Percy Pardiwala, Sr. Adv., & Madhur Aggarwal, A.Rs for the Assessee. A. Mohan, CIT D.R for the Revenue.

The captioned appeals filed by the assessee company are directed against the respective orders passed by the Commissioner of Income-tax (LTU), Mumbai (here in after referred to as „CIT‟), for A.Y 2009-10, dated 24.03.2017 and A.Y 2011-12, dated 02.02.2018, which in turn arises from the assessment orders passed by the A.O u/s 143(3) (of Income Tax Act, 1961) r.w.s 144C(13) (of Income Tax Act, 1961), dated 27.02.2015 and 26.02.2016 for the said respective years. As the issue involved in the present appeals is inextricably interlinked or in fact interwoven,therefore, the same are being taken up and disposed off by way of a common order. We shall first take up the appeal for A.Y 2009-10, wherein the impugned order has been assailed before us on the following grounds:

“1. General

1.1 On the facts and in the circumstances of the case and in law, the learned CIT has legally erred in assuming jurisdiction under Section 263 (of Income Tax Act, 1961).

The learned CIT has failed to appreciate that the assessment order under Section 143(3) (of Income Tax Act, 1961) r.w.s 144C(13) (of Income Tax Act, 1961) passed by the Assessing Officer (AO) was neither erroneous nor prejudicial to the interest of the revenue.

The learned CIT further failed to appreciate that the assessment order passed by the AO was pursuant to the directions of the Dispute Resolution Panel-2,Mumbai and hence, was with valid jurisdiction.

1.2 On the facts and in the circumstances of the case and in law, the learned CIT has legally erred in setting aside the assessment order passed by the AO and directing him to withdraw the deduction claimed by the Appellant under Section 10A (of Income Tax Act, 1961) and 10B (of Income Tax Act, 1961). The learned CIT failed to appreciate that the issue involved is debatable or has been examined by the AO.

2. Without prejudice to the above, on the facts and circumstances of the case and in law,the CIT erred in not allowing deduction under Section 10A (of Income Tax Act, 1961) and 10B (of Income Tax Act, 1961) on suo-moto Transfer Pricing (`TP') adjustments.

3. On the facts and in the circumstances of the case and in law, the learned C1T has legally erred in not dealing with the decision of CIT v. I-Gate Global Solutions Ltd. (ITA No. 453/208) dated 17 June 2014 decided by the Hon'ble Karnataka High Court in favour of Appellant. The learned CIT has failed to appreciate that the decision of I-Gate (supra) has not boon litigated further by the Income-tax department.

On the facts and in the circumstances of the case and in law, the learned CIT has legally erred in denying the Appellant due deduction of. Rs. 1,51 41,483/- and Rs.32,17,33,266/- claimed under Section 10A (of Income Tax Act, 1961) and 10B (of Income Tax Act, 1961) respectively.

4. Initiation of penalty proceedings under section 271(1)(c) (of Income Tax Act, 1961).

4.1 On the facts and in the circumstances of the case and in law, the learned CIT has legally erred in directing the AO to initiate penalty proceedings under Section 271(1)(c) (of Income Tax Act, 1961) inaccurate particulars of income.

The learned CIT has failed to appreciate the fact that the position adopted by the Appellant is in fullest conformity with the decision of CIT v. I-Gate Global Solutions Ltd. (supra).

The learned CIT has further failed to appreciate the fact that the Appellant h. not furnished inaccurate particulars of income in its Return of Income. The Appellant craves leave to add, alter, amend or vary from the above grounds of appeal at or before the time of hearing.”

2. Briefly stated, the assessee company which has been formed after amalgamation of five companies of the Shell group on 1st January 2009 (effective date) is engaged in the business of marketing motor spirit (petrol) and high speed diesel through retail outlets,providing shared services to its group companies worldwide, manufacturing and trading of modified bitumen, emulsion, lubricants and coolants and providing IT enabled services in relation to scientific and technical consultancy to its group companies. The assessee company had e-filed its return of income for A.Y 2009-10 on 30.09.2009, declaring a total loss of Rs. 212,01,77,460/-. Subsequently the assessee filed a revised return of income on 24.03.2011, declaring a total loss of Rs. 204,62,84,368/-. In the revised return of income the assessee had claimed deductions u/s 10A (of Income Tax Act, 1961) of Rs.15,141,483/- and u/s 10B (of Income Tax Act, 1961) of Rs.46,24,77,668/-. The return of income filed by the assessee was processed as such u/s 143(1) (of Income Tax Act, 1961). Thereafter, the case of the assessee was selected for scrutiny assessment u/s 143(2) (of Income Tax Act, 1961). As the assessee had during the year entered into international transactions with its Associate Enterprises (AEs), therefore, a reference u/s 92C(1) (of Income Tax Act, 1961) was made to the Addl. CIT(Transfer Pricing)-II(4), Mumbai (hereinafter referred to as “TPO”), for determining the arm‟s length price (“ALP”) of such transactions.

The TPO passed an order u/s 92CA(3) (of Income Tax Act, 1961), dated 30.01.2013, wherein he proposed a Transfer Pricing adjustment of Rs. 15558,48,96,677/-. After receiving the order passed by the TPO u/s 92CA(3) (of Income Tax Act, 1961), dated 30.01.2013, the A.O passed a draft assessment order u/s 143(3) (of Income Tax Act, 1961) r.w.s 144C(1) (of Income Tax Act, 1961), dated 28.03.2013, wherein he proposed to assess the income of the assessee at Rs. 15109,77,64,680/- (after setting off the B/forward losses).

Since the assessee company during the year had suffered an overall loss, therefore, the A.O in the draft assessment order had inter alia proposed to disallow the assessee‟s claim for deductions u/ss. 10A and 10B of the Act. Aggrieved, the assessee filed objections with the Dispute Resolution Panel-2, Mumbai.

3. The DRP vide its directions u/s 144C(5) (of Income Tax Act, 1961), dated 21.01.2015 disposed off the objections of the assessee. Observing, that the Hon‟ble High Court of Bombay in the case of CIT Vs. Schmetz India (P) Ltd. (2012) 254 CTR 504 (Bom), had observed, that where an ineligible unit suffers a loss and an eligible unit enjoys profit the deduction u/s 10A (of Income Tax Act, 1961) was to be computed without setting off of the profit of the eligible units against the losses of the undertakings ineligible for such deduction, the DRP directed the A.O to allow the assessee‟s claim for deductions u/ss. 10A and 10B without adjusting the losses of the ineligible undertaking. The A.O on receipt of the order passed by the DRP u/s 144C(5) (of Income Tax Act, 1961), dated 21.01.2015, therein passed the final assessment order u/s 143(3) (of Income Tax Act, 1961) r.w.s 144C(13) (of Income Tax Act, 1961), dated 27.02.2015 and assessed the current year loss of the assessee company at (-) Rs. 1,16,64,867/-.

4. After the culmination of assessment proceedings the CIT called for the assessment records of the assessee. On a perusal of the records, it was observed by the CIT that the assessee company in its return of income had claimed deductions u/s 10A (of Income Tax Act, 1961) of Rs.1,51,41,483/- and u/s 10B (of Income Tax Act, 1961) of Rs. 46,24,77,668/-. It was noticed by the CIT that though the A.O in the backdrop of the overall loss suffered by the assessee during the year had disallowed its claim for deductions u/ss. 10A and 10B of the Act, in his draft assessment order, but thereafter, as per the directions of the DRP the said deductions were allowed without adjusting the losses of the ineligible undertaking. To sum up, it was observed by the CIT that pursuant to the directions of the DRP, the deductions u/s 10A (of Income Tax Act, 1961) and 10B (of Income Tax Act, 1961) were allowed qua the eligible undertakings of the assessee. On a scrutiny of the working of deduction u/s 10A (of Income Tax Act, 1961), it was noticed by the CIT that the assessee company had added an amount of Rs. 6,01,40,750/- towards deemed mark-up of 10% of the sales bill revenue of its transactions with the related overseas parties. In the backdrop of the aforesaid fact, the CIT held a conviction that the addition on account of deemed mark up was made by the assessee in order to bring the international transactions within arm‟s length price. Observing, that as per the „proviso‟ to Sec. 92C(4) (of Income Tax Act, 1961), the aforesaid addition made mby the assessee would not qualify for deduction u/s 10A (of Income Tax Act, 1961)., the CIT was of the view that inclusion of the deemed mark up for computing the deduction u/s 10A (of Income Tax Act, 1961) was irregular ab initio. On the basis of his aforesaid observation, the CIT recomputed the deduction admissible u/s 10B (of Income Tax Act, 1961) i.e after exclusion of the deemed income, and observed that after excluding the amount of deemed mark up there was a loss of (Rs. 4,34,17,343/-) in the hands of the eligible unit. Resultantly, the CIT concluded that the A.O while framing the assessment had vide his order passed u/s. u/s 143(3) (of Income Tax Act, 1961) r.w.s 144C(13) (of Income Tax Act, 1961), dated 27.02.2015 wrongly allowed the deduction u/s 10A (of Income Tax Act, 1961) of Rs. 15,14,1483/-, as claimed by the assessee. On a similar footing, it was observed by the CIT that the assessee company had added an amount of Rs. 35,61,05,259/- towards deemed mark up of 10% of the transactions with the related overseas parties. In the backdrop of the aforesaid fact, the CIT held a conviction that the addition on account of deemed mark up was made by the assessee in order to bring the international transactions within arm‟s length price. Observing, that as per „provisio‟ to Sec.92C(4) (of Income Tax Act, 1961), the aforesaid addition made by the assessee would not qualify for deduction u/s 10B (of Income Tax Act, 1961), the CIT was of the view that inclusion of the said deemed mark up for computing the deduction u/s 10B (of Income Tax Act, 1961) was irregular ab initio. On the basis of his aforesaid observation the CIT recomputed the deduction admissible u/s 10B (of Income Tax Act, 1961) i.e after exclusion of the deemed income at Rs. 14,07,44,02/-. It was thus noticed by the CIT, that the A.O while framing the assessment had vide his order passed u/s 143(3) (of Income Tax Act, 1961) r.w.s 144C(13) (of Income Tax Act, 1961), dated 27.02.2015 allowed an excess deduction u/s 10B (of Income Tax Act, 1961) of Rs. 32,17,33,266/- [Rs.46,24,77,668/- (deduction u/s 10B (of Income Tax Act, 1961) allowed by the A.O) {minus} Rs. 14,07,44,402/- (deduction u/s 10B (of Income Tax Act, 1961) which as per the CIT was allowable to the assessee)].

5. In the backdrop of his aforesaid observations, the CIT holding a prima facie view that the order passed by the A.O was erroneous in so far it was prejudicial to the interest of the revenue issued a „Show cause‟ notice (for short „SCN‟) to the assessee u/s 263 (of Income Tax Act, 1961),therein calling upon it to explain as to why the assessment order passed by the A.O u/s 143(3) (of Income Tax Act, 1961) r.w.s 144C(13) (of Income Tax Act, 1961), dated 27.02.2015 may not be revised for withdrawing the excess deductions u/s 10A (of Income Tax Act, 1961) of Rs. 15,14,1483/- and u/s 10B (of Income Tax Act, 1961) of Rs. 32,17,33,266/- that was wrongly allowed by the A.O. In reply, the assessee objected to the assumption of jurisdiction by the CIT u/s 263 (of Income Tax Act, 1961). As is discernible from the records, the assessee had objected to the proposed withdrawal of the deductions which were allowed by the A.O u/ss. 10A and 10B of the Act, on multiple grounds viz. (i). that as the issue as regards the proposed denial of deductions u/ss. 10A and 10B by the A.O, vide his draft assessment order u/s 143(3) (of Income Tax Act, 1961) r.w.s 144C(1) (of Income Tax Act, 1961), dated 28.03.2013, was a subject matter of objection before the DRP,therefore, the same thereafter could not be a subject matter of proceedings u/s 263 (of Income Tax Act, 1961); (ii). that the twin conditions required for invoking revisional jurisdiction u/s 263 (of Income Tax Act, 1961) viz. (a).the order of the A.O sought to be revised is erroneous; and (ii). it is prejudicial to the interest of the revenue, had not been satisfied; (iii). that the A.O after making necessary enquiries as regards the entitlement of the assessee towards claim of deductions u/ss. 10A and 10B of the Act, had only after being satisfied allowed the same; (iv). that the CIT was misconstruing the „proviso‟ to Sec. 92C(4) (of Income Tax Act, 1961), as the same would come into play and divest an assessee of the tax-holiday benefit where “the addition is made by the A.O pursuant to an adjustment referred by the TPO”; and (v). that the allowing of the assessee‟s claim for deductions u/ss. 10A and 10B was supported by the judgment of the Hon‟ble High Court of Karnataka in the case of CIT Vs. I-Gate Global Solutions Ltd. (ITA No. 452/2008), dated 17.06.2014, and the orders of the Tribunal viz. Sumtotal Systems India Pvt. Ltd. Vs. DCIT (ITA No. 255/Hyd/20015); dated 23.09.2016 and Austin Medical Solutions Pvt. Ltd. Vs. ITO [IT(TP) A. No. 542/Bang/2012), dated 17.07.2016. However, the CIT did not find favor with the submissions of the assessee and directed the A.O to withdraw the aforesaid deductions in light of the observations recorded in the order passed u/s 263 (of Income Tax Act, 1961).

6. Aggrieved, the assessee has challenged the order passed by the CIT in appeal before us. The ld. Authorised Representative (for short “A.R”) for the assessee at the very outset of hearing of the appeal submitted that the CIT had wrongly assumed jurisdiction and revised the order u/s 263 (of Income Tax Act, 1961). It was submitted by the ld. A.R that the CIT had misconceived the scope and gamut of the „proviso‟ to Sec. 92C(4) (of Income Tax Act, 1961). It was submitted by him that the „proviso‟ to sub-section (4) contemplated denial of the tax-holiday benefit only in a situation where the addition was made by the A.O pursuant to an adjustment made by the TPO. Accordingly, it was submitted by the ld. A.R that the „proviso‟ to sub-section (4) of Sec. 92C(4) (of Income Tax Act, 1961) did not contemplate withdrawal of a tax-holiday benefit where a suo motto adjustment was made by an assessee in its return of income. It was submitted by the ld. A.R, that in order to fortify his aforesaid claim though the assessee in its reply dated 16.12.2016 to the „SCN‟ issued by the CIT, had at Para 2.20 specifically relied upon the judgment of the Hon‟ble High Court of Karnataka in the case of CIT Vs. I-Gate Global Solutions Ltd. (ITA No. 452/2008), dated 17.06.2015 and the orders of the Tribunals viz. Sumtotal Systems India Pvt. Ltd. Vs. DCIT (ITA No. 255/Hyd/20015); dated 23.09.2016 AND Austin Medical Solutions Pvt. Ltd. Vs. ITO [IT(TP) A. No. 542/Bang/2012), dated 17.07.2016, however, no reference to the said judicial pronouncements was made by the revisional authority in his order passed u/s 263 (of Income Tax Act, 1961). It was vehemently submitted by the ld. A.R, that as the implicit view taken by the A.O as regards the entitlement of the assessee towards claim of tax-holiday on suo motto adjustment made by the assessee in its return of income was supported by the judgment of the Hon‟ble High Court of Karnataka in the case of CIT Vs. I-Gate Global Solutions Ltd. (ITA No. 452/2008), dated 17.06.2015,therefore, the same could not be categorized as a mistaken view of law, which would have justified invoking of the revisional jurisdiction by the CIT u/s 263 (of Income Tax Act, 1961). The ld. A.R submitted that the view taken by the A.O was also found to be in conformity with certain orders of the Tribunal viz. ITAT, Hyderabad in Sumtotal Systems India Pvt. Ltd. Vs. DCIT (ITA No. 255/Hyd/20015); dated 23.09.2016 and ITAT, Bangalore in Austin Medical Solutions Pvt. Ltd. Vs. ITO [IT(TP) A. No. 542/Bang/2012), dated 17.07.2016. Apart from that, it was submitted by the ld. A.R that the view adopted by the CIT blatantly militated against the literal interpretation of Sec. 92C(4) (of Income Tax Act, 1961). It was further submitted by the ld. A.R that a similar order u/s 263 (of Income Tax Act, 1961) passed by the CIT on identical facts in the assessee‟s own case for A.Y 2010-11 in ITA No. 4911/Mum/2018 for A.Y 2010-11 had been set aside by the Tribunal, vide its recent order dated 15.01.2020. Accordingly, it was submitted by the ld. A.R that the matter was squarely covered by the aforesaid order passed by the Tribunal in the assessee‟s own case.

7. Per contra, the ld. Departmental representative (for short „D.R‟) relied on the order passed by the CIT u/s 263 (of Income Tax Act, 1961). Further, drawing support from the orders of the Tribunal in the case of viz. (i). Agiligys I.T Services India Pvt. Ltd.; and (ii). Deloitte Consulting India Pvt. Ltd vs. ITO [ITA No. 157/Mum/2012) ,as had been relied upon by the CIT in his order passed u/s 263 (of Income Tax Act, 1961), it was submitted by the ld. D.R that the „proviso‟ to sub-section (4) of Sec. 92C (of Income Tax Act, 1961) was clearly triggered in the backdrop of the fact pattern of the case under consideration.

