IBM India Private LImited, Bangalore V. Joint Commissioner Of Income Tax, Circle-3(1)(1), Bangalore

ITA 179/BANG/2022

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 7213 (ITAT-BANGALORE)
• Duration Of Justice: 2 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-06-2022
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2008-2009
• Appeal Filed On: 17-03-2022
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Transfer pricing; Principle of natural justice; TDS; Set aside
• Section: 10; 90; 154; 143(3); 10AA; 234B; 40(a)(ia); 10B; 143(1); 144C

Judgement Text

IT(TP)A No.179 /Bang/2022 IBM India Pvt. Ltd., Bangalore IN THE INCOME TAX APPELLATE TRIBUNAL “B’’ BENCH: BANGALORE BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. BEENA PILLAI, JUDICIAL MEMBER IT(TP)A No.179/Bang/2022 Assessment Year: 2008-09 IBM India Private Limited No.12, Subramanya Arcade Bannerghatta Road Bangalore 560 029 PAN NO : AAACI4403L Vs. JCIT Circle 3(1)(1) Bangalore APPELLANT RESPONDENT Appellant by : Shri Ajay Rotti, A.R. Respondent by : Dr. Manjunath Karkihalli, D.R. Date of Hearing : 15.06.2022 Date of Pronouncement : 15.06.2022 O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER: This appeal by the assessee is directed against the final assessment order passed u/s 154 of the Income-tax Act,1961 ['the Act' for short] dated 23.2.2022 by JCIT Circle-3(1)(1), Bangalore. 2. The facts of the case are that the assessee filed its return of Income for AY 2008-09 declaring total income of Rs. 38,55,73,480/- Further the case was selected for scrutiny and draft assessment order u/s 143(3) r w s 144C of the Income-tax Act,1961 ['the Act' for short] was passed on 21.12.2011. Aggrieved by the draft assessment order assessee filed its objection with Ld. DRP, Bangalore. The Ld. IT(TP)A No.179 /Bang/2022 IBM India Pvt. Ltd., Bangalore Page 2 of 11 DRP vide its order dated 03.09.2012 upheld the order of AO with certain directions. Consequently, the order u/s 143(3) r w s 144C of the Act was passed on 29.10.2012 by making following addition/disallowance : a . D e d u c t i o n u / s 1 0 A d i s a l l o w e d = R s . 5 4 0 , 0 5 , 3 7 , 7 5 9 / - b . D e d u c t i o n u / s 1 0 A A d i s a l l o w e d = R s . 1 2 , 8 2 , 9 6 , 9 6 2 / - c . P r o v i s i o n s f o r w a r r a n t y d i s a l l o w e d = R s . 2 7 , 7 4 , 6 7 , 0 0 0/ - d . D i s a l l o w a n c e u / s 4 0 ( a ) ( i ) / 4 0 ( a ) ( i a ) = R s . 7 6 2 , 6 7 , 0 0 , 8 8 6/ - e . Disallowance of Membership/subscription to clubs = Rs. 94,06,677/- . T r a n s f e r p r i c i n g a d j u s t m e n t = R s . 7 2 9 , 2 5 , 3 2 , 7 1 6 / - Thus, assessing total income of Rs. 2112,05,15,480/-. 2.1 Aggrieved by the order, the assessee filed an appeal before this Tribunal. The Tribunal vide its order in F.No. IT(TP)A no. 1543/Bang/2012 dated 20.12.2013 partly allowed the appeal of the assessee setting aside following issues to DRP: I. a. Disallowance of deduction u/s 10A/ 10AA of the Act b. Disallowance of Provisions for warranty c. Disallowance u/s 40(a)(i)/40(a)(ia) of the Act. II. The Tribunal gave relief on the issues of a. Disallowance of Membership /subscription to clubs b. TDS claimed by the assessee c. Transfer pricing adjustment 2.2 The Ld. DRP vide its order in F. No. set-aside/DRP- 1/Bang/2019-20 dated 31.03.2021 upheld all the issues on set aside proceedings. Subsequently, an OGE to Tribunal was passed on 21.01.2022 assessing total income of Rs. 2111,11,08,803/-. 