Microsoft Global Services Center (India) Private Limited, Hyderabad V. Asst,CIT, Cir-16(2), Hyderabad

ITA 1865/HYD/2012

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 7701 (ITAT-HYDERABAD)
• Duration Of Justice: 2 year(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-12-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2008-2009
• Appeal Filed On: 27-12-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: D SUDHAKAR RAO
• Assessee Lawyers: JAYESH SANGHVI ADITYA BAJORIA; SUMANTH KARLAPUDI
• Keywords: Transfer pricing
• Section: 143(3); 244A; 80HHC; 10B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES B : HYDERABAD BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA.NO.1865/HYD/2012 ASSESSMENT YEAR 2008-2009 MICROSOFT GLOBAL SERVICES CENTER (INDIA) P. LTD., HYDERABAD 500 046. PANAAECM2477L VS. THE ACIT, CIRCLE 16(2) HYDERABAD. (APPELLANT) (RESPONDENT) FOR ASSESSEE : MR. JAYESH SANGHVI, ADITYA BAJORIA & SUMANTH KARLAPUDI FOR REVENUE : MR. D. SUDHAKAR RAO DATE OF HEARING : 27.11.2014 DATE OF PRONOUNCEMENT : 29.12.2014 ORDER PER B. RAMAKOTAIAH, A.M. THIS APPEAL BY ASSESSEE IS DIRECTED AGAINST THE ORDER OF A.O. UNDER SECTION 143(3) READ WITH SECTIO N 92CA READ WITH SECTION 144C OF THE INCOME TAX ACT, 1961. 2. ASSESSEE-COMPANY IS ENGAGED IN THE BUSINESS OF COMPUTER SOFTWARE CONSULTANCY SERVICES AND AS IT HA S TRANSACTIONS WITH ITS AE, MATTER WAS REFERRED TO TP O AND ON THE ADVICE/ORDER GIVEN BY TPO, ARMS LENGTH PRICE WA S DETERMINED. ASSESSEE OBJECTED BEFORE DRP AND DRP GA VE 2 ITA.NO.1865/HYD/2012 MICROSOFT GLOBAL SERVICES CENTER (INDIA) P. LTD., HYDERABAD. PARTIAL RELIEF ON THE ISSUE OF T.P. ADJUSTMENTS. AS SESSEE IS NOT OBJECTING TO SUCH ADJUSTMENTS. HOWEVER, ONE OF THE ISSUE WHICH WAS AGITATED BEFORE DRP IS OF EXCLUDING THE E XPENDITURE OF RS.75,77,529 AS PART OF EXPORT TURNOVER INVOKING EXPLANATION-2(III) TO SECTION 10B OF THE ACT BY A.O ., WHILE CALCULATING THE DEDUCTION UNDER SECTION 10B. IT WAS THE CONTENTION BY ASSESSEE THAT THIS EXPENDITURE HAS BE EN INCURRED FOR DELIVERING THE SOFTWARE SERVICES OUTSI DE INDIA BY THE APPLICANT AND NOT ACCESSING THE INTERNET. DRP, HOWEVER, DID NOT AGREE WITH THAT CONTENTION. ASSESSEE MADE T HE ALTERNATE CLAIM THAT ONCE THE EXPENDITURE IS EXCLUD ED FROM EXPORT TURNOVER, IT IS TO BE EXCLUDED FROM TOTAL TU RNOVER AS WELL, SUPPORTED BY VARIOUS DECISIONS OF ITAT AND AL SO DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF GEM PLU S JEWELLERY INDIA LTD., 330 ITR 175. DRP HOWEVER, WHI LE ACCEPTING THAT DECISIONS ARE IN FAVOUR OF ASSESSEE AND SINCE THE MATTER IS FURTHER CONTESTED, TO KEEP THE MATTER S ALIVE THE A.OS ACTION WAS UPHELD. ASSESSEE IS AGGRIEVED AND RAISED GROUND NO.2 ON THE ABOVE ISSUE. 