XORIANT SOLUTIONS P.LTD, MUMBAI V. ITO 8(3)(4), MUMBAI

ITA 1840/MUM/2014

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 4064 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 1 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-04-2016
• Appeal Filed By: Assessee
• Bench Allotted: K
• Next Hearing Date: 23-04-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 18-03-2014
• Court: TRIBUNAL
• Department Lawyers: N K CHAND
• Assessee Lawyers: PANKAJ TOPRANI; SANDEEP PARIKH
• Keywords: Depreciation; Transfer pricing; Unabsorbed depreciation
• Section: 143(3); 32

Judgement Text

, , K, IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES K, MUMBAI BEFORE SHRI MAHAVIR SINGH, JUDICIAL MEMBER, AND SHRI ASHWANI TANEJA, ACCOUNTANT MEMBER ITA NO.1840/MUM/2014 ASSESSMENT YEAR: 2009-10 XOR IANT SOLUTIONS P. LTD. WINCHESTER, 4 TH FLOOR, HIGH STREET, HIRANANDANI CORPORATE PARK POWAI MUMBAI-400076 / VS. ITO 8(3 )( 4 ) AAYAKAR BHAVAN, M.K. RD MUMBAI-400020 (ASSESSEE ) (REVENUE) P.A. NO. AAACX0146P ITA NO.1494/MUM/2014 ASSESSMENT YEAR: 2009-10 ITO 8(3)(4) AAYAKAR BHAVAN, M.K. RD MUMBAI-400020 / VS. XORIANT SOLUTIONS P. LTD. WINCHESTER, 4 TH FOOR, HIGH STREET, HIRANANDANI CORPORATE PARK POWAI MUMBAI-400076 ( REVENUE ) ( RESPONDENT ) P.A. NO. AAACX0146P / ASSESSEE BY SHRI PANKAJ TOPRANI & S HRI SANDEEP PARIKH (AR) / REVENUE BY SHRI N.K. CHAND (DR) / DATE OF HEARING : 06/04/2016 / DATE OF ORDER: 22/04/2016 XORIANT SOLUTIONS PVT. LTD. 2 / O R D E R PER ASHWANI TANEJA (ACCOUNTANT MEMBER): THESE CROSS APPEALS HAVE BEEN FILED AGAINST THE FIN AL ASSESSMENT ORDER PASSED BY THE AO DATED 07.01.2014 U/S 143(3) R.W.S. 144C (13) OF THE INCOME TAX ACT, 1961 , (HEREIN AFTER CALLED AS ACT) IN PURSUANCE TO THE DIRECTIO NS OF THE DISPUTE RESOLUTION PANEL (DRP) GIVEN VIDE ITS ORDER DATED 20.12.2013 FOR A.Y. 2009-10. 2. DURING THE COURSE OF HEARING, ARGUMENTS WERE MADE B Y SHRI PANKAJ TOPRANI & SHRI SANDEEP PARIKH, AUTHORIS ED REPRESENTATIVE (AR) ON BEHALF OF THE ASSESSEE AND B Y SHRI N.K. CHAND, DEPARTMENTAL REPRESENTATIVE (DR) ON BEHALF O F THE REVENUE. FIRST WE SHALL TAKE APPEAL OF THE ASSESSEE IN ITA NO.1840/MUM/2013 3. THE ASSESSEE HAS RAISED FIVE GROUNDS CONTESTING TH E TRANSFER PRICING ADJUSTMENT MADE BY THE AO. 3.1. THE BRIEF FACTS ARE THAT AN ADJUSTMENT OF RS.3,45,15,177/- WAS MADE BY THE TPO IN RESPECT OF TRANSACTIONS ENTERED INTO BY THE ASSESSEE WITH ITS TWO ASSOCIATE ENTERPRISES VIZ. XORIANT CORPORATION, USA AND Y. POINT (UK) LTD. THE ASSESSEE WAS ENGAGED IN THE BUS INESS OF SOFTWARE DEVELOPMENT SOLELY FOR ITS TWO ASSOCIATED ENTERPRISES. XORIANT SOLUTIONS PVT. LTD. 3 BEFORE THE TPO THE ASSESSEE STATED THAT IT HAS BEEN FOLLOWING COST PLUS METHOD (CPM) WHICH ACCORDING TO THE ASSES SEE WAS MOST APPROPRIATE METHOD (MAM). IT