M/s. Aztecsoft (now merged with Mindtree Ltd), Bangalore V. DCIT, Bangalore

ITA 1434/BANG/2010

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 8436 (ITAT-BANGALORE)
• Duration Of Justice: 6 year(s) 3 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-03-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 03-01-2017
• Assessment Year: 2006-2007
• Appeal Filed On: 14-12-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: CHYTANYA K. K
• Keywords: Transfer pricing; Principle of natural justice; TDS; Set aside
• Section: 32; 147; 131; 68; 246; 69; 145; 27; 148; 54; 37; 6; 56; 263; 63; 132; 12; 28; 144; 10; 90; 154; 2; 11; 15; 92C; 271(1)(b); 139; 92; 234B; 144C; 143(2); 92CA

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI S. JAYARAMAN, ACCOUNTANT MEMBER IT(TP)A NO.1434/BANG/2010 ASSESSMENT YEAR : 2006-07 M/S. MINDTREE LTD., (PREVIOUSLY KNOWN AS M/S. AZTECSOFT LTD., NOW MERGED WITH M/S. MINDTREE LTD.,), GLOBAL VILLAGE, RVCE POST, MYSORE ROAD, BENGALURU-560 059. PAN: AABCA 2122R VS. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-12(1), BENGALURU. APPELLANT RESPONDENT ASSESSEE BY : SHRI. CHYTANYA K. K, ADVOCATE REVENUE BY : SMT. PREETHI GARG, CIT-DR DATE OF HEARING : 03.01.2017 DATE OF PRONOUNCEMENT : 31.03.2017 O R D E R PER SUNIL KUMAR YADAV, JUDICIAL MEMBER THIS APPEAL IS PREFERRED BY THE ASSESSEE AGAINST THE ORDER OF THE CIT(A) MAINLY ON THE FOLLOWING GROUNDS: IT(TP)A NO.1434/BANG/2010 PAGE 2 OF 9 1. THAT THE ORDERS OF THE AUTHORITIES BELOW, THE ORDER OF THE TRANSFER PRICING OFFICER (TPO) AND THE DIRECTIONS OF THE DISPUTE RESOLUTION PANEL (DRP) IN SO FAR AS IT IS AGAINST THE APPELLANT IS AGAINST THE LAW, FACTS, CI RCUMSTANCES, NATURAL JUSTICE, EQUITY, WITHOUT JURISDICTION, BAD IN LAW AND ALL OTHER KNOW N PRINCIPLES OF LAW. 2. THE DIRECTIONS OF THE LEARNED DRP U/S 144C OF THE A CT ARE CLEARLY UNSUSTAINABLE IN LAW IN AS MUCH AS THEY HAVE BEEN ISSUED IN A MECHAN ICAL MANNER WITHOUT CONSIDERING THE RELEVANT MATERIALS, EVIDENCES AND DATA AND WITH OUT APPLICATION OF MIND. CONSEQUENTLY THE ADDITIONS BASED ON SUCH DIRECTIONS REQUIRES TO BE DELETED. 3. THE LEARNED AUTHORITIES BELOW ERRED IN MAKING AN AS SESSMENT ON NON-EXISTENT COMPANY IGNORING THE DECISIONS OF THE SUPREME COURT IN THE CASE OF MARSHALL SONS & CO. (INDIA) LTD. - 223 ITR 809 AND SARASWATHI INDUS TRIAL LIMITED VS. CIT - 186 ITR 278 AND VARIOUS BENCHES OF THE INCOME TAX APPELLATE TRIBUNAL. 4. THE LEARNED AUTHORITIES BELOW FAILED TO APPRECIATE THAT CONSEQUENT TO APPROVAL OF THE SCHEME OF MERGER/AMALGAMATION THE COMPANY CEASES TO EXISTS IN THE EYE OF LAW FROM THE DATE THE MERGER/AMALGAMATION IS MADE EFFECTIVE, IN THIS CASE THE EFFECTIVE DATE IS 01.04.2009. HENCE, THE ORDER AND PROCEEDINGS ARE BA D IN LAW REQUIRES TO BE QUASHED. 5. THAT THE TOTAL INCOME COMPUTED AND THE TOTAL TAX CO MPUTED IS HEREBY DISPUTED. 6. THAT THE COMMUNICATION / ORDER OF THE TRANSFER PRIC ING OFFICER IS WITHOUT JURISDICTION, AGAINST THE LAW, FACTS, CIRCUMSTANCES, NATURAL JUST ICE, EQUITY AND ALL OTHER KNOWN PRINCIPLES OF LAW. 7. THE LEARNED AUTHORITIES BELOW ERRED IN BRINGING TO TAX A SUM OF RS.11,21,88,319/- UNDER SECTION 92CA OF THE ACT AS PER THE COMMUNICAT ION/ORDER OF THE TRANSFER PRICING OFFICER AND DIRECTIONS OF DRP. 8. THAT NO COPY OF THE REASONS RECORDED BEFORE FOR MAK ING THE REFERENCE TO THE TPO HAS BEEN FURNISHED NOR COPY OF THE APPROVAL OBTAINED FO R MAKING THE REFERENCE HAS BEEN IT(TP)A NO.1434/BANG/2010 PAGE 3 OF 9 FURNISHED TO THE APPELLANT. 9. THAT THE FINDINGS, REASONS, CONCLUSIONS OF THE TPO ARE A BUNDLE OF CONTRADICTIONS AND CLEARLY UNSUSTAINABLE IN LAW AND THE ORDER U/S 92CA IS TOTALLY AGAINST THE CIRCULAR AND LEGISLATIVE INTENT. 10. NO OPPORTUNITY WAS GIVEN TO THE ASSESSEE BEFORE MAK ING THE REFERENCE AND BEFORE ACCORDING THE APPROVAL BY THE CIT. THIS IS AGAINST THE PRINCIPLES SET OUT BY THE HON'BLE SUPREME COURT IN RAJESH KUMAR VS. DCIT - 28 7 ITR 91 AND SAHARA INDIA (FIRM) V CIT - 300 ITR 403 (SC). 11. THAT THE LEARNED AUTHORITIES BELOW ERRED IN NOT ALL OWING THE DEDUCTION U/S 10A FOR THE ADJUSTMENT MADE IN RESPECT OF BUSINESS CARRIED ON B Y THE UNDERTAKING ELIGIBLE FOR DEDUCTION U/S 10A. THE APPELLANT PRAYS FOR ALLOWING OF THE DEDUCTION AS PER LAW. 12. THE TPO/AO ERRED IN IGNORING THE METHOD FOLLOWED BY THE APPELLANT. THE TPO/AO OUGHT TO HAVE ADDUCED COGENT REASONS FOR REJECTING THE METHOD FOLLOWED BY THE APPELLANT BEFORE SUBSTITUTING AND PRESCRIBING A NEW METHOD. 13. THE ONUS IS ON THE DEPARTMENT TO ESTABLISH THERE IS ANY TAX AVOIDANCE AND IT IS ESSENTIAL THAT INCONTROVERTIBLE EVIDENCES ARE IN TH E POSSESSION OF THE AO BEFORE A REFERENCE IS MADE AS HELD BY THE SUPREME COURT IN 1 31 ITR 597 AND FURTHER HAS ERRED IN NOT RELYING ON THE CIRCULAR. 14. THE TRANSFER PRICING OFFICER / ASSESSING OFFICER ER RED IN IGNORING THE FACT THAT THE AMOUNT INCURRED TOWARDS MARKETING EXPENDITURE IS IN THE NATURE OF ADMINISTRATIVE HELP AND THE PROFIT MARGIN PAID WAS VERY MUCH REASO NABLE HAVING REGARD TO THE COMMERCIAL ACTIVITY AND THE LAW ON THE SUBJECT. 