Quatrro Business Supoort Services (P) Ltd(Previously known as Quatrro FPO Solutions Pvt. Ltd/FPO Business Solutions (P) Ltd), New Delhi V. ACIT, New Delhi

ITA 1905/DEL/2015

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 5610 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-04-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Assessment Year: 2010-2011
• Appeal Filed On: 01-04-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: LALITHA KRISHNAMURTHY
• Keywords: Transfer pricing; International transaction
• Section: 92C; 143(3); 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH I-2 NEW DELHI BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI L.P.SAHU, ACCOUNTANT MEMBER ITA NO.1905/DEL/2015 (ASSESSMENT YEAR : 2010-11) QUATRRO BUSINESS SUPPORT SERVICES (P.) LTD. (PREVIOUSLY KNOWN AS QUATRRO FPO SOLUTIONS PVT. LTD./FPO BUSINESS SOLUTIONS (P). LTD., 24C, BLOCK FIRST FLOOR, COMMUNITY CENTRE, JANAKPURI, NEW DELHI-110058. PAN-AAACQ1613Q VS ACIT, CIRCLE-20(2), NEW DELHI. (APPELLANT) (RESPONDENT) APPELLANT BY SMT. LALITHA KRISHNAMURTHY, ADV. RESPONDENT BY SH. SANJAY KUMAR YADAV, SR.DR DATE OF HEARING 11.04.2018 DATE OF PRONOUNCEMENT 16.04.2018 ORDER PER BHAVNESH SAINI, JUDICIAL MEMBER THIS APPEAL BY THE ASSESSEE HAS BEEN DIRECTED AGAIN ST THE ASSESSMENT ORDER DATED 23.01.2015 PASSED BY ACIT, CIRCLE-20(2) , NEW DELHI U/S 143(3) R.W. 144C(1) OF THE ACT FOR AY 2010-11, CHALLENGING THE UPWARD ADJUSTMENT OF RS.84,00,077/- BY THE AO U/S 92CA(4) OF THE INCOME TAX ACT, 1961 (IN SHORT ACT) ON THE DIRECTION OF THE TRANSFER PRICING OFF ICER (IN SHORT TPO). 2. BRIEFLY STATED FACTS OF THE CASE ARE THAT THE AS SESSEE FILED RETURN OF INCOME DECLARING TOTAL INCOME OF RS.74,97,685/-. T HE ASSESSEE COMPANY HAS ENTERED INTO INTERNATIONAL TRANSACTION WITH THE ASS OCIATED ENTERPRISES (IN SHORT AE) EXCEEDING RS.15 CRORES. A REFERENCE U/S 92CA (1) OF THE ACT WAS MADE TO TPO AFTER OBTAINING APPROVAL OF THE LD.CIT-8, MUMBA I. THEREUPON, THE TPO HAS MADE AN UPWARD ADJUSTMENT TO THE ARMS LENGTH P RICE (IN SHORT ALP) BY ITA NO.1905/DEL/2015 PAGE | 2 RS.2,55,36,760/- IN RELATION TO THE INTERNATIONAL T RANSACTIONS ENTERED INTO BY THE ASSESSEE COMPANY WITH ITS AE DURING FY 2009-10 RELEVANT TO THE AY 2010- 11. THE ORDER U/S 92CA(3) OF THE ACT WAS PASSED AF TER TAKING INTO ACCOUNT THE ASSESSEES CONTENTIONS RAISED IN THE COURSE OF TRAN SFER PRICING PROCEEDINGS BEFORE THE TPO. HENCE, IN VIEW OF THE ORDER PASSED U/S 92CA(3) BY THE TPO DATED 21.01.2014 , AN ADDITION OF RS.2,55,36,760/- WAS PROPOSED TO BE MADE TO INCOME. THE ASSESSEE, HOWEVER, RAISED OBJECTION S BEFORE DRP-II, NEW DELHI WHO AFTER CONSIDERING ALL THE ISSUES RAISED IN THE DRAFT ORDER AND PASSED ORDER U/S 144C(5) OF THE ACT VIDE ORDER DATED 27.11.2014 WHEREIN CERTAIN DIRECTION TO THE TPO WERE ISSUED. THE TPO AFTER CONSIDERING THE DIRECTIONS OF THE DRP-II, NEW DELHI HAS PASSED THE ORDER VIDE ORDER DATED 01. 