2.3 Further the assessee filed an application u/s 154 of the Act on 21.02.2022 stating that there are certain mistakes apparent from record with details as below: IT(TP)A No.179 /Bang/2022 IBM India Pvt. Ltd., Bangalore Page 3 of 11 a. Non Grant of relief for Transfer Pricing Adjustment 2.4 The assessee has stated that consequent to Tribunal’s order dated 20.12.2013, the learned TPO passed an order dated 18.07.2016 determining NIL ALP adjustment which was not considered in the OGE to Tribunal order. b. Short grant of TDS Credit: 2.5 The assessee has stated that in the OGE to Tribunal, TDS of Rs. 1,74,15,09,735/ - was considered against the claimed TDS of Rs. 206,61,13,518/- thus, giving short TDS credit of Rs. 172, 08,96,217/ c. Short Grant of FTC: 2.6 The assessee had claimed FTC amounting to Rs. 5,77,86,364/ -in its return of Income out of the total taxes paid of Rs. 24,10,73,621/-. The assessee during appeal proceedings claimed that in the event of relief being not allowed u/s 10A/ 10AA of the Act, the income in question would get doubly taxed and the tax credit claimed by the assessee is liable to be allowed in full. The Tribunal has set aside the matter. 2.7 The Ld. AO examined the contention of the assessee and vis- a-vis the details as per record. It is seen that the TPO has given OGE by determining the ALP adjustment as NIL vide order dated 18.07.2016. However, the same was inadvertently not considered in the order dated 21.01.2022. Hence, the contention of the assessee is correct and same is considered in this order. With respect to the issue of TDS credits, the credits as available as per records are here with given in this order. 2.8 With reference to the granting of FTC credits the Tribunal in its order 20.12.2013 in paragraph 7.6 has directed that "We are in view of that would be just and proper to set aside the order of AO in IT(TP)A No.179 /Bang/2022 IBM India Pvt. Ltd., Bangalore Page 4 of 11 the regard and remand the issue to the AO for fresh consideration in the light of the evidence filed by the assessee and in the light of ultimate outcome of the assessee's claim for deduction u/s 10A/ 10AA of the Act." 2.9 However, on perusal of the submission of the assessee, the assessee has stated that the assessee is in the process of filing an appeal before the Tribunal. Further, the issue of 10A/ 10AA of the Act disallowance is pending before appellate forum for other years. Thus, the issue has not attained finality. Thus, on this issue the OGE given dated 21.01.2022 is in compliance with the directions of the Tribunal as the Tribunal has remitted the issue in the light of ultimate outcome of the issue in question. In view of the above, there is no error apparent from record on this issue. 2.10 Accordingly, as discussed above, the order giving effect to Tribunal order dated 21.01.2022 is rectified by computing the total income and taxes as under:- Assessed income as per OGE dated 21.01.2022 21,11,11,08,803 Less: Relief allowed by Hon'ble ITAT 7,29,25,32,716 Assessed Income as per this order 13,81,85,76,087 Tax theron @ 30% 4,14,55,72,826 Add: Surcharge @ 10% 41,45,57,283 Add: Education Cess @ 3% 13,68,03,903 Tax Payable 4,69,69,34,012 Less: TDS/TCS 1,74,15,07,152 Balance payable 2,95,54,26,860 Less: Deduction u/s 90 5,77,86,364 Balance payable 2,89,76,40,496 Add: Interest u/s 234B from 01.04.2008 to 29.10.2012 (55 Months) on 289,76,37,913 1,59,37,02,273 IT(TP)A No.179 /Bang/2022 IBM India Pvt. Ltd., Bangalore Page 5 of 11 Balance payable 4,49,13,42,769 Add: Refund issued on 10.06.2009 57,50,83,994 Add: interest u/s 234D from 11.06.2009 to 29.10.2012 11,78,92,219 . Add: Refund issued on 07.04.2010 98,89,95,790 Add: interest u/s 234D from 07.04.2010 to 29.10.2012 15,32,94,347 Add: Refund issued on 18.03.2010 69,62,286 Add: Interest u/s 234D from 19.03.2010 to 29.10.2012 10,79,154 Balance payable 6,33,46,50,559 Add: Interest u/s 220(2) from 30.11.2012 to 31.01.2013 (3 Months) on 633,46,50,559 19,00,39,517 Less: Regular tax paid on 30.01.2013 and 31.01.2013 1,50,00,00,000 Balance payable 5,02,46,90,076 Add: Interest u/s 220(2) from 31.01.2013 to 08.02.2013 (1 Months) on 483,46,50,559 4,83,46,506 Less: Regular tax paid on 30.01.2013 and 31.01.2013 1,00,00,00,000 Balance Payable 4,07,30,36,581 Add: Interest u/s 220(2) from 09.02.2013 to 24.02.2022 (109 Months) on 383,46,50,559 4,17,97,69,109 Balance payable 8,25,28,05,691 Net Tax payable/(Refundable) 8,25,28,05,691 2.11 The demand notice issued u/s 156 dated 21.01.2022 is amended to reduced demand of Rs. 8,25,28,05,691/- and the said notice is still in force. The assessee is accordingly directed to pay the demand of Rs. 8,25,28,05,691/- within 7 days of receipt of this order as directed by the Ld. DRP. IT(TP)A No.179 /Bang/2022 IBM India Pvt. Ltd., Bangalore Page 6 of 11 3. Against this assessee is in appeal before us by way of following grounds:- “The grounds stated hereunder are independent of and without prejudice to one another. The Appellant submits as under: 1. Order Giving Effect (`OGE' or 'the order') is bad in law 1.1. At the outset, M/s IBM India Private Limited (hereinafter referred to as 'the Appellant' or 'the Company') prays that the OGE dated January 21, 2022 (received on February 1, 2022) read with the rectified OGE dated February 23, 2022 (received on March 4, 2022) passed under section 154 of the Income-tax Act, 1961 (Act), by the Joint Commissioner of Income Tax, Circle 3(1)(1) ('the AO'), pursuant to the directions issued by the Hon'ble Dispute Resolution Panel ('DRP'), be struck down as invalid, as the order is bad in law and on facts. 1.2. The Hon'ble Dispute Resolution Panel (DRP') has erred in completing the proceedings in undue haste and in violation of the principles of natural justice by not affording an opportunity to the Appellant to furnish additional submissions and documents which are pertinent to the additions made even though the proceedings were not time barred, thereby rendering the impugned order to be bad in law and liable to be quashed. 1.3. The Hon'ble DRP has erred in completing the proceedings in undue haste. without awaiting the report from the learned AO on the aspects which the Hon'ble DRP had directed the learned AO to verify, even though the proceedings were not time barred, thereby rendering the impugned order to be bad in law and liable to be quashed. 1.4. The Hon'ble DRP has erred in completing the proceedings in undue haste, without taking cognizance of the submission by the Appellant that the Revenue had preferred an appeal before the Karnataka High Court on certain issues addressed in the ITAT order with the Karnataka High Court, the outcome of which would impact the remand proceedings, thereby rendering the impugned order to be bad in law and liable to be quashed. 1.5. The Hon'ble DRP has erred in completing the proceedings in undue haste and in violation of the principles of natural justice without considering pandemic given that the first substantive hearing was on March 17, 2021 and submissions were filed on March 23, 2021 and March, 2021 1.6. The Hon'ble DRP has erred in completing the proceedings in undue haste and in violation the principles of natural justice without complying with the directions of the Hon'ble ITAT in letter and in spirit. IT(TP)A No.179 /Bang/2022 IBM India Pvt. Ltd., Bangalore Page 7 of 11 2. Denial of relief under section 10A and section 10AA of the Act 2.1. The learned AO and the Honble DRP have erred in law and on facts in denying the relief claimed by the Appellant under section 10A of the Act of INR 540.05.37.759 and under section 10AA of INR 12.82.96.962. 2.2. The Hon'ble DRP has erred on facts and in law in not taking cognizance of the submission by the Appellant that the Revenue had preferred an appeal before the Karnataka High Court on certain issues including section 10A/ 10AA claim, addressed in the ITAT order with the Karnataka High Court, the outcome of which would impact the remand proceedings. 2.3. The Hon'ble DRP has erred on facts in not examining the approval for the bank outside India which has been reinstated by the Reserve Bank of India. 2.4. The Hon'ble DRP has erred on facts by concluding that the Appellant failed to produce the relevant documents and cogent evidence in support of its claim, and has failed to prove receipt of sale proceeds of computer software exported out of India is being brought into India. 2.5. The Hon'ble DRP has erred in not considering the request made by the Appellant to grant time to submit the documents. 2.6. The Hon ble DRP has erred on facts by concluding that the Appellant failed to produce the relevant documents citing voluminous data without considering our request for time to furnish the same. 2.7. The learned AO and the Hon'ble DRP have erred on facts and on law in concluding before receipt of the remand report from the learned AO. 2.8. The learned AO and the Hon'ble DRP have erred in law and on facts in not examining the directions issued by the Hon'ble DRP and final assessment order of AY 2006-07 wherein after examining the facts, relief had been granted. 2.9. The learned AO and the Hon'ble DRP have erred in law and on facts in not examining the jurisdictional Hon'ble ITAT's decision in the Appellant's own in AY 2013-14 where in the various aspects of relief for tax holiday have been held in favour of the Appellant. 3. Disallowance of provision for warranty. 3.1. The learned AO and the Hon'ble DRP have erred in law and on facts in disallowing provision made by the Appellant towards warranty expenses amounting to INR 27.74,67,000 under section 37 of the Act by concluding that the provision made is not made scientific and it fails to demonstrate that the estimate of the obligation was reliable. 3.2. The learned AO and the Hon'ble DRP have erred on facts in concluding that the provision made for warranty expenses is not in a scientific manner and not in conformity with the guidelines and judicial ratios by not considering the method of accounting followed by the Appellant. IT(TP)A No.179 /Bang/2022 IBM India Pvt. Ltd., Bangalore Page 8 of 11 3.3. The Hon'ble DRP has erred on facts in not appreciating that the provision for warranty is created in a scientific manner by following the historical trend from the past years. 3.4. The Hon'ble DRP has erred on facts in not appreciating the fact that the Hon'ble ITAT in its order has the Hon'ble DRP in the during the earlier proceedings did not doubt the finding that the method of providing for warranty was scientific. 3.5. The learned AO and the Hon'ble DRP have erred in law and on facts in disallowing the entire provision for warranty expenses without allowing a deduction for the utilization amounting to INR 28,25,96,000. 3.6. The Hon’ble DRP has erred on facts by not considering the fact that the amount of warranty expenses incurred by the Appellant exceeded the provision made during the subject AY. 4. Disallowance under section 40(a)(i) and section 40(a)(ia) of the Act. 4.1. The learned AO and the Hon'ble DRP have erred in law and on facts in disallowing pa made by the Appellant amounting to INR 203,86,83,792 under section 40(a) of the Act by concluding that the Appellant has not provided any evidence justifying non-deduction of tax of source. 4.2. The learned AO and the Hon'ble DRP have erred on facts in disallowing the payments made during the year on which tax is not deducted by not considering that such payments did not warrant any deduction of tax at source. 4.3. The Hon'ble DRP has erred in concluding, based on surmises and conjectures and in undue haste, that the payments on which taxes have not been deducted needs to be disallowed without giving the Appellant an opportunity to furnish further details/ supportings, thereby violating the principles of natural justice. 4.4. The Hon'ble DRP has erred on facts by concluding that the Appellant failed to produce the relevant documents citing voluminous data without taking cognizance of the various submissions made by the Appellant. 4.5. The learned AO and the Hon'ble DRP have erred on facts and in law in not appreciating that certain sums paid are mere reimbursements and hence the Appellant was not required to deduct tax at source on such payments. 4.6. The Hon'ble DRP have erred on facts and in law in not taking cognizance of our submission for relief of double disallowance. The learned AO has taxed INR 558,80,17,094 twice since the same has already been considered in arriving at the initial disallowance of INR 203,86,83,792. 