Pr. CIT v. Persistent Systems Pvt. Ltd.

Case snapshot

Sections / provisions: 10A(7); 80-IA(10)

Questions before the Court / Tribunal

• Higher profit margin and section 80-IA(10) arrangement: The reported ruling considers whether an unusually high margin, without more, establishes an arrangement designed to inflate eligible profits. The focus is on evidence of the statutory arrangement rather than margin comparison alone.

Material facts and background

Talwalkar IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX APPEAL NO. 2924 OF 2018

Judgment and Order dated 12th July, 2017 passed by the Income Tax Appellate Tribunal, Pune Bench in Income Tax Appeal No. 1295/PUN/2015 for Assessment year 2010-11.

Departmental Counsel has reformulated the substantial question of law which is as follows : “A. Whether addition made u/s. 10A(7) r.w.s. 80IA (10) of the Income Tax Act, 1961 could have been deleted when the ordinary profits of the comparables furnished by Assessee in their transfer pricing report

however, submits that the same issue has already been dealt with by the Coordinate Bench of this Court in the cases of Commissioner of Income Tax-7 v/s. Schmetz India (P) Ltd. [(2012) 26 taxmann.com 336(Bom.) and Pragati Aroma Oil Distillers Private Ltd. v/s. Deputy Commissioner of Income Tax [(2026) 187 taxmann.com 31(Bombay)], wherein the question of law has been answered against the Revenue and in favour of the Assesses. 4.

substantial questions of law framed by the Court were as follows : “Whether on the facts and in the circumstances of the case and in law the Tribunal was justified (A) in coming to the conclusion that there was nothing on record to show that the profits arrived at by the assessee in respect of the 10A unit carrying on the business of manufacturing Industrial Sewing Machine Needless was not in the normal course of its business and that the abnormally high profit was due to extraordinary arrangement between the assessee and the German company entered into only with a view to boost the profits of assessee and therefore allowing deduction of Rs. 20,54,27,335/-? (B) in holding that the there was no material available with the A.O. to estimate the profits of the 10A unit eligible for deduction invoking the provisions of S.80 IA(10) read with S.10A(7) of the Act was based on

proper and reasonable appraisal of the material available on record? (C) in holding that the deduction under S. 10A of the Act has to be computed without setting off of the loss from the trading unit against the profits of the export oriented unit entitled to deduction under S. 10A of the Act.?” 5.

31(Bombay)] and the appeal was admitted on the following substantial question of law : “Whether in the facts and circumstances of the case and in law, the Appellate Tribunal was justified in comparing and adopting net profit margin of sister concern Pragati Aroma Oil Distillers Pvt. Ltd. (as existed during the relevant Assessment Year), even in the absence of any arrangement as contemplated in Section 10B (7) read with section 801A (10) of the Income Tax Act, 1961?" The said substantial questions of law have been answered by this Court against the Revenue and in favour of the Assessee. 6.

Appellant / assessee submissions

Heard Mr. Khanchandani, learned Counsel for the Appellant.

Khanchandani, learned Counsel for the Appellant has also, in all

Revenue / respondent submissions

The judgment copy does not separately set out this component in a distinct section; refer to the full order and the reasoning section below.

Court / Tribunal analysis and reasoning

substantial questions of law framed by the Court were as follows : “Whether on the facts and in the circumstances of the case and in law the Tribunal was justified (A) in coming to the conclusion that there was nothing on record to show that the profits arrived at by the assessee in respect of the 10A unit carrying on the business of manufacturing Industrial Sewing Machine Needless was not in the normal course of its business and that the abnormally high profit was due to extraordinary arrangement between the assessee and the German company entered into only with a view to boost the profits of assessee and therefore allowing deduction of Rs. 20,54,27,335/-? (B) in holding that the there was no material available with the A.O. to estimate the profits of the 10A unit eligible for deduction invoking the provisions of S.80 IA(10) read with S.10A(7) of the Act was based on

the case of Pragati Aroma Oil Distillers Private Ltd.(supra), more particularly, the observations in paragraph Nos. 24 and 25 of the said decision, we find ourselves in agreement with the submission of

which arises for consideration of this Court in the present Appeal. The Appeal therefore, stands dismissed by affirming the Judgment and Order dated 12th July, 2017 passed by the learned Income Tax Appellate Tribunal, Pune Bench.

Operative decision and relief

the case of Pragati Aroma Oil Distillers Private Ltd.(supra), more particularly, the observations in paragraph Nos. 24 and 25 of the said decision, we find ourselves in agreement with the submission of

fairness, submitted that the issue is covered under the decision of this Court in Pragati Aroma Oil Distillers Private Ltd.(supra). 7.

which arises for consideration of this Court in the present Appeal. The Appeal therefore, stands dismissed by affirming the Judgment and Order dated 12th July, 2017 passed by the learned Income Tax Appellate Tribunal, Pune Bench.

Authorities and precedents appearing in the judgment

• No reliable precedent list was extracted automatically; use the full judgment for the citation chain.

This list is machine-assisted from the judgment text and is not a substitute for checking the full citation chain in the PDF.

Ratio and legal principle

The decision turns on Higher profit margin and section 80-IA(10) arrangement. The operative result is classified as Dismissed. Read the rule only with the statutory version, factual findings and precedent chain recorded in the full judgment.

Why this judgment matters

The case is relevant to taxpayers, advisers and litigators dealing with Higher profit margin and section 80-IA(10) arrangement. Its practical value lies in the interaction between the statutory text, the evidentiary record and the procedural route followed in this case.

Practitioner action points

• Use the judgment as a fact-specific precedent: match the statutory version, assessment period, procedural stage and evidentiary record before relying on the result.
• Check whether a later High Court/Supreme Court order has affirmed, reversed, distinguished or rendered the decision academic.
• For litigation, attach the full judgment/order to the working paper and cite the paragraph/page supporting the proposition rather than relying on a headnote alone.

Full judgment and source trail

Read / download the clean local judgment copy

Related Finin2min guidance