01.2015 AND HAS SUGGESTED AN UPWARD ADJUSTMENT OF RS.84,00,077/-, C OPY OF WHICH IS FILED AT PAGE 240 OF THE PAPER BOOK. THE AO IN VIEW OF THE SAME, PASSED THE IMPUGNED ASSESSMENT ORDER MAKING AN ADDITION OF RS.84,00,077 /-. 3. LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE DIRECTIONS OF THE DRP HAVE NOT BEEN FOLLOWED BY THE TPO AND AS SUCH THE A SSESSEE FILED APPLICATION U/S 154 OF THE ACT FOR RECTIFICATION IN THE IMPUGNE D ASSESSMENT ORDER DATED 23.01.2015, COPY OF THE APPLICATION U/S 154 OF THE ACT IS FILED AT PAGE 244 TO 248 OF THE PAPER BOOK. LD. COUNSEL FOR THE ASSESSE E IN THE WRITTEN SUBMISSIONS SUBMITTED AS UNDER:- LD. DRP HAS IN PARA 10.1 OF THEIR ORDER DIRECTED L D.TPO TO EXCLUDE FOREIGN EXCHANGE FLUCTUATION LOSS FROM THE CALCULATION OF O PERATING COST. THE RELEVANT PORTION OF THE ORDER IS REPRODUCED BELOW:- ITA NO.1905/DEL/2015 PAGE | 3 10.1. THE OPERATING INCOME/EXPENDITURE WAS NEVER DE FINED IN ANY OF THE LEGISLATION SO FAR. IT WAS THE CONVENTIONAL WISDOM WHICH WENT INTO THE COMPONENTS OF OPERATING INCOME/EXPENDITURE WHILE CALCULATING THE OPERATING PROFIT. HOWEVER, THE POS ITION HAS CHANGED SINCE THE NOTIFICATION OF CBDT ISSUED ON 18.09.2013 . THIS IS THE NOTIFICATION ON SAFE HARBOUR RULES. RULE 10TA(J) (K) AND (I) DEFINE THE CONCEPT OF OPERATING EXPENSE, OPERATING REVE NUE AND OPERATING PROFIT RESPECTIVELY. ACCORDING TO THIS RULE, LOSS OR INCOME ARISING ON ACCOUNT OF FOREIGN CURRENCY FLUCTUATIONS ARE EXCLUDED FROM THE CALCULATION OF OPERATING EXPENSES AND OPERAT ING INCOME RESPECTIVELY. THEREFORE, THE TPO IS DIRECTED TO EX CLUDE FOREX ITEMS FROM THE CALCULATION OF OPERATING PROFIT. THIS OBJ ECTION OF THE ASSESSEE IS UPHELD. THE CALCULATION, IN VIEW OF SUCH DIRECTION, WOULD B E AS UNDER:- PARTICULARS AMOUNT (IN INR) PAPER BOOK PAGE REFERENCE OPERATING REVENU E - A 136,399,766 PAGE 155 OPERATING COST FOR BACK OFFICE SUPPORT SERVICE SEGMENT-B 122,094,154 PAGE 155 LESS: FOREIGN EXCHANGE FLUCTUATION LOSS - C 6,356,069 PAGE 155 BALANCE D =(B - C) 115,738,085 OPERATING PROFIT E=(A - D) 20,661,681 OP/TC% (E/D) [(20,661,681*100)/115,738,085]= 17.85% IN VIEW OF ABOVE, THE CALCULATION OF ARMS LENGTH W OULD BE AS UNDER:- PARTICULARS AMOUNT (IN RS.) PAPER BOOK PAGE REFERENCE OPERATING COST EXCLUDING FOREIGN EXCHANGE FLUCTUATION LOSS(A) 115,738,085 AS PER PREVIOUS PAGE