5. Short grant of Tax Deducted at Source (`TDS') 5.1. The learned AO has erred in law and on facts in restricting the credit for TDS only to the extent of granted only to the extent of INR 174,15,07,152 as against the INR 206,61,13,518 claimed, resulting in a significantly higher tax demand. IT(TP)A No.179 /Bang/2022 IBM India Pvt. Ltd., Bangalore Page 9 of 11 6. Short grant of Foreign Tax Credit (`FTC') 6.1. The learned AO has erred in law and on facts in not granting foreign tax credit for the full amount of foreign taxes paid of INR 24 crores as against INR 5.78 crores claimed in the return, disregarding that relief for tax holiday claim under section 10AA of the Act was fully denied. 6.2. The learned AO has erred in law and on facts, by denying credit for full FTC even though relief for tax holiday claim has been denied, concluding that the issue has not attained finality. 7. Incorrect addition of the Fringe Benefit Tax refund and interest under section 234D on the same 7.1. The learned AO added back the refund of INR 69,62,286 and computed interest under section 234D on the same amounting to INR 10,79,154, without taking cognizance of our submission that the said amount was a refund of Fringe Benefit Tax and not the corporate tax return/ regular assessment order/ intimation under section 143(1) related refund. 8. Transfer Pricing grounds - Non-allowance of appropriate adjustments to the comparables 8.1. The learned Transfer Pricing Officer (`TPO') / learned AO erred in law and on facts in not allowing appropriate adjustments under Rule 10B of the Rules, to account for, inter alia, differences in (i) marketing expenditure, (ii) research and development expenditure, and (iii) risk profile between the Appellant and the comparable companies. The Hon'ble DRP erred in upholding the actions of the learned TPO/ learned AO. 9. Other grounds 9.1. The AO has erred in law and on facts in levying interest under section 234B and 234D of the Act. 10. Relief 10.1. The Appellant prays that directions be given to grant all such relief arising from the preceding grounds as also all reliefs consequential thereto. 10.2. The Appellant craves leave to add to or alter, by deletion, substitution or otherwise, any or all of the above grounds of appeal, at any time before or during the hearing of the appeal.” 4. We have heard the rival submissions and perused the materials available on record. In this case, assessee filed petition u/s 154 of the Act before AO on 21.2.2022. The AO passed order u/s 154 of the Act on 23.2.2022, wherein he has IT(TP)A No.179 /Bang/2022 IBM India Pvt. Ltd., Bangalore Page 10 of 11 considered the issues raised by the assessee and which is evident from the paras 5 to 8 of that impugned order and given relief to the assessee. On this count, assessee cannot have any grievance which cannot be agitated before this Tribunal, which are debatable. Further, we notice that the grounds raised by the assessee before us are not emanating from the order passed u/s 154 of the Act dated 23.2.2022. On the other hand, the grounds were emanated from the order giving effect to the ITAT order Bangalore dated 21.1.2022, which inturn emanated from the direction of Ld. DRP passed u/s 144C(5) r.w.s.254 of the Act dated 31.3.2021, which is passed consequent to direction of the Tribunal in IT(TP)A No.1543/Bang/2012 dated 20.12.2013. In view of the above, we are of the opinion that grounds raised by assessee in this appeal are not emanated from the impugned order passed u/s 154 of the Act dated 23.2.2022. Accordingly, the appeal of the assessee is dismissed. 5. In the result, the appeal filed by the assessee is dismissed. Order pronounced in the open court on 15 th Jun, 2022 Sd/- (Beena Pillai) Judicial Member Sd/- (Chandra Poojari) Accountant Member Bangalore, Dated 15 th Jun, 2022. VG/SPS IT(TP)A No.179 /Bang/2022 IBM India Pvt. Ltd., Bangalore Page 11 of 11 Copy to: 1. The Applicant 2. The Respondent 3. The CIT 4. The CIT(A) 5. The DR, ITAT, Bangalore. 6. Guard file By order Asst. Registrar, ITAT, Bangalore.