A.T. KEARNEY INDIA PVT. LTD. Vs. ADDITIONAL COMMISSIONER OF INCOME TAX
LAWS(IT)-2014-8-29
INCOME TAX APPELLATE TRIBUNAL
Decided on August 26,2014

A.T. Kearney India Pvt. Ltd. Appellant
VERSUS
ADDITIONAL COMMISSIONER OF INCOME TAX Respondents

JUDGEMENT

R.S.Syal, Member (A) - (1.) THIS appeal by the assessee is directed against the order passed by the CIT(A) on 6.12.2012 in relation to the assessment year 2009 -10.
(2.) THE assessee has filed concise grounds. Ground No. 1, 2 & 5 are not pressed. These, therefore, stand dismissed. The major issue argued on behalf of the assessee is the subject matter of ground no. 3 by which challenge has been made to the reduction in the amount of deduction u/s. 10A of the Income -tax Act, 1961 (hereinafter also called 'the Act') by a sum of Rs. 5,58,86,784/ -.
(3.) BRIEFLY stated the facts of the case are that the assessee filed its return declaring income of Rs. 31.14 lac. As the tax payable u/s. 115JB of the Act was more than as per the normal provision, the tax was paid u/s. 115JB. During the course of assessment proceedings, it was observed by the Assessing Officer that the assessee claimed deduction u/s. 10A of the Act to the tune of Rs. 8,22,78,165/ - in respect of revenue arising from its oversees Associated Enterprises (AEs). The assessee was called upon to file the Transfer Pricing study report, which was duly filed. On the perusal of the said Transfer Pricing study report, the A.O. observed that the assessee had shown its margin of profit from the eligible business at many times higher than that shown by the comparables. It was seen that the arithmetic mean of the margin of comparables as per the TP study report was 16.22% as against the assessee's margin of profit at whopping 101.19%. It was thus opined that the provisions of sec. 10A(7) r.w.s. 80IA(10) were applicable. The assessee's objections did not persuade the Assessing Officer to hold that sec. 10A(7) was not applicable. It was eventually ruled that the assessee and its AEs, owing to their close connection, had so arranged the course of business amongst themselves so that the business transacted between them produced to the assessee more than the ordinary profits. Invoking the provisions of sec. 10A(7) r.w.s. 80IA(10) and observing that the arithmetic mean of the operating margin of the comparables as per the TP study report was 16.22%, the AO considered profit rate of 20% of the operating cost as reasonable. Since the assessee had shown operating profit at 101.19% of the operating costs, the Assessing Officer reduced the eligible amount of deduction u/s. 10A to Rs. 2.63 crore by applying 20% as the reasonable profit. This led to the reduction in the amount of deduction u/s. 10A by Rs. 5.58 crore. The assessee failed to convince the ld. CIT(A) to its line of reasoning, who echoed the assessment order on this point.;


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