Eaton Industries P.Ltd., Pune V. ACIT, Pune

ITA 2544/PUN/2012

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 7260 (ITAT-PUNE)
• Duration Of Justice: 4 year(s) 10 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-10-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 26-09-2017
• Assessment Year: 2008-2009
• Appeal Filed On: 24-12-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: NIRUPAMA KOTRU
• Keywords: Related party transaction; Business income; Transfer pricing; Opportunity of being heard; International transaction; Services rendered outside India
• Section: 92C; 143(3); 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B , PUNE , , . , BEFORE MS. SUSHMA CHOWLA, JM AND SHRI D. KARUNAKARA RAO , AM . / ITA NO. 2544 /P U N/20 1 2 / ASSESSMENT YEAR : 2008 - 09 EATON INDUSTRIES PVT. LTD., 145, OFF MUMBAI PUNE ROAD, PIMPRI, PUNE 41101 8 . / APPELLANT PAN: AA PCE6351P VS. THE ASST . COMMISSIONER OF INCOME TAX , CIRCLE - 8, PUNE . / RESPONDENT / APPELLANT BY : SHRI VISHAL KALRA / RESPONDENT BY : MS. NIRUPAMA KOTRU, CIT / DATE OF HEARING : 26 . 09 . 201 7 / DATE OF PRONOUNCEMENT : 30 . 1 0. 201 7 / ORDER PER SUSHMA CHOWLA, JM: THE APPEAL FILED BY THE ASSESSEE IS AGAINST THE ORDER OF A C IT, CIRCLE - 8, PUNE, DATED 30 . 1 0.201 2 RELATING TO ASSESSMENT YEAR 20 0 8 - 0 9 PASSED UNDER SECTION 143(3) R.W.S. 144C(13) OF THE INCOME - TAX ACT , 1961 (IN SHORT THE ACT) . 2 . THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: - 1. THAT ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD AO ERRED IN ASSESSING THE INCOME OF THE APPELLANT UNDER THE NORMAL PROVISIONS OF THE ACT AT RS . 81,87,36,070 AGAINST AN INCOME OF RS . 10,30,58,820 DECLARED IN 2 ITA NO. 2544 /P U N/201 2 EATON INDUSTRIES PVT. LTD. THE RETURN BASED ON THE DIRECTIONS RECEIVED FROM HON'BLE DISPUTE RESOLUTION PANEL ('DRP') UPHOLDING ADJUSTMENT UNDER SECTION 10A OF THE ACT IN RESPECT OF PROVISION OF ENGINEERING SERVICES; AND T HE ADJUSTMENT TO THE TRANSFER PRICE PROPOSED BY THE TRANSFER PRICING OFFICER ('TPO') IN RESPECT OF CUSTOMER SUPPORT SERVICE. 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE IMPUGNED ASSESSMENT IS BAD IN LAW, BEING COMPLETED IN AN ARBITR ARY MANNER DISREGARDING THE DETAILS AND SUBMISSIONS FILED DURING THE COURSE OF THE ASSESSMENT AND WITHOUT AFFORDING AN ADEQUATE OPPORTUNITY OF BEING HEARD. 3. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO, ERRED IN REDUCING THE DEDUCT ION UNDER SECTION 10A OF THE ACT BY RS.70,33,19,220 BY INVOKING THE PROVISIONS OF SECTION 10A(7) READ WITH SECTION 80IA(10) OF THE ACT, ALLEGING THAT THE APPELLANT EARNED MORE THAN 'ORDINARY PROFITS' WITH RESPECT TO PROVISION OF ENGINEERING SERVICES TO ITS ASSOCIATED ENTERPRISE ('AE') AND THE DRP ERRED IN AFFIRMING SAID ADDITION. 4. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE DRP/ AO FAILED TO APPRECIATE THAT ONCE THE ARM'S LENGTH PRICE IN RESPECT OF THE PROVISION OF ENGINEERING SERVICE S HAS BEEN DETERMINED BY THE TPO UNDER SECTION 92CA(3) OF THE ACT, AND THE PRICES CHARGED BY THE APPELLANT HAVE BEEN FOUND TO BE AT ARM'S LENGTH, THE PROVISIONS OF SECTION 10A(7) READ WITH SECTION 80IA(10) OF THE ACT COULD NOT BE INVOKED ON THE PREMISE THA T APPELLANT EARNED 'MORE THAN ORDINARY PROFITS'. 5. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO/ DRP OUGHT TO HAVE HELD THAT THE PROVISIONS OF SECTION 10A(7) READ WITH SECTION 80 I A(10) OF THE ACT, COULD NOT HAVE BEEN INVOKED AS TH ERE WAS NO EROSION OF THE INDIAN TAX BASE, WHICH IS THE MISCHIEF THAT THE SAID PROVISION SEEKS TO CURE. 6. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO/ DRP HAVE ERRED IN NOT APPRECIATING THAT THE PROVISIONS OF SECTION 10A(7) READ WI TH SECTION 80IA(10) OF THE ACT, COULD NOT HAVE BEEN INVOKED IN APPELLANT'S CASE AS THE PROVISIONS OF THAT SECTION ARE ONLY APPLICABLE TO DOMESTIC TRANSACTIONS. 7. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, DRP/ AO ERRED IN RESTRICTING TH E DEDUCTION UNDER SECTION 10A OF THE ACT TO THE EXTENT OF PROFIT MARGIN EARNED BY JOHN DEERE (INDIA) PRIVATE LIMITED ('JDIPL'), I.E . 13.79 % , IGNORING THAT BUSINESS MODE L AS THE NATURE OF SERVICES RENDERED BY APPELLANT ARE NOT FUNCTIONALLY COMPARABLE TO JDI PL AND HENCE THE PROFIT MARGIN EARNED BY JDIPL OUGHT NOT TO HAVE BEEN TAKEN AS A TRUE AND CORRECT MEASURE OF 'ORDINARY PROFITS' IN COMPUTING THE DISALLOWANCE UNDER SECTION 10A(7) OF THE ACT. 8. THAT ON A TRUE AND CORRECT INTERPRETATION OF THE PROVISIONS OF SECTION 10A(7) READ WITH SECTION 80IA(10) OF THE ACT, DRP / AO ERRED IN LAW AND ON THE FACTS AND CIRCUMSTANCES OF THE CASE IN INVOKING THE SAID PROVISIONS IN THE ABSENCE OF ESTABLISHING THE EXISTENCE OF ANY ARRANGEMENT' TO MANIPULATE PROFITS OF THE ELI GIBLE UNIT BETWEEN THE APPELLANT AND ITS AE. 9. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, AO ERRED IN REJECTING THE TRANSFER PRICING ANALYSIS / STUDY UNDERTAKEN BY THE APPELLANT AND MAKING AN UPWARD TRANSFER PRICING ADJUSTMENT OF RS.1,2 3,58,027, IN RESPECT OF CUSTOMER SUPPORT SERVICE ON THE BASIS THE ORDER PASSED BY THE TPO AND THE DRP ERRED IN UPHOLDING THE SAID ADDITION. 3 ITA NO. 2544 /P U N/201 2 EATON INDUSTRIES PVT. LTD. 10. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, DRP / AO /TPO ERRED IN MODIFYING THE COMPARABLE SET , AS SELECTED BY THE APPELLANT IN ITS TRANSFER PRICING STUDY WHILE BENCHMARKING THE TRANSACTION OF CUSTOMER SUPPORT SERVICE, WITHOUT CONFRONTING THE APPELLANT WITH THE SEARCH PROCESS ADOPTED BY THE TPO OR THE RATIONALE THEREOF, THEREBY RESORTING TO 'CHERRY PICKING APPROACH'. IN DOING SO, THE TPO ERRED IN: SELECTING ADDITIONAL COMPANIES AS COMPARABLES WITHOUT TAKING INTO COGNIZANCE THE FUNCTIONAL DIFFERENCES HIGHLIGHTED BY THE APPELLANT. REJECTING COMPANIES WHICH ARE LOSS - MAKING WHILE ADDING COMPANIES EARN ING ABNORMAL PROFIT MARGINS TO THE COMPARABLE SET AT THE SAME TIME. 11. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE DRP/AO/TPO HAVE ERRED I N NOT ACCEPTING THE ECONOMIC ANALYSIS UNDERTAKEN BY THE APPELLANT IN ACCORDANCE WITH TH E PROVISIO NS OF THE ACT READ WITH THE INCOME - TAX RULES, 1962 ('RULES') FOR THE DETERMINATION OF THE ARM'S LENGTH PRICE IN RELATION TO CUSTOMER SUPPORT SERVICE AND MAKING MODIFICATIONS TO THIS ANALYSIS IN A SUBJECTIVE, ARBITRARY AND INCONSISTENT MANNER. 12. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, TPO ERRED IN APPLYING AD - HOC / SUBJECTIVE ADDITIONAL QUANTITATIVE FILTERS, WHILE SELECTING THE COMPARAB L ES AND REJECTING THE COMPARABLES OF THE APPELLANT WITHOUT PROVIDING ANY BASIS THEREOF. 13. THAT O N THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, DRP / AO /TPO ERRED I N CONSIDERING SINGLE YEAR DATA AND DISREGARDING MULTIPLE YEAR DATA USED BY THE APPELLANT FOR DETERMINATION OF THE ARM'S LENGTH PRICE FOR THE PROVISION OF CUSTOMER SUPPORT SERVICES. 14. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, DRP / AO ERRED IN NOT CORRECTLY APPRECIATING THE FUNCTIONAL, ASSET AND RISK PROFILE OF THE APPELLANT VIS - A - VIS THE COMPARABLES RESULTING IN NON - RECOGNITION OF THE DIFFERENCES IN THE PROFILE AND FURTHER ERRED IN NOT MAKING SUITABLE ADJUSTMENTS AS PER THE PROVISIONS OF THE ACT AND THE RULES. 15. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE DRP/AO/TPO HAVE ERRED IN NOT PROVIDING THE BENEFIT OF A 5 PERCENT RANGE TO THE APPEL LANT AS ENVISAGED UNDER PROVISO TO SECTION 92C(2) OF THE ACT. EACH OF THE ABOVE GROUNDS IS INDEPENDENT AND WITHOUT PREJUDICE TO THE OTHER GROUNDS OF APPEAL PREFERRED BY THE APPELLANT. 3. THE GROUNDS OF APPEAL NO.1 AND 2 ARE GENERAL IN NATURE AND HENCE, DISMISSED. 4. THE ISSUE RAISED VIDE GROUNDS OF APPEAL NO.3 TO 8 RAISED BY THE ASSESSEE IS AGAINST CURTAILMENT OF DEDUCTION CLAIMED UNDER SECTION 10A OF THE ACT BY INVOKING 4 ITA NO. 2544 /P U N/201 2 EATON INDUSTRIES PVT. LTD. THE PROVISIONS OF SECTION 10A(7) R.W.S. 80IA(10) OF THE ACT. THE LEARNED AUTHORIZE D REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT THE ISSUE IN GROUNDS OF APPEAL NO.9, 10 AND 12 IS THE TP ADJUSTMENT MADE WHILE BENCHMARKING THE TRANSACTIONS OF CUSTOMER SUPPORT SERVICE. FURTHER, THE GROUNDS OF APPEAL NO.11 AND 13 HAVE NOT BEEN PRESSED BY THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE AND HENCE, THE SAME ARE DISMISSED AS NOT PRESSED. THE ISSUE IN GROUND OF APPEAL NO.14 IS IN RELATION TO THE TRANSFER PRICING ADJUSTMENT AND THE ISSUE RAISED VIDE GROUND OF APPEAL NO.15 IS TO PROVID E THE BENEFIT OF +/ - 5% RANGE TO THE ASSESSEE, WHICH AS PER THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE, WAS CONSEQUENTIAL. 5. FIRST, WE SHALL TAKE UP THE GROUNDS OF APPEAL NO.3 TO 8 I.E. CURTAILMENT OF DEDUCTION CLAIMED UNDER SECTION 10A OF THE ACT. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT THE ISSUE IS SQUARELY COVERED BY THE RATIO LAID DOWN BY THE PUNE BENCH OF TRIBUNAL IN HONEYWELL AUTOMATION INDIA LTD. VS. DCIT (2015) 55 TAXMANN.COM 539 (PUNE TRIB.) , WHICH HA S BEEN APPLIED IN ASSESSEES OWN CASE IN ASSESSMENT YEAR 2006 - 07. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE FURTHER POINTED OUT THAT THERE WAS NO DISPUTE IN ALLOWING THE CLAIM OF ASSESSEE UNDER SECTION 10A OF THE ACT IN ASSESSMENT YEAR 2005 - 0 6 AND ALSO IN ASSESSMENT YEAR 2006 - 07 IN THE ORIGINAL ROUND AND FURTHER IN ASSESSMENT YEAR 2007 - 08. HE FURTHER REFERRED TO THE PROCEEDINGS UNDER SECTION 263 OF THE ACT IN ASSESSEES OWN CASE RELATING TO ASSESSMENT YEAR 2006 - 07 AND POINTED OUT THAT THE TRI BUNAL VIDE ORDER DATED 24.03.2017 IN ITA NO.1148/PUN/2012 HAD QUASHED 263 PROCEEDINGS, WHERE THE COMMISSIONER HAD CURTAILED THE DEDUCTION CLAIMED UNDER SECTION 10A OF THE ACT. THE YEAR UNDER APPEAL IS ASSESSMENT YEAR 2008 - 09. THE LEARNED AUTHORIZED REPRE SENTATIVE FOR THE ASSESSEE POINTED OUT THAT IN THE DIVISION OF ENGINEERING DESIGN SERVICES, RV 5 ITA NO. 2544 /P U N/201 2 EATON INDUSTRIES PVT. LTD. MAN HOUR RATES WERE COMPUTED ON THE BASIS OF CUP WHICH WAS ALSO APPLIED BY THE TRANSFER PRICING OFFICER (TPO) AND NO ADJUSTMENT WAS MADE IN ENGINEERING DESIGN DI VISION. HE FURTHER POINTED OUT THAT PROFIT MARGINS OF ASSESSEE WERE HIGH I.E. NET PROFIT MARGINS WERE 68.02% AS AGAINST OP/OC OF 205%. OUR ATTENTION WAS DRAWN TO THE ORDER OF TPO AT PAGE 2, WHEREIN THE METHOD APPLIED FOR BENCHMARKING THE INTERNATIONAL TR ANSACTIONS WAS CUP BY THE ASSESSEE AND THE SAME WAS ACCEPTED BY THE TPO. HE FURTHER REFERRED TO THE ORDER OF ASSESSING OFFICER IN PARA 9 AT PAGE 6 OF THE ASSESSMENT ORDER, WHEREIN THE ASSESSING OFFICER ALLEGES THAT THE PROFIT MARGINS WERE HIGHER. HE FURT HER REFERRED TO PARA 9.10 AT PAGE 40 OF THE ASSESSMENT ORDER, WHEREIN THE ASSESSING OFFICER HAD RELIED ON THE ASSESSMENT ORDER IN THE CASE OF HONEYWELL AUTOMATION INDIA LTD. TO MAKE THE AFORESAID ADDITION IN THE HANDS OF ASSESSEE. HE STRESSED THAT UNLESS AND UNTIL THERE WAS AN ARRANGEMENT BETWEEN THE PARTIES, THERE WAS NO MERIT IN CURTAILMENT OF DEDUCTION CLAIMED UNDER SECTION 10A R.W.S. 