8. We have heard the authorized representatives for both the parties, perused the orders of the lower authorities and the material available on record, as well as the judicial pronouncements relied upon by them. The limited issue involved in the present appeal is as to whether the CIT in exercise of his revisional jurisdiction u/s 263 (of Income Tax Act, 1961) was justified in law and the facts of the case in withdrawing the assessee‟s claim of deductions u/ss. 10A and 10B of the Act, to the extent the same were relatable to the suo motto addition of deemed mark- up made by the assessee in its return of income. As observed by us here in above, the CIT holding a conviction that as per the „proviso‟ to Sec. 92C(4) (of Income Tax Act, 1961), the suo motto addition made by the assessee towards deemed mark-up having regard to the ALP of the international transactions would not qualify for deductions u/ss. 10A and 10B of the Act, had thus, vide his order passed u/s 263 (of Income Tax Act, 1961) directed the A.O to withdraw the said deductions on such deemed income. In fact, the CIT backed by his aforesaid conviction had even quantified the amount of such excess deductions u/ss. 10A and 10B of the Act, which as per him was erroneously allowed by the A.O while framing the assessment vide his order passed u/s 143(3) (of Income Tax Act, 1961) r.w.s 144C(13) (of Income Tax Act, 1961), dated 27.02.2015. We have given a thoughtful consideration to the issue before us and are unable to persuade ourselves to subscribe to the view taken by the CIT. On a perusal of the records, we find that the assessee in the course of the revisional proceedings had emphasized before the CIT that its claim for deductions u/ss. 10A and 10B was rightly allowed by the A.O vide his order passed u/s 143(3) (of Income Tax Act, 1961) r.w.s 144C(13) (of Income Tax Act, 1961), dated 27.02.2015. In order to buttress its said claim, the assessee in its reply dated 16.12.2016 to the „SCN‟, dated 09.11.2016 issued by the CIT, had at Para 2.20 specifically relied upon the judgment of the Hon’ble High Court of Karnataka in the case of CIT Vs. I-Gate Global Solutions Ltd. (ITA No. 452/2008), dated 17.06.2015 and the orders of the Tribunals viz. Sumtotal Systems India Pvt. Ltd. Vs. DCIT (ITA No. 255/Hyd/20015); dated 23.09.2016 AND Austin Medical Solutions Pvt. Ltd. Vs. ITO [IT(TP) A. No. 542/Bang/2012), dated 17.07.2016. In fact, we find that even the copies of the judgment of the High Court and the orders of the Tribunal formed part of the aforesaid reply of the assessee, as Annexure 19 to 21. However, very strangely, we find that no reference to the said judicial pronouncements/ orders was made by the revisional authority in his order passed u/s 263 (of Income Tax Act, 1961). Be that as it may, we find that the implicit view taken by the A.O as regards the entitlement of the assessee towards claim of deduction u/ss. 10A and 10B on the suo motto addition made by the assessee towards deemed mark-up, is squarely covered by the judgment of the Hon’ble High Court of Karnataka in the case of CIT Vs. I-Gate Global Solutions Ltd. (ITA No. 452/2008), dated 17.06.2014. In the said case, it was observed by the Hon‟ble High Court that the A.O was in error in relying on Sec. 92C(4) (of Income Tax Act, 1961) to a case where the Arm‟s Length Price was determined by the assessee, whereas the said provision applied to a case where the Arm‟s Length Price was determined by the A.O. It was observed by the High Court, as under:

“6 In so far as substantial question of law No. 4 is concerned, the error committed by the Assessing Officer was relying on Section 92C(4) (of Income Tax Act, 1961) to a case where Arm‟s Length Price was determined by the assessee, whereas the said provision applies to a case where Arm‟s Length Price was determined by the Assessing authority, that mistake has been corrected by the tribunal, set aside the order passed by the Commissioner as well as the assessing authority.”

As such, the Hon‟ble High Court vide its aforesaid order had concluded that the „proviso‟ of Sec. 92C(4) (of Income Tax Act, 1961) would though be applicable in a case where the ALP was determined by the A.O, but the same cannot be extended to determination of the same by the assessee. Apart from that, we find that a similar view had been taken by the ITAT, Hyderabad “B” Bench in Sumtotal Systems India (P) Ltd. Vs. DCIT (2017) 186 TTJ 14 (Hyd) and ITAT, Bangalore in the case of Austin Medical Solutions Pvt. Ltd. Vs. ITO [IT(TP) A. No. 542/Bang/2012), dated 17.07.2016. Also, a similar view had been adopted by the ITAT Pune “B’ Bench, in the case of Approva Systems Pvt. Ltd. Vs. DCIT [ITA No.1051/Pun/2015, dated 12.03.2018]. In the backdrop of the aforesaid facts, we are unable to comprehend as to how the view of the A.O as regards allowing of the assessee‟s claim for deductions u/ss. 10A and 10B of the Act, which as observed by us hereinabove is found to be in conformity with the view taken by the Hon‟ble High Court of Karnataka in the case of CIT Vs. I-Gate Global Solutions Ltd. (ITA No. 452/2008), dated 17.06.2014, could be held to be erroneous. In fact, we find that the aforesaid order of the High Court of Karnataka in the case of I-Gate Global Solutions Ltd. (supra), dated 17.06.2014, was available on the date when the assessment was framed by the A.O, vide his order passed u/s 143(3) (of Income Tax Act, 1961) r.w.s 144C(13) (of Income Tax Act, 1961), dated 27.02.2015. At this stage, we may also observe that no judgment of any High Court taking a contrary view has been brought to our notice by the ld. D.R. Be that as it may, we hold strong conviction that as the implicit view of the A.O while allowing the assessee‟s claim for deduction u/ss. 10A and 10B of the Act, cannot be held to be “erroneous”, therefore, the CIT was divested of exercising his revisional jurisdiction u/s 263 (of Income Tax Act, 1961). Apart from that, we find that an order passed by the CIT under Sec. 263 (of Income Tax Act, 1961), on identical facts, in the assessee‟s own case for the immediately succeeding year i.e A.Y 2010-11 had been „set aside‟ by the Tribunal, vide its order passed in Shell India Markets Pvt. Ltd. vs. CIT, LTU, Mumbai [ITA No. 4911/Mum/2018, dated 15.01.2020]. In its said order, it was inter alia observed by the Tribunal that in the backdrop of the order of the Hon‟ble High Court of Karnataka in the case of CIT Vs. I-Gate Global Solutions Ltd. (ITA No. 452/2008), dated 17.06.2014, the view taken by the A.O which is found to be in conformity with the same, could not have been held to be erroneous by the CIT. On the basis of our aforesaid observations, we are of the considered view that the CIT in the totality of the facts of the case had grossly erred in assuming jurisdiction u/s 263 (of Income Tax Act, 1961), for dislodging the view taken by the A.O as regards the entitlement of the assessee towards deductions u/ss. 10A and 10B of the Act.

9. Resultantly, the order passed by the CIT u/s 263 (of Income Tax Act, 1961) is „set aside‟ and that passed by the A.O u/s 143(3) (of Income Tax Act, 1961) r.w.s 144C(13) (of Income Tax Act, 1961), dated 27.02.2015 to the extent relatable to the issue under consideration is restored.

10. The appeal filed by the assessee is allowed.

ITA No. 2299/MUM/2018 A.Y 2011-12

11. We shall now advert to the appeal of the for A.Y 2011-12, wherein the impugned order has been assailed before us on the following grounds:

“1. General

1.1 On the facts and in the circumstances of the case and in law, the learned CIT has legally erred in assuming jurisdiction under Section 263 (of Income Tax Act, 1961).

The learned CIT has failed to appreciate that the assessment order under Section 143(3) (of Income Tax Act, 1961) r.w.s 144C(13) (of Income Tax Act, 1961) passed by the Assessing Officer ('AO') was neither erroneous nor prejudicial to the interest of the revenue.

The learned CIT further failed to appreciate that the assessment order passed by the AO was pursuant to the directions of the Dispute Resolution Panel-2, Mumbai and hence, was with valid jurisdiction.

1.2 On the facts and At the circumstances of the case and in law, the learned CIT has legally erred in setting aside the assessment order passed by the AO and directing him to withdraw the deduction claimed by the Appellant under Section 10B (of Income Tax Act, 1961) on suo-moto Transfer Pricing adjustments.

The learned CIT failed to appreciate that the issue involved is debatable or has been examined by the AO.

2. without prejudice to the above, on the facts and circumstances of the case the CIT erred in not allowing deduction under Section 10B (of Income Tax Act, 1961) on suo-moto Transfer Pricing (‘TP’) Adjustments.

3. On the facts and in the circumstances of the case and in law, the learned CIT has legally erred in not dealing with the decision of CIT Vs. I-Gate Global Solutions Ltd. (ITA No. 453/2008) dated 17 June 2014 decided by the Hon`ble Karnataka high Court in favour of the Appellant.

The learned CIT has tailed to appreciate that the decision of 1-Gate (supra) has not been litigated further by the Income-tax department.

On the facts and M the circumstances of the case and in law, the learned CIT has legally erred in denying the Appellant due deduction of Rs. 39,73,71,366/-, claimed under section 10B (of Income Tax Act, 1961).

4. Initiation of penalty proceedings and section 271(1)(c) (of Income Tax Act, 1961).

4.1 On the facts and in the circumstances of the case and in lass, the teamed CIT has legally erred in direction the AO to initiate penalty proceedings under Section 271(1)(c) (of Income Tax Act, 1961) for furnishing inaccurate particulars of income.

The learned CIT has failed to appreciate the fact that the position adopted by the Appellant is in fullest conformity with the decision of CIT v. I-Gate Global Solutions Ltd. (supra).

The learned CIT has further failed to appreciate the fact that the Appellant has not furnished inaccurate particulars of income in its Return of Income. The Appellant craves leaves to add, alter, amend or vary from the above grounds of appeal at or before the time of hearing.”

