M/s Genisys Integrating Systems (India) Pvt. Ltd., Bangalore V. DCIT, Bangalore

ITA 1571/BANG/2013

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 0272 (ITAT-BANGALORE)
• Duration Of Justice: 2 year(s) 7 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-07-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2004-2005
• Appeal Filed On: 18-11-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: PADAMCH; KHINCHA CA DR P K SRIHAR
• Keywords: Depreciation; Transfer pricing; Opportunity of being heard
• Section: 234B

Judgement Text

ITA NOS.1571 & 1661(B)/2012 IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH A, BANGALORE BEFORE SHRI A. K. GARODIA, ACCOUNTANT MEMBER AND SHRI VIJAY PAL RAO, JUDICIAL MEMBER IT (TP) A NO.1571(BANG) 2013 (ASSESSMENT YEAR : 2004-05) M/S GENISYS INTEGRATING SYSTEMS (INDIA.) PVT. LTD., PLOT NO.43-46 & 33-36, EPIP AREA, WHITEFIELD, BANGALORE-560 066 NO.AAACG6635N APPELLANT VS THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-11(3), BANGALORE RESPONDENT AND (IN IT(TP)A NO.1661(BANG)/2013 (ASSESSMENT YEAR ; 2004-05) (BY REVENUE) ASSESSEE BY : SHRI PADAMCH AND KHINCHA, CA REVENUE BY : DR. P.K.SRIHARI, ADDL.CIT DATE OF HEARING : 12-07-2016 DATE OF PRONOUNCEMENT: : 15-07-2016 O R D E R PER SHRI A.K.GARODIA, AM THESE ARE CROSS APPEALS FILED BY THE ASSESSEE AND T HE REVENUE WHICH ARE DIRECTED AGAINST THE ORDER OF THE LD. CIT (A)-IV, BANGALORE DATED 09-10-2013 FOR THE ASSESSMENT YEARS : 2004-0 5 RESPECTIVELY. ITA NOS.1571 & 1661(B)/2012 2. FIRST WE TAKE UP THE APPEAL OF THE REVENUE. THE GROUNDS RAISED BY THE REVENUE IN ITS APPEAL ARE AS UNDER 1. THE ORDER OF THE LEARNED CIT(A) IN SO FAR AS IT IS PREJUDICIAL TO THE INTEREST OF REVENUE, IS OP POSED TO LAW AND FACTS AND CIRCUMSTANCES OF THE CASE. 2 THE CIT(A) ERRED IN DIRECTING THE ASSESSING OFFICE R TO FOLLOW THE RATIO LAID DOWN BY THE HONBLE COURT IN THE CASE OF YOKOGAWA INDIA LTD., 341 ITR 385(KAR.) AND ALLOW THE CLAIM OF THE ASSESSEE OF TH E DEDUCTION U/S 10A WITHOUT SETTING OFF THE LOSSES OF RS.59,43,230/- OF UNDERTAKING NO.2 WITH THE PROFITS OF THE UNDERTAKING NO.1 WITHOUT APPRECIATING THE FACT THAT THE DECISION OF THE KARNATAKA HIGH COURT HAS NOT REACHED FINALITY AS AN SLP HAS BEEN PREFERRED AGAINST THE SAID DECISION. 3. THE CIT(A) ERRED IN DIRECTING THE AO TO ALLOW THE CLAIM OF THE ASSESSEE U/S 10A WITHOUT SETTING OFF THE CURRENT YEAR LOSS OF THE OTHER UNITS AND TH E BROUGHT FORWARD LOSSES BY RELYING ON THE DECISION O F THE JURISDICTIONAL HIGH COURT IN THE CASE OF YOKOGAWA INDIA LTD., WITHOUT APPRECIATING THE FACT THAT THE RELIEF ALLOWED IS A DEDUCTION AND NOT AN EXCLUSION FROM THE TOTAL INCOME WHICH IS ALSO CLAIMED BY THE BOARDS CIRCULAR NO.7/DV/2013?. 4. FOR THESE AND OTHER GROUNDS THAT MAY BE URGED AT THE TIME OF HEARING, IT IS HUMBLY PRAYED THAT THE ORDER OF THE CIT(A) BE REVERSED AND THAT O F THE ASSESSING OFFICER MAY BE RESTORED . 3. LEARNED DR OF THE REVENUE SUPPORTED THE ASSESSM ENT ORDER, WHEREAS THE LD. AR OF THE ASSESSEE SUPPORTED THE OR DER OF THE LD. CIT(A). HE ALSO SUBMITTED THAT THIS ISSUE IS COVERED IN FAV OUR OF THE ASSESSEE BY THE JUDGMENT OF THE HONBLE KARNATAKA HIGH COURT RE NDERED IN THE CASE OF CIT VS YOKOGAWA INDIA LTD., 341 ITR 385(KAR.). HE HAS ALSO SUBMITTED THAT ON PAGES 430 TO 446 IS A TRIBUNAL OR DER RENDERED IN THE CASE OF M/S MINDTECK (INDIA) LTD. IN ITA NO.1054/BA NG/2013 DATED 04- ITA NOS.1571 & 1661(B)/2012 07-2014 AND IN THIS CASE, THE TRIBUNAL HAD FOLLOWED THE JUDGMENT OF THE HONBLE KARNATAKA HIGH COURT RENDERED IN THE CA SE OF M/S YOKOGAWA INDIA LTD., (SUPRA) AND THEREFORE, IN THE PRESENT CASE ALSO, THIS ISSUE SHOULD BE DECIDED IN FAVOUR OF THE ASSES SEE. 4. WE HAVE CONSIDERED RIVAL SUBMISSIONS. WE FIND THAT THE ISSUE INVOLVED IN THE APPEAL OF THE REVENUE IS WHETHER DE DUCTION U/S 10A OF THE IT ACT, SHOULD BE COMPUTED WITHOUT SETTING OFF THE LOSSES OF UNDERTAKING NO.2 WITH THE PROFITS OF UNDERTAKING NO .1. IN THE CASE OF M/S YOKOGAWA INDIA LTD., (SUPRA) ALSO, THE ISSUE IN VOLVED WAS SIMILAR. IN THAT CASE, IT WAS HELD BY THE HONBLE KARNATAKA HIGH COURT THAT DEDUCTION/EXEMPTION U/S 10A HAS TO BE ALLOWED WITHO UT SETTING OFF OF BROUGHT FORWARD UNABSORBED LOSSES AND DEPRECIATION FROM EARLIER ASSESSMENT YEAR OR CURRENT ASSESSMENT YEAR EITHER I N THE CASE OF NON STP UNITS OR IN THE CASE OF VERY SAME UNDERTAKING. SINCE NO DIFFERENCE IN FACTS COULD BE POINTED OUT BY THE LEARNED DR OF THE REVENUE, WE DECLINE TO INTERFERE WITH THE ORDER OF THE LD. CIT( A) ON THIS ISSUE BY RESPECTFULLY FOLLOWING THIS JUDGMENT OF THE HONBLE KARNATAKA HIGH COURT RENDERED IN THE CASE OF CIT VS M/S YOKOGAWA INDIA LTD., (SUPRA). 5. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED. 6. THE GROUNDS RAISED BY THE ASSESSEE ARE AS UNDER ; 1. THE O R DE R O F THE LEARN E D COM M ISS ION ER O F I N C O ME TA X (APPEALS) - IV TO TH E E X TENT PREJUD I CIAL TO THE APP E LL A N T I S B AD IN LA W . ITA NOS.1571 & 1661(B)/2012 2.THE L E ARNED DEPUTY COMMIS SI ONER O F IN C OM E TAX , CI R C L E-I 1 ( 3 ) , BAN GAL O RE (HEREIN AFTER REFERRED AS ' A S SE S SING OFFICER ') , LEA R NE D A DDIT ION A L DI REC T O R O F INCOME TA X (TRANSFER PR I C I NG) - I (H E REIN AFT ER REFE RRE D AS ' T R ANSF E R PRIC IN G OFFICER ' ) , BANGALORE AND THE LEARN E D C OMMI SS ION ER OF INCO M E TAX ( APP E A LS) - IV (COLL EC TI VE LY REFERRED AS ' LOW E R AUTHORITIES ' ) H AVE ER R ED IN PA S S I NG TH E O R D E R S IN TH E MANNE R P A SSED BY TH E M . TH E ORD ERS B EI N G B AD IN LAW A R E L I ABL E TO B E QUASHED . 3 . THE LE A RN E D A SS ESSING OFFIC E R H AS ERR E D I N MAKIN G A REFE R E N CE T O TR AN S F E R PR I CI N G OFFICER FOR DETERMINING ARM ' S LE NGTH PRICE WI THOU T DEM O NST RAT I N G AS TO W H Y OR HOW IT WAS NECESSARY AND EXPEDIENT TO DO SO . THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) - IV HAS ERRED IN CONFIRMING THE ACTION OF THE A SSE S S ING OFFICER . 4. THE LOWER AUTHORITIES HAVE ERRED IN: A. PASSING THE ORDER WITHOUT DEMONSTRATING THAT APP ELLANT HAD MOTIVE OF TAX EVASION. B. NOT APPRECIATING THAT THE CHARGING OR COMPUTATIO N PROVISION RELATING TO INCOME UNDER THE HEAD 'PROFIT S & GAINS OF BUSINES S O R PROFESSION ' DO NOT REFER TO OR INCLUDE THE AMOUNTS COMPUTED UND E R CHAPTER X AND THEREFOR E THE ADDITION MADE UNDER CHAPTER X IS BAD IN LAW . 5. THE LOWER AUTHORITIES HAVE ERRED IN A. COMPUTING THE ARM ' S LENGTH PRICE BASED ON THE DAT A FOR THE FINANCIAL Y EA R 2003-04 OF THE COMPARABLES , WHICH WAS NO T AVA I LABLE WH E N THE A PP E LL A NT UNDERTOOK TRANSFER PRICING DOCUMENTATION AND REPORTING OBLIGAT I ON S ; B. REJECTING THE COST PLUS METHOD ADOPTED BY THE AP PELLANT AND ADOPTING TRANSACTIONAL NET MARGIN METHOD AS THE MOST APPROPRIATE METHOD . C. REJECTING THE COMPARABLES SELECTED BY THE APPELL ANT ON UNJUSTIFIABLE GROUNDS; D. IGNORING THE ADDITIONAL COMPARABLES PROPOSED BY THE APPELLANT DURING THE COURSE OF APPEAL PROCEEDINGS ; AND E. REJECTING THE TRANSFER PRICING ANALYSIS UNDERTAK EN BY THE APPELLANT ON UNJUSTIFIABLE GROUNDS . 6.THE LOWER AUTHORITIES HAVE ERRED IN ITA NOS.1571 & 1661(B)/2012 A. PERFORMING FRESH TRANSFER PRICING ANALYSIS AND A DOPTING INAPPROPRIATE FILTERS IN DOING FRESH TRANSFER PRICI NG ANALYSIS . B. ADOPTING COMPANIES AS COMPARABLES EVEN THOUGH TH EY ARE NOT COMPARABL E TO THE APPELLANT . C. NOT APPRECIATING THAT THE LAW DOES NOT COMPEL AD OPTING MANY (OR ANY MINIMUM) COMPANIES AS COMPARABLES AND THAT THE APPELLANT COULD JUSTIFY THE PRICE PAID/CHA RGED ON THE BASIS OF ANYONE COMPARABLE ONLY . D. NOT MAKING PROPER ADJUSTMENT FOR ENTERPRISE LEVE L AND TRANSACTIONAL LEVEL DIFFERENCES BETWEEN THE APPELLA NT AND THE COMPARABLE COMPANIES . E. NOT GRANTING ADJUSTMENT TOWARDS UNDER UTILISATIO N OF CAPACITY / MANPOWER . 7.THE LOWER AUTHORITIES HAVE ERRED IN NOT APPRECIAT ING THAT INTEREST U/S 234B AND 234D LEVIED IN THE ASSESSMENT ORDER IS NOT SO LEVIABL E BASED UPON THE FACT S AND CIRCUMSTANCES OF THE CASE. PRAYER 8. ON AN OVERALL CONSIDERATION OF THE FACTS OF THE CASE , AND THE LAW APPLICABLE , THE ALP AS DETERMINED BY THE TRANSFER PRICING OFFICER , AS ADOPTED BY THE ASSESSING OFFICER AND AS CONFIRMED BY THE CIT(A) BEING NOT CORRECT IS TO BE QUASHED AND THE FIGURES AS DETERMINED AND RETURNED BY THE APPELLANT BEING CORRECT ARE TO BE ACCEPTED. 9. INTEREST LEVIED U/S 234B AND 234D BE DELETED . THE APPELLANT SUBMITS THAT EACH OF THE ABOVE GROUND S/ SUB- GROUNDS ARE INDEPENDENT AND WITHOUT PREJUDICE TO ON E ANOTHER . THE APPELLANT CRAVES LEAVE TO ADD , ALTER , VARY , OMIT , SUBSTITUTE OR AMEND THE ABO V E GROUNDS OF APPEAL , AT ANY TIME BEFORE OR AT , THE TIME OF HEARING , OF THE APPEAL , SO AS TO ENABLE THE INCOME-TAX APPELLATE TRIBUNAL TO DECIDE THE APPEALS ACCORDING TO LAW . THE APPELLANT PRAYS ACCORDINGLY . 7. IT WAS SUBMITTED BY THE LD. AR OF THE ASSESSEE THAT AS PER THE ORDER OF THE TPO, THE TP ADJUSTMENT HAS BEEN MADE ONLY IN RE SPECT OF ITES SEGMENT. ITA NOS.1571 & 1661(B)/2012 HE HAS DRAWN OUR ATTENTION TO PARA-9.4 OF THE ORDER PASSED BY THE TPO AND SUBMITTED THAT ONLY THREE COMPARABLES ARE SELECTED BY THE TPO BEING.1. M/S VISHAL INFORMATION TECH LTD., 2. M/S TRICOM INDIA LTD., AND 3) M/S FORTUNE INFOTECH LTD. THEREAFTER, HE HAS DRAWN OUR ATTENTI ON TO THE TRIBUNAL ORDER RENDERED IN THE CASE OF M/S 24/7CUSTOMER.COMPVT.LTD ., VS DCIT IN ITA NO.227(BANG)/2010 DATED 09-11-2012, COPY AVAILABLE ON PAGES 340 TO 372 OF THE PAPER BOOK. IN PARTICULAR, OUR ATTENTION WAS D RAWN TO PAGE NO.361 OF THE PAPER BOOK BEING PARA NO.17.3 AND IT WAS POINTED OU T THAT AS PER THIS PARA, IT WAS HELD BY THE TRIBUNAL IN THAT CASE THAT THE FIRS T COMPARABLE I.E. M/S VISHAL INFORMATION TECHNOLOGIES LTD. SHOULD BE EXCLUDED FR OM THE LIST OF COMPARABLES. THEREAFTER, HE HAS DRAWN OUR ATTENTION TO PAGE NO.3 55 OF THE PAPER BOOK AND IN PARTICULAR PARA-15.3.3 OF THE TRIBUNAL ORDER AS PER WHICH IT WAS HELD BY THE TRIBUNAL THAT M/S TRICOM INDIA LTD. SHOULD ALSO BE EXCLUDED FROM THE LIST OF COMPARABLES. THEN, HE HAS DRAWN OUR ATTENTION TO P ARA 15.3.4 ON PAGE NO.356 AND POINTED OUT THAT AS PER THIS PARA, IT WAS HELD BY THE TRIBUNAL THAT THIS COMPANY M/S FORTUNE INFOTECH LTD., HAS UNIQUE TECHN OLOGY AND THEREFORE, CANNOT BE TAKEN AS A COMPARABLE. HE SUBMITTED THAT SINCE ALL THE THREE COMPARABLES SELECTED BY THE TPO ARE REQUIRED TO BE EXCLUDED AS PER THIS TRIBUNAL ORDER, THE TP STUDY UNDERTAKEN BY THE ASSE SSEE SHOULD BE ACCEPTED. 8. IN REPLY, IT WAS SUBMITTED BY THE LD. DR OF THE REVENUE THAT IF IT IS HELD THAT ALL THE COMPARABLES SELECTED BY THE TPO ARE TO BE EXCLUDED THEN THE MATTER HAS TO BE RESTORED BACK TO THE FILE OF THE TPO FOR A FRESH DECISION AFTER CONSIDERING OTHER SUITABLE COMPARABLES WHICH MAY BE SELECTED BY THE TPO OR MAY BE BROUGHT ON RECORD BY THE ASSESSEE BECAUSE AS PER THE TP STUDY, ASSESSEE HAS ADOPTED COST PLUS METHOD AND THE TPO H AS SELECTED TNMM AS MOST APPROPRIATE METHOD. ALTHOUGH, THE ASSESSEE HAS FURNISHED A TRIBUNAL ITA NOS.1571 & 1661(B)/2012 ORDER BASED ON WHICH THE ASSESSEE IS REQUESTING FOR EXCLUSION OF ALL THE THREE COMPARABLES SELECTED BY THE TPO BUT THIS COULD NOT BE ESTABLISHED BY THE ASSESSEE THAT COST PLUS METHOD IS MOST APPROPRIATE METHOD AS COMPARED TO TNMM. IN THE ABSENCE OF THAT, THE TP STUDY OF THE ASSESSEE CANNOT BE ADOPTED BECAUSE THE TPO HAS CONSIDERED TNMM AS THE MOST APP ROPRIATE METHOD AND NO DEFECT WOULD BE POINTED OUT BY THE LD. AR OF THE ASSESSEE IN THE SAME. HE ALSO SUBMITTED THAT THE MATTER SHOULD BE RESTORED B ACK TO THE FILE OF THE TPO FOR A FRESH DECISION ON ALL ASPECTS INCLUDING THIS ASPE CT AS TO WHETHER THE ASSESSEE IS SATISFYING EMPLOYEES COST FILTER OF 25% FOR THIS SEGMENT I.E. ITES SEGMENT. 9. WE HAVE CONSIDERED RIVAL SUBMISSIONS. WE ARE OF THE CONSIDERED OPINION, THAT IF THE ASSESSEES CLAIM IS ACCEPTED T HAT ALL THE THREE COMPARABLES SELECTED BY THE TPO ARE TO BE EXCLUDED THEN THE MAT TER HAS TO GO BACK TO THE FILE OF THE TPO FOR FRESH DECISION BECAUSE THE ASSE SSEE COULD NOT ESTABLISH THAT TNMM METHOD IS NOT THE MOST APPROPRIATE METHOD IN T HE PRESENT CASE. HENCE, WE FEEL IT PROPER THAT THE ENTIRE MATTER INVOLVED I N THE APPEAL OF THE ASSESSEE SHOULD BE RESTORED BACK TO THE FILE OF THE TPO/AO F OR FRESH DECISION AND ACCORDINGLY, WE SET ASIDE THE ORDER OF THE LD. CIT( A) ON TP ISSUE AND RESTORE THE ENTIRE MATTER BACK TO THE FILE OF THE AO/TPO FOR FR ESH DECISION WITH A DIRECTION THAT HE SHOULD EXAMINE THE FACTS OF THE PRESENT CAS E AND ALSO THE FACTS IN THE CASE OF 24/7 CUSTOMER.COM PVT. LTD. (SUPRA) AND IF THE FACTS IN THAT CASE AND IN THE PRESENT CASE ARE SIMILAR, THEN THREE COMPARA BLES SELECTED BY THE TPO IN THE PRESENT CASE ARE TO BE EXCLUDED BECAUSE, IT WAS SO HELD BY THE TRIBUNAL IN THE CASE OF 24/7 CUSTOMER.COM PVT. LTD.(SUPRA) AND IN THAT SITUATION, THE TPO HAS TO FIND OUT OTHER COMPARABLES AND THE ASSESSEE CAN ALSO BRING ON RECORD OTHER COMPARABLES AND THE TPO SHOULD PASS NECESSARY ORDER AS PER LAW AFTER PROVIDING ADEQUATE OPPORTUNITY OF BEING HEARD TO TH E ASSESSEE. ITA NOS.1571 & 1661(B)/2012 10. IN THE RESULT, APPEAL OF THE ASSESSEE STANDS A LLOWED FOR STATISTICAL PURPOSES. 11. IN THE COMBINED RESULT, THE APPEAL OF THE REVE NUE IS DISMISSED AND THE APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTIC AL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THE DATE MENT IONED ON THE CAPTION PAGE. SD/- (VIJAY PAL RAO) SD/- (A.K. GARODIA) JUDICAL MEMBER ACCOUNTANT MEMBER BANGALORE: D A T E D : 15/ 07/2016 AM* COPY TO : 1 APPELLANT 2 RESPONDENT 3 CIT(A)-II BANGALORE 4 CIT 5 DR, ITAT, BANGALORE. 6 GUARD FILE BY ORDER AR, ITAT, BANGALORE ITA NOS.1571 & 1661(B)/2012 1. DATE OF DICTATION .. 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER . 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P. S. .. 4 DATE ON WHICH THE ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT .. 5. DATE ON WHICH THE ORDER COMES BACK TO THE SR. P.S. .. 6. DATE OF UPLOADING THE ORDER ON WEBSITE .. 7. IF NOT UPLOADED, FURNISH THE REASON FOR DOING SO . 8. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK .. 9. DATE ON WHICH ORDE R DOES FOR XEROX & ENDORSEMENT . 10. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK. 11 THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER. 12 THE DATE ON WHICH THE FILE GOES TO THE DISPATCH SECTION FOR DISPATCH OF THE TRIBUNAL ORDER 13 DATE OF DISPATCH OF ORDER ITA NOS.1571 & 1661(B)/2012