ARMS LENGTH MARGIN (B) 18.60% OF THE OPERATING COST OF RS.115,738,085 + 21,527,284 ARMS LENGTH PRICE [C=A+B] [115,738,085 +21,527,284]= 137,265,369 LESS: INTERNATIONAL TRANSACTION PRICE SHOWN (D) 136,399,766 PAGE 155 DIFFERENCE (C - D) (137,265,369 136,399,766) 865,603 ITA NO.1905/DEL/2015 PAGE | 4 AS THE MARGIN OF THE APPELLANT WOULD BE 17.85%, AFT ER EXCLUSION OF FOREIGN EXCHANGE FLUCTUATION LOSS OF RS.6,356,069/- IN TERM S OF PARA 10.1 OF DRP ORDER (PAGE 247 OF PB), WHICH WOULD BE WITHIN TOLER ANCE RANGE LIMIT OF +/- 5% OF THE AVERAGE MARGIN OF COMPARABLES OF 18.60% A S DETERMINED BY DRP/TPO (PAGE 240 OF PB) IMPUGNED TP ADJUSTMENT OF RS.84,00,077/- ARRIVED AT BY TPO (PAGE 240 OF PB), WOULD NOT SURVI VE IN TERMS OF THE SECOND PROVISO TO SECTION 92C OF THE ACT. 4. LD. COUNSEL FOR THE ASSESSEE, FURTHER, SUBMITTED THAT THE AO HAS NOT PASSED ANY ORDER ON THE RECTIFICATION APPLICATION F ILED BY THE ASSESSEE TILL DATE. SHE HAS, THEREFORE, SUBMITTED THAT THE MATTER MAY B E REMANDED TO THE AO/TPO TO PASS THE ORDER AFRESH IN VIEW OF THE DIRECTION O F THE DRP-II DATED 27.11.2014. LD. SR. DR ALSO SUGGESTED THAT SINCE THE MATTER IS PENDING BEFORE AO U/S 154 OF THE ACT, THEREFORE, THIS MATTER MAY ALSO BE REMA NDED BACK TO THE FILE OF THE AO/TPO TO PASS ORDER AS PER THE DIRECTION OF THE DR P-II. 5. AFTER CONSIDERING THE FACTS OF THE CASE AND IN T HE LIGHT OF THE SUBMISSIONS OF THE PARTIES, WE FIND THAT THE ASSESSEE HAS CORRE CTLY SUBMITTED THAT THE DIRECTIONS OF THE DRP-II HAVE NOT BEEN FOLLOWED BY THE TPO WHILE GIVING THE APPEAL EFFECT. THE ASSESSEE ON THE SIMILAR MATTER IN ISSUE HAS ALREADY MOVED APPLICATION FOR RECTIFICATION U/S 154 OF THE ACT CL AIMING THEREIN THAT ADJUSTMENT COULD ONLY BE MADE AT RS.8,65,603/-. IN THESE CIRC UMSTANCES, IT WOULD BE REASONABLE AND PROPER TO DIRECT THE AO/TPO TO RE-DE CIDE THE ISSUE IN VIEW OF THE OBJECTIONS RAISED BY THE ASSESSEE IN THE RECTIF ICATION APPLICATION. WE ACCORDINGLY, SET ASIDE THE ORDERS OF AUTHORITY BELO W AND RESTORE THE MATTER IN ISSUE BACK TO THE FILE OF THE AO/TPO WITH THE DIREC TION TO PASS AN ORDER AFRESH IN VIEW OF THE DIRECTIONS OF THE DRP-II DATED 27.11 .2014 AND IN THE LIGHT OF THE ITA NO.1905/DEL/2015 PAGE | 5 CONTENTIONS RAISED BY THE ASSESSEE IN THE APPLICATI ON U/S 154 OF THE ACT. THE AO/TPO SHALL GIVE REASONABLE AND SUFFICIENT OPPORTU NITY OF BEING HEARD TO THE ASSESSEE. 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON 16.04.2018. SD/- SD/- (L.P.SAHU) (BHAVNESH SAINI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATE:-16 TH APRIL, 2018 *AMIT KUMAR* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI