Conexant Systems Private Limited (Formerly known as Conexant Systems (PB) Private Limited), Hyderabad V. Asst.CIT,Circle 1(2), Hyderabad

ITA 161/HYD/2014

• Counselvise Citation: [2015] 120 COUNSELVISE.COM (IT) 8941 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 1 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-03-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 23-02-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 03-02-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: G APARNA RAO
• Assessee Lawyers: ABHIROOP BHARGAV
• Keywords: Transfer pricing; International transaction; Wholly owned subsidiary
• Section: 143(3); 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES A : HYDERABAD BEFORE SHRI P. M. JAGTAP, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA.NO.161/HYD/2014 ASSESSMENT YEAR 2006-2007 CONEXANT SYSTEMS P. LTD., (FORMERLY KNOWN AS CONEXANT SYSTEMS (PB) P. LTD.,) HYDERABAD 500 081. PAN AAACF2723N VS. ACIT, CIRCLE 1(2) HYDERABAD. (APPELLANT) (RESPONDENT) FOR ASSESSEE : MR. KANCHUN KAUSHAL & MR. ABHIROOP BHARGAV FOR REVENUE : SMT. G. APARN A RAO DATE OF HEARING : 23.02.2015 DATE OF PRONOUNCEMENT : 11.03.2015 ORDER PER P.M. JAGTAP, A.M. THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF LEARNED ACIT, CIRCLE 1(2), HYD ERABAD (ASSESSING OFFICER) DATED 05.12.2013 PASSED UNDER S ECTION 143(3) READ WITH THE DIRECTIONS GIVEN BY THE DISPUT ES RESOLUTION PANEL (DRP) UNDER SECTION 144C (5) OF TH E I.T. ACT, 1961. 2. THE ASSESSEE IN THE PRESENT CASE IS A COMPANY WHICH IS ENGAGED IN DESIGN, DEVELOPMENT AND MODIFIC ATION SERVICES RELATED TO PROVIDING SEMI-CONDUCTORS SYSTE MS SOLUTIONS FOR SEMI CONDUCTOR BASED PRODUCTS. IT IS ALSO ENGAGED IN A BOARD DEVELOPMENT (TESTING) WHICH IS INTER-REL ATED AND INTER-CONNECTED WITH SOFTWARE DEVELOPMENT/DESIGNING OF CHIPS. PRIOR TO 01.04.2006 IT WAS KNOWN AS CONEXANT SYSTEM S (PB) P. LTD., PUNE. IT WAS WHOLLY OWNED SUBSIDIARY OF PAXON ET SYSTEMS 2 ITA.NO.161/HYD/2014 CONEXANT SYSTEMS P. LTD., HYDERABAD. INC. USA AND THERE WERE TWO OTHER SUBSIDIARIES VIZ. , CONEXANT SYSTEMS NOIDA P. LTD., NOIDA AND CONEXANT SYSTEMS I NDIA P. LTD., HYDERABAD. PURSUANT TO THE SCHEME OF AMALGAMA TION ALL THESE THREE COMPANIES GOT MERGED INTO ONE COMPANY H AVING ITS REGISTERED OFFICE AT HYDERABAD. PRIOR TO AMALGAMATI ON, CONEXANT INDIA (PB) LTD., FILED ITS RETURN OF INCOM E FOR THE YEAR UNDER CONSIDERATION IN PUNE ON 29.11.2006 DECLARING TOTAL INCOME OF RS.28,690. SINCE THE ASSESSEE HAD ENTERED INTO INTERNATIONAL TRANSACTIONS WITH ITS AES DURING THE YEAR UNDER CONSIDERATION I.E., A.Y. 2006-07, A REFERENCE DURIN G THE COURSE OF ASSESSMENT PROCEEDINGS WAS MADE BY THE A.O. TO T HE TPO FOR DETERMINING THE ARMS LENGTH PRICE OF THE SAID I NTERNATIONAL TRANSACTIONS. IN HIS REPORT SUBMITTED TO THE ASSESS ING OFFICER, T.P. ADJUSTMENTS OF RS.1.88 CRORES WAS WORKED BY TH E TPO AND ACCORDINGLY, ADDITION OF RS.1.88 CRORES WAS PROPOSE D BY THE A.O. IN THE DRAFT ASSESSMENT ORDER DATED 28.10.2010 . THE ASSESSEE APPROACHED THE DRP RAISING VARIOUS OBJECTI ONS IN RESPECT OF THE DRAFT ASSESSMENT ORDER PROPOSED BY T HE A.O. ONE OF SUCH OBJECTIONS RAISED BY THE ASSESSEE WAS T HAT IN THE ABSENCE OF NOTICE UNDER SECTION 143(2) SERVED BY TH E A.O. ON IT WITHIN THE STATUTORY TIME LIMIT, THE ENTIRE ASSESSM ENT PROCEEDINGS WERE VOID ABINITIO. THE DRP FOUND THIS OBJECTION OF THE ASSESSEE TO BE SUSTAINABLE AND DIRECTED THE A.O . TO VERIFY FROM THE RELEVANT RECORD OF THE FACTUAL POSITION AS REGARDS THE SERVICE OF NOTICE UNDER SECTION 143(2). ON VERIFICA TION, THE A.O. APPARENTLY FOUND THE CLAIM OF THE ASSESSEE TO BE CO RRECT AND DROPPED THE PROCEEDINGS INITIATED BY HIM BY ISSUING A NOTICE UNDER SECTION 143(2) AS THE SAID NOTICE WAS NOT SER VED ON THE ASSESSEE WITHIN THE STATUTORY TIME LIMIT. HE, HOWEV ER, INITIATED RE-ASSESSMENT PROCEEDINGS AND ISSUED A NOTICE UNDER SECTION 148 TO THE ASSESSEE. THEREAFTER, THE CASE OF THE AS SESSEE WAS TRANSFERRED TO HYDERABAD AFTER THE MERGER OF ALL TH E THREE 3 ITA.NO.161/HYD/2014 CONEXANT SYSTEMS P. LTD., HYDERABAD. SUBSIDIARIES AND A FRESH REFERENCE WAS MADE BY THE A.O. I.E., ACIT, CIRCLE (1), HYDERABAD TO THE TPO FOR DETERMIN ING THE ARMS LENGTH PRICE OF THE INTERNATIONAL TRANSACTIONS OF THE ASSESSEE COMPANY WITH ITS AES. ACCORDINGLY, THE TPO VIDE HIS ORDER DATED 28.12.2012 PASSED UNDER SECTION 92CA(3) OF THE ACT, DETERMINED THE ARMS LENGTH PRICE OF THE RELEVA NT INTERNATIONAL TRANSACTIONS OF THE ASSESSEE COMPANY WITH ITS AE AT RS.26,15,50,020 AS AGAINST THE PRICE OF RS.24,24 ,52,978 CHARGED BY THE ASSESSEE AND WORKED OUT THE TP ADJUS TMENT TO BE MADE IN THE CASE OF THE ASSESSEE AT RS.1,90,97,0 40. 