12. Briefly stated, the assessee company had e-filed its return of income for A.Y 2011-12 on 29.11.2011, declaring a total loss of Rs. 105,77,29,782/- In the return of income the assessee had claimed deduction u/s 10B (of Income Tax Act, 1961) of 145,90,88,649/-. The return of income filed by the assessee was processed as such u/s 143(1) (of Income Tax Act, 1961). Thereafter, the case of the assessee was selected for scrutiny assessment u/s 143(2) (of Income Tax Act, 1961). As the assessee had during the year entered into international transactions with its Associate Enterprises (AEs),therefore a reference u/s 92C(1) (of Income Tax Act, 1961) was made to the JCIT(Transfer Pricing)-4(1), Mumbai (hereinafter referred to as “TPO”), for determining the arm‟s length price (“ALP”) of such transactions. The TPO passed an order u/s 92CA(3) (of Income Tax Act, 1961), dated 30.01.2015, wherein he proposed a Transfer Pricing adjustment of Rs. 231,97,25,209/-. After receiving the order passed by the TPO u/s 92CA(3) (of Income Tax Act, 1961), dated 30.01.2013, the A.O passed a draft assessment order u/s 143(3) (of Income Tax Act, 1961) r.w.s 144C(1) (of Income Tax Act, 1961), dated 02.03.2015, wherein he proposed an addition of Rs. 288,51,96,019/-. Since the assessee company during the year had suffered an overall loss, therefore, the A.O in the draft assessment order inter alia proposed to disallow the assessee‟s claim for deduction u/s 10B (of Income Tax Act, 1961). Aggrieved, the assessee filed objections with the Dispute Resolution Panel-2, Mumbai.

13. The DRP vide its directions u/s 144C(5) (of Income Tax Act, 1961), dated 29.12.2015 disposed off the objections of the assessee. Observing, that the Hon‟ble High Court of Bombay in the case of CIT Vs. Schmetz India (P) Ltd. (2012) 254 CTR 504 (Bom), had held, that where an ineligible unit suffers a loss and an eligible unit enjoys profit, the deduction u/s 10A (of Income Tax Act, 1961) was to be computed without setting off of the profit of the eligible units against the losses of the undertakings ineligible for such deduction, the DRP directed the A.O to allow the assessee‟s claim for deduction u/ss. 10A and 10B without adjusting the losses of the ineligible undertaking. The A.O on receipt of the order passed by the DRP u/s 144C(5) (of Income Tax Act, 1961), dated 29.12.2015, therein passed the final assessment order u/s 143(3) (of Income Tax Act, 1961) r.w.s 144C(13) (of Income Tax Act, 1961), dated 26.02.2016 and assessed the current year loss of the assessee company at Rs. Nil under the normal provisions and at Rs. (-) 347,33,52,508/- u/s 115JB (of Income Tax Act, 1961).

14. After the culmination of assessment proceedings the CIT called for the assessment records of the assessee. On a perusal of the records, it was observed by the CIT that the assessee company in its return of income had claimed deduction u/s 10B (of Income Tax Act, 1961) of Rs.145,90,88,649/-. It was noticed by the CIT that though the A.O in the backdrop of the overall loss suffered by the assessee during the year had in the draft assessment order disallowed its claim for deduction u/s. 10B (of Income Tax Act, 1961), but thereafter, as per the directions of the DRP the said deduction was allowed without adjusting the losses of the ineligible undertaking. To sum up, it was observed by the CIT that pursuant to the directions of the DRP the deduction u/s 10B (of Income Tax Act, 1961) was allowed by the A.O qua the eligible undertaking of the assessee. On a scrutiny of the working of deduction u/s 10B (of Income Tax Act, 1961), it was observed by the CIT that the assessee company had added a deemed mark up of Rs. 51,58,46,895/- in respect of transactions with the related overseas parties. In the backdrop of the aforesaid fact, the CIT held a conviction that the addition on account of deemed mark up was made by the assessee in order to bring the international transactions within arm‟s length price. Observing, that as per the „proviso‟ to Sec. 92C(4) (of Income Tax Act, 1961), the aforesaid addition made by the assessee would not qualify for deduction u/s 10B (of Income Tax Act, 1961)., the CIT was of the view that inclusion of the aforesaid deemed mark up for computing the deduction u/s 10B (of Income Tax Act, 1961) was irregular ab initio. On the basis of his aforesaid observation the CIT recomputed the deduction admissible u/s 10B (of Income Tax Act, 1961) i.e after exclusion of the deemed income at Rs. 106,17,17,283/-. It was thus noticed by the CIT, that the A.O while framing the assessment had vide his order passed u/s 143(3) (of Income Tax Act, 1961) r.w.s 144C(13) (of Income Tax Act, 1961), dated 26.02.2016 allowed an excess deduction u/s 10B (of Income Tax Act, 1961) of Rs. 39,73,71,366/-[Rs. 145,90,88,649/- (deduction u/s 10B (of Income Tax Act, 1961) allowed by the A.O) {minus} Rs. 106,17,17,283/- (deduction u/s 10B (of Income Tax Act, 1961) which as per the CIT was allowable to the assessee)].

15. In the backdrop of his aforesaid observations, the CIT holding a prima facie view that the order passed by the A.O was erroneous in so far it was prejudicial to the interest of therevenue, issued a „Show cause‟ notice (for short „SCN‟) to the assessee u/s 263 (of Income Tax Act, 1961),wherein it was called upon to explain as to why the assessment order passed by the A.O u/s 143(3) (of Income Tax Act, 1961) r.w.s 144C(13) (of Income Tax Act, 1961), dated 26.02.2016 may not be revised for withdrawing the excess deduction u/s 10B (of Income Tax Act, 1961) of Rs. 39,73,71,366/- that was wrongly allowed by the A.O. In reply, the assessee objected to the proposed withdrawal of deduction u/s 10B (of Income Tax Act, 1961) which was allowed by the A.O u/s. 10B (of Income Tax Act, 1961), on multiple grounds viz. (i). that as the issue as regards the proposed denial of deduction u/s 10B (of Income Tax Act, 1961) by the A.O, vide his draft assessment order u/s 143(3) (of Income Tax Act, 1961) r.w.s 144C(1) (of Income Tax Act, 1961), dated 02.03.2015 had been a subject matter of objection before the DRP, therefore, the same thereafter could not be a subject matter of proceedings u/s 263 (of Income Tax Act, 1961); (ii). that the twin conditions required for invoking revisional jurisdiction u/s 263 (of Income Tax Act, 1961) viz. (a). the order of the A.O sought to be revised is erroneous; and (ii). it is prejudicial to the interest of the revenue, had not been satisfied; (iii). that the A.O after making necessary enquiries as regards the entitlement of the assessee towards claim of deduction u/s. 10B (of Income Tax Act, 1961) had only after being satisfied allowed the same; (iv). that the CIT was misconstruing the „proviso‟ to Sec. 92C(4) (of Income Tax Act, 1961), as the same would come into play and divest the assessee of the tax-holiday benefit where “the addition is made by the A.O pursuance to an adjustment referred by the TPO” ; and (v). that the allowing of the assessee‟s claim for deduction u/s 10B (of Income Tax Act, 1961) was supported by the judgment of the Hon‟ble High Court of Karnataka in the case of CIT Vs. I-Gate Global Solutions Ltd. (ITA No. 452/2008), dated 17.06.2015, and the orders of the Tribunals viz. Sumtotal Systems India Pvt. Ltd. Vs. DCIT (ITA No. 255/Hyd/20015); dated 23.09.2016 and Austin Medical Solutions Pvt. Ltd. Vs. ITO [IT(TP) A. No. 542/Bang/2012), dated 17.07.2016. However, the CIT did not find favor with the claim of the assessee and directed the A.O to withdraw the deduction allowed u/s 10B (of Income Tax Act, 1961) in light of the observations recorded in his order passed u/s 263 (of Income Tax Act, 1961).

16. Aggrieved, the assessee has challenged the order passed by the CIT in appeal before us. It was submitted by the ld. Authorised Representatives for both the parties that the issue involved in the present appeal, in so far it pertained to the entitlement of the assessee towards claim of deduction u/s 10B (of Income Tax Act, 1961) was concerned, was identical to that involved in its appeal for A.Y 2009-10 in ITA No. 3817/Mum/2017. As the facts and the issue involved in the present appeal of the assessee for A.Y 2011-12 in ITA No. 2299/Mum/2018, remains the same, as was there before us in its appeal for A.Y 2009-10,therefore, our order passed while disposing off the appeal of the assessee for A.Y 2009-10 in ITA No. 3817/Mum/2017 shall apply mutatis mutandis for the purpose of disposal of the present appeal.

17. Accordingly, the order passed by the CIT u/s 263 (of Income Tax Act, 1961), dated 02.02.2018 is „set aside‟,and the assessment order passed by the A.O u/s 143(3) (of Income Tax Act, 1961) r.w.s 144C(13) (of Income Tax Act, 1961), dated 26.02.2016, to the extent relatable to the issue under consideration is restored.

18. Resultantly, the appeals of the assessee i.e ITA No. 3817/Mum/2012 for A.Y 2009-10 and ITA No. 2299/Mum/2018 for A.Y 2011-12 are allowed in terms of our aforesaid observations.

Order pronounced under rule 34(4) (of Income Tax Rules, 1962) of the Income Tax (Appellate Tribunal) Rules, 1962, by placing the details on the notice board.

Sd/- Sd/-

(PRAMOD KUMAR) (RAVISH SOOD)

VICE PRESIDENT JUDICIAL MEMBER

Place : Mumbai

Date: 30.06.2020