3. WE HAVE HEARD THE LD. COUNSEL AND LD. D.R. THIS ISSUE IS COVERED BY THE COORDINATE BENCH DECISION I N ASSESSEES OWN CASE FOR A.Y. 2007-08 IN ITA.NO.2124/HYD/2010 DATED 18 TH MAY, 2012 REPORTED AT 74 DTR 145 (HYD) (TRIBU.) WHEREIN IT WAS HELD AS FOLLO WS : 6. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED TH E MATERIAL ON RECORD AND HAVE ALSO EXAMINED THE DECIS IONS CITED AT THE BAR. THE ISSUE INVOLVED IN THE PRESENT APPEAL SHOULD NOT DETAIN US FOR TOO LONG IN THE FACE OF JU DICIAL PRONOUNCEMENTS LAYING DOWN THE PRINCIPLES. THE HON BLE KARNATAKA HIGH COURT WHILE CONSIDERING A SIMILAR IS SUE IN THE CASE OF TATA ELXISI LIMITED REPORTED IN (2008) 115 TTJ 423 HELD AS FOLLOWS :- 3 ITA.NO.1865/HYD/2012 MICROSOFT GLOBAL SERVICES CENTER (INDIA) P. LTD., HYDERABAD. ' THE FORMULA FOR COMPUTATION OF THE DEDUCTION UNDE R SECTION LOA WOULD BE AS UNDER : PROFITS OF THE BUSINESS X EXPORT TURNOVER TOTAL TURNOVER FROM THE AFORESAID JUDGMENTS, WHAT EMERGES IS THAT THERE SHOULD BE UNIFORMITY IN THE INGREDIENTS OF BOTH THE NUMERATOR AND THE DENOMINATOR OF THE FORMULA, SINCE OTHERWISE IT WOULD PRODUCE ANOMALIES OR ABSURD RESU LTS. SECTION LO-A IS A BENEFICIAL SECTION. IT IS INTENDE D TO PROVIDE INCENTIVES TO PROMOTE SECTION. IT IS INTEND ED TO PROVIDE INCENTIVES TO PROMOTE EXPORTS. THE INCENTIV E IS TO EXEMPT PROFITS RELATABLE TO EXPORTS. IN THE CASE OF COMBINED BUSINESS OF AN ASSESSEE, HAVING EXPORT BUSINESS AND DOMESTIC BUSINESS, THE LEGISLATURE INT ENDED TO HAVE A FORMULA TO ASCERTAIN THE PROFITS FROM EXP ORT BUSINESS BY APPORTIONING THE TOTAL PROFITS OF THE B USINESS ON THE BASIS OF TURNOVERS. APPORTIONMENT OF PROFITS ON THE BASIS OF TURNOVER WAS ACCEPTED AS A METHOD OF ARRIV ING AT EXPORT PROFITS. IN THE CASE OF SECTION 8OHHC, THE E XPORT PROFIT IS TO BE DERIVED FROM THE TOTAL BUSINESS INC OME OF THE ASSESSEE, WHEREAS IN SECTION LO-A, THE EXPORT PROFI T IS TO BE DERIVED FROM THE TOTAL BUSINESS OF THE UNDERTAKI NG. EVEN IN THE CASE OF BUSINESS OF AN UNDERTAKING, IT MAY INCLUDE EXPORT BUSINESS AND DOMESTIC BUSINESS, IN O THER WORDS, EXPORT TURNOVER AND DOMESTIC TURNOVER. THE E XPORT TURNOVER WOULD BE A COMPONENT OR PART OF A DENOMINA TOR, THE OTHER COMPONENT BEING THE DOMESTIC TURNOVER. IN OTHER WORDS, TO THE EXTENT OF EXPORT TURNOVER, THERE WOUL D BE A COMMONALITY BETWEEN THE NUMERATOR AND THE DENOMINAT OR OF THE FORMULA. IN VIEW OF THE COMMONALITY, THE UNDERSTANDING SHOULD ALSO BE THE SAME. IN OTHER WOR DS IF THE EXPORT TURNOVER IN THE NUMERATOR IS TO BE ARRIV ED AT AFTER EXCLUDING CERTAIN EXPENSES, THE SAME SHOULD A LSO BE EXCLUDED IN COMPUTING THE EXPORT TURNOVER AS A COMP ONENT OF TOTAL TURNOVER IN THE DENOMINATOR. THE REASON BE ING THE TOTAL TURNOVER INCLUDES EXPORT TURNOVER. THE COMPON ENTS OF THE EXPORT TURNOVER IN THE NUMERATOR & THE DENOMINA TOR CANNOT BE DIFFERENT THEREFORE, THOUGH THERE IS NO