WAS SUBMITTED THA T BY FOLLOWING CPM, THE ASSESSEE WAS CHARGING TO ITS AFO RESAID TWO AES A MARK-UP OF 10% OF THE TOTAL COST. THE TOTAL C OST INCLUDED OPERATING EXPENSES, SELLING AND ADMINISTRATION EXPE NSES, INTEREST & DEPRECIATION. DURING THE COURSE OF TRANS FER PRICING PROCEEDINGS, THE TPO FELT THAT CPM WAS NOT MAP AND THEREFORE, HE CHANGED THE METHOD TO TNMM (TRANSACTI ONAL NET MARGIN METHOD) AND CARRIED OUT A FRESH SEARCH OF TH E COMPARABLES AND FOUND THAT ASSESSEES MARGIN UNDER TNMM WAS 8.85% WHEREAS COMPARABLES ARITHMETIC MEAN MARG IN WAS 20.8%, AND THEREFORE RESULTANTLY, AN ADJUSTMENT OF RS.3,45,15,177/- WAS MADE. 3.2. BEING AGGRIEVED, THE ASSESSEE FILED OBJECTIONS BEF ORE THE DRP WHEREIN THE ASSESSEE OBJECTED TO SELECTION OF T NMM AS MAM AND ALSO OBJECTED TO THE SELECTION OF COMPARABL ES AND WORKED OUT ARITHMETIC MEAN MARGIN AT 20.8%. BUT DRP DISMISSED THE OBJECTIONS ON BOTH THE GROUNDS. 3.3. BEING AGGRIEVED, THE ASSESSEE FILED THIS APPEAL BE FORE THE TRIBUNAL. IT WAS CONTENDED BY THE LD. COUNSEL THAT THE DRP HAS NOT CONSIDERED THE SUBMISSIONS OF THE ASSESSEE AND WITHOUT GIVING ANY REASONING, OBJECTIONS OF THE ASS ESSEE WERE DISMISSED. ON THE OTHER HAND, LD. DR SUBMITTED THAT ASSESSEE DID NOT MAKE OUT PROPER RESEARCH OF THE COMPARABLES AND THEREFORE, TPO HAD NO OPTION BUT TO CHANGE THE MOST XORIANT SOLUTIONS PVT. LTD. 4 APPROPRIATE METHOD TO TNMM AND CARRY OUT A FRESH SE ARCH. IT WAS FURTHER SUBMITTED THAT PROPER VERIFICATION OF F ACTS WAS ALSO REQUIRED TO SELECT MOST APPROPRIATE METHOD. 3.4. WE HAVE GONE THROUGH SUBMISSIONS OF BOTH THE SIDES AS WELL AS ORDERS OF THE LOWER AUTHORITIES. IT IS NOTE D BY US THAT APPROACH ADOPTED BY THE LOWER AUTHORITIES I.E. TPO AS WELL AS DRP HAS NOT BEEN FAIR AND JUSTIFIED. THE TPO CHANGE D THE METHOD TO TNMM WITHOUT GIVING PROPER REASONING AND EFFECTIVE OPPORTUNITY OF HEARING TO THE ASSESSEE. IT HAS BEEN BROUGHT TO OUR NOTICE THAT DURING THE TRANSFER PRICING PROCEED INGS FOR THE PRECEDING YEARS I.E. 2007-08 AND 2008-09, CPM HAS B EEN ACCEPTED AS THE MOST APPROPRIATE METHOD BY THE TPO IN THE TRANSFER PRICING ORDERS PASSED FOR THESE TWO YEARS. IT WAS SUBMITTED THAT NO REASON HAS BEEN GIVEN BY THE LOWE R AUTHORITIES TO JUSTIFY AS TO WHY A DEVIATION IN THE YEAR WAS NEEDED IN THE FACTS OF THIS CASE AND ESPECIALLY WHE N BUSINESS WAS SAME IN ALL THE THREE YEARS. IT IS FURTHER NOTE D BY US THAT THE DRP HAS NOT GIVEN ANY REASONING WHATSOEVER IN I TS ORDER WHILE DISMISSING THE OBJECTIONS OF THE ASSESSEE AND CONFIRMING THE ORDER OF THE TPO. IT IS ALSO NOTED BY US THAT T HE ASSESSEE DID NOT MAKE OUT PROPER RESEARCH OF COMPARABLES FOL LOWING CPM. THUS, TAKING INTO ACCOUNT OF FACTS AND CIRCUMS TANCES OF THE CASE, WE FIND IT APPROPRIATE TO SEND THIS MATTE R BACK TO THE FILE OF AO/TPO. THE ASSESSEE SHALL GIVE PROPER ANAL YSIS OF COMPARABLES ON THE BASIS OF PROPER SEARCH OF THE CO MPARABLES TO WORK OUT ARITHMETIC MEAN MARGIN FOLLOWING COST P LUS METHOD. THE TPO SHALL TAKE INTO ACCOUNT ALL THE DET AILS AND XORIANT SOLUTIONS PVT. LTD. 5 DOCUMENTS AS MAY BE SUBMITTED BY IT AND ALSO TAKE I NTO ACCOUNT THE JUSTIFICATION GIVEN BY THE ASSESSEE FOR ADOPTING CPM IN THE CASE OF ASSESSEE. THE TPO SHALL ALSO TAK E INTO ACCOUNT ORDERS PASSED FOR PRECEDING TWO YEARS AND S HALL GIVE PROPER REASONING ON FACTS AND LAW IN CASE HE WANTS TO DEVIATE FROM THE METHOD ADOPTED IN THESE TWO YEARS. THE TPO IS FREE TO CARRY OUT FRESH SEARCH OF THE COMPARABLES AS MAY BE NEEDED IN THE GIVEN FACTS OF THE CASE. THE TPO SHALL ALSO GIV E ADEQUATE OPPORTUNITY OF HEARING TO THE ASSESSEE. THUS, GROUN DS NO. 1 TO 5 ARE SENT BACK TO THE FILE OF THE TPO FOR FRESH AD JUDICATION WITH THE DIRECTIONS AS GIVEN ABOVE. 4. GROUNDS WITH REGARD TO LEVY OF INTEREST ARE CONSEQ UENTIAL AND THEREFORE, DISMISSED. 5. AS A RESULT ASSESSEES APPEAL IS PARTLY ALLOWED FO R STATISTICAL PURPOSES. NOW WE SHALL TAKE REVENUES APPEAL IN ITA NO.1494/MUM/2014 FOR A.Y. 2009-10: 6. THE SOLITARY ISSUE RAISED IN THIS APPEAL BY THE REV ENUE IS WITH REGARD TO THE ACTION OF THE DRP IN DIRECTING T HE AO TO NOT TO SET OFF BROUGHT FORWARD UNABSORBED DEPRECIATION AND BROUGHT FORWARD LOSSES PERTAINING TO THE UNIT ELIGI BLE FOR DEDUCTION U/S 10A FOR THE PURPOSE OF COMPUTING DEDU CTION U/S 10A OF THE ACT. 6.1. THE BRIEF FACTS ARE THAT THE AO NOTED THAT IN THE COMPUTATION OF INCOME, THE ASSESSEE COMPUTED BUSINE SS XORIANT SOLUTIONS PVT. LTD. 6 INCOME AT RS.1,97,11,791/- AND CLAIMED DEDUCTION UN DER SECTION 10A TO THE EXTENT OF RS.1,97,11,791/-. THER EAFTER, THE ASSESSEE ALSO CLAIMED SET-OFF OF CARRY FORWARD LOSSES OF RS.9,09,776/- OF A.Y. 2003-04 AGAINST INCOME FROM O THER SOURCES. FURTHER, THE ASSESSEE ALSO CLAIMED TO CARR Y FORWARD UNABSORBED DEPRECIATION OF RS.15,79,707/- A ND BROUGHT FORWARD LOSSES OF RS.94,45,230/- OF AY 2003 -04 TO SUBSEQUENT YEAR. THE ASSESSING OFFICER HELD THAT THE ASSESSEE CANNOT CLAIM DEDUCTION UNDER SECTION 10A B EFORE SET-OFF OF UNABSORBED DEPRECIATION AND BROUGHT FORW ARD BUSINESS LOSSES. 6.2. BEING AGGRIEVED, THE ASSESSEE FILED ITS OBJECTIONS BEFORE THE DRP AND ARGUED THAT AS PER SCHEME OF THE ACT, P ROFITS OF THE UNITS ELIGIBLE FOR DEDUCTION UNDER SECTION 10A FORMS PART OF INCOME COMPUTED UNDER THE HEAD PROFITS & GAIN S OF BUSINESS OR PROFESSION AND THE DEDUCTION IN RESPEC T OF THE PROFITS AS SPECIFIED IN SECTION 10A IS REQUIRED TO BE MADE AT THE STAGE OF COMPUTING THE INCOME UNDER THAT HEAD. IN OTHER WORDS, DEDUCTION UNDER SECTION 10A IS REQUIRED TO H E GRANTED WHILE COMPUTING THE PROFITS AND GAINS OF THE BUSINE SS ITSELF. AS PER THE SCHEME OF THE ACT, SECTION 10A DOES NOT FALL UNDER CHAPTER VI-A AND SECTION 80AB IS NOT APPLICABLE. TH E BROUGHT FORWARD DEPRECIATION AND BROUGHT FORWARD BUSINESS L OSSES WILL BE CARRIED FORWARD AS PER THE PROVISIONS OF SE CTION 32 AND 72 RESPECTIVELY. THE FOLLOWING DECISIONS WERE R ELIED UPON:- (I) TEI TECHNOLOGIES (F) LTD IT APPEAL NO.20 67 OF 2010 XORIANT SOLUTIONS PVT. LTD. 7 & 347 OF 2011 (DEL) AND HINDUSTAN UNILEVER LTD VS. DCIT 325 ITR 102 (BORN). 6.3. THE DRP CONSIDERED THE SUBMISSIONS OF THE ASSESSEE AND RELYING UPON THE JUDGMENT OF HONBLE JURISDICTIONAL HIGH COURT ACCEPTED THE CLAIM OF THE ASSESSEE AND HELD AS UNDE R: IT IS SEEN THAT THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF BLACK & VEATCH CONSULTING (F) LTD 20 TAXMAN 727 (2012) HELD THAT DEDUCTION U/S 10A HAS TO BE GIVEN AT STAGE WHEN PROFITS AND GAINS OF BUSINESS ARE COMPUT ED IN FIRST INSTANCE I.E. ANTERIOR TO APPLICATION OF P ROVISIONS OF SECTION 72 WHICH DEALS WITH CARRY FORWARD AND SET O FF OF BUSINESS LOSSES, FOLLOWING ITS OWN EARLIER DECISION IN HINDUSTAN UNILEVER LTD. V DCIT (2010) 325 ITR 102. RESPECTFULLY FOLLOWING THE SAME AO IS DIRECTED TO A LLOW DEDUCTION U/S 10A BEFORE SET OFF OF CARRIED FORWARD LOSS AND DEPRECIATION OF ELIGIBLE UNIT. 6.4. BEING AGGRIEVED THE REVENUE FILED APPEAL BEFORE TH E TRIBUNAL. 6.5. DURING THE COURSE OF HEARING, LD. COUNSEL OF THE A SSESSEE RELIED UPON THE ORDER OF THE DRP AND SUBMITTED THAT IN VIEW OF JUDGMENT OF HONBLE JURISDICTIONAL HIGH COURT THIS ISSUE WAS COVERED IN ITS FAVOUR. ON THE OTHER HAND, LD. DR RE LIED UPON THE ORDER OF THE AO. 6.6. WE HAVE GONE THROUGH THE ORDERS OF THE LOWER AUTHO RITIES AND SUBMISSIONS MADE BY BOTH THE SIDES. IT IS NOTED THAT THE XORIANT SOLUTIONS PVT. LTD. 8 DRP HAS FOLLOWED THE JUDGMENT OF THE HONBLE JURISD ICTIONAL HIGH COURT WHILE ACCEPTING THE CLAIM OF THE ASSESSE E THAT DEDUCTION U/S 10A WAS TO BE GIVEN AT THE STAGE WHIL E PROFITS AND GAINS OF THE BUSINESS WERE COMPUTED IN FIRST IN STANCE I.E. PRIOR TO SET OFF OF THE BUSINESS LOSSES. NO CONTRAR Y JUDGMENT HAS BEEN BROUGHT TO OUR NOTICE AND THEREFORE, WE DO NOT FIND ANYTHING WRONG IN THE ORDER OF THE DRP AND THEREFOR E, SAME IS UPHELD AND GROUNDS RAISED BY THE REVENUE ARE DISMIS SED. 7. IN THE RESULT, APPEAL FILED BY THE REVENUE IS DISM ISSED AND APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 22 ND APRIL, 2016. SD/- (MAHAVIR SINGH) SD/- (ASHWANI TANEJA) ! / JUDICIAL MEMBER '! / ACCOUNTANT MEMBER MUMBAI; DATED: 22/04 /2016 CTX? P.S/. .. # $%&'&($ / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. !'# / THE RESPONDENT. 3. $# $# % ( ) / THE CIT, MUMBAI. 4. $# $# % / CIT(A)- , MUMBAI 5. ()* # !+ , $# # +- , / DR, ITAT, MUMBAI 6. *. / / GUARD FILE. / BY ORDER, '#( ! //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI