Aztecsoft Limited, Bangalore V. ACIT, Bangalore

ITA 1239/BANG/2011

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 0295 (ITAT-BANGALORE)
• Duration Of Justice: 4 year(s) 6 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-06-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 14-06-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 09-12-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: K R VASUDEVAN
• Keywords: Business income; Transfer pricing; Additional evidence

Judgement Text

IT(TP)A.1239/BANG/2011 PAGE - 1 IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH 'A', BANGALORE BEFORE SHRI. ABRAHAM P. GEORGE, ACCOUNTANT MEMBER AND SHRI. VIJAY PAL RAO, JUDICIAL MEMBER I.T(TP).A NO.1239/BANG/2011 (ASSESSMENT YEAR : 2007-08) M/S. MINDTREE LTD, (PREVIOUSLY KNOWN AS M/S. AZTEC SOFT LTD, NOW MERGED WITH M/S. MINDTREE LTD, GLOBAL VILLAGE, RVCE POST, MYSORE ROAD, BENGALURU 560 059 .. APPELLANT PAN : AABCA2122R V. ASST. COMMISSIONER OF INCOME-TAX (LTU), BENGALURU .. RESPONDENT ASSESSEE BY : SHRI. K. R. VASUDEVAN, ADVOCATE REVENUE BY : SHRI. SIBICHEN K. MATHEW, CIT - DR HEARD ON : 14.06.2016 PRONOUNCED ON : 24.06.2016 O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER : THIS IS AN APPEAL DIRECTED AGAINST ASSESSMENT ORDE R DT.29.09.2011 PASSED U/S.143(3) R.W.S.144C OF THE INCOME-TAX ACT, 1961 (THE ACT IN SHORT), PURSUANT TO DRP DIRECTIONS. IT(TP)A.1239/BANG/2011 PAGE - 2 02. ASSESSEE HAS ALTOGETHER RAISED TWELVE GROUNDS O F WHICH GROUNDS 1 TO 8 ARE ON TP ISSUES. LD. COUNSEL FOR THE ASSESSEE AT THE OUTSET SUBMITTED THAT HE HAD FILED A PETITION SEEKING ADMISSION OF ADDITIONA L EVIDENCE. LD. AR SUBMITTED THAT ASSESSEE BY MISTAKE IN ITS TP STUDY, HAD MADE A WRONG ALLOCATION OF THE REVENUE FROM SOFTWARE DEVELOPMENT SERVICES BETWEEN AE AND NON-AE. AS PER THE LD. AR, SERVICES PROVIDED BY TH E ASSESSEE FELL WITHIN THE SOFTWARE DEVELOPMENT SERVICES STREAM. REVENUES WER E INCORRECTLY BIFURCATED BETWEEN AE AND NON-AE, DUE TO A MISTAKE, AS PER THE LD. AR. FURTHER AS PER THE LD. AR, TPO WENT BY THE BIFURCATION DONE BY THE ASSESSEE AND PROCEEDED WITH THE TRANSFER PRICING ANALYSIS, RELYING ON THE FIGURES OF REVENUE STREAM WORKED OUT BY THE ASSESSEE. FINAL RECOMMENDATIONS MADE BY THE TPO WERE BASED ON THE REVENUES FROM SOFTWARE DEVELOPMENT SER VICES PROVIDED TO THE AES, AND SUCH REVENUES CONSIDERED BY THE TPO WERE B ASED ON ASSESSEES BIFURCATION, LEADING TO FUNDAMENTALLY WRONG RESULTS . AS PER THE LD. AR, CORRECT SEGMENTAL RESULTS HAVE BEEN NOW WORKED OUT BY HIM AND THEREFORE A RELOOK WAS NECESSARY ON THE ALP OF THE INTERNATIONA L TRANSACTIONS BASED ON SUCH CORRECT SEGMENTATION. LD. AR SUBMITTED THAT S UCH SEGMENTAL RESULTS WERE REFLECTED IN SCHEDULE 15 OF ITS FINAL AUDITED ACCOU NTS AND THE REVENUE FROM SOFTWARE DEVELOPMENT SEGMENT CAME TO ONLY RS.43,18, 18,000/-. HOWEVER AS PER THE LD. AR REVENUE TAKEN IN THE SOFTWARE DEVELO PMENT SEGMENT ORIGINALLY IT(TP)A.1239/BANG/2011 PAGE - 3 BY THE ASSESSEE IN ITS TP STUDY CAME TO RS.49,59,13 ,140/-. EXPENDITURE WAS DIVIDED BETWEEN THE SEGMENTS BASED ON THE TURNOVER IN THE ORIGINAL STUDY AS WELL, COMPOUNDING THE ERROR. SUCH EXPENDITURE ALLO CATION WOULD ALSO HAVE TO BE SET RIGHT SINCE THE REVENUE STREAM UNDERWENT A C HANGE IF CORRECT FIGURES ARE ADOPTED. 03. LD. DR ON THE OTHER HAND SUBMITTED THAT ASSESSE E OUGHT HAVE BROUGHT OUT THE ERROR WHICH IT WAS POINTING OUT NOW BEFORE THE LOWER AUTHORITIES. HOWEVER AS PER THE LD. DR IT WAS TRUE THAT IF THE REVENUE W AS INCORRECTLY BIFURCATED BETWEEN THE AE AND NON-AE, THE TP STUDY AND ANALYSI S WOULD GIVE ERRONEOUS RESULTS. 04. WE HAVE HEARD THE RIVAL CONTENTIONS. IN THE OR IGINAL TP STUDY MADE BY THE ASSESSEE, REVENUE STREAM WAS DIVIDED BETWEEN AE AND NON-AE AS UNDER : PARTICULARS AE AZTEC DISHA AE AZTEC SOFT INC NON-AES AMOUNT RS. IT(TP)A.1239/BANG/2011 PAGE - 4 05. CONTENTION OF THE ASSESSEE IS THAT THE TOTAL RE VENUE FROM THE AES AS PER THE ABOVE COMES TO RS.49,59,13,140/-, WHEREAS T HE ACTUAL REVENUE FROM AE SEGMENT WAS DIFFERENT. NEW SEGMENTAL RESULTS GI VEN AS ADDITIONAL EVIDENCE IS REPRODUCED BELOW : 06. TOTAL INCOME FROM SOFTWARE DEVELOPMENT SERVICE REMAINS MORE OR LESS THE SAME IN BOTH STUDIES. HOWEVER, THE EXPEND ITURE HAVING BEEN ALLOCATED BASED ON TURNOVER, THE OPERATING PROFIT T O OPERATING COST RATIO IN THE AE SEGMENT WILL UNDER GO SUBSTANTIAL CHANGE IF THERE IS A CHANGE IN THE REVENUES SHOWN IN THE AE SEGMENT. IT IS THEREFORE FUNDAMENTALLY IMPORTANT THAT CORRECT REVENUE IS ADOPTED FOR THE A E AS WELL AS THE NON-AE IT(TP)A.1239/BANG/2011 PAGE - 5 SEGMENTS FOR THE TP STUDY. TPO HAD PROCEEDED TO MA KE THE TP ANALYSIS BASED ON THE SEGMENTAL RESULTS GIVEN BY THE ASSESSE E ORIGINALLY. THIS, IN OUR OPINION COULD LEAD TO FUNCTIONALLY WRONG RESULT S. WE ARE THEREFORE OF THE OPINION THAT THE ISSUE REGARDING TRANSFER PRICI NG REQUIRES A FRESH LOOK BY THE LOWER AUTHORITIES SO THAT THE REVENUE STREAM IS CORRECTLY BIFURCATED BETWEEN AE AND NON-AE SEGMENT. THIS BEING A THRESH OLD BIFURCATION BEFORE PROCEEDING WITH THE TP STUDY, WE ARE OF THE OPINION THAT ADDITIONAL EVIDENCE HAS TO BE ADMITTED. WE THEREFORE ADMIT TH E ADDITIONAL EVIDENCE AND REMIT THE MATTER BACK TO THE FILE OF TPO/ AO FO R CONSIDERATION AFRESH. ALL THE ISSUES RAISED BY THE ASSESSEE IN RELATION T O TP PRICING ARE KEPT OPEN. AO / TPO IS DIRECTED TO REDO THE TP ANALYSIS AFTER CORRECTLY WORKING OUT THE REVENUE STREAMS FOR AE AND NON-AE SEGMENTS WITH REGARD TO THE SOFTWARE DEVELOPMENT SERVICES AND PROCEED IN ACCORD ANCE WITH LAW. ORDERED ACCORDINGLY. 07. IN ITS GROUND 9, ASSESSEE IS AGGRIEVED THAT CO MMUNICATION EXPENDITURE OF RS.2,14,39,704/- AND TRAVEL EXPENSES OF RS.8,02,29,023/- WERE DEDUCTED FROM EXPORT TURNOVER FOR COMPUTING TH E DEDUCTION U/S.10A OF THE ACT. ALTERNATIVELY ASSESSEE STATES THAT SUC H AMOUNTS WHICH ARE DEDUCTED FROM EXPORT TURNOVER, HAVE TO BE REDUCED F ROM TOTAL TURNOVER ALSO. IT(TP)A.1239/BANG/2011 PAGE - 6 08. WE FIND THE ALTERNATIVE CONTENTION TAKEN BY THE ASSESSEE TO BE ACCEPTABLE IN VIEW OF THE DECISION OF HONBLE JURIS DICTIONAL HIGH COURT IN THE CASE OF TATA ELXSI LTD V. CIT (349 ITR 98). HO WEVER, BY VIRTUE OF THE DEFINITION OF THE TERM EXPORT TURNOVER, GIVEN IN EXPLANATION (IV) TO SECTION 10A OF THE ACT, THE CONTENTION OF THE ASSESSEE THAT COMMUNICATION EXPENDITURE AND TELECOMMUNICATION EXPENDITURE HAVE TO BE INCLUDED IN EXPORT TURNOVER CANNOT BE ACCEPTED. NEVERTHELESS A S MENTIONED BY US WHATEVER IS REDUCED FROM TOTAL TURNOVER SHOULD ALSO BE DEDUCTED FROM EXPORT TURNOVER FOR WORKING OUT THE DEDUCTION U/S.1 0A OF THE ACT. AO IS DIRECTED TO DO SO. GROUND 9 IS PARTLY ALLOWED. 09. VIDE GROUND 10, GRIEVANCE RAISED BY THE ASSESSE E IS THAT LOSS BROUGHT FORWARD FROM THE EARLIER YEARS, WERE NOT ALLOWED TO BE SET OFF. COUNSEL FOR THE ASSESSEE SUBMITTED THAT LOSS FOR THE EARLIER YE ARS AFTER GIVING EFFECT TO THE APPELLATE DECISIONS HAD TO BE SET OFF AGAINST T HE CURRENT BUSINESS INCOME OF THE ASSESSEE. 10. PER CONTRA, LD. DR SUBMITTED THAT ASSESSEE HAD NEVER CLAIMED SUCH LOSSES AND AUDIT REPORT IN FORM 3 CED DID NOT REVEA L ANY SUCH LOSS. IT(TP)A.1239/BANG/2011 PAGE - 7 11. WE HAVE HEARD THE RIVAL CONTENTIONS. WE ARE OF THE OPINION THAT THE MATTER CAN BE VERIFIED BY THE AO. IF THE ASSESSEE HAD NOT CLAIMED SET-OFF OF BROUGHT FORWARD LOSS IN ITS RETURN OF INCOME, TH EN THERE IS NO QUESTION OF ALLOWING SUCH SET OFF. HOWEVER, IF THE ASSESSEE HA D CLAIMED SUCH LOSSES AND IF THE LOSSES WERE TO BE REWORKED BASED ON ORDE RS OF HIGHER JUDICIAL FORUMS THEN THE LOSS THAT REMAINS WOULD HAVE TO BE ALLOWED TO BE SET OFF. WE DIRECT THE AO TO VERIFY THIS ASPECT AND PROCEED IN ACCORDANCE WITH LAW. GROUND 10 IS ALLOWED FOR STATISTICAL PURPOSE. 12. GROUNDS 11 AND 12 ARE CONSEQUENTIAL IN NATURE R ELATING TO INTEREST U/S.234B & 234C OF THE ACT, WHICH DO NOT REQUIRE SP ECIFIC ADJUDICATION. 13. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWE D FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 24TH DAY OF J UNE, 2016. SD/- SD/- (VIJAY PAL RAO) (ABRA HAM P GEORGE) JUDICIAL MEMBER ACCOUNTANT MEMBER MCN IT(TP)A.1239/BANG/2011 PAGE - 8