PCIT Vs Persistent Systems Pvt. Ltd. (Bombay High Court)
The Bombay High Court heard an appeal filed by the Revenue challenging the judgment and order dated 12 July 2017 passed by the Income Tax Appellate Tribunal, Pune Bench in Income Tax Appeal No. 1295/PUN/2015 relating to Assessment Year 2010-11.
The Revenue reformulated the substantial question of law as follows:
Whether the addition made under Section 10A(7) read with Section 80IA(10) of the Income-tax Act, 1961 could have been deleted when the ordinary profits of the comparable companies furnished in the assessee’s transfer pricing report were 9.35%, whereas the assessee had shown a net profit margin of 27.86%.
On behalf of the respondent-assessee, it was submitted that the issue had already been decided by Coordinate Benches of the Bombay High Court in Commissioner of Income Tax-7 v. Schmetz India (P) Ltd. and Pragati Aroma Oil Distillers Private Ltd. v. Deputy Commissioner of Income Tax, wherein similar questions had been answered against the Revenue and in favour of the assessee.
The Court referred to Schmetz India (P) Ltd., where the substantial questions of law included:
- Whether the Tribunal was justified in holding that there was nothing on record to show that the profits of the assessee’s Section 10A unit were not earned in the normal course of business or that the higher profits resulted from any extraordinary arrangement entered into for the purpose of increasing profits.
- Whether the Tribunal was justified in holding that there was no material available with the Assessing Officer to estimate the profits of the eligible Section 10A unit by invoking Section 80IA(10) read with Section 10A(7).
- Whether deduction under Section 10A was required to be computed without setting off losses of the trading unit against the profits of the export-oriented unit.
The Court observed that the decision in Schmetz India (P) Ltd. had subsequently been followed in Pragati Aroma Oil Distillers Private Ltd. v. Deputy Commissioner of Income Tax, where the appeal had been admitted on the substantial question of law as to whether the Appellate Tribunal was justified in comparing and adopting the net profit margin of a sister concern even in the absence of any arrangement contemplated under Section 10B(7) read with Section 80IA(10) of the Income-tax Act.
