M/s. Agilent Technologies International Pvt. Ltd., Gurgaon V. DCIT, Gurgaon

ITA 1837/DEL/2014

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 6398 (ITAT-DELHI)
• Duration Of Justice: 3 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-07-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Next Hearing Date: 14-07-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 28-03-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PEEYUSH JAIN; YOGESH K VERMA
• Assessee Lawyers: RAHUL K MITRA
• Keywords: Transfer pricing; Opportunity of being heard
• Section: 143(3); 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : I : NEW DELHI BEFORE SHRI R.S. SYAL, AM AND SHRI A.T. VARKEY, JM ITA NO.1837/DEL/2014 ASSESSMENT YEAR : 2006-07 AGILENT TECHNOLOGIES INTERNATIONAL PVT. LTD., PLOT NO.11, SECTOR-8, IMT MANESAR, GURGAON. PAN : AADCA4115C VS. DCIT, CIRCLE-1(1), GURGAON. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI RAHUL K. MITRA DEPARTMENT BY : SHRI PEEYUSH JAIN, CIT, DR & SHRI YOGESH K. VERMA, CIT, DR ORDER PER R.S. SYAL, AM: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER PASSED BY THE AO ON 27.02.2014 U/S 143(3) READ WITH SECTION 144C AND SECTION 254 OF THE INCOME-TAX ACT, 1961 (H EREINAFTER ALSO CALLED THE ACT) IN RELATION TO THE ASSESSMEN T YEAR 2006-07. ITA NO.1837/DEL/2014 2 2. SHORN OF UNNECESSARY DETAILS, IT IS NOTICED THAT THE INSTANT PROCEEDINGS ARE SECOND ROUND PURSUANT TO THE ORDER PASSED BY THE TRIBUNAL ON 17.11.2011 REMITTING THE MATTER TO AO/TPO FOR DECIDING THE QUESTION OF TRANSFER PRICING ADJUSTMEN T AFRESH AFTER ALLOWING A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. IN THE ORIGINAL ORDER PASSED BY THE AO, TP ADJUSTME NTS WERE MADE IN RESPECT OF SOFTWARE DEVELOPMENT SEGMENT AND IT E NABLED SERVICES (ITES) SEGMENT. IN THE PRESENT ROUND, THE DISPUTE IS ONLY IN RELATION TO ITES SEGMENT. THE ASSESSEE APPLIED TRANSACTIONAL NET MARGIN METHOD (TNMM) AS THE MOST APPROPRIATE ME THOD WITH THE PROFIT LEVEL INDICATOR (PLI) OF OP TO OC. IN THE FINAL ANALYSIS, THE TPO CHOSE FOUR COMPARABLE CASES AND WORKED OUT THE ARITHMETIC MEAN OF THEIR PROFITS AT 19.22%. SINCE THE DIFFERENCE BETWEEN THE ASSESSEES PROFIT RATE AND THAT OF COMP ARABLES WAS MORE THAN 5%, STANDING AT 5.68%, THE TPO PROPOSED T P ADJUSTMENT OF ` 5,70,25,104/-. THAT IS HOW THE AO PASSED THE IMPUGNED ORDER. THE LD. AR HAS BROUGHT TO OUR NOTI CE THAT BECAUSE OF CERTAIN MISTAKES IN THE PROFIT RATES OF THE COMPARABLES, THE ASSESSEE FILED RECTIFICATION APPLI CATION U/S 154 AND THE TPO REDUCED ARITHMETICAL MEAN OF THE PROFIT RATE OF ITA NO.1837/DEL/2014 3 COMPARABLES TO 18.71% AS AGAINST THE ORIGINAL 19.22 %. A COPY OF THE ORDER PASSED BY THE TPO ON 23.06.2014 HAS BEEN PLACED ON RECORD. 3. THE LIMITED CLAIM OF THE LD. AR BEFORE US WAS THAT THE AUTHORITIES BELOW FAILED TO GRANT WORKING CAPITAL A DJUSTMENT WHICH WAS LEGALLY DUE TO IT. IT CAN BE SEEN FROM THE TPO S ORDER THAT THE ASSESSEE MADE A CLAIM FOR THE GRANT OF WORKING CAPI TAL ADJUSTMENT WHICH HAS BEEN DEALT WITH ON PAGE 7 ONWA RDS OF THE TPOS ORDER. THE DECISION OF THE TPO IS RECORDED ON PAGE 9 REJECTING THE ASSESSEES CLAIM AT THE VERY OUTSET W ITHOUT EXAMINING ITS DETAILS. THE DRP AFFIRMED THE VIEW T AKEN BY THE AO IN THE ORDER PASSED PURSUANT TO THE TPOS ORDER REJ ECTING THE ASSESSEES CLAIM. THE RELEVANT DISCUSSION IS MADE IN PARA 8.6 OF DRPS DIRECTION. IT IS NOTICED THAT THE AUTHORITIE S BELOW FAILED TO CONSIDER THE ASSESSEES CLAIM OF ALLOWING WORKING C APITAL ADJUSTMENT ON MERITS AND SIMPLY REJECTED AT THE SAM E AT THRESHOLD BY CANVASSING A VIEW THAT THE SAME IS ALL OWABLE ONLY IN MANUFACTURING SECTOR OR TRADING SECTOR ETC. WE ARE UNABLE TO ACCEPT THE VIEW TAKEN BY THE AUTHORITIES BELOW. TH E DELHI BENCH ITA NO.1837/DEL/2014 4 OF THE TRIBUNAL IN MERCER CONSULTING (INDIA) PVT. L TD. VS. DCIT IN ITA NO.966/DEL/2014 VIDE ITS ORDER DATED 6 TH JUNE, 2014 HAS HELD THAT THE CLAIM FOR WORKING CAPITAL ADJUSTMENT CANNO T BE DISMISSED WITHOUT EXAMINING THE SAME ON MERITS. IN THAT CASE ALSO, THE AUTHORITIES DID NOT ADMIT THE ASSESSEES CLAIM OF W ORKING CAPITAL ADJUSTMENT ON MERITS BY HOLDING THAT SUCH AN ADJUST MENT IS POSSIBLE ONLY IN THE CASE OF MANUFACTURERS/TRADERS. IN THAT CASE, THE TRIBUNAL AFTER SETTING ASIDE THE ORDER OF THE A O/TPO REMITTED THE MATTER TO THE FILE OF AO/TPO FOR EXAMINING THE ASSESSEES CLAIM FOR GRANT OF WORKING CAPITAL ADJUSTMENT ON ME RITS AND THEREAFTER, ALLOWING THE SAME, IF AVAILABLE. THE L D. AR POINTED OUT THAT THE TPO HIMSELF HAS ALLOWED WORKING CAPITAL AD JUSTMENT FOR THE IMMEDIATELY TWO SUCCEEDING ASSESSMENT YEARS. 4. WITHOUT GOING INTO THE ACTUAL CALCULATIONS, W E SET ASIDE THE IMPUGNED ORDER TO THIS EXTENT AND REMIT THE MATTER TO THE FILE OF AO/TPO FOR CONSIDERING THE ASSESSEES CLAIM OF WORK ING CAPITAL ASSESSMENT AFRESH ON MERITS AND THEREAFTER ALLOWING THE SAME, IF IT IS AVAILABLE. THE LD. AR DID NOT AGITATE ANY OT HER POINT BEFORE US. ITA NO.1837/DEL/2014 5 5 IN THE RESULT, THE APPEAL IS ALLOWED FOR STATISTI CAL PURPOSES. THE ORDER PRONOUNCED IN THE OPEN COURT ON 15.07.201 4. SD/- SD/- [A.T. VARKEY] [R.S. SYAL] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED, 15 TH JULY, 2014. DK COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT AR, ITAT, NEW DELHI. *