10A(7) R.W.S. 80IA(10) OF THE ACT. HE FURTHER POINTED OUT THAT THE ISSUE NOW STANDS COVERED BY THE DECISION OF HON'BLE SUPREME COURT IN CIT VS. M/S. SCHMETZ INDIA PVT. LTD. IN SLP CC NO.6097/2016, JUDGMENT DATED 08.04.2016 AND IN CIT VS. M/S. SCHMETZ INDIA PVT. LTD. IN SLP CC NO.2013/2016, JUDGMENT DATED 08.02.2016 , WHEREIN THE SPECIAL LEAVE PETITION HAS BEEN DISMISSED. H E FURTHER REFERRED TO THE ORDER OF HONBLE BOMBAY HIGH COURT IN THE SAID CASE, WHEREIN THE HONBLE BOMBAY HIGH COURT HAD CONSIDERED THE FINDINGS OF THE TRIBUNAL AND UPHELD THE SAME. HE FURTHER REFERRED TO THE ORDER OF THE PUNE BENCH OF TRIBUNAL IN ASSESSE ES OWN CASE RELATING TO ASSESSMENT YEAR 2006 - 07, WHEREIN THE COMMISSIONER HAD EXERCISED THE JURISDICTION UNDER SECTION 263 OF THE ACT AND HAD HELD THE ORDER OF ASSESSING OFFICER TO BE ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE IN GRANTING THE DE DUCTION UNDER SECTION 10A OF THE ACT. THE TRIBUNAL (SUPRA) HELD THAT IN THE ABSENCE OF ANY ARRANGEMENT ON THE EXPORT OF SERVICES TO ASSOCIATED ENTERPRISES, THE SAME COULD NOT BE CURTAILED BY INVOKING THE 6 ITA NO. 2544 /P U N/201 2 EATON INDUSTRIES PVT. LTD. PROVISIONS OF SECTION 10A(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 ASSOCIATED ENTERPRISES. 6. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE ON THE OTHER HAND, RELIED ON THE ORDERS OF ASSESSING OFFICER AND DISPUTE RE SOLUTION PANEL (DRP) IN RESPECT OF ENGINEERING DESIGN SERVICES DIVISION. HE FURTHER POINTED OUT THAT THE TPO HAD TO LOOK AT THE ARM'S LENGTH PRICE OF INTERNATIONAL TRANSACTIONS BUT THE ROLE OF THE ASSESSING OFFICER WAS TO LOOK AT THE TAX AVOIDANCE, IF ANY . 7. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. BRIEFLY, IN THE FACTS OF THE CASE, THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF PROVIDING ENGINEERING DESIGN SERVICES AND CUSTOMER SUPPORT SERVICES TO ITS ASSOCIATED ENTERPRISES I.E. EATON CORPORATION, US. THE ASSESSEE WAS REGISTERED WITH SOFTWARE TECHNOLOGY PARKS OF INDIA (STPI) AND HAD CLAIMED THE DEDUCTION UNDER SECTION 10A OF THE ACT IN RELATION TO TWO ELIGIBLE UNITS. FOR THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD FURNISHED THE RE TURN OF INCOME DECLARING TOTAL INCOME OF RS.10,26,30,321/ - WHICH WAS REVISED AND THE ASSESSEE HAD DECLARED INCOME OF RS.10,30,58,820/ - . THE ASSESSING OFFICER MADE A REFERENCE TO THE TPO UNDER SECTION 92CA(1) OF THE ACT. THE TPO VIDE ORDER PASSED UNDER SE CTION 92CA(3) OF THE ACT ACCEPTED THE INTERNATIONAL TRANSACTIONS RELATING TO ENGINEERING DESIGN SERVICES TO BE AT ARM'S LENGTH. HOWEVER, IN RESPECT OF INTERNATIONAL TRANSACTIONS PERTAINING TO CUSTOMER SUPPORT SERVICES, THE TPO MADE AN UPWARD ADJUSTMENT AM OUNTING TO RS.1,23,58,027/ - . THE ASSESSING OFFICER IN THE DRAFT ASSESSMENT ORDER PASSED UNDER SECTION 143(3) R.W.S. 144C OF THE ACT RESTRICTED THE DEDUCTION TO BE ALLOWED UNDER SECTION 10A OF THE ACT I.E. AGAINST THE CLAIM OF ASSESSEE AT RS.75,39,88,612/ - , THE DEDUCTION UNDER SECTION 10A OF THE ACT WAS ALLOWED AT 7 ITA NO. 2544 /P U N/201 2 EATON INDUSTRIES PVT. LTD. RS.5,06,69,392/ - . THE ASSESSEE FILED OBJECTIONS BEFORE THE DRP AGAINST THE DRAFT ASSESSMENT ORDER OF THE ASSESSING OFFICER IN RESPECT OF BOTH THE ADDITIONS. THE DRP REJECTED THE CLAIM OF ASSESSE E AND UPHELD THE APPLICATION OF SECTION 10A(7) R.W.S. 80IA(10) OF THE ACT HOLDING THAT THE ASSESSEE WAS CAPTIVE SERVICE PROVIDER. THE DRP ALSO HELD THAT THERE WAS AN ARRANGEMENT BETWEEN THE TWO ENTITIES AS ENVISAGED UNDER SECTION 80IA(10) OF THE ACT, UNDE R WHICH THE ASSESSEE WAS EARNING MORE THAN ORDINARY PROFITS. THE ASSESSING OFFICER PASSED THE FINAL ASSESSMENT ORDER UNDER SECTION 143(3) R.W.S. 144C(13) OF THE ACT. 8. THE FIRST ISSUE WHICH HAS BEEN RAISED BEFORE US IS IN RESPECT OF CURTAILMENT OF DEDUC TION CLAIMED UNDER SECTION 10A OF THE ACT. THE ASSESSEE WAS PROVIDING HIGH END DESIGN ENGINEERING SERVICES TO ITS ASSOCIATED ENTERPRISES AND WAS BEING REMUNERATED ON MAN HOURLY RATE BASIS, WHICH HAS BEEN COMPUTED APPLYING THE CUP METHODOLOGY. THE ASSESSE E IN THE TRANSFER PRICING STUDY REPORT TO BENCHMARK THE ENGINEERING DESIGN SERVICES HAD APPLIED CUP METHOD AS THE MOST APPROPRIATE METHOD AND THE TRANSACTION WAS DECLARED TO AT ARM'S LENGTH. THE TPO IN THE ORDER PASSED UNDER SECTION 92CA(3) OF THE ACT HAS ACCEPTED THE ARM'S LENGTH PRICE OF ENGINEERING DESIGN SERVICES AS DECLARED BY THE ASSESSEE. THE ASSESSEE HAD SHOWN NET PROFIT MARGINS OF 68.02% DURING THE YEAR UNDER CONSIDERATION, WHICH AS PER THE ASSESSEE, WAS NOT MORE THAN ORDINARY PROFITS SINCE IT WA S PROVIDING HIGH END ENGINEERING DESIGN SERVICES. ONCE THE ARM'S LENGTH PRICE OF INTERNATIONAL TRANSACTIONS OF PROVISION OF ENGINEERING DESIGN SERVICES HAS BEEN ACCEPTED I.E. MAN H OURLY RATES CHARGED BY THE ASSESSEE FOR PROVIDING SUCH SERVICES HAVE BEEN A CCEPTED BY THE TPO IN THE TRANSFER PRICING ORDER, THEN THE ASSESSING OFFICER CANNOT RE - EXAMINE THE SAID TRANSACTION TO ALLEGE THAT THE ASSESSEE HAD EARNED MORE THAN ORDINARY PROFITS AS COMPARED TO THOSE OF COMPARABLES. IN THE ABSENCE OF ANY EVIDENCE BEING BROUGHT ON RECORD BY THE ASSESSING OFFICER TO SHOW THAT THE 8 ITA NO. 2544 /P U N/201 2 EATON INDUSTRIES PVT. LTD. RATES CHARGES BY THE ASSESSEE WERE EXCESSIVE AND ALSO TO ESTABLISH THAT THERE WAS AN ARRANGEMENT BETWEEN THE ASSESSEE AND ITS ASSOCIATED ENTERPRISES TO CHARGE SUCH EXCESSIVE RATES, WHICH HAS RES ULTED IN MORE THAN ORDINARY PROFITS IN THE HANDS OF ASSESSEE, THERE IS NO MERIT IN THE EXERCISE CARRIED OUT BY THE ASSESSING OFFICER. WHERE THE ASSESSEE HAD ADOPTED A PRICE MECHANISM BASED ON THIRD PARTY COMPARABLES, WHICH IN TURN, HAS BEEN ACCEPTED BY TH E TPO TO BE AT ARM'S LENGTH PRICE, THERE IS NO MERIT IN THE ORDER OF ASSESSING OFFICER IN APPLYING THE PROVISIONS OF SECTION 10A(7) R.W.S. 80IA(10) OF THE ACT . THE BASIC REQUIREMENT FOR APPLYING THE SAID PROVISIONS OF THE ACT IS AN ARRANGEMENT BETWEEN THE PARTIES TO EARN MORE THAN ORDINARY PROFITS AND IN THE ABSENCE OF ANY ARRANGEMENT BEING FOUND, THERE IS NO MERIT IN THE CURTAILMENT OF DEDUCTION CLAIMED UNDER SECTION 10A OF THE ACT. 9. WE FIND THAT THE PUNE BENCH OF TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2006 - 07 HAD HELD THAT THE ONUS WAS ON THE DEPARTMENT TO PROVE THAT THERE EXISTED AN ARRANGEMENT BETWEEN THE ASSESSEE AND ITS ASSOCIATED ENTERPRISES TO EARN MORE THAN ORDINARY PROFITS. THE RELEVANT OBSERVATIONS OF THE TRIBUNAL ARE IN PARA 2 3, WHICH READ AS UNDER: - 23. NOW COMING TO THE FACTS OF THE PRESENT CASE WHERE THE ASSESSEE HAD SHOWN PROFITS FROM ITS ENGINEERING DESIGN & DEVELOPMENT SERVICES WHICH WAS AN STPI UNIT AND HAD SHOWN THE NET PROFIT RANGE OF 72.98%, AND THE INTERNATIONAL TRA NSACTION OF THE ASSESSEE WITH ITS ASSOCIATED ENTERPRISES HAD BEEN ACCEPTED BY THE TPO IN HIS REPORT UNDER SECTION 92CA OF THE ACT TO BE AT ARMS LENGTH AND THE ASSESSING OFFICER HAD ADOPTED THE SAID PROFIT MARGINS AND AFTER VERIFICATION HAD ALLOWED THE CLA IM OF DEDUCTION UNDER SECTION 10A OF THE ACT IN RESPECT OF THE ACTIVITY OF RENDERING ENGINEERING DESIGN SERVICES. THE QUESTION IS WHETHER DEDUCTION CLAIMED UNDER SECTION 10A OF THE ACT COULD BE CURTAILED. THE ANSWER IS NO IN VIEW OF THE RATIO LAID DOWN B Y THE TRIBUNAL IN HONEYWELL TURBO TECHNOLOGIES (INDIA) PVT. LTD. VS. DCIT IN ITA NO.2584/PUN/2012 ORDER DATED 10 - 02 - 2017 WHICH HAS BEEN APPLIED BY THE TRIBUNAL FURTHER IN TATA JOHNSON CONTROLS AUTOMOTIVE LIMITED VS. DCIT (SUPRA). THE ONUS IS UPON THE DEPAR TMENT TO PROVE THAT THERE EXISTED AN ARRANGEMENT BETWEEN THE ASSESSEE AND ITS ASSOCIATED ENTERPRISES TO EARN MORE THAN ORDINARY PROFITS AND IN THE ABSENCE OF THE SAID ONUS HAVING BEEN DISCHARGED BY THE DEPARTMENT AND FOLLOWING THE PARITY OF REASONING AS IN HONEYWELL TURBO TECHNOLOGIES (INDIA) PVT. LTD. VS. DCIT AND TATA JOHNSON CONTROLS AUTOMOTIVE LIMITED VS. DCIT (SUPRA), WE FIND NO MERIT IN THE ORDER OF THE COMMISSIONER PASSED UNDER SECTION 263 OF THE ACT IN HOLDING THAT THE ASSESSING OFFICER WHILE GRANTI NG DEDUCTION UNDER SECTION 10A OF THE ACT HAS PASSED THE SAID ORDER WITHOUT ANY APPLICATION OF MIND. SIMILAR ISSUE OF INVOKING OF JURISDICTION UNDER SECTION 263 OF THE 9 ITA NO. 2544 /P U N/201 2 EATON INDUSTRIES PVT. LTD. ACT BY THE COMMISSIONER CURTAILING THE DEDUCTION UNDER SECTION 10B(7) R.W.S. 80IA(8) AND 80IA(10) OF THE ACT AROSE BEFORE THE TRIBUNAL IN SPICER INDIA LTD. VS. CIT (SUPRA) AND THE TRIBUNAL VIDE ORDER DATED 08 - 07 - 2015 IN SIMILAR CIRCUMSTANCES HAD REVERSED THE ORDER OF THE COMMISSIONER PASSED UNDER SECTION 263 OF THE ACT. 10. THE TRIBUNAL ALS O VIDE PARA 25 HELD THAT WHERE THE TRANSACTION HA D BEEN BENCHMARKED BY APPLYING CUP METHOD, WHICH WA S ALSO APPLIED BY THE TPO AND NO ADJUSTMENT WAS PROPOSED BY THE TPO, THEN THERE IS NO MERIT IN DISTURBING THE DEDUCTION CLAIMED UNDER SECTION 10A OF THE ACT BY APPLYING THE PROVISIONS OF SECTION 10A(7) R.W.S. 80IA(10) OF THE ACT. THE RELEVANT PARA 25 READ AS UNDER: - 25. ANOTHER ASPECT OF THE ORDER OF COMMISSIONER IS THAT IT HAS NOT GIVEN ANY FINDING AND HAS DIRECTED THE ASSESSING OFFICER TO APPLY THE PROVIS IONS OF SECTION 10A(7) R.W.S. 80IA(10) OF THE ACT WITH RESPECT TO OPERATING PROFIT MARGIN TO COST, SHOWN BY THE ENGINEERING DESIGN AND DEVELOPMENT SERVICES AT 270%, VIS - - VIS, OPERATING PROFIT MARGIN TO COST SHOWN BY BUSINESS SUPPORT SERVICES AT 7.39% OR A NY OTHER SUITABLE BENCHMARK FOUND AFTER FRESH SEARCH, IF THE BUSINESS SUPPORT SERVICES WAS FOUND TO BE NOT COMPARABLE TO THE ENGINEERING DESIGN AND DEVELOPMENT SERVICES, AS VEHEMENTLY ARGUED BY THE ASSESSEE. THE ORDER OF THE COMMISSIONER PASSED UNDER SECTI ON 263 OF THE ACT IN THE ABOVE SAID CIRCUMSTANCES LACKS JURISDICTION FOR NOT COMING TO A CONCLUSION AND DIRECTING THE ASSESSING OFFICER TO MAKE ENQUIRIES AND ALSO CARRY OUT FRESH SEARCH, IF NECESSARY. UNDER THE GARB OF EXERCISE OF JURISDICTION UNDER SECTIO N 263 OF THE ACT THE COMMISSIONER CANNOT ASK THE ASSESSING OFFICER TO MAKE FISHING AND ROVING ENQUIRIES. IN ANY CASE THE BASIS FOR THE EXERCISE OF JURISDICTION UNDER SECTION 263 OF THE ACT IS THE RESULT SHOWN BY THE ENGINEERING DESIGN AND DEVELOPMENT SERVI CES, I.E. OPERATING PROFIT MARGIN TO COST AT 270%, WHICH ARE TO BE APPLIED WHILE APPLYING THE TNM METHOD. FOR THE SAKE REPETITION IT IS AGAIN POINTED OUT THAT THE TPO HAS NOT APPLIED TNM METHOD BUT HAS APPLIED CUP METHOD. THE INFORMATION WITH REGARD TO OPE RATING PROFIT MARGIN OVER COST WAS PROVIDED TO THE TPO DURING TP ASSESSMENT PROCEEDINGS BUT HAS NOT BEEN APPLIED BY THE TPO. IN ANY CASE WHERE THE ENGINEERING DESIGN & DEVELOPMENT SERVICES WERE BENCHMARKED ON CUP METHOD BY THE TPO, THE SAME ESTABLISHES THE CASE OF THE ASSESSEE THAT THE TWO DIVISIONS ARE SEPARATE AND DISTINCT AND CANNOT BE COMPARED. IN THE ABSENCE OF SAME, THERE IS NO MERIT IN THE ORDER OF THE COMMISSIONER IN HOLDING THAT THE ASSESSING OFFICER HAS NOT APPLIED HIS MIND IN COMPARING OPERATING PROFIT MARGIN OVER COST OF TWO SEPARATE DIVISIONS