DCIT CIR 2(3)(1), MUMBAI V. CANVAS M TECHNOLOGIES LTD, MUMBAI

MA 4/MUM/2024

AI Insights

The case involves a Miscellaneous Application (MA No.04/MUM/2024) filed by the Revenue seeking rectification of an earlier Tribunal order (dated 10/05/2023) which had favored the assessee, M/s. Canvas M. Technologies Ltd. (now Tech Mahindra Ltd.), by deleting a Transfer Pricing Adjustment for the Assessment Year 2011-2012. The Revenue contended that the Tribunal had been inconsistent in its approach compared to a previous year (Assessment Year 2008-2009), where the issue was restored back to the Assessing Officer. However, the Tribunal found that the facts and circumstances of the two cases were different, and thus the previous decision did not apply. The Tribunal confirmed the application of TNMM by the CIT(A) and dismissed the Revenue's application for rectification.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 474101 (ITAT-MUMBAI)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 19-03-2025
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: K
• Assessment Year: 2011-2012
• Other Referred Cases: Commissioner of Income-Tax (IT-4), Mumbai Vs. Reliance Telecom Limited
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: ASSESSEE
• Keywords: Set aside; Transfer pricing; Bad and doubtful debts; Rectification of order
• Section: 254(2); 260A

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL \"K\" BENCH, MUMBAI SHRI AMARJIT SINGH, ACCOUNTANT MEMBER SHRI RAHUL CHAUDHARY, JUDICIAL MEMBER MA No.04/MUM/2024 (Arising out of ITA No.7163/Mum/2016) (Assessment Year:2011-2012) Deputy Commissioner of Income Tax 2(3)(1), Mumbai Room No.552, Aayakar Bhavan, M. K. Road, Mumbai – 400020. ……………. Appellant Vs M/s. Canvas M. Technologies Ltd. (Now Known as M/s. Tech Mahindra Ltd.) Gateway Building, Apollo Bunder, Mumbai - 400001 [PAN:AACCC8665N] ……………. Respondent Appearance For the Appellant/ Department For the Respondent/Assessee : : Ms. Priyanka Jain Shri Kiran Unavekar Date Conclusion of hearing Pronouncement of order : : 03.01.2025 19.03.2025 O R D E R Per Rahul Chaudhary, Judicial Member: 1. The present Miscellaneous Application has been preferred by the Revenue for rectification of order, dated 10/05/2023, passed by the Tribunal in ITA No.7163/Mum/2016, pertaining to the Assessment Year 2011-2012. 2. We have heard both the sides and have perused the material on record. MA No.04/Mum/2024 (Arising out of ITA No.7163/Mum/2016) Assessment Year 2011-2012 2 3. During the course of hearing the Learned Departmental Representative had placed reliance upon Paragraph No.2.6 and 2.7 of the Miscellaneous Application which read as under: 2.6 Being aggrieved by the order dated 23.08.20216, the appellant/revenue herein has preferred an appeal before Hon'ble ITAT vide their Memo of Appeal ITA No. 7163/Mum/2016. The Hon'ble ITAT upheld the order passed by the CIT(Appeal) and have dismissed the appeal preferred by the appellant/revenue, vide its order dated 10.05.2021 mentioning that the Ld. TPO has applied Comparable Uncontrolled Price Method Whereas party would have paid such sum to its AE whereas the Ld. CIT(A) held transactional Net Margin Method as most appropriated Method. The CIT(A) has deviated from the order of the earlier year and rejected the argument that margin earned by the assessee are comparable with AE vis-à-vis non AE transaction on internal comparability under TNMM Method, he has categorically held that those are not comparable for this year for the simple reason that there are substantial bad debts and losses. This fact is not controverted or challenged by the assessee. However, the Transactional Net Margin Method was held to be most appropriate method by the Ld. CIT(A). Therefore, the only option left is testing the margin of the assessee adopting the TNMM and ignoring internal TNMM. The copy of order dated 10.05.2023 passed by ITAT (Appeal) is annexed herewith as Exhibit D. 2.7. The decision of the Hon'ble ITAT is not acceptable considering the fact that the Hon’ble ITAT erred in accepting the Transactional Net Margin Method (TNMM) applied by the Ld CIT(A) when the same matter for A Y 2009-10 was set aside to the Ld. CIT(A) because the La, CIT(A) did not give chance to TPO before changing the method for benchmarking and hence, the Hon'ble ITAT is not consistent in its approach. 3. In view of above ground, it is requested that the order dated 10.05.2023 in ITA No. 7163/MUM/2016 may kindly be rectified considering the above ground since that is a mistake of fact which is apparent from record.” 4. On perusal of above, we find that the primary grievance of the Revenue is that the Tribunal was not consistent in its approach while disposing appeal for the Assessment Year 2011-2012. While disposing off appeal for the Assessment Year 2008-2009 vide order MA No.04/Mum/2024 (Arising out of ITA No.7163/Mum/2016) Assessment Year 2011-2012 3 dated 23/04/2019, the Tribunal had restored the issue relating to Transfer Pricing Adjustments back to the file of Assessing Officer, whereas while disposing off the appeal for the Assessment Year 2011-2012 (by way of the order sought to be rectified), the Tribunal had deleted the Transfer Pricing Adjustment. 5. On perusal of the order, dated 10/05/2023, sought to be rectified by way of present application, we find that after taking into consideration the submission of both the sides, the Tribunal had decided the issue in favour of the Assessee holding as under: “012. For A.Y. 2008-09, the co-ordinate Bench has categorically held that the cost incurred by the Associated Enterprises is salaries, travel cost and office rent expenditure for that year, the learned CIT (A) also called for the remand report. Thereafter, co-ordinate bench vide order dated 23rd April, 2019, upheld the order of the learned CIT (A) stating that learned Transfer Pricing Officer has not adopted any of the known methods and therefore, addition deserves to be deleted. In that case, learned CIT (A) examined the margins of the assessee and held that when the earnings of the assessee from the Associated and non Associated Enterprises are comparable, the addition deserves to be deleted. 