15. THE TPO / AO ERRED IN HOLDING THAT THERE IS NO REQU IREMENT TO INCUR MARKETING EXPENDITURE AND THEREBY ERRED IN MAKING ADJUSTMENT FOR THE ENTIRE EXPENSES. IT(TP)A NO.1434/BANG/2010 PAGE 4 OF 9 16. THE TPO ERRED IN IGNORING THE FACT THAT BEFORE MAKI NG AN ADJUSTMENT NEITHER A COMPARABLE TRANSACTION ENTERED INTO HAS BEEN IDENTI FIED NOR HAS THE ENTERPRISE WHICH HAS ENTERED SUCH A TRANSACTION BEEN IDENTIFIED. UNL ESS THESE TWO ARE IDENTIFIED AS EXPLAINED IN RULE 10B(2) NO FURTHER PROCEEDINGS ARE POSSIBLE. IN THIS CASE, IN VIEW OF NON-IDENTIFICATION, THE ENTIRE ORDER REQUIRES TO BE VACATED. 17. THE TPO/AO ERRED IN REFUSING TO RECOGNIZE THAT THER E WAS NO METHOD PRESCRIBED UNDER THE ACTOR THE RULES, HAVING REGARD TO THE NAT URE OF TRANSACTION ENTERED INTO BY THE ASSESSEE. CONSEQUENTLY, AS PER LAW NO UNCONT ROLLABLE ARMS LENGTH TRANSACTION COULD BE IDENTIFIED. 18. THE AUTHORITIES BELOW HAVE FAILED TO IDENTIFY A COM PARABLE IN TERMS OF RULE 10B(3). 19. THE AUTHORITIES BELOW FAILED TO MAKE THE NECESSARY ADJUSTMENT AS IS REQUIRED IN TERMS OF RULE 10B(2). 20. THE LEARNED AUTHORITIES BELOW ERRED IN NOT FOLLOWIN G HIS OWN ORDER RENDERED FOR THE PREVIOUS YEAR I.E., AY 2005-06 WHEN THE ISSUES INVO LVED RE SIMILAR, THEREBY IGNORING THE DECISION OF THE MADRAS HIGH COURT IN 110 ITR 45 3. 21. THE LEARNED AUTHORITIES BELOW ERRED IN REDUCING TEL ECOMMUNICATION EXPENSES OF RS.1,27,00,473/- FROM THE EXPORT TURNOVER AND THERE BY REDUCING CLAIM MADE U/S 10A OF THE ACT. 22. WITHOUT PREJUDICE, THE LEARNED AUTHORITIES BELOW, W HILE COMPUTING THE DEDUCTION UNDER SECTION 10A OF THE ACT, ERRED IN NOT EXCLUDIN G THE ABOVE AMOUNT FROM THE EXPRESSION TOTAL TURNOVER, A DENOMINATOR IN THE M ATHEMATICAL FORMULA PRESCRIBED FOR COMPUTING THE DEDUCTION UNDER THE SECTION. 23. THE INCOME COMPUTED UNDER THE HEAD BUSINESS BY THE LEARNED ASSESSING OFFICER IS NOT AS PER LAW AND REQUIRES TO BE REJECTED. IT(TP)A NO.1434/BANG/2010 PAGE 5 OF 9 24. THE APPELLANT DENIES LIABILITY FOR INTEREST U/S 234 B ON THE ADJUSTMENT MADE U/S 92CA OF THE ACT AND RELIES ON THE DECISION OF THE SUPREM E COURT IN THE CASE OF KWALITY BISCUITS LTD VS CIT REPORTED IN 284 ITR 434. 25. THE APPELLANT DENIES THE LIABILITIES FOR INTEREST U /S 234 B. FURTHER PRAYS THAT THE INTEREST IF ANY SHOULD BE LEVIED ONLY ON RETURNED I NCOME. 