Cambridge Technology Enterprises Limited, Hyderabad, Hyderabad V. DCIT, Circle-1(2), Hyderabad, Hyderabad

ITA 1708/HYD/2016

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 2205 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-12-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 18-07-2017
• Assessment Year: 2012-2013
• Appeal Filed On: 20-12-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: D SRINIVAS
• Assessee Lawyers: P MURALI MOHAN RAO
• Keywords: Business income; Transfer pricing; International transaction; Initiation of penalty proceedings
• Section: 92E; 115JB

Judgement Text

ITA NO.1708 OF 2016 CAMBRIDGE TECHNOLOGY ENTERPRISE S LTD HYDERABAD. PAGE 1 OF 6 IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD B BENCH, HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER ITA NO.1708/HYD/2016 (ASSESSMENT YEAR: 2012-13) M/S. CAMBRIDGE TECHNOLOGY ENTERPRISES LTD HYDERABAD PAN: AAACU 3358 G VS DY. COMMISSIONER OF INCOME TAX, CIRCLE 1 (2) HYDERABAD (APPELLANT) (RESPONDENT) FOR ASSESSEE : SHRI P. MURALI MOHAN RAO FOR REVENUE : SHRI D. SRINIVAS, CIT (DR) O R D E R PER SMT. P. MADHAVI DEVI, J.M. THIS IS ASSESSEES APPEAL FOR THE A.Y 2012-13 AGAIN ST THE ASSESSMENT ORDER DATED 29.01.2016 PASSED U/S 14 3(3) R.W.S. 92CA(3) OF THE I.T. ACT. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE CO MPANY, ENGAGED IN THE BUSINESS OF RENDERING SOFTWARE SERVI CES, E-FILED ITS ORIGINAL RETURN OF INCOME FOR THE A.Y 2012-13 ON 26 .09.2012 ADMITTING BUSINESS INCOME OF RS.4,05,55,380 UNDER T HE NORMAL PROVISIONS OF THE INCOME TAX ACT AND RS.1,47,09,173 UNDER THE PROVISIONS OF SECTION 115JB OF THE ACT. SINCE THE A SSESSEE HAS FURNISHED A REPORT IN FORM NO.3CED IN ACCORDANCE WI TH THE DATE OF HEARING: 26.10 . 2017 DATE OF PRONOUNCEMENT: 29.12.2017 ITA NO.1708 OF 2016 CAMBRIDGE TECHNOLOGY ENTERPRISE S LTD HYDERABAD. PAGE 2 OF 6 PROVISIONS OF 92E OF THE ACT, THE AO REFERRED THE D ETERMINATION OF THE ARMS LENGTH PRICE TO THE TPO U/S 92CA OF THE A CT. 3. THE TPO OBSERVED THAT THE ASSESSEE HAS ENTERED I NTO AN INTERNATIONAL TRANSACTION FOR PROVIDING SOFTWARE DEVELOPMENT SERVICES. HE ALSO OBSERVED THAT THE ASSESSEE HAS RE IMBURSED THE EXPENDITURE TO THE TUNE OF RS.2,04,35,773 TO ITS AE WITHOUT ANY MARKUP. THEREFORE, THE TPO TREATED THE TRANSACTION OF REIMBURSEMENT OF THE EXPENSES ALSO AS AN INTERNATIO NAL TRANSACTION AND PROPOSED AN ADJUSTMENT OF RS.49,97, 372. AGAINST THE ORDER OF THE TPO, THE ASSESSEE PREFERRED ITS OB JECTIONS BEFORE THE DRP. THE DRP CONFIRMED THE ORDER OF THE TPO AND THE ASSESSEE IS IN SECOND APPEAL BEFORE US BY RAISING T HE FOLLOWING GROUNDS OF APPEAL: EACH OF THE GROUNDS OF APPEAL IS MUTUALLY EXCLUSIVE OF, INDEPENDENT AND WITHOUT PREJUDICE TO OTHER. BASED ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED ASSESSING OFFICER (AO) , LEARNED TRANSFER PRICING OFFICER (TPO) AND THE HON'BLE DISPUTE RESOLUTION PANEL (DRP). INVALID ASSESSMENT PROCEEDINGS - 1. ERRED IN NOT ISSUING DRAFT ASSESSMENT ORDER AS PER PROCEDURE LAID DOWN U/ S 144C(1) OF THE ACT. 2. ERRED IN NOT FOLLOWING THE PROCEDURE LAID DOWN U/S 144C(1) OF THE ACT, BY ISSUING THE NOTICE OF DEMAND U/S 156 OF THE ACT & PENALTY NOTICES U/S 271(1)(C), 271BA AND 271AA ALONG WITH ASSESSMENT ORDER DATED MARCH 18, 2016, WHICH TANTAMOUNT TO PASSING OF ITA NO.1708 OF 2016 CAMBRIDGE TECHNOLOGY ENTERPRISE S LTD HYDERABAD. PAGE 3 OF 6 FINAL ASSESSMENT ORDER. TP ADDITION OF RS.10,21,789/- TOWARDS ALP ADJUSTMENT IN RESPECT OF REIMBURSEMENT OF EXPENSES TRANSACTIONS BY CHARGING 5% MARK-UP :- 3. ERRED IN MAKING THE ADDITION OF RS. 10,21,789/- TOWARDS THE SHORTFALL OF ALP ADJUSTMENT BY CHARGING 5% MARK-UP ON REIMBURSEMENT OF EXPENSES TRANSACTIONS WITHOUT APPRECIATING THE FACT THAT THE ASSESSE INCURRED EXPENSES FOR ITS AE ON COST TO COST BASIS AND NO ALP ADJUSTMENT WAS REQUIRED. 4. OUGHT TO HAVE FOLLOWED THE DECISION OF HON'BLE I T AT, HYDERABAD IN ASSESSEE'S OWN CASE FOR THE AY 2009-10 & AY 2010-11 WHEREAS IT IS DIRECTED TO DELETE THE ENTIRE ADDITION MADE TOWARDS REIMBURSEMENT AS THE SAME IS NOT DEBITED IN THE BOOKS OF ASSES SE COMPANY. CASE LAW: ITAT HYDERABAD IN CASE OF M/S CAMBRIDGE TECHNOLOGY ENTERPRISES LIMITED VIDE ITA NO. 89/HYD/2014 FOR AY 2009-10 AND ITA NO.364/HYD/2015 FOR AY 2010-11. 5. ERRED IN CHARGING 5% OF MARK-UP ON THE INTERNATIONAL TRANSACTIONS RELATING TO REIMBURSEMEN T OF EXPENSES WITHOUT GIVING ANY COGENT REASON FOR THE SAME. 6. OUGHT TO HAVE APPRECIATED THE FACT THAT REIMBURSEMENT OF EXPENSES INCURRED ON COST TO COST BASIS AND NO MARK-UP CAN BE CHARGE. 7. OUGHT TO HAVE APPRECIATED THE FACT THAT ASSESSE COMPANY HAS NOT DEBITED EXPENSES IN P&L ACCOUNT, WHICH IS REIMBURSED BY THE AB. 8. OUGHT TO HAVE APPRECIATED THE FACT THAT REIMBURSEMENT OF EXPENSES BY AE'S IS A 'PASS- THROUGH' AND NO REVENUE GENERATING TRANSACTION UNDERTAKEN BY THE ASSESSE AND BASED ON THE TRANSFER PRICING PRINCIPLES, INTERNATIONAL GUIDANCE ITA NO.1708 OF 2016 CAMBRIDGE TECHNOLOGY ENTERPRISE S LTD HYDERABAD. PAGE 4 OF 6 NO MARK-UP IS REQUIRED TO BE EARNED ON SUCH PASS THROUGH TRANSACTIONS. INITIATION OF PENALTY PROCEEDINGS:- 9. ERRED IN INITIATING PENALTY PROCEEDINGS U/S. 271(1)(C), 271BA AND 271AA OF THE INCOME TAX ACT. 10. THE ASSESSE MAY ADD, ALTER OR MODIFY ANY OTHER POINT TO THE GROUNDS OF APPEAL AT ANY TIME BEFORE O R AT THE TIME OF HEARING OF THE APPEAL. 4. AT THE TIME OF HEARING, THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE CONTENTIONS MADE BEFORE THE AUTHORITIES BELOW, WHILE THE LEARNED DR SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 5. HAVING REGARD TO THE RIVAL CONTENTIONS, WE FIND THAT IT IS NOT DISPUTED BY THE AUTHORITIES BELOW THAT THE R EIMBURSEMENT OF THE EXPENDITURE IS NOT ROUTED THROUGH THE P&L A/ C BUT IS ONLY A BALANCE SHEET ENTRY. WE FIND THAT THE ASSESSEE HAS RAISED A SPECIFIC OBJECTION NO.7 BEFORE THE DRP AND THE DRP HAS NOT GIVEN ANY FINDING THAT THE CONTENTION OF THE ASSESSEE IS NOT CORRECT. WE FIND THE DRP HAS FOLLOWED THE DECISION OF THE COORD INATE BENCH OF THIS TRIBUNAL IN THE CASE OF M/S. KIRBY BUILDING SY STEMS INDIA LTD IN ITA NO.1759/HYD/2012 AND IN ITA NO.262/HYD/2014 FOR HOLDING THAT EVEN REIMBURSEMENT OF THE EXPENSES SHO ULD BE WITH A MARKUP OF 5%. THE LEARNED COUNSEL FOR THE ASSESSE E HAD SUBMITTED THAT THE ISSUE IS COVERED IN FAVOUR OF TH E ASSESSEE BY THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE EARLIER A.YS 2009-10 AND 2010-11. HE HAS FILED THE COPIES O F THE SAID ORDERS BEFORE US. WE FIND THAT THE FIRST ORDER IS I N THE ASSESSEES ITA NO.1708 OF 2016 CAMBRIDGE TECHNOLOGY ENTERPRISE S LTD HYDERABAD. PAGE 5 OF 6 OWN CASE FOR THE A.Y 2009-10 WHEREIN THE TRIBUNAL H AS OBSERVED THAT THE AO HIMSELF HAS AGREED THAT THE REIMBURSEME NT OF THE EXPENDITURE DOES NOT FIGURE IN THE P&L A/C AND AFTE R PERUSING THE PAPER BOOK, THE TRIBUNAL WAS CONVINCED THAT IT IS O NLY A BALANCE SHEET ENTRY AND NOT DEBITED TO THE P&L A/C. FOLLOWI NG THE SAID DECISION, FOR THE A.Y 2010-11, THE TRIBUNAL HAS HEL D THAT THE REIMBURSEMENT OF THE EXPENDITURE CANNOT BE WITH A M ARKUP SINCE IT WAS NOT DEBITED TO THE P&L A/C. SINCE THE FACTS AND CIRCUMSTANCES BEFORE US ARE ALSO THE SAME AND THE R EVENUE HAS NOT BEEN ABLE TO BRING ANY MATERIAL BEFORE US, TO R EBUT THE ABOVE CONTENTIONS OF THE ASSESSEE, RESPECTFULLY FOLLOWING THE DECISIOS OF THE COORDINATE BENCH IN ASSESSEES OWN CASE, THE AS SESSEES GROUNDS OF APPEAL NO. 3 TO 8 ARE ALLOWED AND THE AO /TPO ARE DIRECTED TO DELETE THE ADDITION. 6. AS REGARDS THE GROUNDS 1, 2, 9 & 10, THE LEARNED COUNSEL SUBMITTED THAT IT DOES NOT WISH TO PRESS TH ESE GROUNDS AT THIS STAGE. THUS, THEY ARE REJECTED AS NOT PRESSED. 7. IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLOW ED. ORDER PRONOUNCED IN THE OPEN COURT ON 29 TH DECEMBER, 2017. SD/- SD/- (B. RAMAKOTAIAH) ACCOUNTANT MEMBER (P. MADHAVI DEVI) JUDICIAL MEMBER HYDERABAD, DATED 29 TH DECEMBER, 2017. VINODAN/SPS ITA NO.1708 OF 2016 CAMBRIDGE TECHNOLOGY ENTERPRISE S LTD HYDERABAD. PAGE 6 OF 6 COPY TO: 1 P. MURALI & CO. CAS, 6-3-655/2/3 1 ST FLOOR, SOMAJIGUDA, HYDERABAD 500082 2 DY. CIT, CIRCLE 1(2) B BLOCK, 7 TH FLOOR, IT TOWERS, AC GUARDS, MASAB TANK, HYDERABAD 500004 3 DRP-1 6 TH FLOOR, AARTI BHAVAN, OPP: RBI BANGALORE 560001 4 TRANSFER PRICING OFFICER-1, 3 RD FLOOR, D BLOCK IT TOWERS, AC GUARDS, HYDERABAD 500004 5 THE DR, ITAT HYDERABAD 6 GUARD FILE BY ORDER