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These are the latest case laws decided by various Income Tax Appellate Tribunals (ITAT) of India on Income Tax which have been published recently. The case laws are open for discussion and we invite expert comments from our members on its applicability and effect on relevant issues.

02-11-2018, Honeywell Automation India, Section 10A, 10AA, Tribunal Pune

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1 week 6 days ago #7657 by amit
Section - 10A, 10AA, 10A(7), 80IA(10)
Order Date - 02-11-2018
Favouring - Assessee Partly allowed for statistical purposes
Court - Tribunal Pune
Appellant - Honeywell Automation India Limited
Respondent - ACIT
Justice - D. KARUNAKARA RAO, AM & VIKAS AWASTHY, JM
Citation - 1118Taxpundit76
Appeal No. - ITA No. 359/PUN/2013
Asstt. Year - 2008-09

Order

PER : D. KARUNAKARA RAO

This appeal is filed by the assessee against the order of DRP/TPO/AO involving A.Y. 2008-09.

2. Grounds raised by the assessee read as under :

“On the facts and in the circumstances of the case and in law, the Hon'ble DRP and consequentially the learned AO has:

General

1. erred in assessing the total income at Rs. 90,95,94,040 as against income of Rs. 65,78,09,980 (as per the revised computation of income filed by the Appellant with the learned AO during the course of assessment proceedings);

A. Denial of tax holiday claim under section 10A of the Act amounting to Rs. 5,22,56,867 with respect to Software Technology Parks ('STP') operations; Rs. 2,37,68,534 with respect to Electronic Hardware Technology Parks (‘EHTP') operations of the Appellant and tax holiday claim under section 10AA of the Act amounting to Rs. 1,87,497 with respect to Special Economic Zone ('SEZ') operations of the Appellant

2. erred in recomputing the deduction under section 10A at Rs. 11,39,56,076 as against Rs. 16,62,12,943 with respect to STP operations, Rs. 5,18,31,824 as against Rs. 7,56,00,358 with respect to EHTP operations and deduction under section 10AA at Rs. 4,08,873 as against Rs.5,06,370 claimed by the Appellant in the return of income filed on 30 September 2008, thereby denying deduction under section 10A to the extent of Rs. 7,60,25,40/and under section 10AA to the extent of Rs. 1,87,497; Invoking the provisions of section 10A(7) and section 10AA(9) read with section 801A( 10) in the Appellant's case

3. erred in invoking the provisions of section 10A(7) and section 10AA(9) read with section 80IA(10) in the Appellant's case, on the ground that transactions between the Appellant and its associated enterprises are arranged to produce more than ordinary profits;

4. failed to appreciate that provisions of section 10A(7) and section 10AA(9) read with section 80IA (10) could only be invoked where both the connected parties are taxable in India and there is tax erosion in India due to 'arrangement' between those persons and not otherwise; Usage of arithmetic mean as per the transfer pricing study report for determination of 'ordinary profits for the purpose of section 10A(7) and section 10AA(9) read with secti n 80IA(10)

5. erred in law by adopting the arithmetic mean of operating margins earned by comparable companies as per the transfer pricing study report as benchmark of ordinary profits' computed for the purposes of section 10A(7) and section 10AA(9) read with section 80IA(10); Appellant earning ‘more than ordinary profits’.

6. erred in concluding that the profits earned by the Appellant are more than ordinary profits from its STP operations, without appreciating and considering the business model under which the Appellant operates;

7. failed to appreciate that the rates charged by the Appellant to its Associated enterprise ('AE') were comparable with the rates charged to other customers ('non-AE') and the rates charged in earlier years;

8. failed to appreciate that the onus is on the Department to prove with substantial evidences that the business of the Appellant is 'arranged' so as to have supernormal profits and mere inferences without substantiating the allegations would not suffice;

9. should have appreciated that the Appellant has offered to tax similar level of profits in earlier and later years in case of STP operations and hence the Appellant could not be considered to have earned 'more than ordinary profits' during the year under appeal;

B. Denial of additional tax holiday claim of Rs.6,04,42,900 under section 10AA of the Act arising pursuant to the retrospective amendment to section 10AA(7) of the Act by Finance Act 2010

10. erred by denying additional tax holiday benefit (amounting to Rs 6,04,42,990) claimed by the appellant during the course of the assessment proceedings by way of filing a revised tax computation with the learned AO computed considering impact of the retrospective amendment to section 10AA(7) of the Act by Finance Act 2010;

C. Denial of additional tax holiday benefit under section 10A and 10AA of the Act claimed during the assessment proceedings by way of filing revised computation of income, computed considering inclusion of export proceeds realised but not considered in the return of income as part of 'eligible export turnover' for the purposes of claiming deduction under section 10A and 10AA of the Act

11. erred by denying additional tax holiday benefit under section 10A and 10AA of the Act (amounting to Rs 55,24,290) claimed by the Appellant during the assessment proceedings by way of filing of revised computation of income, computed by inclusion of export proceeds realised but not considered in the return of income as 'eligible export turnover' for the purposes of claiming deduction under sect on 10A and 10AA of the Act;

D. Denial of tax holiday claim amounting to Rs.2,37,68,534 in respect of Electronic Hardware Technology Parks (‘EHTP’) operations of the Appellant.

12. erred in invoking the provision of 10A(7) of the Act to Appellant’s EHTP unit despite the fact that margins of comparable companies considered relates to software services segment and cannot be compared with margins earned by EHTP unit which was engaged in manufacturing of electronic parts/components;

E. Denial f credit for additional taxes deducted at source claimed by the Appellant during the course of assessment proceedings by way of filing revised computation of income.

13. erred in denying credit for additional taxes deducted at source (TDS) (amounting to Rs.69,35,684) claimed by the Appellant during the assessment proceedings by way of filing revised computation of income.

F. Transfer Pricing adjustment under provisions of Chapter X of the Act in respect of International Transactions.

14. On the facts and in law, the learned AO and the learned Transfer Pricing Officer ('TPO') erred in determining and DRP has erred in conforming the arm's length price for international transactions in respect of availing of intra-group services, i.e. Administrative and Managerial Services by the Appellate from its AE at Rs. NIL as against the sum of Rs. 7,53,73,889 as determined by the Appellant and thereby proposing an adjustment of Rs. 7,53,73,889.

15. On the facts and in law, the learned AO/TPO erred in disregarding the Service Agreement, invoices, note on Administrative and Managerial Services, detailed working of Administrative and Managerial Services, US Regulations and detailed documentary evidences filed by the Appellant from time to time to substantiate the receipt of services, benefits derived

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