Amdocs Development Centre India P. Ltd.,, Pune v. Deputy Commissioner of Income-tax,,

ITA 585/PUN/2016 | 2011-2012
Pronouncement Date: 24-11-2017 | Result: Partly Allowed

Appeal Details

RSA Number 58524514 RSA 2016
Assessee PAN AAGCA1064P
Bench Pune
Appeal Number ITA 585/PUN/2016
Duration Of Justice 1 year(s) 7 month(s) 23 day(s)
Appellant Amdocs Development Centre India P. Ltd.,, Pune
Respondent Deputy Commissioner of Income-tax,,
Appeal Type Income Tax Appeal
Pronouncement Date 24-11-2017
Appeal Filed By Assessee
Tags No record found
Order Result Partly Allowed
Bench Allotted B
Tribunal Order Date 24-11-2017
Date Of Final Hearing 14-11-2017
Next Hearing Date 14-11-2017
Assessment Year 2011-2012
Appeal Filed On 31-03-2016
Judgment Text
] IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B PUNE BEFORE SHRI ANIL CHATURVEDI AM AND SHRI VIKAS AWASTHY JM . / ITA NO.585/PUN/2016 / ASSESSMENT YEAR : 2011-12 A MDOCS DEVELOPMENT CENTRE INDIA PRIVATE LIMITED (AS A SUCCESSOR OF AMDOCS DEVELOPMENT CENTRE DELHI PRIVATE LIMITED) 6 TH FLOOR TOWER-2 CYBERCITY MAGARPATTA HADAPSAR PUNE 411013. PAN : AAGCA1064P. . / APPELLANT V/S THE DY.COMMISSIONER OF INCOME TAX CIRCLE 1(1) PUNE. . / RESPONDENT . / ITA NO.935/PUN/2016 / ASSESSMENT YEAR : 2011-12 THE DY.COMMISSIONER OF INCOME TAX CIRCLE 1(1) PUNE. . / APPELLANT V/S A MDOCS DEVELOPMENT CENTRE INDIA PRIVATE LIMITED (AS A SUCCESSOR OF AMDOCS DEVELOPMENT CENTRE DELHI PRIVATE LIMITED) 6 TH FLOOR TOWER-2 CYBERCITY MAGARPATTA HADAPSAR PUNE 411013. PAN : AAGCA1064P. . / RESPONDENT ASSESSEE BY : SHRI PERCY PARDIWALLA & SHRI DARPAN KRIPLANI REVENUE BY : MRS. NIRUPAMA KOTRU / ORDER PER ANIL CHATURVEDI AM : 1. THESE CROSS-APPEALS FILED BY ASSESSEE AND REVENUE E MANATE OUT OF THE ORDER OF COMMISSIONER OF INCOME-TAX (A) 1 P UNE DT.02.02.2016 FOR A.Y. 2011-12. / DATE OF HEARING : 14.11.2017 / DATE OF PRONOUNCEMENT: 24.11.2017 2 2. THE RELEVANT FACTS AS CULLED OUT FROM THE MATERIAL ON R ECORD ARE AS UNDER :- ASSESSEE IS A COMPANY STATED TO BE ENGAGED IN THE BUS INESS OF SOFTWARE AND SERVICE COMMUNICATION SERVICES PROVIDERS (SEZ UNIT). ASSESSEE FILED ITS RETURN OF INCOME FOR A.Y. 2011-12 ON 22.11.2011 DECLARING TOTAL INCOME OF RS.66 614/- AFTER CLAIMING DEDUCTION OF RS.46 77 19 940/- U/S 10AA OF THE ACT. THE CA SE WAS SELECTED FOR SCRUTINY AND NOTICE U/S 142(1) ALONG WITH QUES TIONNAIRE AND NOTICE U/S 143(2) OF THE ACT DT.07.08.2013 WAS ISSUED A ND SERVED ON THE ASSESSEE. IT WAS NOTICED BY AO THAT AS SESSEE HAD ENTERED INTO INTERNATIONAL TRANSACTIONS AS ENVISAGED U/S 92A AND 92B OF THE ACT WITH ITS ASSOCIATED ENTERPRISES (A.ES) AGGR EGATING TO RS.1 74 68 60 555/-. ACCORDINGLY A REFERENCE WAS MADE BY T HE AO TO THE TRANSFER PRICING OFFICER (TPO) FOR DETERMINING ARMS LENGTH PRICE (ALP) U/S 92CA(1) OF THE ACT. THE TPO VIDE ORDER DT.10.11.2014 PASSED U/S 92CA(3) ACCEPTED THE BENCH-MAR KING OF THE INTERNATIONAL TRANSACTIONS ENTERED INTO BY THE ASSES SEE WITH ITS A.ES AND NO ADJUSTMENT WAS MADE ON THAT ACCOUNT AND ACCORDINGLY THE ALP OF TRANSACTIONS AS REPORTED BY THE ASSESSEE W ERE NOT DISTURBED. 3. AO NOTICED THAT DURING THE F.Y. ENDING 31.03.2011 THE T OTAL INTERNATIONAL TRANSACTIONS PERTAINING TO THE SOFTWARE DEVE LOPMENT SERVICES BY THE ASSESSEE WITH ITS A.ES AMOUNTED TO RS.1 74.68 CRORES ON THE BASIS OF T.P. STUDY SUBMITTED BY ASSESSEE IT WAS NOTICED BY AO THAT 95% OF THE TOTAL TURNOVER OF THE ASS ESSEE WAS FROM SERVICES DELIVERED TO ITS PARENT COMPANY AND THE T HIRD PARTY TRANSACTIONS WERE TOTALLY INSIGNIFICANT. HE ALSO NOTICED THA T 3 ASSESSEE HAD REPORTED OVER-ALL OPERATING PROFIT MARGIN AT 32.59% WHEREAS THE PROFIT MARGIN OF THE COMPARABLE COMPANIES IN THE TPO REPORT SUBMITTED BY THE ASSESSEE WAS REPORTED AT 13.08%. ASSESSEE WAS THEREFORE OF THE VIEW THAT SINCE THE ASSES SEES OPERATING PROFIT MARGIN WITH REGARD TO THE INTER-COMPANY TRANSACTIONS IN RESPECT OF SOFTWARE DEVELOPMENT SERVICES WERE REASONABLE NO ADJUSTMENT WAS REQUIRED AND THIS VIEW WA S ALSO ACCEPTED BY TPO. AO WAS HOWEVER OF THE VIEW THAT EVE N THOUGH NO ADJUSTMENT WAS PROPOSED BY THE TPO IN RESPECT OF INTER NATIONAL TRANSACTIONS WITH THE A.ES. THE PROFITABILITY OF THE ASSESS EE COMPANY NEEDS REVIEW WITH RESPECT TO THE EXCESS PROFIT SHOWN BY THE ASSESSEE TO CLAIM DEDUCTION U/S 10AA OF THE ACT IN V IEW OF THE PROVISIONS OF SEC.10AA(9) R.W.S. 80IA(10) OF THE ACT. SINCE TH E ASSESSEE HAD SHOWN PROFIT MARGIN AT 32.59% AS AGAINST TH E PROFIT MARGIN OF COMPARABLE COMPANIES AT 13.08% THE ASSESSEE WA S ASKED TO SHOW CAUSE AS TO WHY THE EXCESS PROFIT MARGIN AT 19.51% (BEING THE DIFFERENCE BETWEEN 32.59% AND 13.08%) NOT BE EXCLUDED FROM THE PROFIT OF ELIGIBLE BUSINESS U/S 10AA OF THE ACT FOR THE PURPOSE OF ALLOWING DEDUCTION. IN RESPONSE TO THE QU ERY OF THE AO ASSESSEE MADE DETAILED SUBMISSIONS WHICH WERE NOT FOUN D ACCEPTABLE TO THE AO. AO HELD THAT DUE TO CLOSE BUSINES S CONNECTION BETWEEN THE GROUP COMPANIES ASSESSEE HAD S HOWN MORE THAN THE ORDINARY PROFITS IN RESPECT OF 10AA UNIT. HE ACCORDINGLY RE-WORKED THE EXCESS PROFIT (DETAILS OF WHICH A RE LISTED AT PAGES 15 AND 16 OF THE ASSESSMENT ORDER) AND ACCOR DINGLY WORKED OUT THE DEDUCTION ALLOWABLE TO THE ASSESSEE U/S 10AA AT RS.26 81 75 689/- AS AGAINST THE CLAIM OF THE ASSESSEE AT RS.47 02 64 383/- AND THUS DISALLOWED THE EXCESS CLAIM OF RS.20 20 88 694/-. AGGRIEVED BY THE ORDER OF AO ASSESSEE CARRIED 4 THE MATTER BEFORE LD.CIT(A) WHO VIDE ORDER DT.02.02.2016 (IN APPEAL NO.PN/CIT(A)-1/DCIT.CIR.1(1)/PN/103/15-16) DECIDED TH E ISSUE BY OBSERVING AS UNDER :- 7. I HAVE CAREFULLY CONSIDERED THE FACTS OF THE C ASE AS WELL AS REPLY OF THE APPELLANT. IN THIS CASE OR FOR THAT MATTER ANY OTHER CASE PROVISIONS OF SECTION 10AA(9) CAN BE AP PLIED BY THE AO BUT BEFORE DOING THAT HE HAS TO MEET THE TW O CONDITIONS SET OUT IN SECTION 80IA (10) OF THE I.T. ACT 1961 I.E. I) THERE SHOULD BE CLOSE CONNECTION WITH THE ASSESS EE AND OTHER PERSONS HAVING TRANSACTION WITH THE ASSESSEE II) THE COURSE OF BUSINESS IS SO ARRANGED THAT THE BUSINESS TRANSACTED BETWEEN THEM PRODUCES TO THE ASSESSEE MORE THAN ORDINARY PROFIT WHICH MIGHT BE EXPECTED TO ARRIVE IN SUCH ELIGIBLE BUSINESS. IN THIS CASE THE FIRST LIMB IS SATISFIED ON ACCOUN T OF APPELLANTS TRANSACTIONS WITH ASSOCIATED ENTERPRISE . AS FAR AS THE ISSUE OF ARRANGEMENT IS CONCERNED THE AO WAS O F THE VIEW THAT WHEN TRANSACTION IS BETWEEN TWO CONNECTED PARTIES THE ARRANGEMENT IS IMPLICIT AND THE AO IS NOT REQUI RED TO PROVE THE SAME. THIS VIEW OF THE AO IS CONTRARY TO THE LA NGUAGE OF THE ACT AND CERTAIN JUDICIAL RULINGS INCLUDING PUNE TRIBUNALS DECISION IN THE CASE OF HONEYWELL AUTOMATION INDIA LTD. (ITA NO.18/PN/2011) RELIED UPON BY THE APPELLANT. THIS I MPLICIT ARRANGEMENT THEREFORE NEEDS TO BE ELABORATED FURTH ER WHICH IS BEING DONE ON ACCOUNT OF CO-TERMINUS POWERS CONF ERRED UPON CIT(A). BEFORE DOING SO IT IS IMPERATIVE TO R EPRODUCE THE CHART HAVING COMPARATIVE ANALYSIS OF PROFITABILITY OF THE COMPANY FOR FOUR YEARS PREPARED BY THE APPELLANT ON PAGE 5 OF THE SUBMISSIONS FILED VIDE LETTER DATED 2/1/2016 . THE SAME IS REPRODUCED AS UNDER : SR. NO PARTICULARS AY 2009 - 10 AY 2010 - 11 AY 2011 - 12 AY 2012 - 13 1. OPERATING REVENUE 23 24 23 432 59 63 52 631 1 73 94 89 372 1 87 68 70 209 % VARIANCE OVER PRECEDING YEAR 156.58% 191.69% 7.90% 2. VARIABLE OPERATING COSTS 16 14 13 004 32 88 08 111 1 04 03 16 136 1 19 36 37 270 A PERSONNEL COSTS 12 47 32 063 25 42 26 344 68 80 55 439 82 11 12 889 B TRAVELLING COSTS 1 44 02 589 3 64 07 025 20 17 36 717 19 58 68 821 C OTHER COSTS 2 22 78 352 3 81 74 742 15 05 23 980 17 66 55 560 VARIABLE OPERATING COSTS AS % OF OPERATING REVENUE (2/1*100) 69.45% 55.14% 59.81% 63.60% 3 GROSS OPERATING PROFITS (1-2) 7 10 10 428 26 75 44 520 69 91 73 236 68 32 32 939 % OF TOTAL REVENUE (3/1*100) 30.55% 44.86% 40.19% 36.40% 5 4 FIXED COSTS ( I.E. RENT ELECTRICITY EXPENSES FACILITY EXPENSES ETC.) 10 91 38 726 17 18 91 871 27 16 21 768 27 26 42 855 FIXED COSTS AS % OF OPERATING REVENUE (4/1*100) 46.96% 28.82% 15.62% 14.53% 5 NET OPERATING PROFITS BEFORE TAX (3-4) (3 81 28 298) 9 56 52 649 42 75 51 468 41 05 90 084 NET OPERATING PROFITS AS % OF OPERATING REVENUE ( 5/1*100) - 16.40% 16.04% 24.58% 21.88% 6 OPERATING PROFIT MARGIN AS PER TP REPORT ( OPERATING PROFITS/OPERATING COSTS) 18.98% 19.10% 32.59% 28.00% 7 AVERAGE NUMBER OF EMPLOYEES 125 273 801 905 8 NET NEW HIRES 167 355 325 57 FROM THE CLOSER ANALYSIS OF THE ABOVE CHART IT IS CLEAR THAT OPERATING REVENUE FOR A.Y.2010-11 HAS INCREASED FRO M 156.58% TO 191.69% INDICATING QUANTUM JUMP BY ANY STANDARD WHICH IS QUITE UNUSUAL IN A RECESSIONARY M ARKET. THIS SUPPORTS THE ASSERTION OF THE AO THAT HIGHER P ROFIT IS ON ACCOUNT OF EXCESSIVE BILLING. THE APPELLANT CLAIMS THAT ITS HOURLY BILLING RATE WAS APPROXIMATELY $ 20-30/ HOUR WHICH IS IN THE RANGE OF HOURLY BILLING RATE CHARGED BY INDI AN IT COMPANIES OF $ 20-39 PUBLISHED BY CRISIL ( PAGE 135 -136) OF PAPER BOOK MARKED AS ANNEXURE 1 OF THE ORDER. FROM THE ABOVE ANNEXURE IT IS CLEAR THAT EXPECTED GROWTH OF EXPORTS IN A.Y. 2011-12 WAS 18-20 PER CENT AND IN A.Y. 2012-13 AT 17- 19%. HOWEVER THE GROWTH OF THE APPELLANT IS 156.58 % TO 191.69% WHICH IS ABOUT 35.11% (191.69-156.58). THIS IS AGAINST THE NORMAL TREND REPORTED BY CRISIL. IN THE SAME REPORT IT HAS BEEN REPORTED THAT PRESSURE ON BILLIN G MAY STRAIN MARGINS IN THE CHALLENGING ENVIRONMENT. THE COMMENT S ARE REPRODUCED AS UNDER: PRICING PRESSURE TO IMPACT REVENUE CRISIL RESEARCH EXPECTS THE VOLUME GROWTH TO CONTINUE BUT PRESSURE ON BILLING RATES MAY STRAIN MARGINS IN THE CHALLENGING ENVIRONMENT. BILLING RATES FOR INDIAN IT PLAYERS HA VE REMAINED STAGNANT OVER THE LAST FEW YEARS EXCEPT F OR HCL. IN THE PREVIOUS FOUR QUARTERS PLAYERS SAW TRAC TION IN FIXED PRICE CONTRACTS AS CUSTOMERS LOOKED CERTAI N CASH OUTFLOWS WHILE TACKLING THE ECONOMIC DOWN TURN . THE ABOVE COMMENTS EXPLAINS THE BILLING PATTERN AND DOWN TURN ECONOMIC SCENARIO IN INDIAN IT INDUSTRY. HOWEV ER AGAINST THIS SCENARIO THE APPELLANT CLAIMS TO HAVE ACHIEVED HIGHER OPERATING PROFIT WITH THE SAME BILLING RATE WHICH IS DIFFICULT TO ACCEPT. THIS ALSO SHOWS THAT EXCESS BI LLING HAS BEEN DONE BY THE APPELLANT TO INFLATE THE PROFIT AS HELD BY THE AO. THE APPELLANT CLAIMS THAT INCREASE IN OPERATIVE PROFIT IS SUBSTANTIALLY DUE TO REDUCTION OF FIXED COST AS PER CENTAGE OF 6 OPERATIVE REVENUE. IN FACT THIS CLAIM GOES AGAINST THE APPELLANT. IN FIXED COST THE APPELLANT HAS IDENTIFI ED FOLLOWING COMPONENTS LIKE RENT ELECTRICITY AND FACILITY EXPE NSES. THERE IS NO REDUCTION IN OFFICE RENT AS PER MARKET INFORM ATION. IF THERE IS REDUCTION THE APPELLANT NEEDS TO PROVE WI TH DOCUMENTS. SIMILARLY THERE IS NO REDUCTION IN ELECTR ICITY RATES. IN FACT AVERAGE NUMBER OF EMPLOYEES HAS INCREASED F ROM 273 TO 801 AS PER THE ABOVE CHART. WITH SUBSTANTIAL INC REASE IN NUMBER OF EMPLOYEES ELECTRICITY EXPENSES WAS BOUND TO INCREASE IF THERE WAS ACTUAL INCREASE IN MANPOWER O PERATION. SINCE THIS HAS NOT HAPPENED I FIND SUFFICIENT FORC E IN THE ASSERTION OF THE AO THAT INCREASE IS DUE TO EXCESSI VE BILLING. IN FACT THIS ALSO INDICATES BILLING WITHOUT ACTUAL WOR K AS ELECTRICITY IS BOUND TO BE CONSUMED IF THERE IS COR RESPONDING INCREASE IN ACTUAL WORK WHICH IS CLEARLY ESTABLISH ED BY INCREASE IN NET OPERATIVE PROFIT PERCENTAGE FROM 16 .04% TO 24.58%. THIS COULD NOT HAVE BEEN ACHIEVED WITHOUT E XCESS BILLING DONE BY THE APPELLANT COMPANY TO INFLATE TH E PROFIT. THEREFORE CONSIDERING THE ABOVE FACTS IT IS HELD THAT THERE WAS CLEAR ARRANGEMENT TO INFLATE PROFIT OF THE APPE LLANT ON ACCOUNT OF EXCESSIVE BILLING AND THE AO MADE NO MIS TAKE IN INVOKING THE PROVISIONS OF SECTION 10AA(A) R.W.S. 80IA (10) OF THE I.T ACT 1961. HOWEVER IN RESPECT OF QUANTUM OF DISALLOWANCE I FIND SOME FORCE IN THE ARGUMENT OF THE APPELLANT TH AT TP PROFIT IS CALCULATED IN A PARTICULAR MANNER FOR SPE C I FIC PU R POSE IN WHICH CERTA I N COMPARAB L E ARE EXCLUDED AS PER TP GUIDELINES AND THER E FORE THE SAME CANNOT BE ACCEPTED AS SACROSANCT FOR THE PURP OS E OF WORKING O UT THE DISALLOWANCE. THEREFORE CONSI D ERING THE TOTALITY OF FACTS THERE IS NEED TO ADOPT ARMS LENGTH MARG I N OF 15.75% WITH SOME ADJUSTMENT ON THE H I GHER S I DE. ACCORD I NGLY THE AO IS DIRECTED TO ADOPT 20% (THE APPELLANT ALSO CLAIMS THAT AT 19.10%) INSTEAD OF 15.75% ADOPTED BY HIM AND WORK O UT THE DISALLOWANCE. 8. THE APPELLANT HAS RELIED UPON THE DECISION OF HO N. PUNE TRIBUNAL IN THE CASE OF HONEYWELL AUTOMATION LTD. ( SUPRA) AND CERTAIN OTHER DECISIONS IN SUPPORT OF ITS CONTE NT I ON. HOWEVER THE FACTS OF THE PRESENT CASE ARE QUITE DISTINGUISHABLE ON ACCOUNT OF CLEAR CUT ARRANGEMENT OF EXCESSIVE BILLING DONE BY THE APPELLANT TO INFLATE THE PROFIT. THEREFORE APPELLANT'S RELIANCE ON THE ABOVE DECISION OF HON. PUNE TRIBUNAL AND CERTAIN OTHER DECISIONS ARE CLEARLY MISPLACED. ACCORDINGLY GROUND TAKEN BY THE APPELLANT IS PARTLY ALLOWED. AGGRIEVED BY THE ORDER OF LD.CIT(A) ASSESSEE AND REVENUE ARE NOW IN CROSS-APPEALS BEFORE US. 4. THE GROUNDS RAISED BY THE ASSESSEE IN APPEAL NO.585/PUN/2016 READS AS UNDER : 7 1. GROUND 1- CHALLENGING ADDITION ON ACCOUNT OF EXC ESS PROFIT ADJUSTMENT OF RS. 14 55 46 433/- UNDER SECTI ON 10AA(9) READ WITH SECTION 80IA(10) OF THE ACT. 1.1 THE HONBLE CIT(A) HAS ERRED IN UPHOLDING THE A PPLICABILITY OF PROVISIONS UNDER SECTION 10AA(9) READ WITH SECTION 80IA(10) OF THE ACT. 1.2 THE HONBLE CIT(A) SHOULD HAVE APPRECIATED THAT HAVING REGARD TO THE FACTS OF THE PRESENT CASE THE TRANSACTIONS WITH THE ASSOCIATED ENTERPRISE HAVE NOT BEEN ARRANGED TO PRODUCE MORE T HAN ORDINARY PROFITS WITH THE INTENT TO ABUSE TAX INCENTIVE. 2. GROUND 2- NOT ALLOWING SET OFF AND CARRY FORWARD OF UNABSORBED DEPRECIATION THE HONBLE CIT(A) HAS ERRED IN FACTS AND IN LAW IN NOT CONSIDERING THE ADDITIONAL CLAIM OF THE APPELLANT THAT DEDUCTIO N UNDER SECTION 10AA OF THE ACT SHOULD BE ALLOWED BEFORE SET OFF OF BROUGHT FORWARD UNABSORBED DEPRECIATION AND THAT THE DEDUCTION UNDE R SECTION 10AA OF THE ACT SHOULD BE GRANTED AT SOURCE LEVEL ( I.E. FROM THE PROFIT FOR THE YEAR OF THE ELIGIBLE UNIT OF THE APPELLANT). 3. GROUND 3- LEVY OF INTEREST UNDER SECTIONS 234A A ND 234B OF THE ACT THE HONBLE CIT(A) HAS ERRED IN UPHOLDING LEVY OF I NTEREST UNDER SECTION 234A FOR LATE FILING OF RETURN OF INCOME AN D INCORRECT COMPUTATION OF INTEREST UNDER SECTION 234B OF THE A CT. 5. ON THE OTHER HAND THE GROUND RAISED BY THE REVENUE IN APPEAL NO.935/PUN/2016 READS AS UNDER : THE LD.CIT(APPEAL) HAS ERRED ON THE FACTS AND CIRC UMSTANCES OF THE CASE IN ADOPTING THE PROFIT MARGIN AT 20% INSTEAD O F 15.75% COMPUTED BY THE AO FOR WORKING OF DISALLOWANCE OF E XCESS PROFIT U/S 10AA(9) R.W.S. 80IA(10) OF THE INCOME TAX ACT 1961 . 6. WE FIRST PROCEED WITH DECIDING THE ASSESSEES APPEAL IN ITA NO.585/PUN/2016. 6.1 SINCE THE GROUND NO.1 OF ASSESSEES APPEAL IS INTER- CONNECTED WITH THE SOLITARY GROUND OF REVENUES APPEAL BOTH THE GROUNDS ARE CONSIDERED TOGETHER. 6.2 AO ON PERUSING THE DETAILS NOTICED THAT ASSESSEE HAD SHOWN PROFIT MARGIN OF 30.94% AS AGAINST THE PROFIT MARGIN OF 15.75% OF THE COMPARABLE COMPANIES. AO WAS OF THE VIEW THAT DUE T O CLOSE 8 BUSINESS CONNECTION BETWEEN THE GROUP COMPANIES ASSES SEE HAD SHOWN MORE THAN THE ORDINARY PROFITS IN RESPECT OF 10AA UNIT. AO ON THE BASIS OF PROFIT MARGIN OF THE COMPARABLE COMPANIES W ORKED OUT THE EXCESS PROFIT U/S 10AA OF THE ACT WHICH WAS ALLE GED TO HAVE BEEN CLAIMED AT RS.20 20 88 694/- AND DISALLOWED THE SAME. WHEN THE MATTER WAS CARRIED BEFORE LD.CIT(A) LD.CIT(A) UPHELD THE VIEW OF AO THAT THERE WAS AN ARRANGEMENT TO INFLATE PROFIT ON ACCOUNT OF EXCESSIVE BILLING AND AO HAD RIGHTLY INVOKED PROVISIONS OF SEC.10AA(9) R.W.S 80IA(10) OF THE ACT. HOWEVER AFTER CONS IDERING THE TOTALITY OF THE FACTS HE DIRECTED THE AO TO ADOPT 2 0% AS THE ARMS LENGTH MARGIN AS AGAINST 15.75% ADOPTED BY THE AO AND RE- WORKED THE DISALLOWANCE AND THUS GRANTED PARTIAL RELIEF TO ASSESSEE. AGGRIEVED BY THE ORDER OF LD.CIT(A) ASSESSEE AND REVENUE ARE NOW IN APPEAL BEFORE US. 7. BEFORE US LD.A.R. REITERATED THE SUBMISSIONS MADE BEFORE AO AND LD.CIT(A) AND FURTHER SUBMITTED THAT ASSESSEE IS CAR RYING ON THE BUSINESS OF RENDERING SOFTWARE SERVICES TO AMDOCS DE VELOPMENT CENTRE INDIA PVT. LTD. (ADL) THROUGH ITS SEZ UNIT LOCATED AT GURGAON AND BEGAN ITS OPERATIONS IN F.Y. 2008-09. THE ACTIVITIES PERFORMED BY THE ASSESSEE INCLUDE CUSTOMIZATION OF AMADOCS SOFTWARE PRODUCTS IN ACCORDANCE WITH THE REQUI REMENTS OF ADL AND VARIOUS ADL GROUP CUSTOMERS AND IMPLEMENTATION AS WELL AS SUPPORT OF ADL SYSTEMS PREVIOUSLY INSTALLED. HE SU BMITTED THAT THE ASSESSEE CHARGES ADL ON HOURLY BASIS FOR THE SERVICES IT RENDERS. HE POINTED TO THE BILLING RATES CHARGED BY THE ASSESSEE WHICH WERE ALSO SUBMITTED TO LD.CIT(A) AND WHICH IS PLACED A T PAGE 146 OF THE PAPER BOOK. HE SUBMITTED THAT IN THE CASE O F ASSESSEE PROFIT MARGIN IS A FUNCTION OF VOLUME OF BUSINESS AND THE COS TS 9 INCURRED AND ANY MOVEMENT UPWARD OR DOWNWARD EITHER IN THE VOLUME OF BUSINESS AND THE COSTS INCURRED HAS A DIRECT IMPACT ON THE PROFIT MARGIN. HE POINTED TO THE COMPARATIVE TABLE OF THE PROFITS FOR A.Y. 2009-10 TO 2012-13 PLACED AT PAGE NO.147 OF THE PAPER BOOK AND FROM THE AFORESAID TABLE HE POINTED TO THE INCRE ASE IN OPERATING REVENUES ON YEAR TO YEAR BASIS THE VARIABLE O PERATING COSTS AND OPERATING MARGINS. FROM THE AFORESAID TABLE HE POINTED OUT THAT THE FIXED COST AS A PERCENTAGE OF REVENUE H AS REDUCED FROM 46.96% (IN A.Y. 2009-10) TO 14.53% (IN A.Y. 2012-13) WHICH HAS CONTRIBUTED TO INCREASE IN OPERATING PROFIT MARGINS FROM 19 .10% (IN A.Y. 2010-11) TO 32.59% (IN A.Y. 2011-12). HE FURTHER SUBMITTE D THAT MERELY EARNING OF HIGH PROFIT FROM THE ELIGIBLE BUSINESS CANNOT LEAD TO CONCLUSION THAT IT WAS DUE TO ARRANGEMENT FOR TH E PURPOSE OF CLAIMING HIGHER DEDUCTION AND THAT EARNING OF HIGHER PROFIT IS NO CRITERIA TO PRESS INTO SERVICE THE PROVISIONS OF SEC.10AA R.W.S. 80IA(10) OF THE ACT. HE FURTHER SUBMITTED THAT MERELY BE CAUSE AN ASSESSEE HAS SHOWN A PROFIT IT WOULD NOT LEAD TO A CONCLU SION THAT THE SAME WAS AN ARRANGEMENT MADE BY THE ASSESSEE W ITH THE PARTIES. HE ALSO PLACED RELIANCE ON THE DECISIONS IN THE C ASE OF HONEYWELL AUTOMATION INDIA LIMITED IN ITA NO.18/PN/2011 OR DER DT.25.02.2015 AND IN THE CASE OF COGNIZANT TECHNOLOGY SO LUTIONS INDIA PVT. LTD. IN ITA NO.81/PUN/2014 ORDER DT.09.10.2017. HE THEREFORE SUBMITTED THAT SINCE THERE IS NO EVIDENCE TO S HOW THAT THERE IS AN ARRANGEMENT BETWEEN THE ASSESSEE AND THE GROUP COMPANIES THE ADDITION MADE BY THE AO NEEDS TO BE DELET ED. LD.A.R. FURTHER SUBMITTED THAT THE FINDINGS OF AO ARE NOT S UPPORTED BY ANY COGENT MATERIAL BUT ARE ON THE BASIS OF ASSUMPTIONS. 10 8. LD.D.R. ON THE OTHER HAND SUPPORTED THE ORDER OF AO. SHE FURTHER SUBMITTED THAT IN VIEW OF THE PROVISIONS OF SEC.10A A R.W.S. 80IA(10) R.W.S. 92CA(4) PROVISO THE AO HAD RIGHTLY MADE THE ADDITION AND THE ORDER OF THE AO NEEDS TO BE UPHELD. LD .D.R. FURTHER SUBMITTED SINCE ASSESSEE WAS PROVIDING SERVICES T O ITS A.ES THERE WAS CLOSE CONNECTION BETWEEN THE ASSESSEE AND T HE RECIPIENT OF THE SERVICES AND DUE TO THE CLOSE CONNECTION DECLARING MORE THAN THE ORDINARY PROFITS FROM THE UNITS ELIGIBLE FOR DEDUCTION U/S 10AA CANNOT BE RULED OUT AND MORE SO WHEN THE COMPARABLE COMPANIES WERE EARNING PROFIT OF 13.08%. SHE THUS SUPPORTED THE ORDER OF AO. 9. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ISSUE IN THE PRESENT CASE IS WITH RESPECT TO DENIAL OF CLAIM OF DEDUCTION U/S 10AA OF THE ACT BY HOLDING THAT ASSESSEE HAS EARNED EXCESS PROFITS FROM THE UNITS ELIGIBLE FOR DEDUCTION U/S 10AA BY INVOKING THE PROVISIONS OF SEC.80IA (10) OF THE ACT. THE POWERS FOR INVOKING PROVISIONS OF SEC.80IB(8 ) AND SEC.80IB(10) ARE CONFERRED BY SUB-SECTION (9) OF SEC.10AA O F THE ACT. FOR INVOKING THE PROVISIONS OF SEC.80IA(10) OF THE A CT NECESSARY CONDITIONS ARE THAT (1) THERE IS A CLOSE CONNE CTION BETWEEN THE ASSESSEE CARRYING ON ELIGIBLE BUSINESS WITH A NY OTHER PERSON BUSINESS (2) THERE IS BUSINESS TRANSACTION BETWEEN THE ASSESSEE CARRYING ON ELIGIBLE BUSINESS AND THE OTHER PERS ON (3) THE BUSINESS BETWEEN THE TWO ARE SO ARRANGED THAT THE AS SESSEE EARNS MORE THAN THE ORDINARY PROFITS WHICH MIGHT BE EXPECTED T O ARISE IN SUCH ELIGIBLE BUSINESS. IF THE ABOVE CONDITIONS ARE SATISFIED THEN THE AO CAN DETERMINE THE PROFITS AS MAY BE REASONABLY DEEMED TO HAVE BEEN DERIVED FROM ELIGIBLE BUSINESS AND GRANT THE DED UCTION. THUS IN OTHER WORDS THE AO SHALL HAVE TO EXAMINE THE FULFILLM ENT OF 11 THE 3 CONDITIONS NAMELY CLOSE CONNECTION ARRANGEMENT AND MORE THAN ORDINARY PROFITS IN THE COURSE OF BUSINESS W HILE EXAMINING ASSESSEES CLAIM OF DEDUCTION U/S 10AA OF THE AC T AND SATISFACTION OF ALL THE AFORESAID 3 CONDITIONS ARE MANDATORY BEFORE INVOCATION OF SEC.80IB(10) OF THE ACT. IN THE PRESENT CAS E THE CLOSE CONNECTION BETWEEN THE ASSESSEE AND ITS A.ES IS AN UND ISPUTED FACT. HOWEVER NO MATERIAL HAS BEEN BROUGHT ON RECORD TO INDICATE THAT THE COURSE OF BUSINESS WAS SO ARRANGED SO AS TO INFLATE THE PROFIT SO AS TO INDICATE THE INFLATION OF PROFITS WITH THE INTEN TION OF ABUSING TAX CONCESSIONS U/S 10AA OF THE ACT. WE FURTHER FIND THAT AO HAS PROCEEDED ON THE BASIS OF PRESUMPTIONS TO CONCLU DE THAT THERE IS INFLATION OF PROFITS. 10. WE FIND THAT ON IDENTICAL ISSUE IN THE CASE OF COGNIZANT TECHNOLOGY SOLUTIONS (SUPRA) CO-ORDINATE BENCH OF THE TRIBU NAL AFTER RELYING ON THE DECISION IN THE CASE OF HONEYWELL AUTO MATION (SUPRA) DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE BY OBS ERVING AS UNDER : 6. WE HAVE HEARD THE SUBMISSIONS MADE BY THE REPRE SENTATIVES OF RIVAL SIDES AND HAVE PERUSED THE ORDERS OF THE A UTHORITIES BELOW. WE HAVE ALSO CONSIDERED THE DECISIONS ON WHICH THE LD. AR OF THE ASSESSEE HAS PLACED RELIANCE IN SUPPORT OF HIS CONT ENTIONS. BEFORE PROCEEDING WITH THE FACTS OF THE CASE IT WOULD BE APPOSITE TO HAVE QUICK GLANCE AT THE PROVISIONS OF SECTION 10A(7) AN D 80IA(10) OF THE ACT. THE SAME ARE REPRODUCED HERE-IN-BELOW : SECTION 10A(7) : THE PROVISIONS OF SUB-SECTION (8) AND SUB-SECTION ( 10) OF SECTION 80-IA SHALL SO FAR AS MAY BE APPLY IN RELATION TO THE UNDERTAK ING REFERRED TO IN THIS SECTION AS THEY APPLY FOR THE PURPOSES OF THE UNDER TAKING REFERRED TO IN SECTION 80-IA. SECTION 80IA(10) : WHERE IT APPEARS TO THE ASSESSING OFFICER THAT OWI NG TO THE CLOSE CONNECTION BETWEEN THE ASSESSEE CARRYING ON THE ELI GIBLE BUSINESS TO WHICH THIS SECTION APPLIES AND ANY OTHER PERSON OR FOR A NY OTHER REASON THE COURSE OF BUSINESS BETWEEN THEM IS SO ARRANGED THAT THE BUSINESS TRANSACTED BETWEEN THEM PRODUCES TO THE ASSESSEE MO RE THAN THE ORDINARY PROFITS WHICH MIGHT BE EXPECTED TO ARISE IN SUCH EL IGIBLE BUSINESS THE ASSESSING OFFICER SHALL IN COMPUTING THE PROFITS A ND GAINS OF SUCH ELIGIBLE BUSINESS FOR THE PURPOSES OF THE DEDUCTION UNDER TH IS SECTION TAKE THE 12 AMOUNT OF PROFITS AS MAY BE REASONABLY DEEMED TO HA VE BEEN DERIVED THEREFROM: PROVIDED THAT IN CASE THE AFORESAID ARRANGEMENT INVOLVES A SPECIFIED DOMESTIC TRANSACTION REFERRED TO IN SECTION 92BA THE AMOUNT OF PROFITS FROM SUCH TRANSACTION SHALL BE DETERMINED HAVING REGARD TO ARM'S LENGTH PRICE AS DEFINED IN CLAUSE (II) OF SECTION 92F . 7. A BARE PERUSAL OF PROVISIONS OF SECTION 80IA(10) SHOWS THAT WHERE IT APPEARS TO THE ASSESSING OFFICER THAT THER E IS A CLOSE CONNECTION BETWEEN THE ASSESSEE CARRYING ON ELIGIBLE BUSINES S WITH ANY OTHER PERSON AND DURING THE COURSE OF BUSINESS THERE IS AN ARRANGEMENT BETWEEN THEM WHICH RESULTS IN MORE THAN ORDINARY PROFITS WHICH MIGHT BE EXPECTED TO ARISE IN SUCH ELIGIBLE BUSINESS THE ASSESSING OFFICER SHALL WHILE COMPUTING PROFITS AND GAINS ON SUCH BUSINESS FOR THE PURPOSE OF DEDUCTION UNDER TH IS SECTION TAKE THE AMOUNTS OF PROFITS AS MAY BE REASONABLY DEEM TO HAVE BEEN ARRIVED THERE FROM. THUS IN OTHER WORDS THE ASSES SING OFFICER SHALL HAVE TO EXAMINE THE CLOSE CONNECTION ARRANGEMEN T AND MORE THAN ORDINARY PROFITS IN THE COURSE OF BUSINESS WH ILE EXAMINING ASSESSEES CLAIM OF DEDUCTION U/S. 10A OF THE ACT. ALL THE THREE CONDITIONS HAVE TO BE SATISFIED BEFORE INVOKING THE PROVISIONS OF SECTION 80IA(10) OF THE ACT. 8. IN THE PRESENT CASE WE FIND THAT THE ASSESSING O FFICER HAS COME TO THE CONCLUSION THAT THERE IS A CLOSE CONNE CTION BETWEEN THE ASSESSEE AND ITS OVERSEAS AE AS THE ASSESSEE IS WHO LLY OWNED SUBSIDIARY OF PARENT COMPANY I.E. AE. HOWEVER THE ASSESSING OFFICER HAS FAILED TO SUBSTANTIATE FROM DOCUMENTS O N RECORD THAT THERE IS ARRANGEMENT BETWEEN THE ASSESSEE AND ITS OVERSEAS AE RESULTING IN ASSESSEE HAVING MORE THAN ORDINARY PRO FITS FROM UNITS ELIGIBLE FOR DEDUCTION U/S. 10A AND 10AA OF THE ACT . A PERUSAL OF ASSESSMENT ORDER SHOWS THAT IT IS ONLY PRESUMPTION OF ASSESSING OFFICER THAT THERE IS ARRANGEMENT BETWEEN ASSESSEE AND ITS AE. MERELY BECAUSE AVERAGE MARGIN OF COMPARABLES IS LES S THAN THE PLI OF ASSESSEE NO DISALLOWANCE OF DEDUCTION U/S. 10A AND 10AA OF THE ACT CAN BE MADE. THE REVENUE HAS NOT PLACED ON REC ORD ANY COGENT EVIDENCE TO INDICATE ARRANGEMENT BETWEEN ASSESSEE A ND ITS AE RESULTING IN MORE THAN ORDINARY PROFITS FROM ELIGIB LE UNITS. 9. THE CO-ORDINATE BENCH OF THE TRIBUNAL IN THE CAS E OF M/S. HONEYWELL AUTOMATION INDIA LIMITED VS. DY. COMMISSIO NER OF INCOME TAX (SUPRA) UNDER SIMILAR CIRCUMSTANCES DELE TED THE DISALLOWANCE OF DEDUCTION U/S. 10A OF THE ACT. THE RELEVANT EXTRACT OF THE FINDINGS OF TRIBUNAL IN THE SAID CASE READS AS UNDER : 31. NO DOUBT THERE IS A CLOSE CONNECTION BETWEEN ASSESSEE AND THE ASSOCIATED ENTERPRISES AND TO THAT EXTENT SECTION 1 0A(7) R.W.S. 80-IA(10) OF THE ACT HAS BEEN RIGHTLY EXAMINED BY THE INCOME-TAX AUTHORITIES. THE SECOND ASPECT THAT THE COURSE OF BUSINESS WAS SO AR RANGED SO AS TO RESULT IN MORE THAN ORDINARY PROFITS IS NOT AT ALL FORTHCO MING FROM THE ORDER OF THE ASSESSING OFFICER. THERE IS NO MATERIAL OR EVIDENC E REFERRED TO IN THE ASSESSMENT ORDER TO INDICATE THAT THE COURSE OF BUS INESS HAS BEEN SO ARRANGED SO AS TO INFLATE PROFITS WITH THE INTENT T O ABUSE TAX CONCESSION U/S 10A OF THE ACT. AT THIS POINT WE MAY MAKE A REFER ENCE TO THE STAND OF THE ASSESSING OFFICER THAT THE OPERATING PROFIT MARGINS OF THE ASSESSEE ARE SUBSTANTIALLY HIGHER THAN THE AVERAGE OPERATING MAR GIN OF THE COMPARABLES SELECTED BY THE ASSESSEE IN ITS TRANSFER PRICING ST UDY. THIS HAS FORMED THE BASIS FOR THE ASSESSING OFFICER TO SAY THAT ASSESSE E HAS EARNED MORE THAN ORDINARY PROFITS WHICH MIGHT BE EXPECTED TO ARISE I N SUCH A BUSINESS. BE THAT AS IT MAY THE AFORESAID IS NOT ENOUGH TO SAY THAT THE COURSE OF BUSINESS HAS BEEN SO ARRANGED TO RESULT IN MORE THA N ORDINARY PROFITS. HOWEVER FROM THE SIDE OF THE REVENUE IT WAS POINT ED OUT THAT THE TRANSFER PRICING COMPARABILITY ANALYSIS ITSELF SUGGESTS THAT THE PROFIT MARGINS OF THE ASSESSEE ARE MORE THAN THE ORDINARILY ACCEPTED MARG IN IN THIS LINE OF 13 BUSINESS. THE MOOT QUESTION IS AS TO WHETHER THE S AME CAN BE CONSIDERED AS A MATERIAL TO INDICATE THAT THE COURSE OF BUSINE SS BETWEEN THE ASSESSEE AND THE ASSOCIATED ENTERPRISES HAS BEEN SO ARRANGED SO AS TO RESULT IN MORE THAN THE ORDINARY PROFITS WITHIN THE MEANING OF SECTION 10A(7) R.W.S. 80-IA(10) OF THE ACT. IN THIS CONTEXT WE MAY REFE R TO THE DECISION OF THE CHENNAI BENCH OF THE TRIBUNAL IN THE CASE OF VISUAL GRAPHICS COMPUTING SERVICES INDIA (P) LTD. VS. ACIT 148 TTJ 621 (CHEN NAI) WHEREIN FOLLOWING DISCUSSION IS RELEVANT :- WE HEARD BOTH SIDES IN DETAIL AND CONSIDERED THE I SSUE. AS FAR AS THE PRESENT CASE IS CONCERNED THE TRANSFER PRICING OFFICER HAS MADE A CATEGORICAL FINDING THAT THE OPERATING PROFIT REP ORTED BY THE ASSESSEE IS HIGHER THAN THE PROFIT WORKED OUT ON TH E BASIS OF ARM'S LENGTH PRICE. THE TRANSFER PRICING OFFICER THEREFO RE CONCLUDED THAT NO TRANSFER PRICING ADJUSTMENT IS CALLED FOR IN THE PRESENT CASE. THE ASSESSING OFFICER HAS MADE THE REFERENCE TO THE TRA NSFER PRICING OFFICER UNDER SECTION 92CA. THE REFERENCE IS MADE F OR THE PURPOSE OF COMPUTING INCOME ARISING FROM AN INTERNATIONAL TRAN SACTION WITH REGARD TO THE ARM'S LENGTH PRICE AS PROVIDED IN SEC TION 92. THEREFORE IT IS TO BE SEEN THAT THE SCOPE AND EXTENT OF REFER ENCE MADE BY THE ASSESSING OFFICER TO THE TRANSFER PRICING OFFICER I S CONFINED TO THE SINGULAR PURPOSE STATED IN SECTION 92. SECTIONS 92A 92B 92C 92CB 92D 92E AND SECTION 92F ARE ALL PRECISELY DE FINING AND FACILITATING PROVISIONS ULTIMATELY FOR THE PURPOSE OF COMPUTING THE INCOME AS STATED IN SECTION 92. ALL THE ABOVE STATE D SECTIONS PROVIDED IN CHAPTER X OF THE INCOME-TAX ACT 1961 B ELONG TO A SEPARATE CODE AS SUCH ENACTED FOR THE PURPOSE OF C OMPUTING INCOME FROM INTERNATIONAL TRANSACTIONS HAVING REGARD TO TH E ARM'S LENGTH PRICE SO AS TO CONFIRM THAT THERE IS NO AVOIDANCE O F TAX BY AN ASSESSEE. THEREFORE WHERE IN A CASE THE TRANSFER PRICING OFFICER SUGGESTS THAT THE OPERATING PROFIT DECLARED BY AN A SSESSEE IS COMPATIBLE TO THE ARM'S LENGTH PRICE NORMS AND NO A DJUSTMENT IS NECESSARY THE OPERATION OF ALL THOSE PROVISIONS CO ME TO AN END. IF THE ASSESSING OFFICER HAS TO MAKE ANY OTHER ADJUST MENT TOWARDS COMPUTING DEDUCTION AVAILABLE UNDER SECTION 10A TH E COMPUTATION HAS TO BE MADE IN THE CONTEXT OF SECTION 10A(7) REA D WITH SECTION 80- IA(10). IT IS CLEAR THAT IN A CASE OF TRANSFER PRICING ASSE SSMENT IT HAS GOT TWO SEGMENTS. THE FIRST SEGMENT CONSISTS OF RULES A ND PROCEDURES FOR COMPUTING THE INCOME OTHER THAN THE INCOME ARIS ING OUT OF INTERNATIONAL TRANSACTIONS WITH ASSOCIATE ENTERPRIS E. THE SECOND SEGMENT CONSISTS OF RULES AND PROCEDURES IN CONNECT ION WITH COMPUTATION OF INCOME FROM INTERNATIONAL TRANSACTIO NS WITH ASSOCIATE ENTERPRISES ON THE BASIS OF THE ARM'S LEN GTH PRICE. THE SECOND SEGMENT RELATING TO COMPUTATION OF THE ARM'S LENGTH PRICE IS A SET OF RULES FOR THE PURPOSES OF TRANSFER PRICING MATTERS AND THOSE PROCEDURES AND RULES CAN BE USED ONLY FOR THE PURPO SE SERVING THE OBJECT OF SECTION 92. WHEN THE TRANSFER PRICING OFF ICER STATES THAT THERE IS NO NEED OF TRANSFER PRICING ADJUSTMENT TH E MATTER SHOULD END THERE AND ANY OTHER ADJUSTMENT THAT THE ASSESSI NG OFFICER WOULD LIKE TO MAKE WITH REFERENCE TO THE FIRST SEGM ENT MUST BE MADE INDEPENDENT OF THE ORDER OF THE TRANSFER PRICING OF FICE UNDER SECTION 92CA. TO STATE IN SIMPLE TERMS THE TRANSFER PRICING REGI ME IS DIFFERENT FROM REGULAR COMPUTATION OF INCOME. SECTION 10A BELONGS TO THAT PART OF REGULAR COMPUTATION OF INCOME AND IT SHOULD BE COMP UTED INDEPENDENT OF TRANSFER PRICING REGULATIONS AND TRA NSFER PRICING ORDERS. IT IS NOT THEREFORE PERMISSIBLE FOR THE AS SESSING OFFICER TO WORK OUT SECTION 10A DEDUCTION ON THE BASIS OF ARM' S LENGTH PRICE PROFIT GENERATED OUT OF THE ORDER OF THE TRANSFER P RICING OFFICER. IN FACT THESE ISSUES HAVE ALREADY BEEN CONSIDERED I N VARIOUS ORDERS OF THE TRIBUNAL. THE INCOME-TAX APPELLATE TRIBUNAL CHENNAI 'A' BENCH IN THE CASE OF TWEEZERMAN (INDIA) P. LTD. V. ADDL. CIT [2010] 4 ITR (TRIB) 130 (CHENNAI) (133 TTJ 308) HAS CONSID ERED THE MATTER IN DETAIL AND HELD THAT THE REDUCTION OF ELIGIBLE P ROFITS OF AN ASSESSEE AS DONE BY THE ASSESSING OFFICER BY INVOKING THE PR OVISIONS OF 14 SECTION 80-IA(10) READ WITH SECTION 10B(7) IN THE CONTEXT OF THE TRANSFER PRICING OFFICER'S ORDER IS UNSUSTAINABLE. THE TRIBUNAL HAS HELD THAT THE ASSESSING OFFICER WAS NOT JUSTIFIED T O INVOKE THE PROVISIONS OF SECTION 80-IA(10) READ WITH SECTION 1 0B(7) SO AS TO REDUCE THE ELIGIBLE PROFITS ON THE BASIS OF THE ARM 'S LENGTH PRICE COMPUTED BY THE TRANSFER PRICING OFFICER WITHOUT SH OWING HOW HE DETERMINED THAT THE ASSESSEE HAD SHOWN MORE THAN 'O RDINARY PROFITS'. AS RIGHTLY ARGUED BY LEARNED SENIOR COUNSEL THE ARM 'S LENGTH PRICE IS DETERMINED ON THE BASIS OF THE MOST APPROPRIATE MET HOD. THE MOST APPROPRIATE METHOD IS CHOSEN EITHER ON PROFIT BASIS METHOD OR PRICE BASIS METHOD. IN THE LATTER EASE PROFITS ARE NOT A T ALL CONSIDERED. IN THAT METHOD PROFIT IS ONLY A DERIVATIVE OF PRICES. WHEN PROFITS ITSELF IS NOT WORKED OUT HOW IS IT JUSTIFIED TO ADOPT THE ARM'S LENGTH PRICE PROFITS TO DETERMINE WHAT IS 'ORDINARY PROFITS' FOR THE PURPOSE OF SECTION 10A(7)? IN THE FACTS AND CIRCUMSTANCES OF THE CASE WE HOLD THAT THE ASSESSING OFFICER HAS ERRED IN REDUCING RS.4 48 50 795 FROM THE ELIGIBLE PROFITS OF THE ASSESSEE UNDER SECTION 10A. THE SAID ADJUSTMENT MADE BY THE ASSESSING AUTHORITY IN COMPU TING THE DEDUCTION UNDER SECTION 10A IS ACCORDINGLY DELETED . 32. IN OUR CONSIDERED OPINION THE RESULT OF THE TR ANSFER PRICING ASSESSMENT CAN AT BEST BE TAKEN AS AN INDICATOR FOR THE ASSESSING OFFICER TO INVESTIGATE AS TO WHETHER OR NOT THERE EXISTS ANY A RRANGEMENT WHICH HAS RESULTED IN MORE THAN ORDINARY PROFITS QUA THE REQU IREMENTS OF SECTION 10A(7) R.W.S. 80-IA(10) OF THE ACT. EVEN IF IT IS ACCEPTED THAT THE DIFFERENCE BETWEEN THE OPERATING MARGINS OF THE ASSESSEE AND T HE COMPARABLES SHOW EXISTENCE OF MORE THAN THE ORDINARY PROFITS IN THE HANDS OF THE ASSESSEE SO HOWEVER IT WAS STILL IMPERATIVE FOR THE ASSESSING OFFICER TO ESTABLISH ON THE BASIS OF SUBSTANTIVE EVIDENCE AND CORROBORATIVE MAT ERIAL THAT QUA SECTION 10A R.W.S. 80-IA(10) OF THE ACT THE COURSE OF BUSI NESS BETWEEN THE ASSESSEE AND THE ASSOCIATED ENTERPRISES IS SO ARRAN GED THAT THE BUSINESS TRANSACTED BETWEEN THEM PRODUCES TO THE ASSESSEE MO RE THAN THE ORDINARY PROFITS WITH THE INTENT OF ABUSING TAX CONCESSION . QUITE CLEARLY IN THE ENTIRE ASSESSMENT ORDER THERE IS NO WHISPER OF ANY MATERI AL OR EVIDENCE IN THIS REGARD. IN-FACT THE APPROACH OF THE ASSESSING OFF ICER IS QUITE MISDIRECTED AS THE FOLLOWING DISCUSSION IN HIS ORDER SHOWS :- ACCORDINGLY THE SECTION ONLY ENCUMBERS THE A.O. T O EXAMINE IF THE PROFITS DERIVED FROM THE ELIGIBLE BUSINESS BY THE A SSESSEE IS MORE THAN THE ORDINARY PROFITS THEN THE A.O. HAS TO ARR IVE AS TO WHAT COULD BE THE REASONABLE PROFIT FROM THE SUCH ELIGIB LE BUSINESS AND SUCH PROFIT HAS TO BE THEN TAKEN AS REASONABLY DEEM ED TO HAVE BEEN DERIVED FROM THE ELIGIBLE BUSINESS FOR THE PURPOSES OF COMPUTING DEDUCTION UNDER THE SECTION. 33. THE AFORESAID DISCUSSION IN THE ASSESSMENT ORDE R REVEALS THAT AS PER THE ASSESSING OFFICER THE EXISTENCE OF CLOSE C ONNECTION AND MORE THAN ORDINARY PROFITS IS ENOUGH TO ASSUME AN ARRANGEMENT AS CONTEMPLATED U/S 80-IA(10) OF THE ACT. THE AFORESAID UNDERSTANDING IN OUR VIEW IS DIRECTLY CONTRARY TO THE JUDGEMENT OF THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF H.P. GLOBAL SOFT LTD. (SUPRA) AND OUR DISCUSSION IN THE EARLIER PART OF THIS ORDER. 34. IN VIEW OF THE AFORESAID WE CONCLUDE BY HOLDIN G THAT IN THE PRESENT CASE THE ASSESSING OFFICER HAS NOT PROVED THAT ANY ARRANGEMENT HAD BEEN ARRIVED BETWEEN THE PARTIES WHICH RESULTED IN HIGHE R PROFITS. CONSEQUENTLY THE RE-WORKING OF THE PROFITS BY ASSESSING OFFICER BY INVOKING SECTION 10A R.W.S. 80-IA(10) OF THE ACT IS NOT JUSTIFIED. THE ACTION OF THE ASSESSING OFFICER TO RESTRICT THE DEDUCTION U/S 10A OF THE AC T TO RS.7 74 60 281/- AS AGAINST THE CLAIM OF RS.36 35 09 382/- IS HEREBY SE T-ASIDE. THUS ASSESSEE SUCCEEDS ON THIS ASPECT. 10. SIMILAR VIEW HAS BEEN TAKEN BY CO-ORDINATE BENCH OF TRIBUNAL IN THE CASES OF TATA JOHNSON CONTROLS AUTOMOTIVE LI MITED VS. DY. 15 COMMISSIONER OF INCOME TAX (SUPRA) AND RACOLD THERMO LIMITED VS. ADDL. COMMISSIONER OF INCOME TAX (SUPRA). 11. THE LD. DR HAS FAILED TO REBUT THE DECISIONS RE NDERED BY CO- ORDINATE BENCH OF TRIBUNAL WHEREIN DISALLOWANCES OF DEDUCTION MADE U/S. 10A UNDER SIMILAR CIRCUMSTANCES HAVE BEEN REVERSED AND ADDITIONS DELETED. IN VIEW OF THE AFORESAID FACTS WE ARE OF THE VIEW THAT T HE AO WAS NOT JUSTIFIED IN WORKING OUT THE EXCESS PROFIT ON THE BASIS OF PRESUMPTIONS AND REDUCING THE CLAIM OF DEDUCTION OF ASSES SEE U/S 10AA OF THE ACT. WE THEREFORE SET ASIDE THE ACTION OF T HE AO. THUS THE GROUND OF THE ASSESSEE IS ALLOWED AND THE REVEN UE IS DISMISSED . 11. IN THE SECOND GROUND IT IS THE CONTENTION OF THE ASS ESSEE THAT THE DEDUCTION U/S 10AA OF THE ACT SHOULD BE ALLOWED BEFO RE SETTING OFF BROUGHT FORWARD LOSSES AND UNABSORBED DEPRECIATION AND THE DEDUCTION U/S 10AA OF THE ACT SHOULD BE GRANTED FROM TH E PROFITS FOR THE YEAR OF THE ELIGIBLE UNIT OF THE ASSESSEE. 12. BEFORE US LD.A.R. SUBMITTED THAT THIS ISSUE IS COVERED B Y THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 20 07-08. HE POINTED TO THE RELEVANT FINDINGS IN THE ORDER DT.21.03.20 16. LD.D.R. ON THE OTHER HAND SUPPORTED THE ORDER OF LOWER A UTHORITIES BUT DID NOT CONTROVERT THE SUBMISSIONS OF LD.A.R. 13. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT IDENTICAL ISSUE OF THE SET TING OFF OF BROUGHT FORWARD OF LOSSES AND UNABSORBED DEPRECIATION W AS BEFORE THE CO-ORDINATE BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE IN A.Y. 2007-08. THE CO-ORDINATE BENCH OF THE TRIBUNAL DECID ED THE ISSUE IN FAOVUR OF THE ASSESSEE BY HOLDING AS UNDER : 16 11. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE B Y BOTH THE SIDES PERUSED THE ORDERS OF THE AO AND CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONS IDERED THE VARIOUS DECISIONS CITED BEFORE US. WE FIND THE ONLY ISSUE TO BE DECIDED IN THE INSTANT CASE IS AS TO WHETHER THE CLAIM OF DEDUCTIO N U/S.10A IS TO BE ALLOWED BEFORE SET OFF OF BROUGHT FORWARD UNABSORBE D BUSINESS LOSS AND DEPRECIATION OR AFTER SET OFF OF BROUGHT FORWAR D BUSINESS LOSS AND DEPRECIATION. WE FIND THE ISSUE HAS BEEN THORO UGHLY DISCUSSED BY THE TRIBUNAL IN THE CASE OF M/S. VISHAY COMPONEN TS INDIA PVT. LTD. (SUPRA) AND IT HAS BEEN HELD THAT DEDUCTION U/ S.10B OF THE ACT HAS TO BE COMPUTED IN THE HANDS OF THE ASSESSEE BEF ORE ADJUSTING BROUGHT FORWARD UNABSORBED BUSINESS LOSS/DEPRECIATI ON. WE FIND FOLLOWING THE ABOVE DECISION THE TRIBUNAL IN THE CA SE OF PRECISION CAMSHAFTS LTD. (SUPRA) HAS HELD THAT DEDUCTION U/S. 10B OF THE ACT WOULD BE ALLOWED TO THE ASSESSEE BEFORE ALLOWING TH E ADJUSTMENT ON ACCOUNT BROUGHT FORWARD BUSINESS LOSS AND DEPRECIAT ION. THE DEDUCTION U/S.10B OF THE ACT IS TO BE AGAINST THE E LIGIBLE PROFITS AND IN CASE THERE ARE ANY LEFT OVER PROFITS THEN THE S AME ARE TO BE ADJUSTED AGAINST BROUGHT FORWARD UNABSORBED DEPRECIATION/BUSINESS LOSS AS CLAIMED BY THE ASSESS EE IN ITS RETURN OF INCOME. FOLLOWING THE ABOVE 2 DECISIONS THE TR IBUNAL IN THE CASE OF M/S.KPIT CUMMINS INFOSYSTEMS LTD. (SUPRA) HAS HE LD THE SAME VIEW BY OBSERVING AS UNDER. THE RELEVANT OBSERVATI ON OF THE TRIBUNAL FROM PARA 5 ONWARDS READ AS UNDER: 5. WE FIND THAT IDENTICAL ISSUE OF SEQUENCES OF ALLOWING THE BENEFIT OF DEDUCTION UNDER SECTION 10B OF THE ACT AND THE ADJUSTMENT OF B ROUGHT FORWARD LOSSES / UNABSORBED DEPRECIATION AROSE BEFORE PUNE BENCH OF T RIBUNAL IN M/S. VISHAY COMPONENTS INDIA PVT. LTD. VS. ADDL.CIT & ANR. (SUPR A). THE TRIBUNAL AFTER CONSIDERING THE FACTS OF THE CASE WHICH ARE IDENTICAL TO THE FACTS BEFORE US OBSERVED AS UNDER:- 27. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED T HE RECORD. THE ISSUE ARISING VIDE GROUND OF APPEAL NO.3 IS IN RELATION TO THE CO MPUTATION OF DEDUCTION UNDER SECTION 10B OF THE ACT AFTER THE AMEN DMENT TO SECTION W.E.F. 01.04.2001. THE PERSONS INVOKING THE SAID PROV ISIONS ARE ENTITLED TO A DEDUCTION UNDER THE ACT AS COMPARED TO THE PRE-AMEND ED PROVISIONS OF THE SECTION UNDER WHICH THE INCOME COMPRISING UNDER THE SAID SECTION WAS EXEMPT FROM THE TOTAL INCOME. THE ISSUE ARISING BEFORE U S IS WHETHER WHILE COMPUTING DEDUCTION UNDER SECTION 10B OF THE ACT IN C ASES WHERE THE ASSESSEE HAS UNABSORBED LOSSES OR DEPRECIATION BROUGH T FORWARD FROM EARLIER YEARS THEN WHETHER THE SAID UNABSORBED BUSINES S LOSSES / DEPRECIATION ARE TO BE ADJUSTED FROM THE GROSS TOTAL IN COME BEFORE ALLOWING THE DEDUCTION UNDER SECTION 10B OF THE ACT OR THE SAID LOSSES OR THE DEDUCTION UNDER SECTION 10B OF THE ACT IS TO BE ALLOWED IN THE HANDS OF THE ASSESSEE WITHOUT CONSIDERING THE BROUGHT FORWARD UNA BSORBED LOSSES / DEPRECIATION WHICH CAN BE SET OFF AGAINST THE OTHER IN COME OF ASSESSEE. BOTH THE AUTHORITIES BELOW HAD DENIED THE CLAIM TO THE ASSESSEE IN VIEW OF THE RATIO LAID DOWN BY THE HONBLE SUPREME COURT IN HIMA SINGKA SEIDE LTD. VS. CIT (SUPRA). THE PERUSAL OF THE JUDGMENT OF HONB LE KARNATAKA HIGH COURT IN THE SAID CASE REFLECTS THAT THE YEARS UNDER A PPEAL RELATED TO ASSESSMENT YEARS 1988-89 TO 1990-91 I.E. THE YEARS W HERE THE BENEFIT UNDER SECTION 10B OF THE ACT WAS FOR BEING EXEMPT FR OM TOTAL INCOME. HOWEVER THE YEAR UNDER APPEAL BEFORE US IS ASSESSME NT YEAR 2005-06 WHEREIN THE SAID SECTION HAS BEEN AMENDED AND THE DEDU CTION NOW IS ALLOWABLE TO THE ASSESSEE AS AGAINST THE SAID INCOME BEING EXEMPT IN THE EARLIER YEARS. THE ISSUE IS SETTLED BY THE HONBLE BOMBAY HIGH COURT IN CIT VS. BLACK & VEATCH CONSULTING PVT. LTD. (2012) 348 IT R 72 (BOM) WHEREIN IT WAS HELD AS UNDER:- THE DEDUCTION UNDER S. 10A HAS TO BE GIVEN EFFECT T O AT THE STAGE OF COMPUTING THE PROFITS AND GAINS OF BUSINESS. THIS IS ANT ERIOR TO THE APPLICATION OF THE PROVISIONS OF S.72 WHICH DEALS WITH TH E CARRY FORWARD AND SET OFF OF BUSINESS LOSSES. A DISTINCTION HAS BEEN MADE BY THE LEGISLATURE WHILE INCORPORATING THE PROVISIONS OF CHAPTER VI-A. SECTIO N 80A(1) STIPULATES THAT IN COMPUTING THE TOTAL INCOME OF AN ASSESSEE THER E SHALL BE ALLOWED FROM HIS GROSS TOTAL INCOME IN ACCORDANCE WITH AND SUB JECT TO THE PROVISIONS OF THE CHAPTER THE DEDUCTIONS SPECIFIED IN SS.80C TO 80U. S.80B(5) DEFINES FOR THE PURPOSE OF CHAPTER VI-A GROS S TOTAL INCOME TO MEAN THE TOTAL INCOME COMPUTED IN ACCORDANCE WITH THE PROVISIONS OF THE 17 ACT BEFORE MAKING ANY DEDUCTION UNDER THE CHAPTER. W HAT THE REVENUE IN ESSENCE SEEKS TO ATTAIN IS TO TELESCOPE THE PROVISIONS O F CHAPTER VI-A IN THE CONTENT OF THE DEDUCTION WHICH IS ALLOWABLE UNDER S.10A WHICH WOULD NOT BE PERMISSIBLE UNLESS A SPECIFIC STATUTORY PROVISION TO T HAT EFFECT WERE TO BE MADE. IN THE ABSENCE THEREOF SUCH AN APPROACH CANN OT BE ACCEPTED. THUS ITAT WAS CORRECT IN HOLDING THAT THE BROUGHT FORWARD UNABSORBED DEPRECIATION AND LOSSES OF THE UNIT THE INCOME WHICH IS N OT ELIGIBLE FOR DEDUCTION UNDER S.10A OF THE ACT CANNOT BE SET OFF A GAINST THE CURRENT PROFIT OF THE ELIGIBLE UNIT FOR COMPUTING THE DEDUCTION UNDER S.1 0A OF THE IT ACT. 28. THE SAID PROPOSITION OF LAW HAS FURTHER BEEN APPLIED BY THE HONBLE BOMBAY HIGH COURT IN CIT VS. M/S. GANESH POLYCHEM LTD. IN INCOME TAX APPEAL NO.2083 OF 2012 ORDER DATED 25.02.2013 AND IN CIT VS. SCHMETZ INDIA PVT. LTD. (2012) 79 DTR (BOM) 356 AND ALSO BY T HE HONBLE HIGH COURT OF GUJARAT IN CIT VS. ACE SOFTWARE EXPORTS LTD. IN TA X APPEAL NO.687 OF 2012 ORDER DATED 18.02.2013. THE MUMBAI BENCH OF TR IBUNAL HAS ALSO APPLIED THE SAID PROPOSITION IN VARIOUS CASES. 29. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE RE VENUE ON THE OTHER HAND PLACED RELIANCE ON THE RATIO LAID DOWN BY THE HONB LE SUPREME COURT IN SYNCO INDUSTRIES LTD. VS. AO (2008) 299 ITR 444 (SC ) WHEREIN THE ISSUE WAS WHETHER WHILE COMPUTING THE QUANTUM OF DEDUCTION UN DER SECTION 80I(6) OF THE ACT THE ASSESSING OFFICER HAS TO TREAT THE PROFITS DERIVED FROM AN INDUSTRIAL UNDERTAKING AS ONLY SOURCE OF INCOME IN O RDER TO ARRIVE AT DEDUCTION UNDER CHAPTER VI-A. THE HONBLE SUPREME COUR T HELD THAT THE GROSS TOTAL INCOME UNDER SECTION 80B(5) OF THE ACT WHIC H IS ALSO REFERRED TO IN SECTION 80I(1) OF THE ACT WAS REQUIRED TO BE COMPUT ED IN MANNER PROVIDED UNDER THE ACT WHICH PRE- SUPPOSES THAT GROS S TOTAL INCOME SHALL BE ARRIVED AT AFTER ADJUSTING LOSSES OF OTHER DIVISION AG AINST PROFITS DERIVED FROM AN INDUSTRIAL UNDERTAKING. THE ISSUE BEFORE THE H ONBLE SUPREME COURT IS AT VARIANCE WITH THE ISSUE BEFORE US AND THE SAID R ATIO IS NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. THE ISSUE IN THE PRESE NT APPEAL IS SQUARELY COVERED BY THE RATIO LAID DOWN BY THE HONBLE BOMBAY HIG H COURT IN CIT VS. BLACK & VEATCH CONSULTING PVT. LTD. (SUPRA) WHERE IN DEDUCTION UNDER SECTION 10A OF THE ACT WAS TO BE COMPUTED IN THE HAND S OF ASSESSEE AND THE SAME WAS WHETHER THE BROUGHT FORWARD LOSSES HAD TO B E ADJUSTED BEFORE COMPUTING DEDUCTION UNDER SECTION 10A OF THE ACT. IT M AY BE POINTED OUT THAT THE PROVISIONS OF SECTION 10A AND 10B OF THE AC T ARE AT PARAMETRIA. FOLLOWING THE RATIO LAID DOWN BY THE HONBLE BOMBAY HIGH C OURT WE HOLD THAT THE DEDUCTION UNDER SECTION 10B OF THE ACT IS TO BE COMPUTED IN THE HANDS OF THE ASSESSEE BEFORE ADJUSTING BROUGHT FORWA RD UNABSORBED LOSSES / DEPRECIATION. THE GROUND OF APPEAL NO.3 RAISED BY THE ASSESSEE IS THUS ALLOWED. 6. THE SAID RATIO LAID DOWN BY THE TRIBUNAL WAS LATER AP PLIED WHILE DECIDING SIMILAR ISSUE IN PRECISION CAMSHAFTS LIMITED VS. ACIT (SUP RA). THE TRIBUNAL VIDE ORDER DATED 10.11.2015 AFTER CONSIDERING THE RAT IO LAID DOWN BY THE TRIBUNAL IN M/S. VISHAY COMPONENTS INDIA PVT. LTD. VS. ADDL.CIT & ANR. (SUPRA) OBSERVED AS UNDER:- 17. THE TRIBUNAL RELYING ON THE RATIO LAID DOWN BY THE H ONBLE BOMBAY HIGH COURT IN CIT VS. BLACK & VEATCH CONSULTING PVT. LTD . (2012) 348 ITR 72 (BOM) AND OTHER DECISIONS OF THE HONBLE BOMBAY HIGH COU RT HELD THAT THE DEDUCTION UNDER SECTION 10B OF THE ACT WAS TO BE COMP UTED BEFORE ADJUSTING BROUGHT FORWARD UNABSORBED LOSSES / DEPRECIATION. THE FACTS ARISING IN THE PRESENT CASE ARE SIMILAR TO THE FACTS BEFORE THE TRIBU NAL IN VISHAY COMPONENTS INDIA PVT. LTD. VS. ADDL.CIT & ANR. (SUPRA ) AND FOLLOWING THE SAME PARITY OF REASONING WE HOLD THAT THE DEDUCTION UNDER SECTION 10B OF THE ACT WOULD BE ALLOWED TO THE ASSESSEE IN THE FIRST INSTANCE BEFORE ALLOWING THE ADJUSTMENT ON ACCOUNT OF BROUGHT FORWARD DEPRECIATION LOSSES THE DEDUCTION UNDER SECTION 10B OF THE ACT IS TO BE FIR ST ALLOWED AGAINST THE ELIGIBLE PROFITS AND IN CASE THERE ARE ANY LEFTOVER PROFITS THEN THE SAME ARE TO BE ADJUSTED AGAINST BROUGHT FORWARD UNABSORBED DE PRECIATION / LOSS AS CLAIMED BY THE ASSESSEE IN ITS RETURN OF INCOME. ACCO RDINGLY WE DIRECT THE ASSESSING OFFICER TO RE-COMPUTE THE DEDUCTION UNDER SEC TION 10B OF THE ACT IN THE HANDS OF THE ASSESSEE. THE ADDITIONAL GROUND OF APPEAL NOS.1 AND 2 RAISED BY THE ASSESSEE ARE THUS ALLOWED. 7. THE ISSUE ARISING BEFORE US IS IN RELATION TO THE COM PUTATION OF DEDUCTION UNDER SECTION 10A OF THE ACT WHICH ADMITTEDLY IS PARA MATRIA TO SECTION 10B OF THE ACT AND HENCE THE RATIO LAID DOWN BY THE TRIBU NAL IN M/S. VISHAY COMPONENTS INDIA PVT. LTD. VS. ADDL.CIT (SUPRA) AND PRECISION CAMSHAFTS LIMITED VS. ACIT (SUPRA) IS SQUARELY APPLICABLE. 8. ANOTHER ASPECT TO BE CONSIDERED IN THE PRESENT CAS E IS THE ARGUMENTS OF THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENU E THAT THE RATIO IS COVERED BY THE DECISION OF HONBLE KARNATAKA HIGH COURT IN CIT VS. 18 HIMATSINGKA SEIDA LTD. (SUPRA) APPEAL AGAINST WHICH HAS BEEN DISMISSED BY THE HONBLE SUPREME COURT. BEFORE THE HONBLE KARNAT AKA HIGH COURT THE YEARS INVOLVED WERE ASSESSMENT YEARS 1988-89 TO 1990-91 I.E. THE YEAR WHERE THE BENEFIT UNDER SECTION 10B OF THE ACT WAS EXEMPT. THE TRIBUNAL WHILE DECIDING THE ISSUE IN M/S. VISHAY COMPONENTS INDIA PVT. LTD. VS. ADDL.CIT (SUPRA) HAD TAKEN NOTE OF THE DECIS ION OF THE HONBLE SUPREME COURT AND THE HONBLE KARNATAKA HIGH COURT IN H IMATSINGKA SEIDA LTD. (SUPRA) IN PARA 27 OF THE ORDER AND THEREAF TER APPLIED THE RATIO LAID DOWN BY THE HONBLE BOMBAY HIGH COURT IN CIT VS. BLA CK & VEATCH CONSULTING PVT. LTD. (SUPRA) AND PARA 27 OF THE ORDER HAS ALREADY BEEN REPRODUCED HEREINABOVE. IN THE TOTALITY OF THE ABOVE SAID FACTS AND CIRCUMSTANCES WE FIND NO MERIT IN THE OBJECTIONS RAISE D BY THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE. FOLLOWING T HE RATIO LAID DOWN BY THE TRIBUNAL IN M/S. VISHAY COMPONENTS INDIA PVT. LTD. VS. ADDL.CIT (SUPRA) AND PRECISION CAMSHAFTS LIMITED VS. ACIT (SUPRA) WE HOLD THAT THE ASSESSEE IS ENTITLED TO THE CLAIM OF DEDUCTION UNDER SE CTION 10A OF THE ACT BEFORE SETTING UP OF BROUGHT FORWARD LOSSES AND UNABS ORBED DEPRECIATION. THE DEDUCTION UNDER SECTION 10A OF THE ACT IS FIRST ALLOW ED AGAINST THE ELIGIBLE PROFITS AND IN CASE THERE ARE CERTAIN LEFT OVER PR OFITS FOR THE YEAR UNDER APPEAL THEN THE SAME ARE TO BE ADJUSTED AGAIN ST THE BROUGHT FORWARD LOSSES AND UNABSORBED DEPRECIATION / LOSS AS CL AIMED BY THE ASSESSEE IN RETURN OF INCOME. ACCORDINGLY WE DIRECT THE ASSESSING OFFICER TO RE -COMPUTE THE DEDUCTION UNDER SECTION 10A OF THE ACT . THE GROUNDS OF APPEAL NOS.1 AND 7 RAISED BY THE ASSESSEE ARE THUS A LLOWED AND BALANCE GROUNDS OF APPEAL RAISED BY THE ASSESSEE ARE DISMISSED BEING ARGUMENTATIVE. 9. IN THE RESULT THE APPEAL OF THE ASSESSEE IS PART LY ALLOWED. 12. RESPECTFULLY FOLLOWING THE DECISION OF THE COOR DINATE BENCH OF THE TRIBUNAL CITED (SUPRA) WE HOLD THAT DE DUCTION U/S.10A OF THE ACT IS TO BE ALLOWED AGAINST THE ELI GIBLE PROFITS AND IN CASE THERE ARE CERTAIN LEFT OVER PROFITS FOR THE YEAR UNDER APPEAL THE SAME ARE TO BE ADJUSTED AGAINST TH E BROUGHT FORWARD LOSSES AND UNABSORBED DEPRECIATION AS CLAIM ED BY THE ASSESSEE IN THE RETURN OF INCOME. WE ACCORDING LY SET ASIDE THE ORDER OF THE CIT(A) AND DIRECT THE AO TO RECOMPUTE THE DEDUCTION U/S.10A OF THE ACT AGAINST THE ELIGIB LE PROFITS BEFORE ADJUSTMENT OF BROUGHT FORWARD LOSSES/DEPRECI ATION. GROUNDS OF APPEAL NO.1 AND 1.1 BY THE ASSESSEE ARE ACCORDINGLY ALLOWED. 14. BEFORE US REVENUE HAS NOT POINTED OUT ANY CONTRARY BINDING DECISION NOR HAS PLACED ANY MATERIAL TO POINT OUT ANY DISTINGUISHING FEATURE IN THE FACTS OF THE CASE IN THE YEAR UNDER CONSIDERATION AND THAT OF A.Y. 2007-08. IN VIEW OF THE AF ORESAID FACTS AND FOR THE SAME REASONING AND RELYING ON THE AFOR ESAID DECISIONS OF CO-ORDINATE BENCH OF THE TRIBUNAL WE ARE OF T HE VIEW THAT THE DEDUCTION U/S 10AA HAS TO BE COMPUTED IN THE HANDS OF THE ASSESSEE BEFORE ADJUSTING THE BROUGHT FORWARD LOSS ES AND UNABSORBED DEPRECIATION. THUS THE GROUND OF THE ASSESSEE IS ALLOWED. 19 15. GROUND NO.3 IS WITH REGARD TO THE LEVY OF INTEREST U/S 234A AND 234B OF THE ACT. THIS GROUND BEING CONSEQUENTIAL IN NATURE REQUIRES NO ADJUDICATION. THUS THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. 16. AS FAR AS THE GROUND RAISED BY THE REVENUE IS CONC ERNED THE SAME HAS BEEN DECIDED BY US HEREINABOVE BY DISMISSING T HE GROUND OF REVENUE AND ALLOWING THE GROUND NO.1 OF ASSESSE ES APPEAL. THUS THE APPEAL OF REVENUE IS DISMISSED. 17. IN THE RESULT THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED AND THAT OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED ON 24 TH DAY OF NOVEMBER 2017 SD/- SD/- ( VIKAS AWASTHY ) ( ANIL CHATURVEDI ) ' / JUDICIAL MEMBER # ' / ACCOUNTANT MEMBER PUNE; DATED : 24 TH NOVEMBER 2017. YAMINI !$%&'()(& / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3 . 4. 5. 6. CIT(A)-1 PUNE. PRINCIPAL CIT-1 PUNE. '#$ %%&' ) &' / DR ITAT B PUNE; $ -./ GUARD FILE. / BY ORDER / // TRUE COPY // / TRUE COP /01%2&3 / SR. PRIVATE SECRETARY ) &' / ITAT PUNE