WHICH AS PER THE CIT WAS ALLOWABLE TO THE ASSESSEE)]. SHELL INDIA MARKETS PRIVATE LIMITED VS. CIT - LTU, MUMBAI ITA NOS. 3817/MUM/2017 & 2299/MUM/2018 15 A.Y 2009 - 10 & A.Y 2011 - 12 15. IN THE BACKDROP OF HIS AFORESAID OBSERVATIONS, THE CIT HOLDING A PRIMA FACIE VIEW THAT THE ORDER PASSED BY THE A.O WAS ERRONEOUS IN SO FAR IT WAS PREJUDICIAL TO THE INTEREST OF THE REVENUE , ISSUED A SHOW CAUSE NOTICE (FOR SHORT SCN) TO THE ASSESSEE U/S 263 OF THE ACT, W HEREIN IT WAS CALLED UPON TO EXPLAIN AS TO WHY THE ASSESSMENT ORDER PASSED BY THE A.O U/S 143(3) R.W.S 144C(13), DATED 26.02.2016 MAY NOT BE REVISED FOR WITHDRAWING THE EXCESS DEDUCTION U/S 10B OF RS. 39,73,71,366/ - THAT WAS WRONGLY ALLOWED BY THE A.O. IN REPLY, THE ASS ESSEE OBJECTED TO THE PROPOSED WITHDRAWAL OF DEDUCTION U/S 10B WHICH WAS ALLOWED BY THE A.O U/S. 10B OF THE ACT, ON MULTIPLE GROUNDS VIZ. (I). THAT AS THE ISSUE AS REGARDS THE PROPOSED DENIAL OF DEDUCTION U/S 10B BY THE A.O, VIDE HIS DRAFT ASSESSMENT ORDER U/S 143(3) R.W.S 144C(1) OF THE ACT, DATED 02.03.2015 HAD BEEN A SUBJECT MATTER OF OBJECTION BEFORE THE DRP, THEREFORE, THE SAME THEREAFTER COULD NOT BE A SUBJECT MATTER OF PROCEEDINGS U/S 263 OF THE ACT; (II). THAT THE TWIN CONDITIONS REQUIRED FOR INVOKI NG REVISIONAL JURISDICTION U/S 263 VIZ. (A). THE ORDER OF THE A.O SOUGHT TO BE REVISED IS ERRONEOUS; AND (II). IT IS PREJUDICIAL TO THE INTEREST OF THE REVENUE, HAD NOT BEEN SATISFIED; (III). THAT THE A.O AFTER MAKING NECESSARY ENQUIRIES AS REGARDS THE ENT ITLEMENT OF THE ASSESSEE TOWARDS CLAIM OF DEDUCTION U/S. 10B HAD ONLY AFTER BEING SATISFIED ALLOWED THE SAME; (IV). THAT THE CIT WAS MISCONSTRUING THE PROVISO TO SEC. 92C(4), AS THE SAME WOULD COME INTO PLAY AND DIVEST THE ASSESSEE OF THE TAX - HOLIDAY BE NEFIT WHERE THE ADDITION IS MADE BY THE A.O PURSUANCE TO AN ADJUSTMENT REFERRED BY THE TPO ; AND (V). THAT THE ALLOWING OF THE ASSESSEES CLAIM FOR DEDUCTION U/S 10B WAS SUPPORTED BY THE JUDGMENT OF THE HONBLE HIGH COURT OF KARNATAKA IN THE CASE OF CIT VS. I - GATE GLOBAL SOLUTIONS LTD. (ITA NO. 452/2008), DATED 17.06.2015, AND THE ORDERS OF THE TRIBUNALS VIZ. SUMTOTAL SYSTEMS INDIA PVT. LTD. VS. DCIT (ITA NO. 255/HYD/20015); DATED 23.09.2016 AND AUSTIN MEDICAL SOLUTIONS PVT. LTD. VS. ITO [IT(TP) A. N O. 542/BANG/2012), DATED 17.07.2016. HOWEVER, THE CIT DID NOT FIND FAVOR WITH THE CLAIM OF THE ASSESSEE AND DIRECTED THE A.O TO WITHDRAW THE DEDUCTION ALLOWED U/S 10B IN LIGHT OF THE OBSERVATIONS RECORDED IN HIS ORDER PASSED U/S 263 OF THE ACT. SHELL INDIA MARKETS PRIVATE LIMITED VS. CIT - LTU, MUMBAI ITA NOS. 3817/MUM/2017 & 2299/MUM/2018 16 A.Y 2009 - 10 & A.Y 2011 - 12 16. AGGRIEV ED, THE ASSESSEE HAS CHALLENGED THE ORDER PASSED BY THE CIT IN APPEAL BEFORE US. IT WAS SUBMITTED BY THE LD. AUTHORISED REPRESENTATIVES FOR BOTH THE PARTIES THAT THE ISSUE INVOLVED IN THE PRESENT APPEAL, IN SO FAR IT PERTAINED TO THE ENTITLEMENT OF THE ASS ESSEE TOWARDS CLAIM OF DEDUCTION U/S 10B OF THE ACT WAS CONCERNED, WAS IDENTICAL TO THAT INVOLVED IN ITS APPEAL FOR A.Y 2009 - 10 IN ITA NO. 3817/MUM/2017. AS THE FACTS AND THE ISSUE INVOLVED IN THE PRESENT APPEAL OF THE ASSESSEE FOR A.Y 2011 - 12 IN ITA NO. 2 299/MUM/2018, REMAINS THE SAME , AS WAS THERE BEFORE US IN ITS APPEAL FOR A.Y 2009 - 10, THEREFORE, OUR ORDER PASSED WHILE DISPOSING OFF THE APPEAL OF THE ASSESSEE FOR A.Y 2009 - 10 IN ITA NO. 3817/MUM/2017 SHALL APPLY MUTATIS MUTANDIS FOR THE PURPOSE OF DISPOS AL OF THE PRESENT APPEAL. 17. ACCORDINGLY, THE ORDER PASSED BY THE CIT U/S 263, DATED 02.02.2018 IS SET ASIDE, AND THE ASSESSMENT ORDER PASSED BY THE A.O U/S 143(3) R.W.S 144C(13), DATED 26.02.2016, TO THE EXTENT RELATABLE TO THE ISSUE UNDER CONSIDERATI ON IS RESTORED. 18. RESULTANTLY, THE APPEALS OF THE ASSESSEE I.E ITA NO. 3817/MUM/2012 FOR A.Y 2009 - 10 AND ITA NO. 2299/MUM/2018 FOR A.Y 2011 - 12 ARE ALLOWED IN TERMS OF OUR AFORESAID OBSERVATIONS. ORDER PRONOUNCED UNDER RULE 34(4) OF THE INCOME TAX (APPEL LATE TRIBUNAL) RULES, 1962, BY PLACING THE DETAILS ON THE NOTICE BOARD. SD/ - SD/ - (PRAMOD KUMAR) ( RAVISH SOOD ) VICE PRESIDENT JUDICIAL MEMBER PLACE : MUMBAI DATE: 30 . 06.2020 SHELL INDIA MARKETS PRIVATE LIMITED VS. CIT - LTU, MUMBAI ITA NOS. 3817/MUM/2017 & 2299/MUM/2018 17 A.Y 2009 - 10 & A.Y 2011 - 12 COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A) - 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. BY ORDER, //TRUE COPY// ( ASSISTANT REGISTRAR ) ITAT, MUMBAI