×Latest Case Laws on Income Tax by various Income Tax Appellate Tribunals in India
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.
06-03-2019, Honeywell Automation, Section 10A, 10AA, Tribunal Pune
These two appeals preferred by the Revenue and assessee emanates from the order of Ld. Transfer Pricing Officer (TPO)/Dispute Resolution Panel (DRP) as per grounds of appeal on record.
2. The brief facts in this case are that the assessee is a public limited company and is engaged in the business of automation and control being categorized into following three business activities:
i) System Integration Segment (includes operations carried by the EHTP unit)
ii) Trading/Distribution Segment; and
iii) Software Engineering Service Segment.
During the year under consideration, the assessee has three units registered under the Software Technology Parks (‘STP’) Scheme of India and one unit registered under the Electronic Hardware Technology Parks (‘EHTP’) Scheme and one unit registered under the Special Economic Zone (SEZ) Scheme, these units are accordingly eligible to claim tax holiday under sections 10A and 10AA of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’). Under the Engineering segment, the assessee provides IT enabled engineering services to its associated enterprises (‘AEs’) from its following Software Technology Park (‘STP’) and SEZ units:
a) STP unit 1 at Pune.
b) STP unit 2 at Pune.
c) Chennai STP unit ; and
d) SEZ unit at Pune.
The details of the STPI unit and the expiration of the tax holiday are provided as under:
3. The assessee is engaged in the export Software Engineering/ Software services to its parent company in USA and /affiliates and to third parties. Profits derived from the export of the said services are eligible for deduction u/s.10A and 10AA of the Act and the assessee has accordingly claimed deduction u/s.10A and 10AA in respect of said profits amounting to Rs.32,28,11,128/- and Rs.16,59,98,284/- respectively for assessment year 2011-12. The assessee is an indirect subsidiary of Honeywell Inc. USA and is engaged in the business of providing software services and industrial automation manufacturing to its group companies. For assessment year 2011-12, it had total of 3 STPI units- two Software Technology Parks located in Pune & one in Chennai ( Section 10A units) and an SEZ Units ( Section 10AA Unit) located at Pune. For the year under consideration, the assessee had claimed the following deductions from its total income:
ITA No. 473/PUN/2016 ( By Revenue)
Assessment year 2011-12
4. It is with regard to the issue, the Revenue has preferred appeal before us. That on perusal of the records, it is apparent that the Assessing Officer has granted only a partial deduction of the above sums by invoking section 10A(7)/10AA(9) of the Act r.w.s. 80IA(10) of the Act on the ground that the assessee was claiming a substantially higher deduction than the ordinary profits of the comparable entities. In the previous assessment year, the Assessing Officer had come to the conclusion that as 81% of the shareholding of the assessee was held by the US entity (Honeywell Inc. USA) and there existed a close connection with the assessee as a result of which the Indian Entity was generating substantially higher profits compared to the comparable companies. It was on this basis that provisions under section 10A(7) r.w.s. 80IA were invoked and the deduction was restricted to the aggregate margins earned by the comparable entities.
5. The above contentions of the Assessing Officer were confirmed by the Ld. CIT(A) during the proceeding for assessment year 2007-08 wherein it was held that the key factors required for the Assessing Officer to invoke its powers u/s.10A r.w.s.80IA are ‘close connection’ and ‘arrangement’ between the assessee and other persons and such arrangement produced more than ‘ordinary profits’ in the eligible business. It was further held by the Ld. CIT(A) that an ‘arrangement’ can be inferred if the surrounding facts and circumstances so indicate and the present of abnormal profits in the case of STP units provide the existence of an ‘arrangement’ between the assessee and its AE’s.