M/s Kaypee Electronics & Associates Pvt Ltd , Bangalore Rural District V. The Deputy Commissioner of Income TAx Circle-4(1)(1), Bangalore

ITA 2063/BANG/2017

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 8703 (ITAT-BANGALORE)
• Duration Of Justice: 2 year(s) 2 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-01-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 13-01-2020
• Assessment Year: 2013-2014
• Appeal Filed On: 25-10-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MUZAFFAR HUSSAIN
• Keywords: Opportunity of being heard; Set aside
• Section: 144C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE SHRI N V VASUDEVAN, VICE PRESIDENT AND BEFORE SHRI ARUN KUMAR GARODIA, AM IT (TP) A NO. 159/B/2015, 132/BANG/2016, 86/BANG/2017 & 2063/BANG/2017 ASSESSMENT YEARS : 2010 11 TO 2013 14 M/S KAYPEE ELECTRONICS & ASSOCIATES PVT. LTD. , PLOT NO. 302 & 303, SOMPURA INDUSTRIAL AREA, 1 ST STAGE, NIDAVANDA VILLAGE, SOMAPURA HOBLI, NELAMANGALA TALUK, BENGALURU RURAL DISTRICT - 562111 PAN: AACCK1203C VS. DCIT CIRCLE 4 (1)(1), BANGALORE APPELLANT RESPONDENT ASSESSEE BY : S HRI AJAY ROTTI, C. A. REVENUE BY : SHRI MUZAFFAR HUSSAIN, CIT DR DATE OF HEARING : 1 3 . 0 1 .20 20 DATE OF PRONOUNCEMENT : 17 . 0 1.20 20 O R D E R PER SHRI A.K. GARODIA, AM: THESE FOUR APPEALS ARE FILED BY THE ASSESSEE AND THESE ARE DIRECTED AGAINST FOUR SEPARATE ASSESSMENT ORDERS FOR RESPECTIVE YEARS PASSED U/S 143 (3) R.W.S. 144C OF I. T. ACT AS PER DIRECTIONS OF DRP. THESE APPEALS WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY WAY OF THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. ALTHOUGH VARIOUS GROUNDS ARE RAISED BY THE ASSESSEE IN EACH OF THESE FOUR YEARS BUT THE MAIN GRIEVANCE OF THE ASSESSEE IN ALL OF THESE FOUR YEARS IS ABOUT T. P. ADJUSTMENT MADE ON ACCOUNT OF ROYALTY PAID BY THE ASSESSEE TO ITS AE M/S FALCO @ 8% OF GROSS SALES PROCEEDS BUT AS PER TPO & AO, IT WAS REDUCED TO 8% OF VALUE ADDITION BY REDUCING COST OF MATERIAL COST FROM GROSS SALE PROCEEDS AND DRP CONFIRMED THE SAME. IN ADDITION TO THIS T. P. ISSUE, WHICH ITA NOS.159/B/2015, 132/B/2016 & 86 & 2063/B/2017 IS THERE IN ALL FOUR YEARS, THERE IS ONE CORPORATE TAX ISSUE IN A. Y. 2010 11 & 2011 12 AND THIS ISSUE IS ABOUT QUANTUM OF DEDUCTION ALLOWABLE TO THE ASSESSEE U/S 10A BECAUSE THE AO HAS REDUCED FREIGHT & INSURANCE EXPENSES INCURRED IN FOREIGN CURRENCY FROM EXPORT TURNOVER WITHOUT REDUCING IT FROM TOTAL TURNOVER WHILE COMPUTING THE QUANTUM OF DEDUCTION ALLOWABLE U/S 10A. THERE IS ONE MORE CORPORATE TAX ISSUE IN A. Y. 2011 12 ABOUT DISALLOWANCE OF RS. 4,303/- INCURRED TOWARDS STAMP DUTY EXPENSES. THE GROUND IN THIS REGARD WAS NOT PRESSED BY THE LEARNED AR OF THE ASSESSEE IN COURSE OF HEARING AND THEREFORE, IT IS REJECTED AS NOT PRESSED. 3. FIRST, WE DECIDE THE CORPORATE TAX ISSUE RAISED IN A. Y. 2010 11 & 2011 12. THIS ISSUE IS NOW COVERED IN FAVOUR OF THE ASSESSEE BY THE JUDGMENT OF HONBLE KARNATAKA HIGH COURT RENDERED IN THE CASE OF CIT VS. TATA ELXSI LTD. AS REPORTED IN 349 ITR 98. THIS WAS HELD IN THIS CASE THAT TOTAL TURNOVER IS SUM TOTAL OF DOMESTIC TURNOVER AND EXPORT TURNOVER AND THEREFORE, IF AN AMOUNT IS REDUCED FROM EXPORT TURNOVER, TOTAL TURNOVER ALSO GETS REDUCED BY THE SAME AMOUNT. RESPECTFULLY FOLLOWING THIS JUDGMENT, WE DIRECT THE AO TO RECOMPUTE THE DEDUCTION ALLOWABLE TO THE ASSESSEE U/S 10A BY REDUCING THE SAME AMOUNT FROM TOTAL TURNOVER WHICH HAD BEEN REDUCED FROM EXPORT TURNOVER. 4. NOW WE DECIDE THE T. P. ISSUE. BOTH SIDES WERE HEARD. ALTHOUGH, LEARNED AR OF THE ASSESSEE MADE DETAILED ARGUMENTS TO SUBMIT THAT THIS T. P. ADJUSTMENT SHOULD BE DELETED BUT WHEN IT WAS POINTED OUT BY THE LEARNED DR OF THE REVENUE THAT THIS IS THE FINDING OF DRP ON PAGE 6 OF ITS ORDER FOR A. Y. 2011 12 THAT THE ASSESSEE FAILED TO PROVIDE TP STUDY ON ROYALTY, THIS WAS THE SUBMISSION OF THE LEARNED AR OF THE ASSESSEE THAT THE SAME WAS PROVIDED TO DRP AND ITS COPY IS AVAILABLE ON PAGES 282 TO 351 OF THE APPEAL MEMO FOR THAT YEAR. AT THIS JUNCTURE, THIS WAS OBSERVED BY THE BENCH THAT EVEN IF SUBMITTED BEFORE DRP, THIS IS A FACT THAT IT WAS NOT CONSIDERED AND COMMENTED UPON BY DRP. THE BENCH ALSO OBSERVED THAT IN THE FACTS OF THE PRESENT CASE, THIS MATTER HAS TO GO BACK TO AO/TPO FOR A FRESH DECISION IN ALL FOUR YEARS BY WAY OF A SPEAKING AND REASONED ORDER BECAUSE AS PER THE IMPUGNED ORDERS, THE ORDER ARE CRYPTIC AND IN THE T. P. STUDY OF THE ASSESSEE ALSO, ITA NOS.159/B/2015, 132/B/2016 & 86 & 2063/B/2017 BENCH MARKING OF ROYALTY IS NOT DONE SEPARATELY AND IT IS DONE BY ENTITY LEVEL TNMM. IN REPLY, BOTH SIDES AGREED TO THIS PROPOSITION PUT FORWARD BY THE BENCH. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE FIND THAT AS PER THE AGREEMENT OF THE ASSESSEE WITH ITS AE, QUANTUM OF ROYALTY TO BE PAID BY THE ASSESSEE TO ITS AE IS ALSO LINKED WITH THE GROSS PROFIT TO BE EARNED BY THE ASSESSEE. IF THE GROSS PROFIT AFTER ROYALTY IS LESS THAN 15%, THE SHORT FALL IN SUCH GROSS PROFIT IS TO BE ADJUSTED OUT OF ROYALTY. IT MEANS THAT IF THE GROSS PROFIT BEFORE ROYALTY IS 15% OR LESS, ROYALTY PAYABLE IS NIL AND IF GROSS PROFIT BEFORE ROYALTY IS MORE THAN 15% OF SALES, THE EXTRA GROSS PROFIT IS PAYABLE AS ROYALTY SUBJECT TO A CAP OF 8% OF SALES. THIS METHOD OF COMPUTING THE ROYALTY PAYABLE BY THE ASSESSEE TO ITS AE SHOWS THAT THE PAYMENT OF ROYALTY IS ALREADY LINKED TO EARNING OF GROSS PROFIT BY THE ASSESSEE BUT THIS VITAL ASPECT IS TOTALLY BRUSHED ASIDE BY THE LOWER AUTHORITIES. AS PER THE LOWER AUTHORITIES, THE ROYALTY SHOULD BE 8% OF VALUE ADDITION. IF THE BASE IS CHANGED FROM GROSS SALES TO VALUE ADDITION, HOW THE RATE CAN BE KEPT SAME WITHOUT EXAMINING THE SAME BY CONSIDERING SUITABLE COMPARABLES. MOREOVER, DRP HAS MENTIONED ABOUT VARIOUS JUDICIAL PRONOUNCEMENTS SUCH AS TRIBUNAL ORDER RENDERED IN THE CASE OF TOYOTA KIRLOSKAR AUTO PARTS (P) LTD. VS. ACIT, 52 TAXMEN. COM 171 AND OTHERS BUT THIS IS NOT COMING OUT FROM THE ORDER OF DRP AS TO WHETHER THE RELEVANT CLAUSE ABOUT QUANTIFICATION OF ROYALTY IN THOSE CASES WAS SIMILAR. 6. IN VIEW OF ABOVE DISCUSSION, WE FEEL IT PROPER TO REMAND THIS ISSUE TO AO/TPO FOR FRESH DECISION BY WAY OF A SPEAKING AND REASONED ORDER. WE WANT TO MAKE CLEAR THAT OUR OBSERVATIONS IN ABOVE PARA ARE IN THIS CONTEXT AS TO WHETHER THE ORDERS OF LOWER AUTHORITIES IS CRYPTIC OR NOT AND THESE OBSERVATIONS SHOULD NOT BE CONSIDERED AS A FINDING OR DIRECTION ON MERIT AND MERIT SHOULD BE DECIDED WITHOUT BEING INFLUENCED BY THESE OBSERVATIONS. ACCORDINGLY, ON THIS ISSUE, THE ASSESSMENT ORDER IN ALL FOUR YEARS ARE SET ASIDE AND THE MATTER IS RESTORED TO AO/TPO FOR A FRESH DECISION BY WAY OF A SPEAKING AND REASONED ORDER AFTER PROVIDING ADEQUATE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. ITA NOS.159/B/2015, 132/B/2016 & 86 & 2063/B/2017 7 . IN THE RESULT, ONE APPEAL OF THE ASSESSEE FOR A. Y. 2011 12 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES AND REMAINING THREE APPEALS OF THE ASSESSEE ARE ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THE DATE MENTIONED ON THE CAPTION PAGE. SD/- SD/- (N. V. VASUDEVAN) (ARUN KUMAR GARODIA) VICE PRESIDENT ACCOUNTANT MEMBER BANGALORE, DATED, THE 17 TH JANUARY, 2020. /MS/ COPY TO: 1. APPELLANT 4. CIT (A) 2. RESPONDENT 5. DR, ITAT, BANGALORE 3. CIT 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, INCOME TAX APPELLATE TRIBUNAL, BANGALORE.