OF THE ASSESSEE. IT MAY ALSO BE POINTED OUT HEREIN ITSELF THAT THE TOTAL TURNOVER OF ENGINEERING DESIGN AND DEVELOPMENT SERVICES WAS RS.60.67 CROREES AND UNDER THE DESIGN & DEVELOPMENT SERVICES THE TOTAL TU RNOVER OF INTERNATIONAL TRANSACTION WAS ONLY RS.2.66 CRORES. BECAUSE THE ORDER OF THE TPO IN THIS REGARD HAS BECOME FINAL AND HAS BEEN ACCEPTED BY THE ASSESSING OFFICER UNDER WHICH NO ADDITION HAS BEEN MADE IN THE MARGINS SHOWN BY THE ENGINEERING DESIGN AN D DEVELOPMENT SERVICES, THERE IS NO MERIT IN THE ORDER OF COMMISSIONER IN COMPARING THE OPERATING PROFIT MARGIN TO COST OF THE SAID DIVISION SHOWN AT 270% WITH THE OPERATING PROFIT MARGIN TO COST SHOWN BY THE BSS SEGMENT AT 7.39%. ACCORDINGLY, THE DIRECTIO NS OF THE COMMISSIONER IN CURTAILING THE DEDUCTION UNDER SECTION 10A OF THE ACT BY APPLYING PROVISIONS OF SECTION 10A(7) R.W.S. 80IA(10) OF THE ACT ARE NOT CORRECT AND ARE REVERSED. THE FINDING OF THE COMMISSIONER THAT THE ASSESSEE HAD SHOWN HIGHER PROFITS IN STPI UNIT FOR CLAIMING DEDUCTION UNDER SECTION 10A OF THE ACT IS THUS MISPLACED. IN VIEW THEREOF WE FIND NO MERIT IN THE ORDER OF THE COMMISSIONER PASSED UNDER SECTION 263 OF THE ACT AND REVERSING THE SAME WE HOLD THAT THE ASSESSEE IS ENTITLED TO DEDUC TION UNDER SECTION 10A OF THE ACT IN THE ENTIRETY. 10 ITA NO. 2544 /P U N/201 2 EATON INDUSTRIES PVT. LTD. 11. WE MAY FURTHER POINT OUT THAT THE HONBLE BOMBAY HIGH COURT IN CIT VS. M/S. SCHMETZ INDIA PVT. LTD. IN INCOME TAX APPEAL NO.1382 OF 2013, JUDGMENT DATED 24.06.2015 HAD WHILE DECIDING THE ISSUE OF CLAI M OF DEDUCTION UNDER SECTION 10A OF THE ACT IN RESPECT OF PROFITS DERIVED FROM AN ELIGIBLE UNIT ENGAG ED IN THE BUSINESS OF MANUFACTURING INDUSTRIAL SEWING MACHINE NEEDLES AND EXPORT THE SA ME TO ITS GERMAN PARENT COMPANY, WHERE THE ASSESSEE WAS EARNING MARG INS OF 77.91% AS AGAINST THOSE OF THE COMPARABLES BEING 60% HAD UPHELD THE ORDER OF TRIBUNAL. THE TRIBUNAL HAD HELD THAT THE ASSESSING OFFICER WAS NOT ABLE TO PROVE THAT THERE WAS AN ARRANGEMENT BETWEEN THE ASSESSEE AND ITS PARENT COMPANY RESULTING IN EXT RAORDINARY PROFITS , WHERE THE ASSESSEE HAD CONCENTRATED ON EXPORTS TO ITS PARENT COMPANY ONLY, WHICH HAD RESULTED IN HIGHER PROFITS. THE HONBLE HIGH COURT AFFIRMING THE DECISION OF THE TRIBUNAL HELD THAT EXTRAORDINARY PROFITS EARNED BY THE ASSESSEE COULD NOT LEAD TO THE CONCLUSION THAT THERE WAS AN ARRANGEMENT BETWEEN THE ASSESSEE AND ITS ASSOCIATED ENTERPRISES. THE RELEVANT EXTRACT OF THE DECISION OF THE HONBLE BOMBAY HIGH COURT IS AS UNDER: - 8. SO FAR AS QUESTION (A) & (B) ARE CONCERNED, WE FIND THAT THE TRIBUNAL HAS CONSIDERED THE ENTIRE EVIDENCE AND ON FACTS COME TO THE CONCLUSION THAT THE PROFITS EARNED BY KANDLA DIVISION OF THE RESPONDENT - ASSESSEE IS NOT ABNORMALLY HIGH DUE TO ANY ARRANGEMENT BETWEEN THE RESPONDENT - ASSESSEE AND ITS GERMAN PRINCIPA L. THE TRIBUNAL CORRECTLY HELD THAT EXTRAORDINARY PROFITS CANNOT LEAD TO THE CONCLUSION THAT THERE IS AN ARRANGEMENT BETWEEN THE PARTIES. THIS WOULD PENALIZE EFFICIENT FUNCTIONING. FURTHER, THE AUTHORITIES HAVE ALSO RECORDED A FINDING THAT THE INDUSTRIA L SEWING MACHINE NEEDLES IMPORTED AND TRADED BY THE MUMBAI DIVISION ARE DIFFERENT FROM THOSE MANUFACTURED & EXPORTED BY THE KANDLA DIVISION. CONSEQUENTLY, THIS ALSO NEGATIVES ANY ARRANGEMENT BETWEEN THE PARTIES TO SHOW EXTRAORDINARY PROFITS IN RESPECT OF ITS KANDLA DIVISION SO AS TO CLAIM DEDUCTION UNDER SECTION 10A OF THE ACT. THESE ARE FINDINGS ONE OF FACT. THE APPELLANT - REVENUE HAVE NOT BEEN ABLE TO SHOW THAT THE FINDINGS ARE PERVERSE OR ARBITRARY. IN THE CIRCUMSTANCES, QUESTIONS (A) AND (B) AS FORMU LATED BY THE APPELLANT/REVENUE DO NOT RAISE SUBSTANTIAL QUESTIONS OF LAW IN THE PRESENT FACTS AND ARE THEREFORE DISMISSED. 12. THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN CIT VS. M/S. SCHMETZ INDIA PVT. LTD. (SUPRA) AND IN CIT VS. M/S. SCHMETZ INDIA PVT. LTD. (SUPRA) HAS BEEN APPROVED BY THE HON'BLE SUPREME COURT. 11 ITA NO. 2544 /P U N/201 2 EATON INDUSTRIES PVT. LTD. 13. BEFORE PARTING, WE MAY ALSO REFER TO THE DECISION OF THE PUNE BENCH OF TRIBUNAL IN THE CASE OF HONEYWELL AUTOMATION INDIA LTD. VS. DCIT ( SUPRA ) , WHEREIN THE TRIBUNAL HAD COME TO A FIND ING THAT EXISTENCE OF MERE AGREEMENT COULD NOT B Y ITSELF MEAN THAT THERE WAS AN ARRANGEMENT FOR THE PURPOSE OF 80IA(10) OF THE ACT. THE TRIBUNAL HAD FURTHER HELD THAT THE PROVISIONS OF SECTION 10A(7) OF THE ACT WERE ATTRACTED WHERE CLOSELY CONNECTED PARTI ES WERE TAXABLE IN INDIA. IN THIS REGARD, RELEVANT PORTION OF THE TRIBUNAL ORDER DATED 25.02.2015 READ AS UNDER: - 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 FOLLOW ING 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 UNDERTAKING REFE RRED 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 TAK ING 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 QUALI FYING 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 ZO NE DERIVES MORE THAN ORDINARY PROFITS WHICH MAY BE EXPECTED TO ARISE IN THAT BUSINESS. THIS PROVISION HAS BEEN MADE WITH A VIEW TO AVOIDING ABUSE OF THE NEW TAX CONCESSIONS BY MANIPULATION OF PROFITS BETWEEN ASSOCIATE CONCERNS OR DIFFERENT UNITS OF THE SA ME 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 TAX 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 THE ACT. WE SAY SO FOR THE REASON THAT THE PHRASEOLOGY OF SECTION 80 - IA(10) OF THE ACT ITSELF SUGGESTS THAT THE PROFITS AND GAINS OF AN ELIGIBLE BUSINESS CANNOT BE TINKERED WITH BY THE ASSESSING OFFICER MERE LY 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 M AY CONSIDER TO BE REASONABLY DEEMED TO HAVE BEEN DERIVED 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 LEGISLATIVE OBJECTIVE OF PLUGGING ABUSE OF THE TAX CONCESSIONS GRANTED U/S 10A OF THE ACT BY 12 ITA NO. 2544 /P U N/201 2 EATON INDUSTRIES PVT. LTD. MANIPULATION OF PROFITS BETWEEN ASSOCIATED PARTIES. IN OTHER WORDS, THE IMPORT OF THE EXPRESSION SO ARRANGED HAS TO BE READ IN CONJUNCTION WITH THE LEGISLATIVE INTENT THAT THERE SHOULD NOT BE ANY ABUSE OF TAX 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 CONCESSION 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 EMPHA SIS IS TO ESCHEW THOSE MORE THAN THE ORDINARY PROFITS WHICH ARE AS A RESULT OF A BUSINESS BETWEEN TWO CLOSELY CONNECTED CONCERNS HAVING BEEN ARRANGED WITH THE INTENT OF ABUSE OF THE TAX CONCESSION. OSTENSIBLY, IN THE PRESENT CASE, THE REVENUE WOULD HAVE TO JUSTIFY THAT THE COURSE OF BUSINESS BETWEEN ASSESSEE AND THE ASSOCIATED ENTERPRISES HAS BEEN SO 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 AB USING 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, THE LD. CIT - DR HAD VEHEMENTLY ARGUED, BASED ON THE JUDGMENT OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF BANK OF INDIA LTD. (SUPRA) THAT THE MEANING OF THE WORD ARRANGED IN SECTION 80 - IA(10) OF THE ACT HAS TO BE UNDERSTOOD TO MEAN AN AGREEMENT OR AN UNDERSTANDING BETWEEN THE PARTIES CONCERNED. THE 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 AGREEMENT 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 SERVIC ES 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 LANGU AGE OF SECTION 80 - IA(10) OF THE ACT THAT, THE ASSESSING OFFICER IS NOT REQUIRED TO BE PROVE THAT THERE IS AN ARRANGEMENT FOR PRODUCING MORE THAN ORDINARY PROFITS. WHEREAS, AS PER THE LD. CIT - DR, SECTION PROVIDES THAT ARRANGEMENT LEADING TO PRODUCTION OF M ORE THAN ORDINARY PROFIT WILL SATISFY THE NECESSARY 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 TH E LD. CIT - DR, THE MEANING OF THE WORDS SO ARRANGED 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 - D R. IN OUR CONSIDERED OPINION, THE IMPORT OF THE EXPRESSION 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 THE 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 P ROFITS WHICH MIGHT BE EXPECTED TO ARISE IN SUCH ELIGIBLE BUSINESS . THEREFORE, IT WOULD NECESSARILY MEAN THAT THE ARRANGEMENT REFERRED TO IS AN ARRANGEMENT OF THE COURSE OF BUSINESS WHICH PRODUCES TO THE 13 ITA NO. 2544 /P U N/201 2 EATON INDUSTRIES PVT. LTD. ASSESSEE MORE THAN THE ORDINARY PROFITS WITH T HE 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 EX PECTED 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 T HE ASSESSEE AND THE ASSOCIATED ENTERPRISES FOR TRANSACTING BUSINESS IS NOT ENOUGH TO INVOKE SECTION 80 - IA(10) OF THE ACT. 14. SIMILAR PRINCIPLE HAS BEEN LAID DOWN BY THE PUNE BENCH OF TRIBUNAL IN TATA JOHNSON CONTROL AUTOMOTIVE LTD. VS. DCIT IN ITA NO.14 50/PN/2011 AND IN DCIT VS. TATA JOHNSON CONTROLS AUTOMOTIVE LTD. IN ITA NO.1454/PN/2011, RELATING TO ASSESSMENT YEAR 2006 - 07, ORDER DATED 09.12.2015. FURTHER, WE FIND SUPPORT FROM THE RATIO LAID DOWN BY THE PUNE BENCH OF TRIBUNAL IN THE CASE OF SPICER IND IA LTD. WITH LEAD ORDER IN ITA NO.1112/PN/2012, RELATING TO ASSESSMENT YEAR 2006 - 07, ORDER DATED 08.07.2015. 15. APPLYING THE SAID PRINCIPLE TO THE FACTS OF PRESENT CASE, WE FIND THAT THE ASSESSEE IN ITS ENGINEERING DESIGN DEVELOPMENT SERVICES WHICH WAS S TPI UNIT SHOWN NET PROFIT MARGIN OF 68.02% . T HE INTERNATIONAL TRANSACTIONS UNDERTAKEN BY THE ASSESSEE WITH ITS ASSOCIATED ENTERPRISES IN WHICH PLI WAS 205% BY TAKING OP/OC WAS ACCEPTED BY THE TPO TO BE AT ARM'S LENGTH AND NO ADJUSTMENT WAS MADE IN THE HAN DS OF ASSESSEE WITH REGARD TO SAID DIVISION. THE ASSESSING OFFICER HOWEVER, WAS OF THE VIEW THAT THE ASSESSEE HAD EARNED MORE THAN ORDINARY PROFITS IN THE ENGINEERING DESIGN SERVICES DIVISION AND CONSEQUENTLY, CURTAILED THE DEDUCTION CLAIMED UNDER SECTION 10A OF THE ACT. THE QUESTION WHICH IS RAISED BEFORE US VIDE GROUNDS OF APPEAL NO.3 TO 8 IS WHETHER IN SUCH CIRCUMSTANCES, THE DEDUCTION CLAIMED UNDER SECTION 10A OF THE ACT CAN BE CURTAILED. WHERE THE DEPARTMENT HAS FAILED TO PROVE THAT THERE EXISTED AN ARRANGEMENT BETWEEN ASSESSEE AND ITS ASSOCIATED ENTERPRISES TO EARN MORE THAN ORDINARY, THERE IS NO MERIT IN THE AFORESAID CURTAILMENT OF DEDUCTION UNDER SECTION 10A OF THE ACT. IN THIS 14 ITA NO. 2544 /P U N/201 2 EATON INDUSTRIES PVT. LTD. REGARD, WE PLACE RELIANCE ON THE RATIO LAID DOWN BY THE HONBLE BOMB AY HIGH COURT CIT VS. SCHMETZ INDIA PVT. LTD. (SUPRA) , WHERE THE SLP FILED HAS BEEN REJECTED BY THE HON'BLE SUPREME COURT. WE ALSO PLACE RELIANCE ON THE RATIO LAID DOWN IN HONEYWELL AUTOMATION INDIA LTD. VS. DCIT (SUPRA) AND IN ASSESSEES OWN CASE RELATIN G TO ASSESSMENT YEAR 2006 - 07. HENCE, GROUNDS OF APPEAL NOS.3 TO 8 ARE ALLOWED. 16. THE NEXT ISSUE RAISED VIDE GROUNDS OF APPEAL NO.9, 10 AND 12 IS AGAINST TRANSFER PRICING ADJUSTMENT MADE BY THE ASSESSING OFFICER WITH RESPECT TO PROVISION OF CUSTOMER SU PPORT SERVICES AMOUNTING TO RS.1,23,58,027/ - . 17. BRIEF FACTS RELATING TO THE ISSUE ARE THAT THE ASSESSEE HAD RENDERED CUSTOMER SUPPORT SERVICES TO ITS ASSOCIATED ENTERPRISES THROUGH GSSC INDIA. THE ASSESSEE WAS REMUNERATED AT COST PLUS MARK UP BASIS I.E . 12.87% FOR PROVISION OF SUCH SERVICES TO ASSOCIATED ENTERPRISES. THE ASSESSING OFFICER FROM TRANSFER PRICING STUDY REPORT SUBMITTED BY THE ASSESSEE NOTED THAT GSSC INDIA UNDERTOOK TO PROVIDE IT ENABLED BACK OFFICE SERVICES TO THE ASSOCIATED ENTERPRISES. THE ASSESSEE IN THE TP STUDY REPORT HAD SELECTED TNMM METHOD AS THE MOST APPROPRIATE METHOD TO BENCHMARK THE INTERNATIONAL TRANSACTIONS RELATING TO CUSTOMER SUPPORT SERVICES. AS PER THE TP STUDY REPORT, THE OPERATING MARGINS I.E. OP/TOTAL COST OF SAID S EGMENT FOR THE YEAR UNDER CONSIDERATION WAS 12.87%. T HE ASSESSEE SELECTED CERTAIN COMPARABLE COMPANIES ON MULTIPLE YEAR DATA BASIS IN ITS TP STUDY REPORT AS COMPARABLE AND MEAN OPERATING MARGINS OF THE SAID CONCERNS WORKED OUT TO 16.01%. SINCE THE OPERAT ING MARGINS DECLARED BY THE ASSESSEE WERE WITHIN RANGE OF ARITHMETIC MEAN OF COMPARABLE COMPANIES AS PER PROVISIONS OF SECTION 92C(2) OF THE ACT, HENCE, THE SAME WAS DECLARED TO BE ARM'S LENGTH PRICE. THE TPO ON THE OTHER HAND, REJECTED THE TP DOCUMENTATI ON SUBMITTED BY THE 15 ITA NO. 2544 /P U N/201 2 EATON INDUSTRIES PVT. LTD. ASSESSEE FOR THE NON USE OF DATA OF THE RELEVANT FINANCIAL YEAR. THE TPO FURTHER APPLIED CERTAIN FILTERS I.E. EXCLUDED COMPANIES WITH LESS THAN 75% EARNING FROM EXPORTS AND ALSO EXCLUDED PERSISTENT LOSS MAKING COMPANIES AND COMPANIES W ITH RELATED PARTY TRANSACTIONS OF MORE THAN 25%. IN THIS EXERCISE, THE TPO REJECTED THE COMPARABLE COMPANIES SELECTED BY THE ASSESSEE AND SELECTED FRESH COMPARABLES AND FINAL SET OF COMPARABLES WHICH WERE SELECTED BY THE TPO WERE AS UNDER: - SR. NO. COMP ANY OPERATING PROFITS ON OPERATING COST % (F.Y. 2007 - 2008) 1 CALIBER POINT BUSINESS SOLUTIONS LTD. 19.80% (ASSESSEES SELECTION) 2 ACCENTIA TECHNOLOGIES LTD. 45.27% 3 CORAL HUBS 51.79 4 COSMIC GLOBAL 23.30 5 E4E - HEALTH 19.38 6 TRITON CORPORATION 25.2 6 (ASSESSEES SELECTION) 7 INFORMED TECHNOLOGIES INDIA LTD. 5.89 (ASSESSEES SELECTION) 8 CROSS DOMAIN SOLUTIONS PVT. LTD. 27.59% ARITHMETIC MEAN (218.28/8) 27.28 ASSESSEES MARGIN 13.79% 18. THE ARITHMETIC MEAN OF MARGINS OF THE COMPARABLES WORKED OUT TO 27.28% AS AGAINST THE MARGINS OF ASSESSEE AT 13.79% AND HENCE, THE ADJUSTMENT OF RS. 1,23,58,027/ - WAS PROPOSED. THE TPO DID NOT ALLOW THE RISK ADJUSTMENT TO THE ASSESSEE. THE ASSESSING OFFICER PROPOSED THE DRAFT ASSESSMENT ORDER, AGAINST WHICH TH E ASSESSEE FILED OBJECTIONS BEFORE THE DRP. HOWEVER, THE DRP UPHELD THE FINAL COMPARABLES SELECTED BY THE TPO AND ALSO REJECTED THE ARGUMENTS OF ASSESSEE IN ALLOWING RISK ADJUSTMENT. THE ASSESSING OFFICER PASSED THE ORDER UNDER SECTION 143(3) OF THE ACT MAKING AN UPWARD ADJUSTMENT OF RS.1.23 CRORES. 19. THE ASSESSEE IS IN APPEAL AGAINST AFORESAID ORDER OF ASSESSING OFFICER. 20. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE DREW OUR ATTENTION TO THE FUNCTIONAL PROFILE OF THE SAID DIVISION WHICH IS PLACED AT PAGES 382 AND 386 OF THE PAPER BOOK - 2 AND POINTED OUT THAT THE ASSESSEE WAS ENGAGED IN FACILITATING 16 ITA NO. 2544 /P U N/201 2 EATON INDUSTRIES PVT. LTD. ORDERS, GETTING ORDERS AND TAK ING CARE OF SHIPMENT, ETC. HE FURTHER POINTED OUT THAT THOUGH SERVICES WERE ON IT ENABLED PLATFORM BUT WERE IN T HE LINE OF LOW END BPO SERVICES. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE REFERRED TO THE FINAL LIST OF COMPARABLES SELECTED BY THE TPO AND POINTED OUT THAT CERTAIN CONCERNS ARE TO BE EXCLUDED FROM THE FINAL SET OF COMPARABLES AND IN CASE TH E SAME ARE EXCLUDED, THE MARGINS SHOWN BY THE ASSESSEE AND THE ARITHMETIC MEAN OF THE MARGINS OF BALANCE COMPARABLES WOULD BE WITHIN +/ - 5% RANGE. ACCORDINGLY, WE TAKE UP THIS ISSUE WITH REGARD TO EXCLUSION OF COMPARABLES IN THE PARAS HEREINAFTER. 21. TH E FIRST COMPARABLE WHICH THE ASSESSEE WANTS TO EXCLUDE FROM THE FINAL LIST OF COMPARABLES IS ACCENTIA TECHNOLOGIES LTD. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT THE SAID COMPANY WAS MAJOR SUPPLIER IN GLOBAL HEALTHCARE, WHICH WAS PART OF HEALTHCARE BPO INDUSTRY. IT PROVIDED SERVICES RELATING TO MEDICAL TRANSCRIPTIONS, MEDICAL BILLING AND MAJOR INCOME ABOUT 65% OF TOTAL SALES FROM MEDICAL TRANSCRIPTIONS. THE SAID COMPANY ALSO HAD OWN SOFTWARE PRODUCTS. THOUGH 20% OF THE COMP ANYS REVENUE WAS FROM SOFTWARE DEVELOPMENT ACTIVITIES, THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT THE SAID CONCERN HA D BEEN EXCLUDED ON ACCOUNT OF ITS FUNCTIONALITY BEING NOT COMPARABLE TO THE COMPANIES INVOLVED IN ITES INDUST RIES BY THE PUNE BENCH OF TRIBUNAL IN THE CASE OF VISHAY COMPONENTS (P.) LTD. VS. ACIT (2017) 83 TAXMANN.COM 319 (PUNE - TRIB.). 22. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE ON THE OTHER HAND, PLACED RELIANCE ON THE ORDER OF ASSESSING OFFICER . 23. WE FIND MERIT IN THE PLEA OF ASSESSEE WHERE THE CONCERN ACCENTIA TECHNOLOGIES LTD. WAS INVOLVED ON SITE DEVELOPMENT AND WAS ALSO FUNCTIONALLY 17 ITA NO. 2544 /P U N/201 2 EATON INDUSTRIES PVT. LTD. DIFFERENT AS WAS ENGAGED IN THE BUSINESS OF MEDICAL TRANSCRIPTION SERVICES. THE ASSESSEE ON THE OTHER HAND , WAS PROVIDING BACK OFFICE SERVICES TO ITS ASSOCIATED ENTERPRISES AND HENCE, THE MARGINS OF ACCENTIAL TECHNOLOGIES LTD. IS TO BE EXCLUDED FROM THE FINAL LIST OF COMPARABLES IN ORDER TO BENCHMARK INTERNATIONAL TRANSACTIONS OF ASSESSEE WITH ITS ASSOCIATED E NTERPRISES IN THE CUSTOMER SUPPORT SERVICES DIVISION. 24. WE FIND SIMILAR ISSUE HAS BEEN DECIDED BY THE TRIBUNAL IN THE CASE OF VISHAY COMPONENTS (P.) LTD. VS. ACIT (SUPRA) AND THE SAID CONCERN ACCENTIA TECHNOLOGIES LTD. WAS FOUND TO BE NOT FUNCTIONALLY COMPARABLE TO THE ASSESSEE THEREIN, WHICH WAS ENGAGED IN ITES SERVICES. THE TRIBUNAL IN TURN, HAD RELIED ON THE RATIO LAID DOWN BY THE TRIBUNAL IN CUMMINS TURBO TECHNOLOGIES LTD. VS. DY.DIT(IT) (2016) 68 TAXMANN.COM 273 (PUNE - TRIB.) . ACCORDINGLY, WE H OLD THAT THE SAID CONCERN ACCENTIAL TECHNOLOGIES LTD. IS TO BE EXCLUDED FROM THE FINAL LIST OF COMPARABLES WHILE BENCHMARKING ITES SEGMENT. 25. THE NEXT CONCERN WHICH THE ASSESSEE CLAIMS TO BE FUNCTIONALLY DIFFERENT AND IS TO BE EXCLUDED FROM THE FINAL SE T OF COMPARABLES IS CORAL HUBS LTD., WHICH WAS ENGAGED IN KPO SERVICES. IN THIS REGARD, THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE PLACED RELIANCE ON THE DECISION OF THE HONBLE HIGH COURT OF DELHI IN RAMPGREEN SOLUTIONS PVT. LTD. VS. CIT IN I TA NO.102/2015, JUDGMENT DATED 10.08.2015. 2 6 . THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE PLACED RELIANCE ON THE ORDER OF TPO. 18 ITA NO. 2544 /P U N/201 2 EATON INDUSTRIES PVT. LTD. 2 7 . WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE HONBLE HIGH COURT OF DELHI IN RAMPGREEN SOL UTIONS PVT. LTD. VS. CIT (SUPRA) HAS HELD THAT THERE ARE DIFFERENT FACTORS WHICH HAVE TO BE JUDGED WITH REFERENCE TO SERVICE / PRODUCT CHARACTERIZATION AND THE SAME CANNOT BE UNDERMINED BY USING BROAD CLASSIFICATION OF ITES. THE HONBLE HIGH COURT OF DELH I DREW THE DISTINCTION BETWEEN BPO SERVICE PROVIDER AND THE KPO SERVICE PROVIDER AND HELD THAT WHERE THE CONTROLLED TRANSACTIONS WERE IN THE NATURE OF LOWER END ITES SUCH AS CALL CENTRES, ETC. FOR RENDERING DATA PROCESSING NOT INVOLVING DOMAIN KNOWLEDGE, I N SUCH CIRCUMSTANCES INCLUSION OF ANY KPO SERVICE PROVIDER AS A COMPARABLE WOULD NOT BE WARRANTED AND THE TRANSFER PRICING STUDY MUST TAKE THAT INTO ACCOUNT AT THE THRESHOLD. THE HONBLE HIGH COURT THEREFORE, DIRECTED THE EXCLUSION OF VISHAL INFORMATION T ECHNOLOGY LTD., WHICH IS SUBSEQUENTLY KNOWN AS CORAL HUBS LTD. FOLLOWING THE RATIO LAID DOWN BY THE HONBLE HIGH COURT, WE DIRECT THE TPO TO EXCLUDE CORAL HUBS LTD. FROM THE FINAL LIST OF COMPARABLES. 2 8 . THE NEXT CONCERN WITH WHICH THE ASSESSEE IS CON CERNED IS CROSS DOMAIN SOLUTIONS LTD., WHICH IS ALSO PROVIDING KPO SERVICES. ANOTHER ISSUE RAISED BY THE ASSESSEE WAS THAT IT HAD APPLIED TURNOVER FILTER OF RS.25 CRORES AND HAD REJECTED CROSS DOMAIN SOLUTIONS LTD. AND HENCE, IT COULD NOT BE ACCEPTED, AS IT DOES NOT FULFILL THE TURNOVER CRITERIA ADOPTED BY THE ASSESSEE. HE ALSO PLACED RELIANCE ON THE RATIO LAID DOWN BY THE PUNE BENCH OF TRIBUNAL IN CUMMINS TURBO TECHNOLOGIES LTD., UK VS. DDIT (IT) (SUPRA). 29 . WE HAVE HEARD THE RIVAL CONTENTIONS AND PERU SED THE RECORD. WHERE THE CONCERN IS PROVIDING KPO SERVICES, THEN THE SAME IS NOT COMPARABLE TO THE ASSESSEE, WHICH IS ENGAGED IN ITES SERVICES AS PER THE RATIO LAID DOWN BY THE 19 ITA NO. 2544 /P U N/201 2 EATON INDUSTRIES PVT. LTD. HONBLE HIGH COURT OF DELHI IN RAMPGREEN SOLUTIONS PVT. LTD. VS. CIT (SUPRA). ACCORDINGLY, WE HOLD SO. 30. THE LAST CONCERN WHICH THE ASSESSEE WANTS TO BE EXCLUDED FROM THE FINAL SET OF COMPARABLES PREPARED BY THE TPO IS COSMIC GLOBAL, WHEREIN THE SAID CONCERN HAD SUB - CONTRACTED IT ENABLED SERVICES TO THIRD PARTY VENDORS. THE SA ID CONCERN HAD LOW EMPLOYEE COST TO SALES RATIO AND HENCE, HAD DIFFERENT BUSINESS MODEL FROM THAT OF THE ASSESSEE. WE FIND THAT THE SAID CONCERN HAS BEEN EXCLUDED AS BEING NOT COMPARABLE TO BPO SERVICE PROVIDER BY THE PUNE BENCH OF TRIBUNAL IN CUMMINS TUR BO TECHNOLOGIES LTD. VS. DY.DIT(IT) (SUPRA). WE FIND THAT THE SAID CONCERN IS NOT COMPARABLE TO THE ASSESSEE AS THE FUNCTIONS PERFORMED BY IT WERE QUITE DISSIMILAR TO THE BUSINESS MODEL OF THE ASSESSEE WHILE CARRYING OUT ITS ITES SERVICES TO THE ASSOCIATE D ENTERPRISES. 3 1. THE HONBLE HIGH COURT OF DELHI IN RAMPGREEN SOLUTIONS PVT. LTD. VS. CIT IN ITA NO.102/2015, VIDE JUDGMENT DATED 10.08.2015 HAD UPHELD THE EXCLUSION OF COSMIC GLOBAL LTD. BECAUSE OF ITS LOW EXPENDITURE ON EMPLOYMENT COST BEING FUNCTIONA LLY DISSIMILAR. IN VIEW OF THE FINDINGS OF TRIBUNAL IN THE CASE OF ANOTHER IT ENABLED SERVICE PROVIDER AND THE RATIO LAID DOWN BY HONBLE DELHI HIGH COURT, WE HOLD THAT WHERE COSMIC GLOBAL LTD. WAS OPERATING IN DIFFERENT BUSINESS MODEL THAN THE ASSESSEE I N THE YEAR UNDER CONSIDERATION, THE SAME NEEDS TO BE EXCLUDED FROM THE FINAL SET OF COMPARABLES. ACCORDINGLY, WE HOLD SO. IN VIEW THEREOF, GROUNDS OF APPEAL NO.9, 10 AND 12 RAISED BY THE ASSESSEE ARE THUS, ALLOWED. 32. AS MENTIONED EARLIER, GROUNDS OF A PPEAL NO.11 AND 13 ARE NOT PRESSED AND HENCE, THEY ARE DISMISSED. 20 ITA NO. 2544 /P U N/201 2 EATON INDUSTRIES PVT. LTD. 33. THE GROUND OF APPEAL NO.14 IS LINKED TO THE GROUND OF APPEAL 12 AND THE SAME IS THUS, ALLOWED. 34. THE GROUND OF APPEAL NO.15 IS CONSEQUENTIAL IN PROVIDING THE BENEFIT OF RANGE OF +/ - 5% TO THE ASSESSEE AS ENVISAGED UNDER PROVISO TO SECTION 92C OF THE ACT. ACCORDINGLY, WE HOLD SO. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE ARE THUS, PARTLY ALLOWED. 35 . IN THE RESULT, APPEAL OF ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED ON THIS 30 TH DAY OF OCTOBER , 201 7 . SD/ - SD/ - ( D.KARUNAKARA RAO ) (SUSHMA CHOWLA) / ACCOUNTANT MEMBER / JUDICIAL MEMBER / PUNE ; DATED : 30 TH OCTOBER , 201 7 . GCVSR / COPY OF THE O RDER IS FORWARDED TO : 1. THE APPELLANT ; 2. THE RESPONDENT; 3. THE DRP, PUNE ; 4. THE DIT (TP/IT), PUNE ; 5. THE DR B , ITAT, PUNE; 6. GUARD FILE . / BY ORDER , //TRUE COPY// / SR. PRIVATE SECRETARY , / ITAT, PUNE