2.1. IN THE DRAFT ASSESSMENT ORDER DATED 28.02.201 3 THE A.O. PROPOSED TO MAKE ADDITION OF RS.1,90,97,04 2 ON ACCOUNT OF T.P. ADJUSTMENT WORKED OUT BY THE TPO. H E ALSO PROPOSED A FURTHER ADDITION OF RS.16,34,950 AND RS. 34,52,446 BY RESTRICTING THE CLAIM OF THE ASSESSEE FOR DEDUCT ION UNDER SECTION 10A IN RESPECT OF PUNE UNIT AND BANGALORE U NIT RESPECTIVELY ON ACCOUNT OF REDUCTION OF COMMUNICATI ON CHARGES FROM THE EXPORT TURNOVER. AGAINST THE DRAFT ASSESSM ENT ORDER DATED 28.02.2013 PROPOSED BY THE A.O. OBJECTIONS WE RE AGAIN FILED BY THE ASSESSEE BEFORE THE DRP CHALLENGING TH E VALIDITY OF THE RE-ASSESSMENT PROCEEDINGS AS WELL AS DISPUTING THE ADDITIONS PROPOSED BY THE A.O. ON MERIT. THE DRP CO NSIDERED THE OBJECTIONS OF THE ASSESSEE ONLY IN RESPECT OF A DDITIONS PROPOSED BY THE A.O. ON MERIT AND ON SUCH CONSIDERA TIONS, DIRECTED THE A.O. NOT TO MAKE ANY ADDITION ON ACCOU NT OF DISALLOWANCE OF ASSESSEES CLAIM OF DEDUCTION UNDER SECTION 10A IN RESPECT OF PUNE AS WELL AS BANGALORE UNIT. T HE OBJECTION OF THE ASSESSEE IN RESPECT OF THE ADDITION OF RS.1, 90,97,042 ON ACCOUNT OF T.P. ADJUSTMENT HOWEVER WAS NOT FOUND TO BE SUSTAINABLE BY THE DRP. PURSUANT TO THE DIRECTIONS GIVEN BY THE DRP UNDER SECTION 144C(5) OF THE ACT VIDE ORDER DATED 4 ITA.NO.161/HYD/2014 CONEXANT SYSTEMS P. LTD., HYDERABAD. 21.11.2013, THE A.O. PASSED A FINAL ORDER UNDER SEC TION 143(3) ON 05.12.2013 MAKING ADDITION TO THE TOTAL INCOME O F THE ASSESSEE ONLY ON ACCOUNT OF T.P. ADJUSTMENT. AGGRIE VED BY THE ORDER OF THE A.O., THE ASSESSEE HAS FILED THIS APPE AL BEFORE THE TRIBUNAL. 3. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AND ALSO PERUSED THE MATERIAL ON RECORD. IN THE GRO UNDS RAISED IN THIS APPEAL, THE ASSESSEE HAS CHALLENGED THE VAL IDITY OF ASSESSMENT MADE BY THE A.O. AS WELL AS THE ADDITION MADE THEREIN ON ACCOUNT OF T.P. ADJUSTMENT ON MERIT. IN RESPECT OF THE PRELIMINARY ISSUE RAISED IN THIS APPEAL BY THE ASSESSEE CHALLENGING THE VALIDITY OF THE ASSESSMENT MADE BY THE ASSESSING OFFICER, THE LD. COUNSEL FOR THE ASSESSEE HAS INVITED OUR ATTENTION TO THE COPY OF REASONS RECORDED BY TH E A.O. PLACED AT PAGE NOS. 161 AND 162 OF THE PAPER BOOK. HE HAS POINTED THAT THE ASSESSMENT FOR THE YEAR UNDER CONS IDERATION WAS REOPENED BY THE A.O. ON THE BASIS OF TPOS ORDE R DATED 30.10.2009 PROPOSING T.P. ADJUSTMENT OF RS.1.88 CR ORES AND DISALLOWANCE OF ASSESSEES CLAIM OF DEDUCTION UNDER SECTION 10A TO THE EXTENT OF RS.3.17 CRORES. HE HAS CONTEND ED THAT NO DISALLOWANCE UNDER SECTION 10A HOWEVER HAVING BEEN MADE BY THE A.O. IN THE FINAL ORDER AS PER THE DRP DIRECTIO N AND THE REFERENCE MADE TO THE TPO IN THE ORIGINAL ASSESSMEN T PROCEEDINGS ITSELF BEING INVALID AS THE SAID ASSESS MENT PROCEEDINGS WERE HELD TO BE VOID ABINITIO IN THE ABSENCE OF SERVICE OF NOTICE UNDER SECTION 143(2) ON THE ASSES SEE WITHIN THE STATUTORY TIME LIMIT, THE REOPENING OF ASSESSME NT BY THE A.O. ITSELF IS INVALID. IN SUPPORT OF THIS CONTENTI ON, HE HAS RELIED ON THE DECISION OF THE PUNE BENCH OF ITAT IN THE CASE OF MAXIMIZE LEARNING PRIVATE LIMITED VS. ACIT, CIRCLE 11(2), PUNE ITA.NO.2234/PN/2012 DATED 02.02.2015. ALTHOUGH, IT APPEARS 5 ITA.NO.161/HYD/2014 CONEXANT SYSTEMS P. LTD., HYDERABAD. FROM THE SAID ORDER OF THE PUNE BENCH OF THIS TRIBU NAL THAT A SIMILAR ISSUE INVOLVING IDENTICAL FACTS HAS BEEN DE CIDED BY THE TRIBUNAL IN FAVOUR OF THE ASSESSEE, IT IS OBSERVED THAT THE DRP IN THE CASE OF THE ASSESSEE HAS NOT DECIDED THIS PR ELIMINARY ISSUE VIDE ITS ORDER DATED 21.11.2013 IN SPITE OF T HE FACT THAT THE SAME WAS SPECIFICALLY AND SEPARATELY RAISED BY THE ASSESSEE IN THE OBJECTIONS FILED BEFORE THE DRP. WE, THEREFO RE, CONSIDER IT FAIR AND PROPER AND IN THE INTEREST OF JUSTICE T O SET ASIDE THE IMPUGNED ORDER PASSED BY THE A.O. UNDER SECTION 143 (3) AS PER THE DIRECTIONS ISSUED BY THE DRP UNDER SECTION 144C(5) OF THE ACT AND RESTORE THE MATTER TO THE FILE OF THE D RP FOR THE LIMITED PURPOSE OF DECIDING THE PRELIMINARY ISSUE R AISED BY THE ASSESSEE COMPANY IN ITS CROSS OBJECTIONS CHALLENGIN G THE VALIDITY OF THE ASSESSMENT. AS THIS ISSUE, WHICH IS BEING RESTORED TO THE FILE OF DRP, GOES TO THE ROOT OF TH E MATTER, WE KEEP THE OTHER ISSUE RAISED BY THE ASSESSEE CHALLEN GING THE ADDITION MADE ON ACCOUNT OF T.P. ADJUSTMENT OPEN WI TH A LIBERTY TO THE ASSESSEE TO RAISE THE SAME AGAIN IF IT FAILS TO SUCCEED ON THE PRELIMINARY ISSUE BEFORE THE DRP. 4. IN THE RESULT, APPEAL OF THE ASSESSEE IS TREATE D AS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 11.03.2015. SD/- SD/- (ASHA VIJAYARAGHAVAN) (P.M. JAGTAP) JUDICIAL MEMBER ACCOUNTANT MEMBER HYDERABAD, DATED 11 TH MARCH, 2015 VBP/- 6 ITA.NO.161/HYD/2014 CONEXANT SYSTEMS P. LTD., HYDERABAD. COPY TO 1. CONEXANT SYSTEMS P. LTD., (FORMERLY KNOWN AS CONEXA NT SYSTEMS (PB) P. LTD.,) 5 TH FLOOR, PIONEER TOWERS, PLOT 16, SL.NO.64/2, SOFTWARE UNITS LAYOUT, MADHAPUR, HYDERABAD 500 081. 2. ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 1(2), HYDERABAD. 3. DISPUTES RESOLUTION PANEL, 2 ND FLOOR, INCOME TAX TOWERS, 10-2-3, A.C. GUARDS, HYDERABAD 500 004. 4. COMMISSIONER OF INCOME TAX-IV & MEMBER DRP, HYDERABAD. 5. CIT(A)-I, & MEMBER, DRP, HYDERABAD 6. THE DIRECTOR OF INCOME TAX, INTERNATIONAL TAXATION, INCOME TAX TOWERS, 10-2-3, A.C. GUARDS, HYDERABAD 500 00 4. 7. DY. COMMISSIONER OF INCOME TAX (TRANSFER PRICING)-I I, HYDERABAD 500 004. 8. D.R. I.T.A.T. A BENCH, HYDERABAD.