M/s. Wipro GE Health Care Pvt. Ltd, Bangalore V. DCIT, Bangalore

ITA 1433/BANG/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 5504 (ITAT-BANGALORE)
• Duration Of Justice: 7 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-07-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 25-07-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 14-12-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ETWA MUNDA
• Assessee Lawyers: K R PRADEEP
• Keywords: Transfer pricing; Arm length price
• Section: 143(3); 80HHC

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, BANGALORE BENCH B BEFORE SMT. P MADHAVI DEVI, JUDICIAL MEMBER AND SHRI A MOHAN ALANKAMONY, ACCOUNTANT MEMBER ITA NO. 1433/BANG/2010 (ASST. YEARS 2006-07) M/S WIPRO GE HEALTH CARE PVT. LTD., PLOT NO.3, 3A & 4, KADUGODI INDUSTRIAL AREA, BANGALORE. . APPELLANT VS. THE DY. COMMISSIONER OF INCOME-TAX, CIRCLE-12(5), MANGALORE. . RESPONDENT APPELLANT BY : K.R PRADEEP RESPONDENT BY : SHRI ETWA MUNDA O R D E R PER SMT. P MADHAVI DEVI, JUDICIAL MEMBER THIS IS AN APPEAL FILED BY THE ASSESSEE. THE RELEV ANT ASSESSMENT YEAR IS 2006-07. THE APPEAL IS DIRECTED AGAINST TH E ORDER OF THE INCOME-TAX DEPARTMENT AT BANGALORE DATED 24.09.201 0. THE APPEAL ARISES OUT OF THE ASSESSMENT COMPLETED U/S 143(3) R .W.S 144C(13) OF THE INCOME-TAX ACT, 1961. ITA NO.1433/B/10 2 2. THOUGH THE ASSESSEE HAS RAISED AS MANY AS 37 GRO UNDS OF APPEAL, THE LEARNED COUNSEL FOR THE ASSESSEE SHRI K .R PRADEEP AT THE TIME OF HEARING SUBMITTED THAT ONLY TWO ISSUES ARE ARISING FOR ADJUDICATION. HE SUBMITTED THAT ONE ISSUE IS RELAT ING TO REALLOCATION OF TRADING EXPENSES TO 10A AND NON 10A UNITS AND THE OTHER ISSUE IS RELATING TO THE DETERMINATION OF ARM LENGTH PRICE ( ALP) BY TRANSFER PRICING OFFICER (TPO), WHICH HAS BEEN CONFIRMED BY THE DRP. 3. AS REGARDS THE FIRST ISSUE RELATING TO REALLOCAT ION OF TRADING EXPENSES, THE LEARNED COUNSEL FOR THE ASSESSEE SUB MITTED THAT THE ASSESSEE IS ELIGIBLE FOR DEDUCTION U/S 10A OF THE I NCOME-TAX ACT AND WHILE COMPUTING THE DEDUCTION U/S 10A OF THE INCOME -TAX ACT, THE AO HAD ALLOCATED TRADING EXPENSES TO 10A AND NON 10A U NITS AMOUNTING TO RS.3,22,94,016/-. HE SUBMITTED THAT THIS ISSUE OF REALLOCATION OF EXPENDITURE BETWEEN THE UNITS HAS BEEN COMING UP FO R ADJUDICATION FROM THE EARLIER YEARS. I.E 1997-98 ONWARDS AND FOL LOWING THE SAME, THE ASSESSING OFFICER HAS BEEN MAKING THE DISALLOWA NCE. HE DREW OUR ATTENTION TO PAGE NO.2 OF THE ASSESSMENT ORDER, WH EREIN THERE IS A REFERENCE TO THE ASSESSMENTS MADE IN 2002-03 AND SU BSEQUENT YEAR, WHICH METHOD IS FOLLOWED. ITA NO.1433/B/10 3 4. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED T HAT THIS ISSUE IS COVERED BY THE DECISION OF THE TRIBUNAL IN ASSESSEE S OWN CASE FOR THE ASSESSMENT YEAR 2002-03, WHEREIN BY FOLLOWING THE D ECISION OF THE TRIBUNAL FOR THE ASSESSMENT YEAR 1997-98, THE ASSES SEES APPEAL WAS ALLOWED. THE ASSESSEE HAS FILED COPY OF THE SAID O RDERS BEFORE US AND THE SAME ARE TAKEN ON RECORD. THE LEARNED DR, HOW EVER PLACED RELIANCE UPON THE ORDERS OF THE AUTHORITIES BELOW A ND SUBMITTED THAT ALLOCATION OF EXPENSES BETWEEN THE ELIGIBLE AND NON ELIGIBLE UNITS IS NOT CORRECTLY MADE BY THE AO AND THAT THE ASSESSING AUTHORITY HAS RIGHTLY REALLOCATED THE SAME. 5. HAVING HEARD BOTH THE PARTIES AND HAVING CONSIDE RED THE RIVAL CONTENTIONS, WE FIND THAT THE NATURE OF EXPENSES BE ING TRADING EXPENSES IS NOT IN DISPUTE BUT THE ISSUE IS ONLY OF ITS ALLOCATION BETWEEN THE EHTP 1 AND EHTP 2 UNITS. THIS REALL OCATION OF EXPENSES IS UNDER CHALLENGE FROM ASSESSMENTS YEARS 1997-98 ONWARDS AND THE TRIBUNAL BY ITS ORDER DATED 18.11.05 IN ASS ESSEES OWN CASE FOR THE ASSESSMENT YEAR 1999-00 HAS ALLOWED ASSESSES A PPEAL BY OBSERVING AS UNDER : ITA NO.1433/B/10 4 THE NEXT ISSUE IS REGARDING EXEMPTION U/S 10A OF THE ACT. THE ASSESSEE COMPANY CLAIMED EXEMPTION U/S 10A OF RS.18,44,03,863/-. THE ASSESSEE ALSO SUBMIT TED DETAILS OF TURNOVER IN RESPECT OF FOUR DIFFERENT UN ITS ENJOYING EXEMPTION U/S 10A OF THE I.T ACT. THE ASS ESSEE HAD DEBITED EXPENSES OF RS.29 CRORES BEFORE DISCLOS ING PROFIT IN RESPECT OF 10A UNITS. THE AO ASKED THE A SSESSEE TO EXPLAIN AS TO HOW THE EXPENSES WERE WHICH HAS BE EN QUOTED BY THE AO IN HIS ORDER. FINALLY, THE AO DID NOT ACCEPT THE ALLOCATION OF EXPENSES MADE BY THE ASSES SEE AND HELD AS FOLLOWS : THE ALLOCATION BY THE ASSESSEE COMPANY IS NOT ACCEPTABLE. IF THIS ALLOCATION OF OTHERS TO MANUFACTURING AND TRADING ACTIVITIES WERE TO BE ACCEPTED, IT WOULD AMOUNT TO ASSUMING THAT ACTIVITIES OF THE OTHERS DIVISION, I.E ADMINISTRATION, FINANCE, LEGAL, HUMAN RESOURCES AND OTHER SUPPORT ACTIVITIES HAD NO FACILITATING RO LE WHATSOEVER WITH REGARD TO THE STP/EHTP ACTIVITIES OF THE ASSESSEE COMPANY FOR WHICH EXEMPTION U/S 10A IS ALLOWABLE. THE ALLOCATION MADE BY THE ASSESSEE COMPANY CLEARLY BRINGS OUT THE ATTEMPT TO REDUCE THE TAXABLE INCOME BY ALLOCATING COMMON POOL EXPENDITURE TO THE TAXABLE AREA OF ACTIVITY ONLY (MANUFACTURING AND TRADING), AND IN THE PROCESS, ENHANCING ITS EXEMPTED INCOME UNDER ITA NO.1433/B/10 5 SECTION 10A OF THE I.T ACT. IN THIS CONNECTION, IT WOULD BE WORTHWHILE TO REPRODUCE THE OBSERVATIONS OF THE LEARNED CIT(A) MADE WHILE DISCUSSING THE COMPUTATION U/S 80HHC AND 80HHE OF THE I.T ACT IN HIS APPELLATE ORDER FOR THE ASSESSMENT YEAR 1997-98. HOWEVER, I WOULD MENTION THAT THE ASSESSEE HAS SHOWN A TENDENCY TO CLAIM UNDUE DEDUCTION U/S 80HHC AND 80HHE AS DISCUSSED IN HIS ORDER AND IT IS QUITE POSSIBLE IN THE CIRCUMSTANCES THAT EFFORT HAS BEEN MADE TO INCREASE THE EXEMPTED INCOME. IT IS HOPED THAT THE ASSESSING OFFICER EXAMINING THE CASE OF THE ASSESSEE WOULD ASK FOR PROPER DETAILS AND EVIDENCE AND EXAMINE WHETHER THE ASSESSEE HAS TRANSFERRED EXPENDITURE IN RESPECT OF EXEMPTED ACTIVITIES TO NON EMPTED ACTIVITIES (I.E THE ACTIVITIES THE INCOME FROM WHICH ARE NOT EXEMPT U/S 10A) AND SOUGHT TO INCREASE THE INCOME FROM EXEMPTED ACTIVITIES. IN VIEW OF THE FACTS AND CIRCUMSTANCES, AS NARRATED ABOVE, I ITA NO.1433/B/10 6 FEEL THAT ANY BIFURCATION OF EXPENSES OF THE OTHERS DIVISION MUST NECESSARILY ALLOCATE EXPENDITURE TO THE 10A UNITS ON THE BASIS OF RESPECTIVE SALARY COSTS. THEREFORE, THE ALLOCATION MADE BY THE ASSESSEE COMPANY IS FALLACIOUS AS IT STRIVES TO ARTIFICIALLY ENHANCE THE EXEMPTED INCOME AND THEREBY REDUCE THE TAXABLE INCOME THROUGH STATISTICAL JUGGLERY. THEREAFTER THE AO COMPUTED HIS OWN ALLOCATION OF EXPENSES RESULTING IN REDUCTION OF DEDUCTION U/S 10A OF THE ACT AND INCREASE OF INCOME BY RS.47,16,283/- WHEN THE MATTER CAME UP BEFORE THE CIT(A), HE DISCUSSED THE ISSUE IN PAGES 19 TO 23 OF HIS ORDER AND DIRECTED TO DELETE THE ALLOCATION MADE BY THE AO. LEARNED CIT(A) FOLLOWED THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASST. YEAR 1995-96. AFTER HEARING BOTH SIDES, WE FIND THAT THE LEARNED CIT(A) DELETED THE ADDITION FOLLOWING THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASST. YEAR 1995-96. ITA NO.1433/B/10 7 IN VIEW OF THE AFORESAID CIRCUMSTANCES, THE ISSUE IS ALREADY COVERED BY THE TRIBUNALS ORDER AND WE ARE NOT INCLINED TO INTERFERE WITH THE FINDINGS RECORDED BY THE CIT(A). HENCE THIS GROUND OF APPEAL IS DISMISSED. 6. IN VIEW OF THE SAME, THE GROUNDS OF APPEAL OF TH E ASSESSEE RELATING TO THE ABOVE ISSUE ARE ALLOWED. 7. THE OTHER GROUNDS RELATES TO TRANSFER PRICING AD JUSTMENT MADE BY DETERMINING THE ALP. 8. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS ENGAGED IN MANUFACTURING OF MEDICAL EQUIPMENTS AND ALSO DEVELO PMENT OF SOFTWARE FOR THESE MEDICAL EQUIPMENTS. THE ASSESSE E HAD TRANSACTIONS WITH ITS ASSOCIATED ENTERPRISES FOR IMPORTING CERTA IN MEDICAL EQUIPMENTS. THE ALP WITH REGARD TO THESE TRANSACTIO NS WAS TO BE DETERMINED AND THE AO HAD REFERRED THE MATTER TO TH E TPO U/S 92CA OF THE INCOME-TAX ACT FOR THE SAID PURPOSE. THE TP O HAD ADOPTED THE COMPANY M/S AMD (ADVANCED MICRO DEVICES LTD) AS ONE OF THE COMPARABLES. THE ASSESSEE HAD RAISED VARIOUS OBJEC TIONS TO THE ADOPTION OF THIS COMPANY OR COMPARABLE BY FILING IT S WRITTEN ITA NO.1433/B/10 8 SUBMISSIONS BEFORE THE TPO. HOWEVER, THE TPO HAS F AILED TO CONSIDER ANY OF THESE OBJECTIONS AND HAS DETERMINED THE ALP AND MADE THE ADJUSTMENT. 9. AGGRIEVED BY THIS, THE ASSESSEE HAD PREFERRED OB JECTIONS TO THE DRP AND THE DRP HAS SUMMARILY ACCEPTED THE FINDINGS OF THE TPO WITHOUT CONSIDERING THE OBJECTIONS OF THE ASSESSEE IN A JUDICIOUS MANNER. THE LEARNEAD COUNSEL FOR THE ASSESSEE WHIL E CHALLENGING THE ORDERS OF THE AUTHORITIES BELOW ON THE GROUND OF NO N-CONSIDERATION OF THE OBJECTIONS RAISED BY THE ASSESSEE BY THE TPO AS WELL AS DRP ALSO FURTHER SUBMITTED THAT THE METHOD OF COMPUTING THE ALP WAS ALSO UNDER DISPUTE FROM THE EARLIER YEARS AND THE TRIBUN AL IN THE ASSESSEES OWN CASE IN THE EARLIER YEARS HAD HELD THAT R.P.M ( RESALE PRICE METHOD) IS THE MOST APPROPRIATE METHOD FOR ARRIVING AT THE ALP AND THE DEPARTMENT HAS FILED AN APPEAL BEFORE THE HONB LE KARNATAKA HIGH COURT AND THE DECISION IS STILL PENDING. THE LEARNED DR HAD HOWEVER RELIED UPON THE ORDERS OF THE AUTHORITIES B ELOW. 10. HAVING HEARD BOTH THE PARTIES AND HAVING CONSID ERED THE RIVAL CONTENTIONS, WE FIND THAT U/S CHAPTER X OF THE ACT, THE TPO WHILE COMPUTING THE ALP HAS TO ISSUE NOTICE TO THE ASSESS EE AND IF THE ITA NO.1433/B/10 9 ASSESSEE RAISES ANY OBJECTIONS RELATING TO THE METH OD ADOPTED BY THE TPO IN SELECTION OF THE COMPARABLES OR IN RELATION TO COMPARABLES SELECTED, HE HAS TO CONSIDER THE OBJECTIONS RAISED BY THE ASSESSEE AND DEAL WITH THEM BY A SPEAKING ORDER. HOWEVER IN THE CASE BEFORE US, THE TPO HAS FAILED TO CONSIDER THE ASSESSEES OBJEC TIONS AND DEAL WITH THEM JUDICIOUSLY. THE DRP ALSO, IN OUR OPINION, HA S DEALT WITH THE ISSUE SUMMARILY WITHOUT CONSIDERING ASSESSEES OBJE CTIONS AT ALL. THE ASSESSEE HAS APPROACHED DRP ONLY AGAINST THE ORDER OF THE TPO AND IT IS THE DUTY OF THE DRP TO CONSIDER THE ASSESSEES O BJECTIONS TO THE TPO ORDERS IN JUDICIOUS WAY. BY SUMMARILY ACCEPTI NG THE ORDER OF THE TPO, THE DRP HAS FAILED TO PERFORM THE DUTY ENT RUSTED TO IT. HOWEVER, SINCE THE TPO HAS NOT DEALT WITH THE OBJEC TIONS RAISED BY THE ASSESSEE AGAINST THE COMPARABLES SELECTED BY TH E TPO, WE DEEM IT FIT AND PROPER TO REMIT THE ISSUE TO THE FILE OF TH E ASSESSING AUTHORITY FOR TAKING NECESSARY ACTION OF MAKING A REFERENCE T O THE TPO TO DEAL WITH THE ASSESSEES OBJECTIONS AND FOR PASSING A SP EAKING ORDER. THE AO/TPO IS DIRECTED TO GIVE FAIR OPPORTUNITY OF HEAR ING TO THE ASSESSEE AND ALSO CONSIDER THE JUDICIAL PRECEDENTS ON THE IS SUE INCLUDING THE ORDERS OF THE TRIBUNAL IN ASSESSEES OWN CASE WHILE DETERMINING THE ALP. ITA NO.1433/B/10 10 11. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 29 TH JUL , 2011. SD/- SD/- (A MOHAN ALANKAMONY) (P MADHAVI DEVI) ACCOUNTANT MEMBER JUDICIAL MEMBER VMS. BANGALORE DATED : 29/07/2011 COPY TO : 1. THE ASSESSEE 2. THE REVENUE 3.THE CIT CONCERNED. 4.THE CIT(A) CONCERNED. 5.DR 6.GF BY ORDER ASST. REGISTRAR, I TAT, BANGALORE.