D EFINITION OF THE TERM 'TERM TURNOVER' IN SECTION LOA, THERE I S NOTHING IN THE SAID SECTION TO MANDATE THAT, WHAT IS EXCLUD ED FROM THE NUMERATOR THAT IS EXPORT TURNOVER WOULD NEVERTH ELESS FORM PART OF THE DENOMINATOR. THOUGH WHEN A PARTICU LAR 4 ITA.NO.1865/HYD/2012 MICROSOFT GLOBAL SERVICES CENTER (INDIA) P. LTD., HYDERABAD. WORD IS NOT DEFINED BY THE LEGISLATURE AND AN ORDIN ARY MEANING IS TO BE ATTRIBUTED TO THE SAME THE SAID OR DINARY MEANING TO BE ATTRIBUTED TO SUCH WORD IS TO BE IN CONFORMITY WITH THE CONTEXT IN WHICH IT IS USED WHE N THE STATUTE PRESCRIBES A FORMULA AND IN SAID FORMULA, ' EXPORT TURNOVER' IS DEFINED, AND WHEN THE 'TOTAL TURNOVER' INCLUDES EXPORT TURNOVER, THE VERY SAME MEANING GIVEN TO THE EXPORT TURNOVER BY THE LEGISLATURE IS TO BE ADOPTED WHILE UNDERSTANDING THE MEANING OF THE TOTAL TURNOVER, WH EN THE TOTAL TURNOVER INCLUDES EXPORT TURNOVER. IF WHA T IS EXCLUDED IN COMPUTING THE EXPORT TURNOVER IS INCLUD ED WHILE ARRIVING AT THE TOTAL TURNOVER, WHEN THE EXPO RT TURNOVER IS A COMPONENT OF TOTAL TURNOVER, SUCH AN INTERPRETATION WOULD RUN COUNTER TO THE LEGISLATIVE INTENT AND IMPERMISSIBLE. IF THAT WERE THE INTENTION OF TH E LEGISLATURE, THEY WOULD HAVE EXPRESSLY STATED SO. I F THEY HAVE NOT CHOSEN TO EXPRESSLY DEFINE WHAT THE TOTAL TURNOVER MEANS, THEN WHEN THE TOTAL TURNOVER INCLUD ES EXPORT TURNOVER, THE MEANING ASSIGNED BY THE LEGISL ATURE TO THE EXPORT TURNOVER IS TO BE RESPECTED AND GIVEN EFFECT TO, WHILE INTERPRETING THE TOTAL TURNOVER WHICH IS INCLUSIVE OF THE EXPORT TURNOVER. THEREFORE THE FORMULA FOR COMPUTATION OF THE DEDUCTION UNDER SECTION 10-A, WO ULD BE AS UNDER : PROFITS OF THE BUSINESS X EXPORT TURNOVER (EXPORT TURNOVER + DOMESTIC TURNOVER TOTAL TURNOVER ) 11. IN THAT VIEW OF THE MATTER, WE DO NOT SEE ANY ERROR COMMITTED BY THE TRIBUNAL IN FOLLOWING THE JUDGMENT S RENDERED IN THE CONTEXT OF SECTION BOHHC IN INTERPR ETING SECTION 10-A WHEN THE PRINCIPLE UNDERLYING BOTH THE SE PROVISIONS IS ONE AND THE SAME. THEREFORE/ WE DO NO T SEE ANY MERIT IN THESE APPEALS. THE SUBSTANTIAL QUESTIO N OF LAW FRAMED IS ANSWERED IN FAVOUR OF THE ASSESSEE AN D AGAINST THE REVENUE. 7. FOLLOWING THE AFORESAID DECISION OF KARNATAKA H IGH COURT, THE ITAT PUNE BENCH IN THE CASE OF SERUM IN STITUTE OF INDIA LTD., PUNE VS. ADDL. CIT CIR-6, PUNE IN IT A NO.948/HYD/2005 DATED 18-1-2012 TO WHICH ONE OF US IS AN AUTHOR HELD THAT PARITY OF CONSTITUENTS BETWEEN THE EXPORT TURNOVER AND TOTAL TURNOVER NEEDS TO BE MAIN TAINED WHILE COMPUTING DEDUCTION U/S 10A OF THE ACT. FOR R EADY REFERENCE, THE RELEVANT OBSERVATION OF THE TRIBUNAL IS EXTRACTED HERE UNDER: 5 ITA.NO.1865/HYD/2012 MICROSOFT GLOBAL SERVICES CENTER (INDIA) P. LTD., HYDERABAD. THE ABOVE EXTRACTS CONTAINS THE IN DEPTH ANALYSIS AS TO THE FORMULA FOR DETERMINING THE ALLOWABLE DEDUCTION , NUMERATOR-DENOMINATOR ANALYSIS AND FINALLY, THEY AR RIVE AT THE NEED FOR MAINTAINING THE PARITY OF THE CON STITUENTS BETWEEN THE EXPORT TURNOVER AND TOTAL TURNOVERS . ON THE IMPUGNED ISSUE OF INCLUSION/EXCLUSION, THE JUDGMENT S PRONOUNCED IN THE CONTEXT OF SECTION 80HHC ARE EQUA LLY RELEVANT FOR THE APPLICABILITY OF THE SECTION 10A A ND IN FACT SECTION 10B TOO. THESE ARE THE BENEFICIAL PROVISION S AND THERE IS NEED FOR EXPLAINING THEM TO THE ADVANTAGE OF THE ASSESSEE. IT IS NOT THAT ALL TIMES THE INCLUSIONS H ELP THE ASSESSEE. SOME TIME EXCLUSIONS HELP TOO. THEREFORE, DEPENDING ON THE FACTS OF THE EACH OF THE CASES, TH E SAID INCLUSION OR EXCLUSION NEEDS TO BE DECIDED. BUT, IN ALL CASES, THE PRINCIPLE OF PARITY IN MATTERS OF INCLUS ION OR EXCLUSION HAS TO BE MAINTAINED. 8. SIMILARLY, IN THE CASE OF ITO VS. M/S. SAK SOFT LIMITED REPORTED IN (2009) 20 DTR 514 SPECIAL BENCH OF THE TRIBUNAL HAS HELD THAT WHILE COMPUTING THE DEDU CTION U/S 10A OR 10B OF THE ACT, FREIGHT, TELECOM CHARGES , INSURANCE ATTRIBUTABLE TO DELIVERY OF ARTICLES OR T HINGS OR COMPUTER SOFTWARE OUTSIDE INDIA OR THE EXPENSES, IF ANY, INCURRED IN FOREIGN EXCHANGE FOR PROVIDING TECHNICA L SERVICES OUTSIDE INDIA ARE TO BE EXCLUDED FROM BOTH EXPORT TURNOVER AND FROM THE TOTAL TURNOVER WHICH ARE NUME RATOR OR DENOMINATOR IN THE FORMULA. THE ITAT HYDERABAD BENCH IN CASE OF PATNI TELECOM (P) LTD VS. ITO REPO RTED IN (2009) 120 ITD 105 ALSO HELD SIMILAR VIEW. RESPECTF ULLY FOLLOWING THE AFORESAID DECISIONS, WE HOLD THAT PROFESSIONAL FEE, COMMUNICATION CHARGES AND INSURAN CE EXPENDITURE ONCE ARE EXCLUDED FROM THE EXPORT TURNO VER, FOR MAINTAINING PRINCIPLE OF PARITY, THE SAME ALSO HAS TO BE EXCLUDED FROM TOTAL TURNOVER. THEREFORE, IN THE AFO RESAID VIEW OF THE MATTER, WE UPHOLD THE ORDER PASSED BY T HE CIT (A) AND THE GROUNDS RAISED BY THE REVENUE ARE REJEC TED. 3.1. THE SAME ORDER WAS ALSO FOLLOWED IN ASSESSEE S OWN CASE FOR A.Y. 2009-2010 IN ITA.NO.1295/HYD/2014 DATED 19.11.2014. SINCE THE ISSUE IS ALREADY COVERED IN F AVOUR OF ASSESSEE BY ORDERS OF ITAT IN EARLIER YEARS AND ALS O COVERED IN FAVOUR OF ASSESSEE BY THE DECISION OF HONBLE BOMBA Y HIGH COURT IN THE CASE OF GEM PLUS JEWELLERY (SUPRA), WE DIRECT THE 6 ITA.NO.1865/HYD/2012 MICROSOFT GLOBAL SERVICES CENTER (INDIA) P. LTD., HYDERABAD. A.O. TO EXCLUDE AMOUNTS FROM TOTAL TURN OVER WHICH ARE EXCLUDED FROM THE EXPORT TURNOVER TO MAINTAIN THE P ARITY. THE GROUND RAISED BY ASSESSEE IS ACCORDINGLY CONSIDERED AS ALLOWED. 