INCOME TAX ACT, 1961

Section 92C Section 10A(7)

Transfer pricing - Determination of ALP - Adjustment on account of eligible profit to compute deduction under section 10(7) -

The issue which arose in the appeal was against deletion of disallowance made under section 10A(7), where the margins shown by the assessee on its transactions with associated enterprises at 26.40% were held to be higher than mean margins of comparables at 12.68%, while benchmarking the arm's length price of international transactions. The AO was of the view that applying the provisions of section 80IA(10) read with section 10A(7), the profits earned by the assessee were more than ordinary profits. Hence, an adjustment had to be made while working out the eligible profit for the purpose of computation of deduction under section 10A of Pune Unit-I. Further, the Tribunal in assessee's own case in ITA No. 1295/PUN/2015, relating to assessment year 2010-11, vide Order, dt. 12-7-2017 has dismissed the appeal of revenue.Held: Tribunal in its earlier order ina ssessee's own case held that the reduction of eligible profits of an assessee as done by the AO by invoking the provisions of 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 assessing officer was not justified to invoke the provisions of section 80-IA(10) read with section 10B(7) so as to reduce the eligible profits on the basis of the arm's length price computed by the Transfer Pricing Officer without showing how he determined that the assessee had shown more than 'ordinary profits'.When profits itself was not worked out, how was it justified to adopt the arm's length price profits to determine what is 'ordinary profits' for the purpose of section 10A(7). The adjustment made by the assessing authority in computing the deduction under section 10A is accordingly, deleted. The AO was therefore, directed to follow the dictate of Tribunal in earlier assessment years 2006-07 to 2008-09 and 2010-11 and allow the claim of assessee. Accordingly, the order of CIT(A) was upheld.

Followed:ITA Nos. 946 to 948/PN/2013, relating to assessment year 2006-07 to 2008-09, Order dt. 23-12-2016 and Tribunal in assessee's own case in ITA No. 1295/PUN/2015, relating to assessment year 2010-11, vide Order, dt. 12-7-2017.

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2011-12

INCOME TAX ACT, 1961

Section 115JB Section 14A

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