HINDUJA VENTURES LTD, MUMBAI V. ADDL CIT RG 8(2), MUMBAI

ITA 4089/MUM/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 59726 (ITAT-MUMBAI)
• Duration Of Justice: 8 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-01-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: H
• Assessment Year: 2005-2006
• Appeal Filed On: 18-05-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MRS MALATI SRIDHARAN
• Assessee Lawyers: Y P TRIVEDI; RUPAL VORA
• Keywords: Transfer pricing; International transaction; Earning of tax free income
• Section: 92C; 14A; 10B; 92

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH L MUMBAI BEFORE SHRI B.R. MITTAL (JUDICIAL MEMBER) AND SHRI PRAMOD KUMAR (ACCOUNTANT MEMBER) ITA NO. 4089/MUM/2011 ASSESSMENT YEAR-2005-06 M/S. HINDUJA VENTURES LTD., 49/50, IN CENTRE, MIDC, 12 TH ROAD, MAROL, ANDHERI (EAST), MUMBAI-400 093 PAN-AAACH 2058N VS. THE ACIT, RANGE-8(2), AAYAKAR BHAVAN, MUMBAI-400 020 (APPELLANT) (RESPONDENT) ITA NO. 4062/MUM/2011 ASSESSMENT YEAR-2005-06 THE ACIT, RANGE-8(2), AAYAKAR BHAVAN, MUMBAI-400 020 VS. M/S. HINDUJA VENTURES LTD., 49/50, IN CENTRE, MIDC, 12 TH ROAD, MAROL, ANDHERI (EAST), MUMBAI-400 093 PAN-AAACH 2058N (APPELLANT) (RESPONDENT) ASSESSEE BY: SHRI Y.P. TRIVEDI & MS. RUPAL VORA RESPONDENT BY: MRS. MALATI SRIDHARAN DATE OF HEARING :15.12.2012 DATE OF PRONOUNCEMENT:31.1.2012 O R D E R PER B.R. MITTAL, JM : THESE CROSS APPEALS ARE FILED BY ASSESSEE AND DEPA RTMENT AGAINST ORDER OF LD. CIT(A) DT.15.3.2011 FOR ASSESSMENT YEAR 200 5-06. 2. THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF PROVIDING IT ENABLED SERVICES, FINANCE, INVESTMENT ACTIVITY AND CONSULTANCY SERVICES. THE ITA NO. 4089/MUM/2011 2 ASSESSEE ALSO EXECUTES A BPO (INSURANCE CLAIM PROCES SING) PROJECTS HANDLING VARIOUS TYPES OF CLAIMS. IT HAS ALSO DIVERSIFIED IN TO CALL CENTER BUSINESS IN ITES SPACE. IT HANDLES BILLING AND MARKETING RELATED CAL LS AND SERVICES CALLS. BESIDES HAVING IT AS ITS CORE BUSINESS, IT HAS DIFFERENT SU BSIDIARIES IN MEDIA AND TELECOM BUSINESS. THESE SUBSIDIARIES CONDUCT BUSINESSES IN THE AREAS OF CABLE TELEVISION, BROADBAND INTERNET, LOCAL TELEVISION PROGRAMMING, M OVIE CHANNEL AND MOVIE BASED PROGRAMMING. THE ASSESSEE FILED RETURN ON 31 .10.2005 ALONGWITH AUDIT REPORT AND AUDITED BALANCE SHEET DECLARING TOTAL IN COME AT A SUM OF RS. 9,99,81,560/-. 3. WITH THE ABOVE BACKGROUND OF ACTIVITIES OF ASSES SEE, WE FIRSTLY TAKE APPEAL OF ASSESSEE BEING ITA NO. 4089/M/2011 FOR OU R CONSIDERATION. 4. IN GROUND NO. 1 OF APPEAL, ASSESSEE HAS DISPUTED ORDER OF LD. CIT(A) IN CONFIRMING ACTION OF AO TO DISALLOW DEDUCTION CLAIM ED BY ASSESSEE U/S. 10A OF I.T. ACT IN RESPECT OF UNIT NO.II AMOUNTING TO RS. 12, 41,79,095/- AND UNIT NO. III AMOUNTING TO RS. 38,32,05,319/-. 5. THE RELEVANT FACTS GIVING RISE TO ABOVE GROUND A RE THAT ASSESSEE CLAIMED DEDUCTION U/S. 10A FOR UNIT NO. II AND UNIT NO. III. TH E ASSESSEE HAS FOUR UNITS ENGAGED IN THE BUSINESS OF INFORMATION TECHNOLOGY ( IT) AND IT ENABLED SERVICES (ITES). IN RESPECT OF INCOME OF UNIT-I AND UNIT IV, ASSESSEE DID NOT CLAIM ANY DEDUCTION U/S. 10A OF THE ACT. 6. IN RESPECT OF UNIT-II, ASSESSEE CLAIMED THAT IT IS ENGAGED IN IT ENABLED BUSINESS OF INSURANCE CLAIM PROCESSING AND UNIT III IS ENGAGED IN THE BUSINESS OF CALL CENTER. 7. THE ASSESSING OFFICER HAS STATED THAT ASSESSEE F ILED AUDIT REPORT FOR BOTH THESE UNITS I.E. UNIT NO. II AND UNIT NO. III AND RELEV ANT FACTS AS REPORTED IN THE AUDIT REPORT HAVE BEEN STATED BY AO IN PARAS 3.2 AN D 3.3 OF ASSESSMENT ORDER WHICH ARE AS UNDER: ITA NO. 4089/MUM/2011 3 THE FACTS AS REPORTED IN THE AUDIT REPORT FOR UNIT II ARE AS UNDER: IT IS CLAIMED THAT UNIT II IS SET UP AT 1ST & 2 ND FLOOR, HTMT HOUSE, 614, VAJPAYEE NAGAR, BOMMANAHALLI, HOSUR ROA D, BANGALORE -560068. IT IS CERTIFIED THAT UNIT II IS RE GISTERED WITH SOFTWARE TECHNOLOGY PARKS OF INDIA, BANGALORE AND QUANTIFIED THE ADMISSIBLE DEDUCTION U/S. 10A OF THE ACT, AT A SUM OF RS. 12,41,79,095/-. NATURE OF THE BUSINESS O F THE UNIT IS STATED TO BE INSURANCE CLAIM PROCESSING. THE DATE O F INITIAL REGISTRATION WITH THE SOFTWARE TECHNOLOGY PARK IS S TATED TO BE ON 22.07.1992. IT IS CLAIMED THAT THE UNIT STARTED T HE MANUFACTURE OR PRODUCTION OF COMPUTER SOFTWARE IN J UNE 2000 AND IT IS 5TH YEAR OF THE DEDUCTION U/S 10A. THE TO TAL TURNOVER OF THE UNDERTAKING /UNIT WAS QUANTIFIED AT A SUM OF RS. 55.96 CR AND THE TOTAL TURNOVER OF THE BUSINESS WAS QUANT IFIED AT A SUM OF RS. 166.13 CR. THE TOTAL PROFITS DERIVED BY THE UNDERTAKING / UNIT WAS QUANTIFIED AT A SUM OF RS. 1 3.24 CR AND THE TOTAL PROFIT DERIVED BY THE BUSINESS WAS QUANT IFIED AT A SUM OF RS.74 CR. 3.3 THE FACTS AS REPORTED IN THE AUDIT REPORT IN R ESPECT OF UNIT III ARE AS UNDER: IT IS CLAIMED THAT UNIT III WAS SET UP AT GROUND & 3 RD FLOOR, HTMT HOUSE, 614, VAJPAYEE NAGAR, BOMMANAHALLI, HOSU R ROAD, BANGALORE 560068. IT IS CERTIFIED THAT UNIT III IS REGISTERED WITH SOFTWARE TECHNOLOGY PARKS INDIA, BA NGALORE AND QUANTIFIED THE ADMISSIBLE DEDUCTION AT A SUM OF RS. 38,32,05,319/-. U/S 10A OF THE ACT. NATURE OF THE B USINESS OF THE UNDERTAKING IS STATED TO BE A CALL CENTER. THE DATE OF INITIAL REGISTRATION IN THE SOFTWARE TECHNOLOGY PARK IS STA TED TO BE ON 22.07.1992. IT IS CLAIMED THAT THE UNIT STARTED THE MANUFACTURE OR PRODUCTION OF COMPUTER SOFTWARE ON 19TH NOVEMBER 2001 AND IT IS 4 TH YEAR OF THE DEDUCTION U/S 10A. THE TOTAL TURNOVER OF THE UNDERTAKING / UNIT WAS QUANTIFIED AT A SUM O F RS.69.87 CR AND THE TOTAL TURNOVER OF THE BUSINESS WAS QUANT IFIED AT A SUM OF RS. 166.13 CR. THE TOTAL PROFITS DERIVED BY THE UNDERTAKING WAS QUANTIFIED AT A SUM OF RS.38.86 CRO RES AND THE TOTAL PROFITS DERIVED BY THE BUSINESS WAS QUANT IFIED AT A SUM OF RS.74 CR. THE TOTAL EXPORT TURNOVER OF THE BUSINESS WAS A SUM OF RS.118.98 CR. FROM THE AUDIT REPORT IT CA N BE SEEN THAT THE ASSESSEE HAD OBTAINED THE INITIAL REGISTRA TION OF UNIT-II & UNIT- III UNDER THE STP SCHEME ON 22.7.1992. ITA NO. 4089/MUM/2011 4 THE AO HAS STATED THAT ASSESSEE WAS NOT IN THE BUS INESS OF INFORMATION & TECHNOLOGY FROM THE BEGINNING. INITIALLY, ASSESSE ES NAME WAS HINDUJA FINANCE CORPORATION LTD. LATER ON CHANGED ITS NAME INTO HINDUJA TMP LTD AND PRESENTLY KNOWN AS HINDUJA VENTURES LTD. THE ASSES SEE HAS DEMERGED ITS IT BUSINESS TO HTMT GLOBAL SOLUTIONS LTD. WITH EFFECT FROM 1.10.2006. THERE WAS AN ASSOCIATED COMPANY WITH THE NAME ASHOK LEYLAND I NFORMATION TECHNOLOGY LTD. (HEREIN AFTER KNOWN AS ALIT). THAT THIS COMPA NY WAS AMALGAMATED WITH HINDUJA FINANCE CORPN. LTD W.E.F. 1 ST JULY,1999. THE AO HAS STATED THAT CLAIM OF ASSESSEE IS THAT UNIT NO. II AND UNIT NO.III HAVE BEGUN THE PRODUCTION OF COMPUTER SOFTWARE IN JUNE, 2000 AND NOVEMBER, 2001 RESPECTIVELY. THE AO STATED THAT LETTER DT. 25.11.2008 WAS ADDRESSED TO THE DIRECTOR, SOFTWARE TECHNOLOGY PARKS OF INDIA, BANGALORE (HEREAFTER KNO WN AS STPI). THE DIRECTOR OF STPI FURNISHED VARIOUS DETAILS AND DOCUMENTS RELE VANT TO DEDUCTION U/S. 10A VIDE LETTER DT. 10.12.2008. IT WAS STATED THAT INI TIALLY STPI ACCORDED PERMISSION IN THE NAME OF AL INFORMATION TECH LTD. VIDE APPROV AL NUMBER 15(63)/92SDA DT. 22.7.1992. ON THE APPLICATION OF ALIT UNDER SOF TWARE TECHNOLOGY PARK SCHEME, INTER MINISTERIAL STANDING COMMITTEE OF DEP ARTMENT OF ELECTRONICS HAD APPROVED THE SETTING UP OF UNIT AT A TOTAL FOREIG N EXCHANGE OUTFLOW OF US$ 81.76 LAKHS OVER THE FIVE YEARS OF PROJECT. ALIT H AD EXECUTED A LEGAL UNDERTAKING OF ITS UNIT WITH STPI ON 28 TH SEPTEMBER, 1992 WHICH IS VALID FOR A PERIOD OF 10 YEARS I.E. UPTO 21.7.2002 FOR CARRYING OUT DEVELOPMENT AND 100% EXPORT OF SOFTWARE USING DATA COMMUNICATION LINK OR IN THE FORM OF PHYSICAL EXPORT. THE UNIT OF ALIT HAD STATED OPERATING UNDE R CUSTOMS BONDED WAREHOUSE LICENCE NO. 10/93 (CUSTOMS) DT. 22.4.1993 , WHICH WAS VALID UPTO 22.7.2002. THE AO STATED THAT UNDERTAKING OF ALIT WAS SET UP AT STP, BLOCK-III, FLAT NO. A-101, A-102, A-106 AND A-107, KSSIDC, MULTISTOR IED COMPLEX, HOSUR ROAD, KEONICS ELECTRONICS CITY, BANGALORE-562158/ HOWEVE R, AFTER AMALGAMATION OF ALIT WITH ASSESSEE W.E.F. 1 ST JULY, 1999, A LETTER WAS FILED ON 4.12.2000 BEFORE DIRECTOR STPI SEEKING ITS NO OBJECTION FOR TRANSFER OF ASSETS AND LIABILITIES OF ITA NO. 4089/MUM/2011 5 ALIT TO ASSESSEE. DIRECTOR, STPI ON 18.12.2000 APPR OVED THE TRANSFER SUBJECT TO OBSERVATIONS AS UNDER: 1. THE OPERATION UNDER THE STP SCHEME WOULD BE CARRIED OUT IN THE NAME OF THE M/S. ALIT (A IT DIVI SION OF HINDUJA FINANCE CORPORATION.) 2. YOU WILL CONTINUE TO MEET THE OBLIGATION ON THE CAPITAL GOODS IMPORTED AND OTHER STATUTORY REGULATI ONS PRESCRIBED BY STPI AUTHORITY. 3. YOU WILL CONTINUE TO OPERATE AS NET FOREIGN EXC HANGE EARNER. 4. YOU WILL CONTINUE TO MEET THE TERMS AND CONDITI ONS ATTACHED TO YOUR APPROVAL NO. 15 (63)/92, SDA DT. 22.7.1992. THE AO HAS STATED THAT NAME OF UNDERTAKING FROM AL IT WAS CHANGED TO M/S. HINDUJA TMPT LTD. ON 23.08.2001 IN THE RECORDS OF STPI BANGALORE. HE HAS STATED THAT FURTHER IN THE RECORDS OF STPI NAME WAS CHANGED FROM HINDUJA TMT LTD. TO HTMT GLOBAL SOLUTIONS LTD. ON 9.4.2007. THE AO STATED THAT PRESENT NAME OF ASSESSEE I.E. HINDUJA VENTURES LTD. , DOES NOT APPEAR IN THE RECORDS OF STPI. HE HAS STATED THAT ASSESSEE FILED A LETTER BEFORE DIRECTOR, STPI ON 8 TH JULY, 2002, SEEKING RENEWAL OF PRIVATE BONDED WARE HOUSE LICENCE DT. 22.4.1993 AND ALSO SOUGHT ENHANCEMENT IN THE VA LUE OF IMPORTED CAPITAL GOODS. IN RESPONSE THERETO, DIRECTOR STPI, RENEWED THE UNDERTAKINGS BONDED WAREHOUSE LICENCE AND ALSO INCREASED THE CIF VALUE OF IMPORTED CAPITAL GOODS. THE AO HAS STATED THAT INITIAL LICENCE OF PRIVATE B ONDED WAREHOUSE WAS FOR UNDERTAKING LOCATED AT ELECTRONIC CITY UNIT, BANGAL ORE AND THE SAME WAS RENEWED SUBSEQUENTLY. THE LETTERS OF DIRECTOR, STPI DT. 17.7.2002 AND 12.10.2007 STIPULATED TERMS AND CONDITIONS MENTIONE D IN THE LICENCE DT. 22.4.1993 WHICH REMAINED SAME. IN VIEW OF ABOVE, AO HAS STATED THAT AFTER AMALGAMA TION OF ALIT, THE ASSESSEE HAS ONLY ONE UNDERTAKING WHICH IS LOCATED AT ELECTRONICS CITY, BANGALORE. SUBSEQUENTLY, ASSESSEE HAS EXPANDED THE EXISTING STPI FACILITY ITA NO. 4089/MUM/2011 6 LOCATED AT ELECTRONICS CITY BANGALORE TO A BUILDING KNOWN AS HTMT HOUSE, 614, BOMMANAHALLI, VAJAPYEE NAGAR, BANGALORE. THAT ASSE SSEE HAD EXPANDED THE EXISTING UNDERTAKING AND DID NOT ESTABLISH SEPARAT E UNITS/UNDERTAKINGS WHICH ARE ENTITLED FOR DEDUCTION U/S. 10A OF I.T. ACT. A O REFERRED THE CORRESPONDENCES AND LETTERS AT PAGES 7,8 & 9 OF ASS ESSMENT ORDER AND HAS STATED THAT NOWHERE IN THE SAID LETTERS STPI HAS ACC ORDED APPROVAL FOR NEW UNIT/UNDERTAKING. THE AO FURTHER STATED IN PARA 3.1 0 THE FACTS REPORTED BY AUDITOR THAT UNIT NO. II IS LOCATED AT 1 ST AND 2 ND FLOOR, HTMT HOUSE, 614, VAJPAYEE NAGAR, BOMMANAHALLI, HOSUR ROAD, BANGALORE ARE NOT CORRECT. AS A MATTER OF FACT, NO SEPARATE UNDERTAKING WAS ESTABLI SHED BY ASSESSEE AT 1 ST & 2 ND FLOOR, HTMT HOUSE, VAJPAYEE NAGAR, BOMMANAHALLI, H OSUR ROAD, BANGALORE. THE AO HAS FURTHER STATED THAT AUDITOR S REPORT STATES THAT UNIT NO. III IS LOCATED AT GROUND AND 3 RD FLOOR OF HTMT HOUSE, VAJPAYEE NAGAR, BOMMANAHALLI, HOSUR ROAD, BANGALORE AND THE AUDIT R EPORT REVEALS THAT DATE OF MANUFACTURE/PRODUCTION WAS ON 19.11.2001. HOWEVER, ASSESSEE EXPANDED THE EXISTING UNDERTAKING AND PERMISSION OF DIRECTOR, ST PI WAS SOUGHT ON 5.9.2001 BY THE ASSESSEE AND THE APPROVAL FOR EXPANSION OF S TPI FACILITY WAS ACCORDED BY DIRECTOR, STPI ON 12.9.2001. THEREFORE, CLAIM OF ASSESSEE THAT A SEPARATE UNDERTAKING KNOWN AS UNIT-III IS ESTABLISHED IS FACT UALLY INCORRECT AND IT WAS ONLY AN EXPANSION OF UNDERTAKING LOCATED AT ELECTRO NIC CITY, BANGALORE. AO FURTHER STATED THAT IN RESPONSE TO LETTER DT. 2 5 TH NOVEMBER, 2008, DIRECTOR STPI VIDE HER LETTER DT. 10.12.2008 HAS CAT EGORICALLY STATED THAT UNIT-II & III ARE NOT SEPARATE UNITS UNDER THE STP SCHEME AND THEY WERE ONLY THE EXPANDED LOCATIONS OF THE INITIAL LETTER OF PERMIS SION DT. 22.7.1992 AND NO SEPARATE STPI REGISTRATION WAS ACCORDED. THE AO HA S STATED THAT DIRECTIR, STPI, CATEGORICALLY STATED THAT ASSESSEE HAS MADE OR CONVERTED THE INITIAL UNIT AS UNIT-II & III FOR THE OPERATIONAL EASE AND SUCH BIFURCATION BY ASSESSEE AS UNIT-II & III SHOULD NOT BE CONSTRUED AS TWO SEPARATE UNITS. AO STATED THAT DIRECTOR, STPI ALSO CLARIFIED THAT ASSESSEE EXPANDE D ITS EXISTING STPI FACILITY AND THEREFORE NO SEPARATE REGISTRATION UNDER STPI SC HEME IS REQUIRED FOR THE EXPANDED LOCATIONS, UNLESS IT CLAIMS THAT A SEPARAT E UNIT IS FORMED. ITA NO. 4089/MUM/2011 7 CONSIDERING ABOVE FACTS, AO HAS STATED THAT ASSESSE E IS NOT ENTITLED TO DEDUCTION U/S. 10A OF THE ACT AND ACCORDINGLY DISAL LOWED CLAIM OF ASSESSEE. 8. BEING AGGRIEVED, ASSESSEE FILED APPEAL BEFORE FI RST APPELLATE AUTHORITY. 9. ON BEHALF OF ASSESSEE, IT WAS CONTENDED THAT ASS ESSEE REGISTERED UNDER STPI REGULATIONS AND THE TWO UNITS WERE FLOATED BY A SSESSEE AS PER INTIMATION SENT TO STPI ON 20.7.2000 AND 31.8.2000. BASED ON TH OSE INTIMATIONS, STPI AUTHORITIES ISSUED PERMISSION TO IMPORT GOODS FOR U NIT-II AND UNIT NO. III AT SUBSIDIZED RATES OF CUSTOM DUTY. IT WAS ALSO CONTE NDED THAT PLANT AND MACHINERY REQUIRED FOR RUNNING NEW UNITS WERE NEW A ND WERE IMPORTED. THAT SEPARATE BOOKS WERE MAINTAINED BY UNITS AND THE EMP LOYEES ENGAGED IN THE TWO UNITS WERE FRESH SET OF EMPLOYEES AND NOT CONNE CTED WITH EXISTING EMPLOYEES OF ASSESSEE-COMPANY. IT WAS ALSO CONTENDE D THAT PERIOD FROM WHOM WORK HAD BEEN CARRIED OUT BY TWO UNITS WERE N OT RELATED OR CONNECTED IN ANY WAY AND THE TWO UNITS HAVE TWO NEW SOURCE OF IN COME. THAT TECHNOLOGY REQUIRED FOR THE TWO UNITS ARE COMPLETELY DIFFERENT FROM EACH OTHER. IT WAS CONTENDED THAT AO FAILED TO APPRECIATE THESE FACT. IT WAS ALSO CONTENDED THAT SEPARATE UNIT-WISE REGISTRATION FOR THE UNITS SET UP IN THE SAME STATE IS NOT A MANDATORY REQUIREMENT. IT WAS CONTENDED THAT IN TH E PREVIOUS YEARS, ASSESSEE- COMPANY WAS ELIGIBLE FOR CLAIMING DEDUCTION U/S. 10 A IN RESPECT OF UNIT NO. II AND UNIT NO. III AND AO ALLOWED THE SAME. HENCE AO WAS NOT JUSTIFIED IN DISALLOWING CLAIMS IN THE ASSESSMENT YEAR UNDER CON SIDERATION. THE ASSESSEE ALSO PLACED RELIANCE ON THE DECISION IF ITAT BANGAL ORE BENCH IN THE CASE OF WIPRO LTD./T106/136 TO SUBSTANTIATE ITS CLAIM 10. LD. CIT(A) AFTER CONSIDERING SUBMISSION OF ASSE SSEE AND ORDER OF AO HELD THAT ASSESSEE HAS MERELY ADDED CAPITAL, MACHINERY A ND MAN POWER WHICH WILL NOT BE SUFFICIENT TO MAKE IT A NEW UNDERTAKING ELIG IBLE FOR DEDUCTION U/S. 10A. LD. CIT(A) STATED THAT IN FACT IT IS ONLY EXPANSION OF AN EXISTING UNDERTAKING AND ACCORDINGLY, JUSTIFIED ACTION OF AO TO DENY DEDUCTI ON U/S. 10A OF THE ACT. ITA NO. 4089/MUM/2011 8 HENCE, ASSESSEE IS IN FURTHER APPEAL BEFORE TRIBUN AL. 11. ON BEHALF OF ASSESSEE, LD. AR SHRI TRIVEDI, SR. COUNSEL, MADE HIS DETAILED SUBMISSION ON THE LINES OF SUBMISSION MADE BEFORE A UTHORITIES BELOW. HE CONTENDED THAT ASSESSEE HAD BEEN CLAIMING SUCH DEDU CTION U/S. 10A IN RESPECT OF UNITS-II AND III FROM THE YEAR IN WHICH IT COMMENCE D NEW LINE OF BUSINESS. HE SUBMITTED THAT UNIT-II STARTED IN JUNE, 2000 AND THIS IS THE 5 TH YEAR CLAIMING DEDUCTION U/S. 10A OF THE ACT AND UNIT NO.III STARTED IN NOVEMBER, 2001 AND THIS IS THE 4 TH YEAR CLAIMING DEDUCTION U/S. 10A OF THE ACT. LD. AR RELYING ON DECISION OF ITAT, PUNE BENCH IN THE CASE OF PATNI C OMPUTER SYSTEMS LTD. VS DCIT IN ITA NO. 426 & 1131/PN/06 DT. 30.6.2011 SUBM ITTED THAT PERIOD ELIGIBILITY OF DEDUCTION U/S. 10A OF THE ACT IS LIA BLE TO BE CONSIDERED FROM THE YEAR OF SETTING UP OF SUCH UNIT AND NOT FROM THE PO INT OF TIME WHEN ORIGINAL UNIT WERE SET UP. LD. AR SUBMITTED THAT TRIBUNAL HAS HE LD IN THE ABOVE CASE THAT MERELY APPROVAL LETTER FROM STPI FOR SETTING UP OF 3 UNITS AS AN EXPANSION OF CORRESPONDING UNIT ARE SUFFICIENT IF THEY ARE INDEP ENDENT AND DISTINCT UNIT SUBJECT TO FULFILLMENT OF PRESCRIBED CONDITIONS OF SEC. 10A OF THE ACT. LD. AR REITERATED THAT TECHNOLOGY REQUIRED FOR BOTH THESE UNIT ARE COMPLETELY NEW AND DIFFERENT FROM EACH OTHER. THE ASSESSEE IMPORTED P LANT AND MACHINERY SEPARATELY FOR RUNNING THESE TWO UNITS. HE SUBMIT TED THAT EMPLOYEES OF BOTH UNITS ARE SEPARATE AND HAVING NO CONNECTION WITH TH E EXISTING UNIT OF ASSESSEE. HE SUBMITTED THAT SEPARATE BOOKS OF ACCOUNTS ARE MA INTAINED. LD. AR SUBMITTED THAT AO HAS NOT CONSIDERED THAT BOTH UNIT S THAT UNIT NO. II AND UNIT NO. III ARE INDEPENDENT. HE SUBMITTED THAT MATTER CO ULD BE REFERRED TO AO TO EXAMINE DE HORS WHETHER BOTH UNITS I.E. UNIT NO. II AND UNIT NO. III ARE INDEPENDENT TO UNIT NO. I OR ARE MERELY AN EXPANSION OF EXISTING UNIT NO. 1. 12. LD. DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT HE HAS NO OBJECTION IF MATTER IS RESTORED TO AO FOR HIS RE-EXAMINATION AS TO WHETHER UNIT NOS. II AND III SET UP BY ASSESSEE ARE MERELY EXPANSION OF EXISTI NG UNIT OR SETTING UP OF INDEPENDENT UNDERTAKING. ITA NO. 4089/MUM/2011 9 13. WE HAVE CAREFULLY CONSIDERED FACTS OF THE CASE AND ORDERS OF AUTHORITIES BELOW IN THE LIGHT OF SUBMISSIONS OF LD. REPRESENTA TIVES OF THE PARTIES. WE FIND SUBSTANCE IN THE SUBMISSION OF LD. AR THAT AO HAS N OT EXAMINED AS TO WHETHER UNIT NOS. II & III SET UP BY ASSESSEE ARE INDEPENDENT UNITS OR EXPANSION OF EXISTING UNDERTAKING OF ASSESSEE. WE OBSERVE THAT AO HAS CONSIDERED THE CORRESPONDENCE AND DOCUMENTS OF ASSESSEE WITH STPI A ND ALSO INFORMATION SOUGHT BY AO FROM DIRECTOR STPI AND HAS HELD THAT BO TH THESE UNITS ARE MERELY AN EXPANSION OF EXISTING UNIT AND NOT INDEPENDENT U NDERTAKINGS. THEREFORE, WE CONSIDER IT PRUDENT TO SET ASIDE THE ORDERS OF AUTH ORITIES BELOW AND RESTORE THE MATTER TO FILE OF AO FOR THE LIMITED PURPOSE TO RE- EXAMINE AS TO WHETHER UNIT NOS. II & III SET UP BY ASSESSEE ARE INDEPENDENT UNITS TO THE EXISTING UNDERTAKING OR MERELY AN EXPANSION OF THE EXISTING UNDERTAKING IN THE LIGHT OF PRINCIPLES LAID DOWN BY CO-ORDINATE BENCH DECISION IN THE CASE OF PATNI COMPUTERS LTD. (SUPRA) AND ALSO IN THE LIGHT OF LET TERS INCLUDING LETTER DT. 10.12.2008 ISSUED BY DIRECTOR STPI AND ALSO ON THE B ASIS OF SUCH EVIDENCES AS MAY BE FILED BY ASSESSEE AFTER GIVING DUE OPPORTUNI TY OF HEARING. WITH THESE DIRECTIONS, THE MATTER STANDS RESTORED TO AO AND AC CORDINGLY GROUND NO. 1 OF APPEAL TAKEN BY ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 14. IN GROUND NO. 2, ASSESSEE HAD DISPUTED DISALLOWA NCE OF EXPENDITURE U/S. 14A OF THE ACT. 15. WE HAVE HEARD LD. REPRESENTATIVES OF PARTIES AN D HAVE PERUSED THE ORDERS OF AUTHORITIES BELOW. WE OBSERVE THAT AO HA S APPLIED RULE 8D FOR THE PURPOSE OF MAKING DISALLOWANCE OF EXPENDITURE INCUR RED FOR EARNING EXEMPT INCOME U/S. 14A OF I.T. ACT. HOWEVER, LD. CIT(A) H AS STATED THAT RULE 8D IS NOT APPLICABLE TO THE ASSESSMENT YEAR UNDER CONSIDERATI ON IN VIEW OF DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD. VS DCIT 328 ITR 81, AS THE SAID RULE 8D IS HELD TO BE PROSPECTIVE IN NATURE AND IS APPLICABLE FROM ASSESSMENT YEAR 2008-09 ONWARDS AND ACCORDINGLY HAS DIRECTED THE AO TO WORK OUT DISALLOWANCE IN FOLLOWING MANNER : ITA NO. 4089/MUM/2011 10 I) DISALLOW ALL DIRECT EXPENSES RELATING TO EXEMPT INCOME OR ASSET GENERATING EXEMPT INCOME. II) MAKE PRORATE DISALLOWANCE OF THE INTEREST PAID BY ASSESSEE IN THE RATIO OF ASSETS FROM WHICH INCOME IS EXEMPT AND T OTAL ASSETS. III) WHILE WORKING OUT THE TOTAL ASSETS, THE AO SH OULD NOT REDUCE THE LIABILITIES AND TAKE THE TOTAL ASSETS AS PER BALA NCE SHEET. IV) THE INTEREST DISALLOWED U/S. 36(1)(III) IF ANY SHOULD BE EXCLUDED FOR PRORATE DISALLOWANCE OF INTEREST. V) REASONABLE DISALLOWANCE WHICH MAY BE 0.5% OF VA LUE OF ASSETS WHICH MAY GENERATE EXEMPT INCOME TO BE DISALLOWED ON ACCOUNT OF INDIRECT EXPENSES IN MANAGING SUCH ASSETS. 16. WE OBSERVE THAT LD. CIT(A) HAS RESTORED THE ISS UE TO AO IN VIEW OF DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE O F GODREJ & BOYCE MFG. CO. LTD. (SUPRA) BUT WE CONSIDER IT PROPER TO MODIFY TH E ORDER OF LD. CIT(A) TO THE FACT THAT AO WILL RE-EXAMINE THE ISSUE AFRESH DE HORS ON THE BASIS OF EVIDENCE AS MAY BE FURNISHED BEFORE HIM FOR THE PURPOSE OF M AKING DISALLOWANCE TO BE MADE U/S. 14A OF THE ACT AND WILL NOT RESTRICT TO T HE GUIDELINES LAID BY LD. CIT(A) AS MENTIONED HEREIN ABOVE. SUBJECT TO ABOVE, GROUN D NO. 2 OF APPEAL TAKEN BY ASSESSEE IS REJECTED. 17. NOW WE TAKE UP APPEAL FILED BY DEPARTMENT BEING ITA NO. 4062/M/2011 FOR OUR CONSIDERATION. 18. GROUND NO. 1 OF APPEAL IS AS UNDER: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS. 1, 49,16,166/- ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT U/S. 92CA(3) DONE BY AO BY RESTRICTING THE RATE OF PAYMENT OF COMMISSION TO 12 % AS ARMS. LENGTH PRICE INSTEAD OF 15% AS CLAIMED BY ASSESSEE. 19. DURING THE YEAR, ASSESSEE COMPANY EARNED AN AMO UNT OF RS. 12,23,54,478/- BEING LONG TERM CAPITAL GAINS BEFORE INDEXATION. FURTHER SHORT ITA NO. 4089/MUM/2011 11 TERM CAPITAL GAIN IS SHOWN AT RS. 4,85,259/- AFTER SETTING OFF OF BROUGHT FORWARD LOSSES TO THE EXTENT OF RS. 95,146/-. THE ASSESSING OFFICER ASCERTAINED FROM ASSESSEE AS TO WHY SHARE TRADING ACTIVITY SHOU LD NOT BE TREATED AS BUSINESS ACTIVITY AND NOT AS INVESTMENT ACTIVITY. IN REPLY T HERETO, ASSESSEE STATED THAT IT EARNED 81.83% OF ITS REVENUE FROM ITES BUSINESS. IT INVESTED ITS SURPLUS FUNDS IN LONG TERM INVESTMENT WITH A VIEW TO EARN DIVIDEN D AND LONG TERM APPRECIATION OF ITS SURPLUS FUNDS. IT WAS CONTENDED THAT ASSESSEE MAINTAINED A SEPARATE PORTFOLIO IN THE BOOKS OF ACCOUNT WHICH DE MONSTRATE INTENTION OF ASSESSEE TO HOLD SECURITIES EITHER AS INVESTMENT OR STOCK-IN-TRADE. IT WAS CONTENDED THAT SECURITY IN QUESTION WERE HELD AS I NVESTMENT AS DISTINCT FROM STOCK IN TRADE WHICH ARE EXHIBITED SEPARATELY. THA T ASSESSEES VOLUME OF TRANSACTION IN SECURITIES IS VERY LOW POST TRANSFOR MATION FROM FINANCIAL COMPANY TO ITES BUSINESS COMPANY. HOWEVER, AO DID NOT ACCEPT THE CONTENTION OF ASSES SEE AND STATED THAT IT CARRIED ON TRANSACTIONS IN SHARES AND SECURITIES IN A SYSTEMATIC AND ORGANIZED MANNER. THERE ARE NUMEROUS TRANSACTIONS IN SHARES AND SECURITIES WHICH CONSTITUTED ITS BUSINESS ACTIVITIES. HENCE PROFITS ARISING TO ASSESSEE TO THE SHARE AND SECURITIES TRADING SHOULD BE TREATED AS PROFITS FROM BUSINESS AND NOT CAPITAL GAINS. 20. BEING AGGRIEVED, ASSESSEE FILED APPEAL BEFORE F IRST APPELLATE AUTHORITY. 21. LD. CIT(A) HAS STATED THAT DETAILS OF PURCHASE AS WELL AS SALE DATES OF SHARES AND UNITS HAVE BEEN FURNISHED AND IT IS OBSE RVED THAT MINIMUM PERIOD OF HOLDING IS 3 YEARS WHEREAS IN SOME CASES, IT IS MOR E THAN 7 YEARS. LD. CIT(A) HAS STATED THAT ASSESSEE HAS MAINTAINED SEPARATE PO RTFOLIO FOR INVESTMENT AND STOCK IN TRADE AS SHOWN IN ANNEXURE A & B TO THE A UDITED FINANCIAL STATEMENT. IT IS ONLY THOSE SHARES AND UNITS WHICH ARE HELD FOR LONGER PERIOD, DEPICTED AS INVESTMENTS IN BALANCE SHEET AND ONLY THAT HAVE BEE N OFFERED UNDER THE HEAD CAPITAL GAINS. LD. CIT(A) STATED THAT TAKING INTO ACCOUNT ALL THE ABOVE FACTS AND CIRCUMSTANCES AND ALSO CONSIDERING DECISION OF ITAT MUMBAI BENCH IN THE CASE ITA NO. 4089/MUM/2011 12 OF GOPAL PUROHIT VS JT. CIT (2009) 29 SOT 119 HAS H ELD THAT THERE IS NO CASE IN TREATING THE PROFIT ON SALE OF INVESTMENT AS BUSINE SS INCOME. HENCE DEPARTMENT IS IN APPEAL BEFORE TRIBUNAL. 22. LD. DEPARTMENTAL REPRESENTATIVES IN HIS SUBMISS ION RELIED ON ORDER OF AO AND SUBMITTED THAT ASSESSEE WAS ENGAGED SYSTEMATICA LLY TO CARRY OUT INVESTMENT IN SHARES AND SECURITIES. ON THE OTHER HAND, LD. AR SUPPORTED ORDER OF LD. CIT(A) AND MADE HIS SUBMISSIONS ON THE LINES OF SUBMISSIONS MADE BEFORE LD. CIT(A). 23. WE OBSERVE THAT LD. DR HAS NOT DISPUTED THE FAC TS AS STATED BY LD. CIT(A) IN HIS ORDER AND RELEVANT FACTS ARE MENTIONE D HEREIN ABOVE THAT ASSESSEE HAS OFFERED ONLY THOSE SHARES UNDER THE HEAD CAPIT AL GAINS WHICH ARE SHOWN INVESTMENT IN BALANCE SHEET AND THE MINIMUM PERIOD OF HOLDING WAS 3 YEARS AND IN SOME CASES IT WAS MORE THAN 7 YEARS. THE D EPARTMENT HAS NOT DISPUTED THE FACT THAT ASSESSEE HAS MAINTAINED SEPARATE PORT FOLIO FOR INVESTMENT AND STOCK-IN-TRADE. CONSIDERING THE ABOVE FACTS AND IN THE ABSENCE OF ANY CONTRARY EVIDENCE ON RECORD, WE DO NOT FIND ANY REASON TO IN TERFERE WITH THE ORDER OR LD. CIT(A). HENCE, GROUND NO. 1 OF APPEAL TAKEN BY DEP ARTMENT IS DISMISSED BY UPHOLDING ORDER OF LD. CIT(A). 24. IN GROUND NOS. 2 & 3 OF APPEAL, THE DEPARTMENT H AS DISPUTED ORDERS OF LD. CIT(A) IN DELETING ADDITION OF RS. 1,49,16,166/ - MADE BY AO ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT MADE U/S. 92CA(3) OF T HE I.T. ACT. 25. THE RELEVANT FACTS GIVING RISE TO THESE GROUNDS OF APPEALS ARE THAT ASSESSEE FURNISHED AUDIT REPORT IN RESPECT ITS INTE RNATIONAL TRANSACTIONS WITH ASSOCIATED ENTERPRISES. REFERENCE WAS MADE BY AO T O TRANSFER PRICING OFFICER (TP)) U/S. 92CA(1) OF THE ACT FOR COMPUTATION OF AR MS LENGTH PRICE. THE TPO HAS STATED THAT ASSESSEE PAID RS. 7,25,32,310/- TO ITS ASSOCIATED ENTERPRISES (AES) IN USA. THEY PROVIDED MARKETING SERVICES IN USA TO ASSESSEE COMPANY ITA NO. 4089/MUM/2011 13 ON AN EXCLUSIVE BASIS. TPO HAS STATED THAT DURING FINANCIAL YEAR 2001-02, COMMISSION WAS PAID @ 12% WHICH WAS ACCEPTED AT ARM S LENGTH. DURING FINANCIAL YEAR 2002-03, THIS COMMISSION RAISED TO 2 0% AND IT WAS NOT ACCEPTED AS AT ARMS LENGTH AND PROPORTIONATE ADJUSTMENTS WE RE MADE. TPO HAS STATED THAT DURING THE CURRENT YEAR THE AE OF ASSESSEE IS PROVIDING TWO BUSINESS TO ASSESSEE AS UNDER: NAME OF CLIENT NATURE OF BUSINESS BILL AMOUNT COMMISSION TO AE AETNA INSURANCE CLAIM PROCESSING 497,205,546 15% FIRST NOTICE - DO - 4,197,284 12% 26. IN VIEW OF ABOVE, TPO STATED THE DIFFERENCE IN R ATE OF COMMISSION TO (AES). HE HAS STATED THAT COMMISSION PAID TO AETNA IS @ 15% ON RS. 49,72,05,546/- WHICH COMES TO RS. 7,45,80,832/- A ND AFTER CALCULATING DIFFERENTIAL RATE OF 3%, WHICH COMES TO RS. 1,49,16 ,166/- SUGGESTED AN ADJUSTMENT OF IT BY WAY OF DISALLOWANCE. FOLLOWING TPOS ORDER, AO MADE SAID DISALLOWANCE OF RS. 1,49,16,166/- 27. THE ASSESSEE DISPUTED THE SAID DISALLOWANCE BEF ORE FIRST APPELLATE AUTHORITY. 28. LD. CIT(A) CONSIDERED THE FACT THAT IN THE EARL IER ASSESSMENT YEAR 2004- 05, THIS ISSUE WAS EXAMINED AT LENGTH. THAT TPO HA D MADE A FUNDAMENTAL MISTAKE OF COMPARING CONTROLLED TRANSACTIONS WITH A NOTHER CONTROLLED TRANSACTION WHICH GOES AGAINST THE BASIC PRINCIPLE OF TRANSFER PRICING REGULATIONS. IT WAS OBSERVED THAT ASSESSEE COMPANY HAD GENERATED TOTAL BUSINESS OF RS. 50,14,02,800/- OUT OF WHICH BUSINESS PERTAINING TO AETNA AMOUNTED TO RS. 49,72,05,546/- WHICH IS MORE THAN 99% OF TOTAL BUSI NESS GENERATED BY ASSESSEE. THEREFORE 1% OF BUSINESS GENERATED BY F IRST NOTICE CANNOT BE TAKEN AS COMPARABLE TO DETERMINE THE ARMS LENGTH P RICE OF COMMISSION PAID. ITA NO. 4089/MUM/2011 14 IT WAS ALSO OBSERVED THAT ASSESSEE HAS FOLLOWED TRAN SACTIONAL NET MARGIN METHOD (TNMM) WHICH IS MOST APPROPRIATE METHOD IN T HE LIGHT OF NATURE OF TRANSACTIONS AND THE PROFIT AS PERCENTAGE OF TOTAL COST OF ASSESSEE CAME TO 67.40% AS COMPARED TO 21 SELECTED COMPANIES AT 10.5 5%. IT IS ALSO STATED THAT AMONG 21 COMPANIES SELECTED AS COMPARABLES, TH E HIGHEST PERCENTAGE SHOWN BY ONE IS AT 65.81% WHICH IS STILL LESS THAN THAT OF THE ASSESSEE COMPANY AT 67.40%. IN VIEW OF ABOVE, IT WAS HELD THAT ASSES SEES TRANSACTIONS WITH AE IN RESPECT OF COMMISSION IS AT ARMS LENGTH AND DELETE D THE DISALLOWANCE MADE BY AO. HENCE DEPARTMENT IS IN APPEAL BEFORE TRIBUNAL. 29. LD. DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT LD. CIT(A) ACCEPTED THE CONTENTION OF ASSESSEE AND DID NOT CONSIDER THAT SI MILAR DISALLOWANCES WERE MADE IN ASSESSMENT YEARS 2002-03 AND 2003-04 WHICH WERE CONFIRMED BY FIRST APPELLATE AUTHORITY. HE SUBMITTED THAT ASSESSEE HA S NOT DISCHARGED ONUS THAT PAYMENT IS AT ARMS LENGTH. ON THE OTHER HAND, LD. AR SUBMITTED THAT SIMILAR ADDITIONS WERE MADE IN PRECEDING ASSESSMENT YEAR 20 04-05 WHEN COMMISSION PAID TO AETNA WAS @ 20% BUT THE SAME WERE DELETED. IT WAS CONTENDED THAT ASSESSEE IS FOLLOWING TNMM METHOD AND THE SAME HAS NOT BEEN DISTURBED BY TPO AND ACCORDINGLY ADJUSTMENT SUGGESTED BY TPO IS NOT JUSTIFIED. 30. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF LD. REPRESENTATIVES OF PARTIES AND ORDERS OF AUTHORITIES BELOW. WE HAVE AL SO CONSIDERED ORDER OF TPO. WE OBSERVE THAT TPO SUGGESTED TO MAKE AN ADJUSTMENT OF RS. 1,49,16,166/- ONLY FOR THE REASON THAT HE COMPARED THE CASE OF F IRST NOTICE WHERE THE RATE OF COMMISSION PAID WAS 12% AS AGAINST COMMISSION PAID TO AETNA @ 15%. HOWEVER, RELEVANT FACTS SUBMITTED BY ASSESSEE THAT THE ASSESSEE GENERATED TOTAL BUSINESS OF RS. 50,14,02,800/- FROM HTMT INC., AE AND OUT OF WHICH BUSINESS PERTAINING TO AETNA WAS MORE THAN 99% OF T OTAL BUSINESS AND ONLY 1% WAS WITH FIRST NOTICE TO WHOM THE COMMISSION @ 1 2% WAS PAID AS AGAINST PAYMENT OF COMMISSION OF 15% TO AETNA. FURTHER IT I S ALSO NOT IN DISPUTE THAT FIRST NOTICE, IS ALSO AN ASSOCIATED ENTERPRISES OF ASSESSEE. IT IS ALSO NOT IN ITA NO. 4089/MUM/2011 15 DISPUTE THAT ASSESSEE DETERMINED ITS PROFIT BY FOLL OWING TNMM METHOD AND THE SAME HAS NOT BEEN DISTURBED BY TPO. NO COMPARABLE HAS ALSO BEEN STATED TO ESTABLISH THAT PAYMENT OF COMMISSION BY ASSESSEE TO AETNA IS EXCESSIVE AND IS NOT AT ARMS LENGTH PRICE. WE CONSIDER IT PRUDENT TO STATE THAT SECTION 92 OF I.T. ACT, 1961 PROVIDES THAT ANY INCOME ARISING FRO M AN INTERNATIONAL TRANSACTION SHALL BE COMPUTED HAVING REGARD TO THE ALP. FURTHER SEC. 92C DEALS WITH THE COMPUTATION OF ALP. SUB-SECTION (1) OF SE C. 92C PRESCRIBES THAT THE ALP IN RELATION TO AN INTERNATIONAL TRANSACTIONS SH ALL BE DETERMINED BY ANY OF THE PRESCRIBED METHODS, WHICH INTER ALIA INCLUDE TNMM. RULE 10B OF I.T. RULES, 1962 PROVIES THE MECHANISM FOR DETERMINATION OF AL P U/S. 92C. RULE 10B(1)(E)(I) PROVIDES THAT THE ALP IN RELATION TO A N INTERNATIONAL TRANSACTION SHALL BE DETERMINED BY TNMM BY WHICH THE NET PROFIT MARGIN REALIZED BY THE ENTERPRISES FROM AN INTERNATIONAL TRANSACTION ENTER ED INTO WITH AN ASSOCIATED ENTERPRISE IS COMPUTED IN RELATION TO COSTS INCURRE D OR SALES EFFECTED OR ASSETS EMPLOYED OR TO BE EMPLOYED BY THE ENTERPRISE OR HAV ING REGARD TO ANY OTHER RELEVANT BASE. SUB-CLAUSE (II) OF CLAUSE (E) OF RUL E 10B(1) PROVIDES AS UNDER:- THE NET PROFIT MARGIN REALIZED BY THE ENTERPRISE OR BY AN UNRELATED ENTERPRISE FROM A COMPARABLE UNCONTROLLED TRANSACTI ON OR A NUMBER OF SUCH TRANSACTION IS COMPUTED HAVING REGARD TO THE S AME BASE: 31. FROM THE ABOVE IT CAN BE SEEN THAT THE NET PROF IT MARGIN IS TO BE CONSIDERED QUA THE COMPARABLE UNCONTROLLED TRANSACT ION OR NUMBER OF SUCH UNCONTROLLED TRANSACTIONS. UNCONTROLLED TRANSACTION HAS BEEN DEFINED IN RULE 10A(A) TO MEAN A TRANSACTION BETWEEN ENTERPRISES O THER THAN ASSOCIATE ENTERPRISES, WHETHER RESIDENT OR NON-RESIDENT. RUL E 10B(1)(E) IN JUXTAPOSITION TO RULE 10A(A). THE POSITION WHICH EMERGES IS THAT IN APPLYING THE TNMM, NET PROFIT MARGIN REALIZED FROM A COMPARABLE UNCONTROLL ED TRANSACTION IS TO BE TAKEN INTO CONSIDERATION. THE CONDITIONS THUS ENVISAGED F OR MAKING A CASE AS COMPARABLE FOR THIS PURPOSE, SHOULD NOT ONLY BE COM PARABLE BUT ALSO HAVE UNCONTROLLED TRANSACTION. THESE TWIN CONDITIONS NEE D TO BE CUMULATIVELY SATISFIED. IF SUCH OTHER CASE IS ONLY COMPARABLE BU T HAS CONTROLLED TRANSACTION OR VICE-VERSA, IT SHALL FALL OUTSIDE THE AMBIT OF LIST OF COMPARABLE CASES. ITA NO. 4089/MUM/2011 16 32. IN THE CASE BEFORE US, TPO SUGGESTED TO MAKE ADJ USTMENT ONLY BY COMPARING THE RATE OF COMMISSION PAID TO AE ON FIRS T NOTICE AND NO CASE HAS BEEN BROUGHT ON RECORD THAT COMMISSION PAID BY ASSE SSEE TO AE @ 15% IS EXCESSIVE. FURTHER WE OBSERVE THAT LD. CIT(A) HAS HELD THAT SIMILAR ISSUE WAS ALSO CONSIDERED IN THE PRECEDING ASSESSMENT YEAR 20 04-05 AND SIMILAR ADJUSTMENT MADE WERE NOT AGREED TO AND IT WAS HELD THAT ASSESSEES TRANSACTION WITH AE IN RESPECT OF COMMISSION WAS AT ARMS LENGT H. 33. CONSIDERING ABOVE FACTS AND IN THE ABSENCE OF A NY OTHER FACTS BROUGHT ON RECORD BY DEPARTMENT, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF LD. CIT(A). HENCE, WE CONFIRM THE ORDER OF LD. CIT (A) AND REJECT GROUND NO. 2 & 3 TAKEN BY DEPARTMENT. 34. IN THE RESULT, APPEAL FILED BY ASSESSEE IS PARTL Y ALLOWED AND WHEREAS APPEAL FILED BY DEPARTMENT IS DISMISSED. ORDER PRONOUNCED ON THIS 31 ST DAY OF JANUARY, 2012 SD/- SD/- ( PRAMOD KUMAR) (B.R. MITTAL ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED 31 ST JANUARY, 2012 RJ COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT-CONCERNED 4. THE CIT(A)-CONCERNED 5. THE DR L BENCH TRUE COPY BY ORDER ASSTT. REGISTRAR, I.T.A.T, MUMBAI