DCIT, Bangalore V. M/s Rambus Chip Technologies India Pvt. Ltd., Bangalore

ITA 1501/BANG/2015

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 0227 (ITAT-BANGALORE)
• Duration Of Justice: 6 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 22-06-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 23-12-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUNIL KUMAR AGARWALA JT
• Keywords: Transfer pricing; International transaction; Corroborative evidences
• Section: 92C; 37; 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : BANGALORE BEFORE SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER AND SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER ITA NO.1501/BANG/2015 ASSESSMENT YEAR : 2008-09 THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 5(1)(1), BANGALORE. PAN: VS. M/S. RAMBUS CHIPTECHNOLOGIES INDIA PVT. LTD., IBC KNOWLEDGE PARK, 12 TH FLOOR, TOWER C AND D, # 4/1, BANNERGHATTA ROAD, BANGALORE 560 029. PAN: AACCR 8522M APPELLANT RESPONDENT APPELLANT BY : SHRI SUNIL KUMAR AGARWALA, JT. CIT(DR) RESPONDENT BY : SHRI SURYANARAYANA, ADVOCATE DATE OF HEARING : 22.06.2016 DATE OF PRONOUNCEMENT : 30.06.2016 O R D E R PER ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST TH E ORDER DATED 03.09.2015 OF THE CIT(APPEALS)-5, BENGALURU RELATIN G TO ASSESSMENT YEAR 11.01.2012. ITA NO. 1501/BANG/2015 PAGE 2 OF 7 2. THE ASSESSEE IS PRIMARILY ENGAGED IN THE BUSINES S OF DESIGNING AND DEVELOPMENT OF PRODUCTS IN RELATION TO CHIP-TO-CHIP ANALYSIS AND OTHER ELEMENTS OF SEMI COMPUTER SOFTWARE DEVELOPMENT SERV ICES TO RAMBUS INC. USA. THE COMPANY FILED ITS RETURN OF INCOME FOR TH E AY 2008-09 ON 30.09.2008 DECLARING A TOTAL INCOME OF RS.97,498 AF TER MAKING NECESSARY ADJUSTMENTS IN ACCORDANCE WITH THE PROVISIONS OF TH E INCOME-TAX ACT, 1961 [ THE ACT]. THE CASE WAS TAKEN UP FOR SCRUTINY A SSESSMENT PROCEEDINGS AND NOTICE U/S. 143(2) WAS SERVED UPON THE ASSESSEE . THE CASE WAS REFERRED TO TRANSFER PRICING OFFICER (TPO) U/S. 92C A OF THE ACT. THE TPO IN THE ASSESSMENT ORDER DATED 28.10.2011 MADE ADJUSTME NTS U/S. 92CA OF THE I.T. ACT. 3. AS PER THE ASSESSMENT ORDER, THE MARK UP PERCENT AGE APPLIED BY THE ASSESSEE COMPANY ON ITS SOFTWARE DEVELOPMENT ACTIVI TIES WAS ACCEPTED TO BE AT ARMS LENGTH. THE AO ADDED BACK THE TAX PAID ON ACCOUNT OF SALARY PAID TO EXPATRIATE EMPLOYEE BY ASSUMING THAT SUCH T AXES WERE BORNE BY THE ASSESSEE COMPANY ON BEHALF OF THE EMPLOYEE AND HENCE COULD NOT BE ALLOWED AS EXPENDITURE IN THE HANDS OF THE ASSESSEE COMPANY. THE AO ALSO REDUCED TELECOMMUNICATION CHARGES, INSURANCE E XPENSES, THE EXPENDITURE INCURRED ON FOREIGN CURRENCY FROM EXPOR T TURNOVER AND HAD NOT EXCLUDED THE SAME FROM TOTAL TURNOVER WHILE COMPUTI NG DEDUCTION U/S. 10A OF THE ACT. THE AO DISALLOWED REIMBURSEMENT OF EXP ENSES OF RS.40,41,375 CONSIDERING THE SAME AS NOT INCURRED BY THE ASSESSE E ON THE GROUND THAT ITA NO. 1501/BANG/2015 PAGE 3 OF 7 THE ASSESSEE WAS UNABLE TO SUBSTANTIATE ITS CLAIM W ITH SUPPORTING EVIDENCE AND ALSO THE ASSESSEE HAS NOT USED FOR MARK-UP IN I TS TRANSFER PRICING. 2. DURING THE APPEAL PROCEEDINGS, AS REGARDING RED UCING THE EXPENDITURE INCURRED IN FOREIGN CURRENCY ON ACCOUNT OF TELECOMMUNICATION EXPENSES AND INSURANCE EXPENSES FROM THE EXPORT TUR NOVER WHILE COMPUTING THE DEDUCTION U/S. 10A OF THE ACT, THE CI T(APPEALS) HELD THE ISSUE IN FAVOUR OF THE ASSESSEE BY FOLLOWING THE DE CISION OF THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF TATA ELXSI LTD. V. ACIT (349 ITR 98) WHEREIN IT WAS HELD THAT WHERE CERTAIN EXPENSES ARE EXCLUDED FROM THE EXPORT TURNOVER FOR THE PURPOSE OF CALCULATING DEDU CTIONS ADMISSIBLE UNDER THE ACT, SUCH EXPENSES SHOULD ALSO BE EXCLUDED FROM THE TOTAL TURNOVER AS THE EXPORT TURNOVER FORMS PART OF THE TOTAL TURNOVE R. 3. SO FAR AS PAYMENT OF INCOME TAX BY THE ASSESSEE COMPANY ON BEHALF O THE EXPAT EMPLOYEE IS CONCERNED, THE CIT(A PPEALS) FOLLOWING THE EARLIER DECISION OF THE ITAT BANGALORE IN ASSESSEE S OWN CASE FOR THE 2009-10 ALLOWED THE ASSESSEES CLAIM WHEREIN THE TR IBUNAL IN IT(TP)A NO.23/BANG/2015 BY ORDER DATED 22.7.2015 HELD AS UN DER:- WE FIND THAT IN BOTH THE ABOVE DECISIONS, IT HAS B EEN HELD THAT REMUNERATION AND THE INCOME-TAX THEREON PAID ON BEH ALF OF THE EMPLOYEE THERE IS AN ALLOWABLE EXPENDITURE U/S 37 O F THE ACT. IN VIEW OF THE SAME, WE ALLOW THE ASSESSEES GROUND OF APPEAL. ITA NO. 1501/BANG/2015 PAGE 4 OF 7 4. WITH RESPECT TO THE ISSUE OF REIMBURSEMENT OF EX PENSES, THE CIT(APPEALS) OBSERVED THAT THE RELEVANT DEBIT NOTES AND INVOICES PROVIDED BY RAMBUS INC ON WHICH BASIS REIMBURSEMENT WAS MADE RELATED TO TRAVELLING EXPENSES OF EMPLOYEES OF ASSESSEE COMPAN Y AND ALSO FOUND THAT THEY WERE USED FOR MARK-UP IN ITS TRANSFER PRI CING. THE CIT(APPEALS) THEREFORE ALLOWED THIS GROUND. 5. AGGRIEVED BY THE ORDER OF CIT(APPEALS), THE REVE NUE IS IN APPEAL BEFORE US AND HAS RAISED THE FOLLOWING GROUNDS:- 1. THE ORDER OF THE LEARNED CIT(A) IS OPPOSED TO L AW AND FACTS OF THE CASE. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE CIT(A) ERRED IN LAW IN DIRECTING THE ASSESSING OFFI CER TO REDUCE THE EXPENDITURE INCURRED ON TELECOMMUNICATION, TRAV EL ETC., INCURRED IN FOREIGN CURRENCY, BOTH FROM THE EXPORT TURNOVER AS WELL AS TOTAL TURNOVER FOR THE PURPOSE OF COMPUTATI ON OF DEDUCTION U/S 10 OF THE IT ACT WITHOUT APPRECIATING THE FACT THAT THE STATUTE ALLOWS EXCLUSION OF SUCH EXPENDITURE ONLY FROM THE ETO BY WAY OF SPECIFIC DEFINITION OF EXPORT TURNOVER AS ENVISA GED BY SUB- CLAUSE (4) OF EXPLANATION 2 BELOW SUB-SECTION 8 OF SECTION 10A. ON THE OTHER HAND, THERE IS NO SPECIFIC PROVISION I N SECTION 10A WARRANTING EXCLUSION OF THE ABOVE EXPENSES FROM THE TOTAL TURNOVER ALSO. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E THE LEARNED CIT(A) ERRED IN ALLOWING THE APPEAL OF THE ASSESSEE AS THE PAYMENT OF INCOME TAX BY THE ASSESSEE COMPANY ON BE HALF OF THE EXPAT EMPLOYEE THOUGH MAY BE IN ACCORDANCE TO THE T ERMS OF THE CONTRACT OF SERVICES, IS THE LIABILITY OF THE EMPLO YEE AND NOT THE ASSESSEE, AND THE SAME CANNOT BE CLAIMED AS AN EXPE NDITURE BY THE ASSESSEE IN ACCORDANCE TO PROVISION OF INCOME T AX ACT, 1961 R.W.S. 200 OF COMPANIES ACT,1956. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E THE LEARNED CIT(A) ERRED IN LAW DIRECTLY ADMITTING THE ADDITIONAL ITA NO. 1501/BANG/2015 PAGE 5 OF 7 EVIDENCE SUBMITTED BY THE ASSESSEE W.R.T. THE REIMB URSEMENT OF EXPENSES WITHOUT GIVING A REASONABLE OPPORTUNITY TO THE AO TO EXAMINE THE SAME, AS PER PROVISIONS OF RULE 46A. 5. FOR THESE AND OTHER GROUNDS THAT MAY BE URGED AT THE TIME OF HEARING, IT IS PRAYED THAT THE ORDER OF THE CIT( A) IN SO FAR AS IT RELATES TO THE ABOVE GROUNDS MAY BE REVERSED AND TH AT OF THE ASSESSING OFFICER MAY BE RESTORED. 6. ON THESE AND ANY OTHER GROUNDS THAT MAY BE URGED AT THE TIME OF HEARING, THE HON'BLE ITAT IS PLEADED TO QUA SH THE ORDER OF CIT(APPEALS). 6. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL ON RECORD. GROUND NO.2 RAISED BY THE REVENUE RELATES TO REDUCI NG THE EXPENDITURE INCURRED IN FOREIGN CURRENCY BOTH FROM THE TOTAL TU RNOVER AS WELL EXPORT TURNOVER FOR THE PURPOSE OF COMPUTING DEDUCTION U/S . 10A OF THE ACT. THIS ISSUE IS COVERED BY THE DECISION OF THE HON'BLE JUR ISDICTIONAL HIGH COURT IN THE CASE OF TATA ELXSI LTD. (SUPRA) AND THE CIT(APPEALS) HAS RIGHTLY FOLLOWED THE DECISION OF THE HONBLE HIGH COURT AND HENCE WE CONFIRM THE SAME. 7. GROUND NO.3 RELATES TO THE ISSUE OF PAYMENT OF I NCOME TAX BY THE ASSESSEE COMPANY ON BEHALF OF EXPAT EMPLOYEE. SINCE THE CIT(APPEALS) HAS FOLLOWED THE DECISION OF THE COORDINATE BENCH O F THIS TRIBUNAL IN ALLOWING THE ASSESSEES APPEAL ON THIS GROUND, WE F IND NO INFIRMITY IN THE ORDER OF CIT(APPEALS) AND CONFIRM THE SAME. 8. REGARDING THE NEXT ISSUE OF REIMBURSEMENT OF EXP ENSES RAISED VIDE GROUND NO.4 THAT THE CIT(APPEALS) ADMITTED ADDITION AL EVIDENCE SUBMITTED ITA NO. 1501/BANG/2015 PAGE 6 OF 7 BY THE ASSESSEE ON THIS ISSUE WITHOUT GIVING A REAS ONABLE OPPORTUNITY TO THE AO TO EXAMINE THE ISSUE ACCORDING TO THE PROVIS IONS OF RULE 46A, THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE DET AILS WERE ALREADY BEFORE THE AO AND HENCE THE PROVISIONS OF RULE 46A WOULD N OT BE APPLICABLE. THE LD. COUNSEL FOR THE ASSESSEE PRODUCED BEFORE US THE SUBMISSIONS MADE BEFORE THE TPO DATED 11.10.2011 WHICH ALSO CONTAINS THE DETAILS IN PART VIII UNDER OTHER SUBMISSIONS. THE LD. COUNSEL BR OUGHT TO OUR NOTICE THAT AFTER NOTING THE SUBMISSIONS MADE BY THE ASSESSEE, THE TPO HAD PASSED THE ORDER DATED 28.10.2011 AND HAS HELD THAT NO ADJ USTMENT IS REQUIRED U/S. 92CA TO THE ARMS LENGTH PRICE DETERMINED BY THE TA XPAYER IN RESPECT OF THE INTERNATIONAL TRANSACTIONS ENTERED INTO WITH ITS AE S DURING THE YEAR. 9. WE HAVE GONE THROUGH THE RECORDS AND PERUSED THE EVIDENCE PRODUCED BY THE LD. COUNSEL FOR THE ASSESSEE VIZ., LETTER DATED 27.7.2011 WHEREIN THE BREAK-UP OF REIMBURSEMENTS PAID TO RAMB US INC. TOTALING TO INR 13,119,306 HAS BEEN STATED IN ANNEXURE-I. WE HAVE PERUSED THE PAPERBOOK FILED BEFORE THE AO ON 11.10.2011 WHICH C ONTAINS THE DETAILS OF REIMBURSEMENT EXPENSES PAID. WE ARE OF THE OPINION THAT THERE HAS BEEN NO VIOLATION OF THE PROVISIONS OF RULE 46A AS THE A SSESSEE HAS PRODUCED THE SET OF DOCUMENTS/RELEVANT PAPERS WHICH HAVE LAT ER ON BEEN PRODUCED BEFORE THE CIT(APPEALS) ALSO. HENCE, WE DISMISS TH IS GROUND RAISED BY THE REVENUE. ITA NO. 1501/BANG/2015 PAGE 7 OF 7 10. GROUNDS NO.1, 5 & 6 ARE GENERAL IN NATURE REQUI RING NO SPECIFIC ADJUDICATION. 11. IN THE RESULT, THE APPEAL BY THE REVENUE IS DIS MISSED. PRONOUNCED IN THE OPEN COURT ON THIS 30 TH DAY OF JUNE, 2016. SD/- SD/- ( INTURI RAMA RAO ) (ASHA VIJAYARAGHAVAN ) ACCOUNTANT MEMBER JUDICIAL M EMBER BANGALORE, DATED, THE 30 TH JUNE, 2016. /D S/ COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, ITAT, BANGALORE.