4. GROUND NO.3 PERTAINS TO THE ISSUE OF NON-GRANTI NG OF TDS AND ADVANCE TAX AND LEVY OF ADJUSTING INTERE ST UNDER 244A OF THE ACT. IT WAS THE CONTENTION THAT WITHOUT GIVING OPPORTUNITY TO ASSESSEE A.O. HAS GIVEN CREDIT TO TH E TDS OF ONLY RS.4,18,312 AS AGAINST RS.8,65,898 CLAIMED BY ASSESSEE AND AS AGAINST RS.1,89,00,000 CLAIMED AS ADVANCE TA X, THE FINAL ORDER DATED 26.10.2012 GAVE CREDIT FOR RS.1,6 9,33,680. SINCE NO OPPORTUNITY WAS GIVEN TO ASSESSEE, THERE W AS SHORT GRANT OF RS.24,13,406 AND CORRESPONDING LEVY OF INT EREST. IN SUPPORT OF CLAIM, LD. COUNSEL PLACED ON RECORD FORM 26AS INDICATING THAT THE CLAIMS ARE SUPPORTED BY FORM 26 AS OF THE DEPARTMENT. IN RESPECT OF THIS, AS A.O. HAS GIVEN L ESS CREDIT ASSESSEE WANTS DIRECTION ON THIS. 4.1. AS SEEN FROM THE FORM 26AS AS WELL AS THE CLA IMS MADE BY ASSESSEE IN THE RETURN OF INCOME, ASSESSEE DID CLAIM TDS OF RS.8,65,898 AND ADVANCE TAX OF RS.1,89,00,00 0 TOTALING TO RS.1,97,65,898. HOWEVER, A.O. ALLOWED AMOUNT OF RS.1,73,51,992. SINCE THE CLAIM OF ASSESSEE WAS ALS O SUPPORTED BY FORM 26AS MAINTAINED BY DEPARTMENT, WE DIRECT THE A.O. TO GIVE CREDIT ACCORDINGLY AND RE-WORKOUT THE TAX COMPUTATIONS. 5. GROUND NO.4 PERTAINS TO ISSUE OF ADJUSTING INTE REST UNDER SECTION 244A OF THE ACT. A.O. ADJUSTED AMOUNT OF RS.2,35,956 IN ARRIVING AT THE TAX DEMAND. IT IS TH E CONTENTION OF ASSESSEE THAT NO SUCH INTEREST WAS GRANTED TO AS SESSEE AND 7 ITA.NO.1865/HYD/2012 MICROSOFT GLOBAL SERVICES CENTER (INDIA) P. LTD., HYDERABAD. THEREFORE, ADJUSTMENT OF THE SAME IS NOT CORRECT. T HIS REQUIRES DETAILED VERIFICATION BY A.O. AS NO DISCUSSION WAS MADE IN THE ORDER, WE ARE UNABLE TO EXAMINE THE CONTENTIONS. W E DEEM IT FIT TO RESTORE THE ISSUE TO THE FILE OF A.O. TO VER IFY AND GIVE OPPORTUNITY TO ASSESSEE TO EXPLAIN, BEFORE ADJUSTIN G ANY INTEREST IF ANY GRANTED TO ASSESSEE EARLIER. WITH T HIS DIRECTION, GROUND IS CONSIDERED AS ALLOWED. 6. GROUND NO.5 IS WITH REFERENCE TO LEVY OF INTERE ST UNDER SECTION 234C AND 234D OF THE ACT WHICH ARE CONSEQUENTIAL IN NATURE. A.O. IS DIRECTED TO RE-WOR K OUT THE ABOVE CONSEQUENT TO REWORKING OF TOTAL INCOME AND GIVING CREDIT TO THE PRE PAID AMOUNTS CLAIMED. 7. GROUND NO.6 IS INITIATION OF PENALTY PROCEEDING S UNDER SECTION 271(1)(C) OF THE ACT, WHICH IS PREMAT URE TO BE ADJUDICATED AT THIS POINT OF TIME. ACCORDINGLY, GRO UND NO.6 IS REJECTED. 8. IN THE RESULT, APPEAL OF ASSESSEE IS PARTLY ALL OWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 29.12.2014. SD/- SD/- (SAKTIJIT DEY) (B.RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER HYDERABAD, DATED 29 TH DECEMBER, 2014 VBP/- 8 ITA.NO.1865/HYD/2012 MICROSOFT GLOBAL SERVICES CENTER (INDIA) P. LTD., HYDERABAD. COPY TO 1. MICROSOFT GLOBAL SERVICES CENTER (INDIA) P. LTD., BUILDING- 2, MICROSOFT CAMPUS, GACHIBOWLI, HYDERABAD 500 04 6. 2. THE ACIT, CIRCLE 16(2), HYDERABAD 3. DISPUTES RESOLUTION PANEL, HYDERABAD. 4. DIRECTOR OF INCOME TAX (T.P.), CHENNAI & MEMBER, DR P, HYDERABAD. 5. DIRECTOR OF INCOME TAX (INTERNATIONAL TAXATION), HYDERABAD. 6. D.R. ITAT B BENCH, HYDERABAD.