26. NO OPPORTUNITY HAS BEEN GIVEN BEFORE LEVY OF INTERE ST U/S 234B & 234D OF IT ACT. 27. WITHOUT PREJUDICE TO THE APPELLANT'S RIGHT OF SEEKI NG WAIVER BEFORE APPROPRIATE AUTHORITY THE APPELLANT BEGS FOR CONSEQUENTIAL RELI EF IN THE LEVY OF INTEREST U/S 234B & 234D. 28. FOR ABOVE AND OTHER GROUNDS AND REASONS WHICH MAY B E SUBMITTED DURING THE COURSE OF HEARING OF THIS APPEAL, THE ASSESSEE REQUESTS TH AT THE APPEAL BE ALLOWED AS PRAYED AND JUSTICE BE RENDERED. 2. DURING THE COURSE OF HEARING, THE LEARNED COUNSE L FOR THE ASSESSEE HAS ALSO RAISED THE ADDITIONAL GROUNDS WHICH ARE ALSO REPROD UCED HEREIN UNDER: 'GROUND 29 THE LEARNED ACIT, CIRCLE 11 (1) IS NOT JUSTIFIED IN MAKING REFERENCE TO LEARNED TPO UNDER SECTION 92CA (1), BY WRONGLY ASSU MING THE JURISDICTION OVER THE APPELLANT, WHEN THE JURISDICTION OVER APPE LLANT VESTED WITH THE LEARNED DCIT, CIRCLE 12 (1). 'GROUND 30 THE REFERENCE MADE UNDER SECTION 92CA (1) IS BAD IN LAW AS THE PRIOR APPROVAL HAS BEEN OBTAINED FROM THE NON-JURISDICTIONAL COMMI SSIONER OF INCOME TAX-I, WHEN THE JURISDICTION OVER APPELLANT VESTED WITH TH E LEARNED COMMISSIONER OF INCOME TAX-III. GROUND 31 THE ORDER OF THE HONOURABLE DRP IS INVALID AS THERE WAS 'CONFLICT OF INTEREST', AS ONE OF THE MEMBERS OF THE DRP WAS THE AUTHORITY WHO GRANTED APPROVAL FOR MAKING REFERENCE UNDER SECTION 92CA. IT(TP)A NO.1434/BANG/2010 PAGE 6 OF 9 GROUND 32 WITHOUT PREJUDICE TO ABOVE, THE LEARNED ASSESSING O FFICER HAS MADE REFERENCE UNDER SECTION 92CA (1) WITHOUT SATISFYING THE CONDI TIONS OF SECTION 92CA (1). GROUND 33 THE HONOURABLE DRP IS NOT JUSTIFIED IN REFUSING TO ALLOW THE STANDARD DEDUCTION +/- 5% AS PER THE SECOND PROVISO TO SECTION 92C (2) OF THE IT ACT. GROUND 34 THE HONOURABLE DRP IS NOT JUSTIFIED IN UPHOLDING TH E ACTION OF THE LEARNED ASSESSING OFFICER IN SETTING OFF OF LOSS OF NON-STP I UNIT OF RS. 90,74,111/- AGAINST THE INCOME OF STPI UNIT EVEN BEFORE ALLOWING DEDUCT ION UNDER SECTION 10A OF THE IT ACT. 3. DURING THE COURSE OF HEARING, THE LEARNED COUNSE L FOR THE ASSESSEE HAS INVITED OUR ATTENTION TO THE FACT THAT ASSESSMENT WAS FRAME D IN THE NAME OF M/S. AZTECSOFT LTD., WHEREAS THIS COMPANY HAS BEEN MERGED WITH M/S . MINDTREE LTD., W.E.F. 1.4.2009. THEREFORE THE ASSESSMENT FRAMED IN THE N AME OF THE MERGING COMPANY IS NOT SUSTAINABLE IN THE EYES OF LAW HENCE DESERVES T O BE QUASHED. IN SUPPORT OF HIS CONTENTION THE LEARNED COUNSEL FOR THE ASSESSEE HAS PLACED THE RELIANCE UPON THE JUDGMENT OF THE JURISDICTIONAL HIGH COURT IN THE CA SE OF CIT VS. INTELL TECHNOLOGIES INDIA PVT. LTD., REPORTED AT 2015-TIOL-748-HC-KAR-I T AND THE JUDGMENT OF DELHI HIGH COURT IN THE CASE OF CIT VS. DIMENTION APPEALS PVT. LTDS., REPORTED AT 2014-IT-TIOL- 185-DEL-IT. 4. THE LEARNED DR ON THE OTHER HAND HAS SUBMITTED T HAT NOTICE UNDER SECTION 143(2) WAS ISSUED BEFORE THE EFFECTIVE DATE UPON TH E ASSESSEE I.E., M/S. AZTECSOFT LTD. AFTER THE MERGER THE REPRESENTATIVE OF THE MI NDTREE LTD., THE PRESENT ASSESSEE HAS APPEARED AND REPRESENTED THE CASE. THE AO HAS ALSO TAKEN THE COGNIZANCE OF IT(TP)A NO.1434/BANG/2010 PAGE 7 OF 9 THESE FACTS AND COMPLETED THE ASSESSMENT IN THE NAM E OF M/S. AZTECSOFT LTD., (NOW MERGED WITH M/S. MINDTREE LTD.,). THE ASSESSEE ITS ELF HAS FILED THE OBJECTION BEFORE THE DRP IN THE NAME OF M/S. AZTECSOFT LTD., EVEN AT THAT STAGE HE DID NOT RAISE ANY OBJECTION THAT THE DRAFT ASSESSMENT ORDER CANNOT BE ISSUED IN THE NAME OF M/S. AZTECSOFT LTD., WHICH HAS BEEN MERGED WITH M/S. MIN DTREE LTD. THEREAFTER THE DRP HAS ALSO PASSED AN ORDER IN THE NAME OF M/S. AZTECS OFT LTD., MENTIONING IN THE BRACKET NOW MERGED WITH M/S. MINDTREE LTD., . THEREFORE, THE AO HAS TAKEN THE COGNIZANCE OF ALL THESE FACTS BUT INADVERTENTLY IN THE ASSESSMENT ORDER NAME OF THE ASSESSEE WAS MENTIONED AS M/S. AZTECSOFT LTD., IN P LACE OF M/S. MINDTREE LTD. BUT IN BRACKET HE HAS ALSO MENTIONED THAT NOW MERGED WITH M/S. MINDTREE LTD. THEREFORE, THE ASSESSMENT CANNOT BE HELD TO BE VOID ONLY FOR THE REASONS THAT NAME OF M/S. MINDTREE LTD., WAS NOT MENTIONED AS AN ASSE SSEE. 5. IN OPPUGNATION, THE LEARNED COUNSEL FOR THE ASSE SSEE HAS CONTENDED THAT IN THE ASSESSMENT ORDER, THE PAN NUMBER WAS ALSO THE G IVEN OF M/S. AZTECSOFT LTD., AND NOT THE M/S. MINDTREE LTD. THEREFORE IT CANNOT BE SAID THAT ASSESSMENT WAS FRAMED IN THE NAME OF M/S. MINDTREE LTD., IN WHICH EARLIER ASSESSEE M/S. AZTECSOFT LTD., HAS BEEN MERGED. 6. HAVING CAREFULLY EXAMINED THE ORDERS OF THE LOWE R AUTHORITIES IN THE LIGHT OF THE RIVAL SUBMISSIONS, WE FIND THAT UNDISPUTEDLY THE AS SESSMENT PROCEEDING WAS STARTED BEFORE 1.4.2009, THE EFFECTIVE DATE FOR THE MERGER/ AMALGAMATION. IN RESPONSE THERETO, THE REPRESENTATIVE OF THE MERGING COMPANY I.E., M/S. AZTECSOFT LTD., WAS IT(TP)A NO.1434/BANG/2010 PAGE 8 OF 9 APPEARED AND AFTER MERGER THE REPRESENTATIVE OF THE MERGED COMPANY ALSO APPEARED. THE FACTS OF MERGER WAS BROUGHT TO THE N OTICE OF THE AO. THE AO ACCORDINGLY COMPLETED THE DRAFT ASSESSMENT IN THE N AME OF THE MERGING COMPANY I.E., M/S. AZTECSOFT LTD., BUT IN BRACKET HE MENTIO NED THE FACT THAT THIS COMPANY HAS BEEN MERGED WITH M/S. MINDTREE LTD. BEFORE THE DRP , THE ASSESSEE DID NOT RAISE THE LEGAL OBJECTION. HE HOWEVER FILED AN APPEAL IN THE NAME OF M/S. AZTECSOFT LTD., GIVING ITS PAN NUMBER. HE HOWEVER MENTIONED IN BRA CKET THAT M/S. AZTECSOFT LTD., HAS BEEN MERGED WITH M/S. MINDTREE LTD. ACCORDINGL Y, THE DRP HAS ALSO PASSED AN ORDER IN THE NAME OF M/S. AZTECSOFT LTD., (NOW MERG ED WITH M/S. MINDTREE LTD.,). EVEN BEFORE THE TRIBUNAL, THE ASSESSEE HAS FILED AN APPEAL IN THE NAME OF M/S. AZTECSOFT LTD., (NOW MERGED WITH M/S. MINDTREE LTD.,). 7. IN THE LIGHT OF THESE FACTS, WE ARE OF THE VIEW THAT FOR MISTAKE IN PASSING THE ORDER IN THE NAME OF M/S. AZTECSOFT LTD., THE AO IS NOT ONLY RESPONSIBLE BUT THE ASSESSEE IS ALSO EQUALLY RESPONSIBLE FOR NOT POINTI NG OUT THE LEGAL COMPLICATION OF THE ASSESSMENT. IT APPEARS THAT THE ASSESSEE WAS SIMPL Y WAITING FOR THE ASSESSMENT ORDER TO BE PASSED IN THE WRONG NAME AND THEREAFTER TAKE A PLEA BEFORE THE TRIBUNAL. UNDER THE GIVEN FACTS AND CIRCUMSTANCES OF THE CASE , WE ARE OF THE VIEW THAT UNDISPUTEDLY, THE ASSESSMENT ORDER SHOULD HAVE BEEN PASSED IN THE NAME OF MERGED COMPANY I.E., M/S. MINDTREE LTD., AGAINST IT S PAN NUMBER AND NOT IN THE NAME OF THE MERGING COMPANY. THE ASSESSMENT WAS FR AMED IN THE NAME OF THE MERGING COMPANY GIVING ITS PAN NUMBER WHEREBY THE L IABILITY ACCRUED AGAINST THE MERGED COMPANY AFTER THE MERGER. THEREFORE, THE AS SESSMENT ORDER FRAMED IS NOT SUSTAINABLE IN THE EYES OF THE LAW BUT FOR THIS EFF ECT THE REVENUE CANNOT BE HELD IT(TP)A NO.1434/BANG/2010 PAGE 9 OF 9 RESPONSIBLE ALONE. WE ACCORDINGLY SET ASIDE THE OR DER AND RESTORE THE MATTER TO THE FILE OF THE AO WITH A DIRECTION TO PASS A FRESH ORD ER IN THE NAME OF THE MERGED COMPANY AFTER AFFORDING AN OPPORTUNITY OF BEING HEA RD TO THE ASSESSEE. SINCE WE HAVE RESTORED THE MATTER TO THE AO FOR PASSING A FR ESH ORDER, THE OTHER GROUNDS RAISED IN THIS APPEAL BECOMES ACADEMIC AND WE ACCOR DINGLY DECLINE TO ADJUDICATE THE SAME. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED FOR STATISTICAL PURPOSE. PRONOUNCED IN THE OPEN COURT ON THIS 31 ST DAY OF MARCH, 2017. SD/- (S. JAYARAMAN) SD/- (SUNIL KUMAR YADAV) ACCOUNTANT MEMBER JUD ICIAL MEMBER BANGALORE. DATED: 31 ST MARCH, 2017. /NS/ COPY TO: 1. APPELLANTS 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, ITAT, BANGALORE.