Basware Corporation India, Chandigarh V. DCIT, Circle, Shimla

ITA 1289/CHANDI/2019

• Counselvise Citation: [2019] 112 COUNSELVISE.COM (IT) 1098 (ITAT-CHANDIGARH)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-11-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2012-2013
• Appeal Filed On: 27-09-2019
• Court: TRIBUNAL

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL, CHANDIGARH BENCH A , CHANDIGARH , ! ' # $ %! , &' BEFORE SHRI SANJAY GARG, JUDICIAL MEMBER AND SMT.ANNAPURNA GUPTA, ACCOUNTANT MEMBER ./ ITA NO.1289/CHD/2019 / ASSESSMENT YEAR : 2012-13 & ./ ITA NO.123/CHD/2017 / ASSESSMENT YEAR : 2012-13 BASWARE CORPORATION INDIA, BRANCH OFFICE TOWER E-3 RD FLOOR, DLF BUILDING, RAJIV GANDHI IT PARK, CHANDIGARH. THE D.C.I.T., CIRCLE-SHIMLA. ./ PAN NO.AADCB4548A / APPELLANT / RESPONDENT /ASSESSEE BY : SHRI ANUBHAV RASTOGI, ADV. ! / REVENUE BY : SHRI SANDEEP DAHIYA, CIT DR ' # $ /DATE OF HEARING : 27.11.2019 %&'( $ /DATE OF PRONOUNCEMENT: 27. 11.2019 &( /ORDER PER SANJAY GARG, JUDICIAL MEMBER : BOTH THE PRESENT APPEALS HAVE BEEN FILED BY THE ASSESSEE AND ARE RELEVANT TO THE SAME ASSESSMENT YE AR I.E., AY 2012-13. ITA NO. 1289/CHD/2019 HAS BEEN PREFERRE D BY THE ASSESSEE AGAINST THE ORDER DATED 31.10.2016 OF THE ITA NO.1289/CHD/2019 & ITA NO.123/CHD/2017 A.Y.2011-12 2 ASSESSING OFFICER PASSED U/S 144C(13) READ WITH SEC TION 143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REF ERRED TO AS THE ACT) IN PURSUANCE OF THE DIRECTIONS OF THE DISPUTE RESOLUTION PANEL (DRP). ITA NO. 123/CHD/2017 IS AGA INST THE ORDER DATED 10.11.2016 OF THE ASSESSING OFFICER PASSED U/S 154 OF THE INCOME TAX ACT IN PURSUANCE OF THE DIRECTIONS OF THE DISPUTE RESOLUTION PANEL (DRP). ITA NO. 1289/CHD/2019 2. THE APPEAL IN ITA NO. 1289/CHD/2019 IS BARRED BY LIMITATION PERIOD OF 133 DAYS. THE LD. COUNSEL FOR THE ASSESSEE HAS FILED AN APPLICATION SEEKING THE CONDO NATION OF DELAY WHEREIN, DETAILED EXPLANATION HAS BEEN FUR NISHED ABOUT THE REASONS BECAUSE OF WHICH THE APPEAL COULD NOT BE FILED WITHIN THE TIME PRESCRIBED. IT HAS BEEN SU BMITTED IN THE APPLICATION THAT THE ORDER OF THE ASSESSMENT DATED 31.10.2016 PASSED U/S 144C(13) R.W.S. 143(3) OF THE ACT WAS NEVER COMMUNICATED TO THE ASSESSEE, RATHER, THE SAME WAS COMMUNICATED ON THE REQUEST OF THE AUTHORI ZED REPRESENTATIVE OF THE ASSESSEE VIDE LETTER DATED 4. 3.2019, A COPY OF THE LETTER IS ALSO PLACED ON RECORD. THAT THE ASSESSEE FINALLY RECEIVED THE AFORESAID ORDER ON 18 .3.2019 ITA NO.1289/CHD/2019 & ITA NO.123/CHD/2017 A.Y.2011-12 3 AND THEREAFTER THE ASSESSEE FILED AN APPEAL AGAINST THE ORDER OF THE ASSESSING OFFICER BEFORE THE TRIBUNAL ON 13.01.2017. FURTHER, THAT UNDER THE BONAFIDE BELIE F THAT AN ORDER U/S 154 IS AN EXTENSION OF THE ORDER PASSE D U/S 143(3) R/W 144C(13) AND, THUS, AN APPEAL SHOULD BE FILED AGAINST AN ORDER PASSED U/S 154 OF THE ACT, THE ASS ESSEE FILED THE APPEAL AGAINST SECTION 154 ORDER ON 13.1. 2017 I.E. WITHIN THE PERIOD OF LIMITATION. IT HAS BEEN F URTHER SUBMITTED THAT THE DELAY IN FILING THE APPEAL (ITA NO. 1289/CHD/2019) BY THE ASSESSEE WAS NOT DELIBERATE O R INTENTIONAL AS THE ASSESSEE WAS PREVENTED BY SUFFIC IENT CAUSE FROM FILING THE PRESENT APPEAL. THEREFORE, IT HAS BEEN PRAYED THAT THE DELAY OF 133 DAYS OCCURRED IN FILING THE PRESENT APPEAL, WHICH IS UNINTENTIONAL SHOULD B E CONDONED. 3. WE FIND THAT THE AVERMENTS MADE IN THE APPLICATI ON HAS BEEN CORROBORATED AND SUPPORTED BY THE EVIDENCE AND COPY OF THE LETTER DATED 4.3.2019 (ANNEXURE 1). SIN CE THE DELAY CAUSED IN FILING THE APPEAL I.E. ITA NO. 1289/CHD/2019 SEEMS TO BE OUT OF BONAFIDE, INADVER TENT ITA NO.1289/CHD/2019 & ITA NO.123/CHD/2017 A.Y.2011-12 4 AND UNINTENTIONAL MISTAKE, HENCE, IN OUR VIEW, THE INTEREST OF JUSTICE WILL BE WELL SERVED IF THE DELA Y IN FILING THE PRESENT APPEAL IS CONDONED. WE ORDER ACCORDINGL Y. 4. THE ASSESSEE IN THIS APPEAL HAS TAKEN FOLLOWING GROUNDS: THE FOLLOWING GROUNDS OF OBJECTION ARE INDEPENDENT OF, AND WITHOUT PREJUDICE TO ONE ANOTHER: 1. THE LD. ASSESSING OFFICER (LD. AO) ERRED IN P ASSING THE FINAL ASSESSMENT ORDER DATED 31.10.2016 U/S 143(3) R/W 144C OF THE ACT, WITHOUT GIVING EFFECT TO THE B INDING DIRECTIONS OF THE LEARNED DISPUTE |RESOLUTION PANEL (LD. DRP) WITHIN A PERIOD OF ONE MONTH AS STIPULATED U/ S 144C(13) OF THE ACT AND IS THEREFORE, BAD AND ILLEG AL IN LAW AND LIABLE TO BE QUASHED 2. THE ASSESSMENT ORDER PASSED BY THE LD. AO IN PURSUANCE OF THE DIRECTIONS ISSUED BY THE LD. DRP I S A VITIATED ORDER AS THE LD. DRP ERRED IN CONFIRMING T HE ARBITRARY TRANSFER PRICING ADJUSTMENT MADE BY THE L D. AO/LD. TRANSFER PRICING OFFICER ('LD. TPO') TO THE INTERNATIONAL TRANSACTION PERTAINING TO PROVISION O F IT ENABLED SERVICES ('ITES SEGMENT') ENTERED INTO BY T HE APPELLANT WITH ITS ASSOCIATED ENTERPRISE ('AE') 3. THE LD TPO/LD AO AND LD. DRP ERRED IN ENHANCING THE INCOME OF THE APPELLANT BY RS.53,69,199 HOLDING THAT THE INTERNATIONAL TRANSACTION PERTAINING TO IT S PROVISION OF IT ENABLED SERVICES ('ITES SEGMENT') D OES NOT SATISFY THE ARM'S LENGTH PRINCIPLE ENVISAGED UN DER THE ACT AND IN DOING SO HAVE GROSSLY ERRED IN: 3.1 THE LD. TPO/ LD. AO ERRED IN NOT APPRECIATING T HAT NONE OF THE CONDITIONS SET OUT IN SECTION 92C(3) OF THE ACT ARE SATISFIED IN THE PRESENT CASES ITA NO.1289/CHD/2019 & ITA NO.123/CHD/2017 A.Y.2011-12 5 3.2 DISREGARDING THE ALP AS DETERMINED BY THE APPEL LANT IN THE TRANSFER PRICING (TP )DOCUMENTATION (ALSO REFERRED TO AS TP STUDY' OR TP REPORT') MAINTAINED BY IT IN TERMS OF SECTION 92D OF THE ACT READ WITH RULE 1 0D OF THE INCOME-TAX RULES, 1962 ('RULES'); 3.3 REJECTING, WITHOUT REASON, THE QUANTITATIVE AND QUALITATIVE SCREENS/FILTERS APPLIED AND SET OF COMPARABLES ARRI VED AT BY THE APPELLANT, FOLLOWING A DETAILED AND ROBUS T SEARCH METHODOLOGY CARRIED OUT IN THE TP STUDY, AND PROCEEDING TO ARRIVE AT THE FRESH COMPARABLES SET B Y APPLYING CERTAIN ARBITRARILY SELECTED FILTERS AND A RRIVING AT HIS OWN COMPARABLES SET INSTEAD; 3.4 INCLUDING HIGH-PROFIT MAKING COMPANIES IN THE F INAL COMPARABLES' SET FOR BENCHMARKING A LOW RISK CAPTIV E UNIT SUCH AS THE APPELLANT (DISREGARDING JUDICIAL PRONOUNCEMENTS ON THE ISSUE), THUS DEMONSTRATING AN INTENTION TO ARRIVE AT A PRE-FORMULATED OPINION WIT H THE SINGLE-MINDED INTENTION OF MAKING AN ADDITION TO TH E RETURNED INCOME OF THE APPELLANT; 3.5 ERRONEOUSLY INCLUDING CERTAIN FUNCTIONALLY DISS IMILAR COMPANIES THAT ARE NOT COMPARABLE TO THE APPELLANT IN TERMS OF FUNCTIONS PERFORMED, ASSETS EMPLOYED AND RISKS ASSUMED AND EXCLUDING CERTAIN COMPARABLE COMPANIES ON ARBITRARY/FRIVOLOUS GROUNDS; 3.6 NOT CONSIDERING THE CORRECT COMPUTATION OF THE RETURN ON TOTAL OPERATING COST ('ROTC') OF CERTAIN COMPANIES USED AS COMPARABLE IN ITES SEGMENTS OF THE APPELLANT; 3.7 IGNORING THE BUSINESS/ COMMERCIAL REALITY THAT SINCE THE APPELLANT IS REMUNERATED ON AN ARM'S LENGTH COST PL US BASIS, I.E. IT IS COMPENSATED FOR ALL ITS OPERATING COSTS PLUS A PRE- AGREED MARK-UP BASED ON A BENCHMARKING ANALYSIS, THE APPELLANT UNDERTAKES MINIMAL BUSINESS RISKS AS AGAINST COMPARABLE COMPANIES THAT ARE FULL - FLEDGED RISK TAKING ENTREPRENEURS, AND BY NOT ALLOW ING A RISK ADJUSTMENT TO THE APPELLANT ON ACCOUNT OF TH IS FACT; AND ENTREPRENEURS, ANY BY ALLOWING A RISK ADJUSTMEN T TO THE APPELLANT ON ACCOUNT OF THIS FACT; AND 3.8 NOT ALLOWING THE APPEALLANT THE BENEFIT OF THE +/- 5% RANGE AVAILABLE TO THE APPEALLANT AS PER THE PROVIS O TO SECTION 92C(2) OF THE ACT; AND ITA NO.1289/CHD/2019 & ITA NO.123/CHD/2017 A.Y.2011-12 6 3.9 DISREGARDING JUDICIAL PRONOUNCEMENTS IN INDIA I N UNDERTAKING THE TP ADJUSTMENT. 4. THE LD. AO/HON'BLE DRP HAS ERRED BOTH ON FACTS A ND IN LAW IN CHARGING INTEREST UNDER SECTION 234B AND 234 D OF THE ACT. 5. AT THE OUTSET, THE LD.COUNSEL FOR THE ASSESSEE H AS SUBMITTED THAT THE ORDER OF THE AO IN THIS CASE IS VOID ABINITIO AS THE SAME HAS BEEN PASSED IN VIOLATION O F THE PROVISIONS OF SECTION 144C (13) OF THE ACT. THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT IN THIS CASE SI NCE THE ISSUE OF TRANSFER PRICING WAS INVOLVED, A DRAFT ORD ER WAS PREPARED BY THE AO ON 10.3.2016, THEREAFTER THE MAT TER WAS REFERRED TO THE DISPUTE RESOLUTION PANEL (DRP). THE LD.DRP ISSUED NECESSARY DIRECTIONS FOR FRAMING ORDER VIDE ORDER DATED 23.9.2016 AS PER THE PROVISIONS OF SECTION 14 4C(13) OF THE ACT. THE ASSESSMENT ORDER AS PER THE DIRECTI ONS OF THE DRP WAS TO BE FRAMED WITHIN ONE MONTH FROM THE END OF THE MONTH IN WHICH SUCH DIRECTIONS WERE RECEIVED AS PROVIDED U/S 144C(13) OF THE ACT. THE RELEVANT PROV ISION OF SECTION 144C OF THE ACT FOR THE SAKE OF REFERENCE A RE REPRODUCED AS UNDER: 144C. THE ASSESSING OFFICER SHALL, NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN THIS ACT, IN THE FIRST INSTANCE, FORWA RD A DRAFT OF THE PROPOSED ORDER OF ASSESSMENT ITA NO.1289/CHD/2019 & ITA NO.123/CHD/2017 A.Y.2011-12 7 (HEREAFTER IN THIS SECTION REFERRED TO AS THE DRAFT ORDER) TO THE ELIGIBLE ASSESSEE IF HE PROPOSES TO MAKE, ON OR AFTER THE 1ST DAY OF OCTOBER, 2009, ANY VARIATION IN THE INCOME OR LOSS RETURNED WHICH IS PREJUDICIAL TO THE INTEREST OF SUCH ASSESSEE. . (13) UPON RECEIPT OF THE DIRECTIONS ISSUED UNDER SUB-SECTION (5), THE ASSESSING OFFICER, SHALL, IN CONFORMITY WITH THE DIRECTIONS, COMPLETE, NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN SECTION 153 [OR SECTION 153B], THE ASSESSMENT WITHOUT PROVIDING ANY FURTHER OPPORTUNITY OF BEING HEARD TO THE ASSESSEE, WITHIN ONE MONTH FROM THE END OF THE MONTH IN WHICH SUCH DIRECTION IS RECEIVED. 6. THE LD. COUNSEL FOR THE ASSESSEE HAS FURTHER INV ITED OUR ATTENTION TO THE LAST PARAGRAPH OF THE IMPUGNE D ASSESSMENT ORDER WHICH FOR THE SAKE IS REPRODUCED AS UNDER: THE HON'BLE DRP WAS OF THE VIEW THAT THE AVERAGE OF OPENING AND CLOSING BALANCE OF THE INVENTORIES A ND OF TRADE RECEIVABLE/PAYABLE, TRADE DEBTORS/CREDITORS, FOR THE RELEVANT YEAR MIGHT BE ADOPTED WHICH MIGHT BROADLY GIVE THE REPRESENTATIVE LEVEL OF WORKING CA PITAL OVER THE YEAR. THUS, THE HON'BLE DRP DIRECTED THAT WORKING CAPITAL ADJUSTMENT IS ALLOWED, BUT THE TPO WAS DIRECTED TO COMPUTE THE SAME AS PER THE DIRECTIONS GIVEN IN THE ORDER OF THE DRP, AS ATTACHED AS ANNEXURE-A. 7. A PERUSAL OF THE ABOVE PART OF THE ORDER OF THE AO REVEALS THAT THE AO HAD FAILED TO FRAME THE ASSESSM ENT ITA NO.1289/CHD/2019 & ITA NO.123/CHD/2017 A.Y.2011-12 8 ORDER AS PER THE DIRECTIONS OF THE DRP. THE AO FULL Y CONSCIOUS OF THE FACT THAT THE DRP HAD ISSUED DIREC TIONS, HOWEVER, NOTED THAT THE CONCERNED TRANSFER PRICING OFFICER I.E. DCIT SINCE HAD FAILED TO COMPLY WITH THE DIREC TIUONS WITHIN STIPULATED PERIOD, HE, THEREFORE, FRAMED THE IMPUGNED ASSESSMENT ORDER WITHOUT COMPLYING WITH TH E DIRECTIONS OF THE DRP. HENCE, THE ORDER PASSED BY T HE ASSESSING OFFICER HAD NO SANCTITY OF LAW AND WAS NO THING BUT A WASTE PAPER. THE AO OBSERVED THAT WHEN ANY OR DER FROM TPO WOULD BE RECEIVED AFTER PASSING OF THE IMP UGNED ASSESSMENT ORDER, THE IMPUGNED ASSESSMENT ORDER WOU LD BE RECTIFIED. THIS TYPE OF ACTION IS NEITHER RECOGN IZED, NOR JUSTIFIABLE IN THE EYES OF LAW. ONLY BECAUSE THE CO NCERNED TPO HAD FAILED TO FOLLOW THE DIRECTIONS OF THE DRP AND FAILED TO FRAME ASSESSMENT ORDER AS PER STATUTORY PROVISIONS, THAT DOES NOT ENTITLE THE AO TO FRAME T HE ASSESSMENT ORDER, FOR THE SAKE OF FORMALITY AND LE AVE THE ISSUE OPEN SO AS TO GET IT RECTIFIED AS AND WHEN TH E ORDER FROM THE TPO AS PER DIRECTIONS OF DRP WILL BE RECEI VED AND THEREBY OPENING THE LIMITATION PERIOD TO FRAME THE ASSESSMENT ORDER FOR INDEFINITE PERIOD, WHICH, IN O UR VIEW, IS NOT MANDATE OF THE STATUTE. ITA NO.1289/CHD/2019 & ITA NO.123/CHD/2017 A.Y.2011-12 9 THE ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICE R U/S 143(3) R.W.S. 144C IS, THEREFORE, QUASHED. ITA NO. 123/CHD/2017: 8. SINCE WE HAVE ALREADY HELD THAT THE ORDER PASSED BY THE ASSESSING OFFICER U/S 144C READ WITH SECTION 14 3(3) WAS NOT VOID AB INITIO, HENCE, THE CONSEQUENT RECTI FICATION ORDER PASSED U/S 154 OF THE ACT IS ALSO NULL AND VO ID. IN THE RESULT, BOTH THE APPEALS ARE ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 27.11.2019. SD/- SD/- ' # $ %! (ANNAPURNA GUPTA) (SANJAY GARG ) &' /ACCOUNTANT MEMBER / JUDICIAL MEMBER )' /DATED: 27 TH NOVEMBER, 2019 * ! * &) *+ ,+ / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. ' - / CIT 4. ' - ( )/ THE CIT(A) 5. +./ 0 , $ 0 , 123/4 / DR, ITAT, CHANDIGARH 6. /3 5# / GUARD FILE &) ' / BY ORDER, 6 ! / ASSISTANT REGISTRAR ITA NO.1289/CHD/2019 & ITA NO.123/CHD/2017 A.Y.2011-12 10 ITA NO. 1289/CHD/2019 THE APPEAL IN ITA NO. 1289 / CHD / 20 1 9 IS BARRED BY LIMITATION PERIOD OF 133 DAYS. THE LD. COUNSEL FOR THE ASSESSEE HAS F ILED AN APPLICATION SEEKING THE CONDONATION OF DELAY WHEREIN, DETAILED EXPLANATION HAS BEEN FURNISHED ABOUT THE REASONS BECAUSE OF WHICH THE AP PEAL COULD NOT BE FILED WITHIN THE TIME PRESCRIBED. IT HAS BEEN SUBMI TTED IN THE APPLICATION THAT THE ORDER OF THE ASSESSMENT DATED 31.10.2016 P ASSED U/S 144C(13) R.W.S. 143(3) OF THE ACT WAS NEVER COMMUNICATED TO THE ASSESSEE, RATHER, THE SAME WAS COMMUNICATED ON THE REQUEST OF THE AUT HORIZED REPRESENTATIVE OF THE ASSESSEE VIDE LETTER DATED 4. 3.2019, A COPY OF THE LETTER IS ALSO PLACED ON RECORD. THAT THE ASSESSEE FINALLY RECEIVED THE AFORESAID ORDER ON 18.3.2019 AND THEREAFTER THE ASS ESSEE FILED AN APPEAL AGAINST THE ORDER OF THE ASSESSING OFFICER BEFORE T HE TRIBUNAL ON 13. 01.2017. FURTHER, THAT UNDER THE BONAFIDE BELIEF T HAT AN ORDER U/S 154 IS AN EXTENSION OF THE ORDER PASSED U/S 143(3) R/W 144 C(13) AND, THUS, AN APPEAL SHOULD BE FILED AGAINST AN ORDER PASSED U/S 154 OF THE ACT. THE ASSESSEE FILED THE APPEAL AGAINST SECTION 154 ORDER ON 13.1.2017 I.E. WITHIN THE PERIOD OF LIMITATION. IT HAS BEEN FURTHE R SUBMITTED THAT THE DELAY IN FILING THE APPEAL (ITA NO. 1289/CHD/2019) BY THE ASSESSEE WAS NOT DELIBERATE OR INTENTIONAL AS THE ASSESSEE WAS P REVENTED BY SUFFICIENT CAUSE FROM FILING THE PRESENT APPEAL. THEREFORE, IT HAS BEEN PRAYED THAT ITA NO.1289/CHD/2019 & ITA NO.123/CHD/2017 A.Y.2011-12 11 THE DELAY OF 133 DAYS OCCURRED IN FILING THE PRESEN T APPEAL, WHICH IS UNINTENTIONAL SHOULD BE CONDONED. . WE FIND THAT THE AVERMENTS MADE IN THE APPLICATION HAS BEEN CORROBORATED AND SUPPORTED BY THE EVIDENCE AND COPY OF THE LETTER DATED 4.3.2019 (ANNEXURE 1). SINCE THE DELAY CAUSED IN FI LING THE APPEAL I.E. ITA NO. 1289/CHD/2019 SEEMS TO BE OUT OF BONAFIDE, INA DVERTENT AND UNINTENTIONAL MISTAKE, HENCE, IN OUR VIEW, THE INTE REST OF JUSTICE WILL BE WELL SERVED IF THE DELAY IN FILING THE PRESENT APPE AL IS CONDONED. WE ORDER ACCORDINGLY.