13. However, the order of the learned CIT (A) before us is on different reasoning and rejected the earlier internal comparable in the Transactional Net Margin Method. In the present case, he upheld the external comparables in Transactional Net Margin Method. Further, when the learned Transfer Pricing Officer has held that benefit derived by the assessee is not demonstrated and therefore, the Arm's Length Price of the international transaction is nil, it is clear that learned Transfer Pricing Officer has applied Comparable Uncontrolled Price, whereas no third party would have paid such sum to its Associated Enterprises Thus, it is clear case of Comparable Uncontrolled Price applied by the learned Transfer Pricing Officer. Hence, it cannot be said that LD TPO did not apply any method. Therefore the order of the coordinate bench in AY 2008-09 is on different reasoning as in this case the ld CIT (A) himself has held that internal TNMM comparability is not proper. MA No.04/Mum/2024 (Arising out of ITA No.7163/Mum/2016) Assessment Year 2011-2012 4 014. As the learned CIT (A) in the present case has deviated from the orders of the earlier years and rejected the argument that margin earned by the assessee are comparable with Associated Enterprises vis-à-vis non- Associated Enterprises transactions on internal comparability under TNMM method, he has categorically held that those are not comparable for this year for the simple reason that there are substantial bad debts and losses. This fact is not controverted or challenged by the assessee. Specific reference is to paragraph no.4.8 of the order of the learned CIT(A). Therefore, those observations are final. 015. However, the Transactional Net Margin Method was held to be most appropriate method by the learned CIT (A) and there is no challenge to the same by the Revenue. Therefore, the only option left is testing the margin of the assessee adopting the Transactional Net Margin Method and ignoring internal Transactional Net Margin Method therefore, to only compare with the external comparable. We find that assessee has furnished a segmented transfer pricing study report where the margin of the assessee is 22% and the margins of comparable was found to be 13.57%. Therefore, the addition was deleted. In appeal of the Ld. AO ground no.1 is general in nature. Ground no.2 is stating that segmental profitability of the assessee was never furnished. However, we find that it was available with the learned Transfer Pricing Officer vide letter dated 9 December 2014, therefore, this ground deserves to be dismissed. Ground no.3 challenged the deletion of the addition. However, we find that there is no challenge to the most appropriate method, functional comparability of the comparables to the segmented profit of the assessee and substantially higher margin i.e. 22% against 13.57% is not disputed. Ld DR. could not show any infirmity in the order of the Id CIT (A) so as to say that The most appropriate method should not be TNMM and thereafter the comparables selected by assessee and also accepted by the ld CIT (A) are required to be excluded or the margins of comparable or assessee is incorrectly computed. Therefore, we confirm the order of the learned CIT (A) on this ground.” (Emphasis Supplied) 6. On perusal of the above extract of the decision of the Tribunal it becomes clear that the Tribunal had taken into consideration the decision of the Co-ordinate Bench of the Tribunal, dated 23/04/2019, passed in ITA No.5875/Mum/2012 & ITA No.5852/Mum/2012 MA No.04/Mum/2024 (Arising out of ITA No.7163/Mum/2016) Assessment Year 2011-2012 5 pertaining to Assessment Year 2008-2009. However, taking note of the difference in the applicable facts and the approach adopted by the CIT(A), the Tribunal proceeded to adjudicate the issue instead of setting aside the same to the file of the Assessing Officer/ Transfer Pricing Officer. Thus, the Tribunal had taken a considered view to delete the transfer pricing adjustment. In our view, the decision of the Tribunal does not suffer from any mistake apparent on record. The Hon’ble Supreme Court has, in the case of Commissioner of Income- Tax (IT-4), Mumbai Vs. Reliance Telecom Limited: [2021] 133 taxmann.com 41 (SC), held that in case assessee/revenue is of the opinion that the order passed by the Tribunal is erroneous, either on facts or in law, the only remedy available was to prefer the appeal under Section 260A of the Act. Accordingly, the relief as claimed by the Revenue cannot be granted in the present Miscellaneous Application preferred by the Revenue under Section 254(2) of the Act. 7. In result, the Miscellaneous Application preferred by the Revenue is dismissed. Order pronounced on 19.03.2025. Sd/- Sd/- (Amarjit Singh) Accountant Member (Rahul Chaudhary) Judicial Member म ुंबई Mumbai; दिन ुंक Dated : 19.03.2025 Milan, LDC MA No.04/Mum/2024 (Arising out of ITA No.7163/Mum/2016) Assessment Year 2011-2012 6 आदेश की प्रतितिति अग्रेतिि/Copy of the Order forwarded to : 1. अपील र्थी / The Appellant 2. प्रत्यर्थी / The Respondent. 3. आयकर आय क्त/ The CIT 4. प्रध न आयकर आय क्त / Pr.CIT 5. दिभ गीय प्रदिदनदध, आयकर अपीलीय अदधकरण, म ुंबई / DR, ITAT, Mumbai 6. ग र्ड फ ईल / Guard file. आिेश न स र/ BY ORDER, सत्य दपि प्रदि //True Copy// उप/सह यक पुंजीक र /(Dy./Asstt. Registrar) आयकर अपीलीय अदधकरण, म ुंबई / ITAT, Mumbai "