Aircom International (India) Pvt. Ltd., New Delhi V. DCIT, New Delhi

ITA 2073/DEL/2015

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 5452 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-05-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I1
• Next Hearing Date: 07-06-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 09-04-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SANJAY I BARA
• Assessee Lawyers: SHATANIK CHAKRABARTY S
• Keywords: Transfer pricing; International transaction
• Section: 143(3); 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : I-1 : NEW DELHI BEFORE SHRI R.S. SYAL, VICE PRESIDENT AND SHRI LALIET KUMAR, JUDICIAL MEMBER ITA NO.2073/DEL/2015 ASSESSMENT YEAR : 2010-11 AIRCOM INTERNATIONAL (INDIA) PVT. LTD., M-12, BALRAMA HOUSE, KARAMPURA COMMERCIAL COMPLEX, NEW DELH. PAN: AADCA0915A VS. DCIT, CIRCLE-2(1), NEW DELHI. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI NAGESWAR RAO, SHRI SANDEEP KARHAIL & SHRI SHATANIK CHAKRABARTY, ADVOCATES DEPARTMENT BY : SHRI SANJAY I BARA, CIT, DR DATE OF HEARING : 02.05.2018 DATE OF PRONOUNCEMENT : 02.05.2018 ORDER PER R.S. SYAL, VP: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE FINAL ASSESSMENT ORDER DATED 17.02.2015 PASSED BY THE ASS ESSING OFFICER (A.O.) ITA NO.2073/DEL/2015 2 U/S 143(3) READ WITH SECTION 144C OF THE INCOME-TAX ACT, 1961 (HEREINAFTER ALSO CALLED THE ACT) IN RELATION TO THE ASSESSMEN T YEAR 2009-10. 2. THE FIRST ISSUE RAISED IN THIS APPEAL THROUGH GR OUND NO.3 AND THE ADDITIONAL GROUNDS IS AGAINST ADDITION OF RS.2,51,6 3,689/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF TRANSFER PRICING AD JUSTMENT. 3. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT T HE ASSESSEE IS ENGAGED IN PROVISION OF SOFTWARE DEVELOPMENT SERVICES, SOFTWAR E DEPLOYMENT SERVICES, SOFTWARE CONSULTANCY SERVICES, SOFTWARE SUB-LICENSI NG, TRAINING SERVICES AND AMC ACTIVITIES. THE ASSESSEE REPORTED CERTAIN INTER NATIONAL TRANSACTIONS IN FORM NO.3CEB. THE ASSESSING OFFICER MADE REFERENCE TO THE TRANSFER PRICING OFFICER (TPO) FOR DETERMINING THE ARMS LEN GTH PRICE (ALP) OF THE INTERNATIONAL TRANSACTIONS. THE TPO COMPUTED TRANS FER PRICING ADJUSTMENT IN SOFTWARE CONSULTANCY SEGMENT AT RS.90,67,298/-; IN SOFTWARE DEPLOYMENT SEGMENT AT RS.62,58,965/-; AND IN MANAGE MENT FEES AT RS.2,51,63,689/-. THOUGH TRANSFER PRICING ADJUSTME NTS WERE COMPUTED IN RESPECT OF THE ABOVE INTERNATIONAL TRANSACTIONS, BU T NO TRANSFER PRICING ADJUSTMENT WAS RECOMMENDED TO THE AO EXCEPT IN `MAN AGEMENT FEE AT ITA NO.2073/DEL/2015 3 RS.2.51 CRORE. IT WAS DONE PRIMARILY ON THE SCORE T HAT THE OTHER TRANSACTIONS STOOD SUBSUMED IN THE INTERNATIONAL TRANSACTION OF `MANAGEMENT FEES FOR WHICH A SEPARATE ADJUSTMENT WAS PROPOSED. IN ADDIT ION, THE TPO RECOMMENDED TRANSFER PRICING ADJUSTMENT IN THE INTE RNATIONAL TRANSACTION OF SOFTWARE CONSULTANCY CHARGES AT RS.40,31,308/-. TH E DISPUTE RESOLUTION PANEL (DRP) ECHOED THE ADDITION OF RS.2.51 CRORE A ND ODD MADE BY THE AO ON THE BASIS OF THE TPOS RECOMMENDATION, BUT ORDER ED TO DELETE THE SEPARATE ADDITION ON ACCOUNT OF SOFTWARE CONSULTANC Y CHARGES AT RS.40.31 LAC. THAT IS HOW, THE ASSESSING OFFICER MADE TRANS FER PRICING ADDITION OF RS.2,51,63,689/- IN THE FINAL ORDER, AGAINST WHIC H THE ASSESSEE HAS COME UP IN APPEAL BEFORE THE TRIBUNAL. 4. WE HAVE HEARD BOTH THE SIDES AND PERUSED THE REL EVANT MATERIAL ON RECORD. IT IS AN ADMITTED POSITION THAT SIMILAR AD DITIONS WERE MADE IN EARLIER YEARS AS WELL, WHICH CAME TO BE DECIDED BY THE TRIB UNAL. VIDE ORDER DATED 28.03.2008, THE TRIBUNAL IN ITA NO.6617/DEL/2013 FO R THE IMMEDIATELY PRECEDING ASSESSMENT YEAR, 2009-10, HAS REMITTED T HE MATTER TO THE FILE OF ASSESSING OFFICER/TPO FOR FRESH DETERMINATION OF TH E ALP IN RESPECT OF THE INTERNATIONAL TRANSACTION OF `MANAGEMENT FEE, B Y FOLLOWING THE ORDERS OF ITA NO.2073/DEL/2015 4 THE TRIBUNAL FOR THE ASSESSMENT YEARS 2007-08 AND 2 008-09. AS REGARDS THE INTERNATIONAL TRANSACTIONS OF PROVISION OF SOFTWARE DEVELOPMENT SERVICES AND SOFTWARE CONSULTANCY SERVICES, THE TRIBUNAL TRE ATED THOSE GROUNDS AS INFRUCTUOUS IN VIEW OF NO TRANSFER PRICING ADDITIO N HAVING BEEN MADE AS THE SAME WAS EMBEDDED IN THE TRANSFER PRICING ADDITION OF MANAGEMENT FEE. 5. THE LD. AR CONTENDED THAT THE AMOUNT OF TRAN SFER PRICING ADJUSTMENT AS COMPUTED BUT NOT SEPARATELY ADDED IN RESPECT OF SOFTWARE DEVELOPMENT SERVICES AND SOFTWARE CONSULTANCY SERVICES ETC. IS THE CONSEQUENCE OF THE FIRST STEP OF DETERMINATION OF THE ALP OF THESE INT ERNATIONAL TRANSACTIONS FOLLOWED BY CONSIDERING THEIR IMPACT ON THE TRANSFE R PRICING ADJUSTMENT IN THE INTERNATIONAL TRANSACTION OF `MANAGEMENT FEE. HE SUBMITTED THAT THE TRANSACTIONS FOR WHICH TRANSFER PRICING ADJUSTMENTS HAVE BEEN COMPUTED, BUT NOT MADE, INCLUDING THE INTERNATIONAL TRANSACTI ON OF SOFTWARE CONSULTANCY SERVICES FOR WHICH TRANSFER PRICING ADJ USTMENT WAS PROPOSED BY THE TPO AT RS.40,31,308/- BUT DELETED BY THE DRP, ARE SO INTER-WOVEN WITH THE TRANSACTION OF `MANAGEMENT FEE, THAT THE DETE RMINATION OF ONLY ONE OF THEM DE HORS OTHERS WOULD GIVE SKEWED RESULTS. IT WAS, ERGO, AR GUED THAT IF THE BENCH IS TO REMIT THE MATTER BACK TO THE TPO, T HEN FRESH DETERMINATION ITA NO.2073/DEL/2015 5 OF ALL SUCH TRANSACTIONS SHOULD BE ORDERED. THE LD . DR DID NOT OBJECT TO THE PROPOSAL OF THE LD. AR FOR ORDERING A FRESH DETERMI NATION OF ALP OF ALL SUCH INTERNATIONAL TRANSACTIONS TO THE ASSESSING OFFICER /TPO. HE, HOWEVER, ADDED THAT IF IN SUCH FRESH EXERCISE, CERTAIN ADDIT IONS GET REQUIRED TO BE MADE IN THE INTERNATIONAL TRANSACTIONS IN WHICH EAR LIER THE TRANSFER PRICING ADJUSTMENTS WERE COMPUTED BUT NO ADDITIONS WERE MAD E IN THE FINAL ASSESSMENT ORDER, THEN THERE SHOULD BE NO EMBARGO O N THE POWER OF THE AO/TPO TO MAKE SUCH ADDITIONS. THE LD. AR CANDIDLY CONCEDED TO THIS PROPOSITION. IN VIEW OF THE RIVAL BUT COMMON SUBMI SSIONS, WE SET ASIDE THE IMPUGNED ORDER AND REMIT THE MATTER TO THE FILE OF AO/TPO FOR DETERMINING A FRESH ALP OF ALL THE INTERNATIONAL TRANSACTIONS, INCLUDING, THOSE FOR WHICH NO ADDITION WAS MADE IN THE FINAL ASSESSMENT ORDER THOUGH THE AMOUNT OF TRANSFER PRICING ADJUSTMENT WAS COMPUTED BY THE TPO . NEEDLESS TO SAY, THE ASSESSEE WILL BE ALLOWED A REASONABLE OPPORTUNITY O F HEARING IN SUCH FRESH PROCEEDINGS. 6. THE ONLY OTHER ISSUE WHICH SURVIVES IN THE I NSTANT APPEAL IS IN RESPECT OF CAPITALIZATION OF SOFTWARE LICENCE FEE. THE FAC TS APROPOS THIS GROUND ARE THAT THE ASSESSEE DEBITED A SUM OF RS.2,84,13,756/- ON ACCOUNT OF SOFTWARE ITA NO.2073/DEL/2015 6 LICENCE FEE. ON BEING CALLED UPON TO JUSTIFY THE D EDUCTION, THE ASSESSEE STATED THAT AIRCOM, UK GRANTED A NON-EXCLUSIVE LICE NCE TO IT FOR MARKETING AND SALE OF THE LICENCED SOFTWARE, NAMELY, ENTERPR ISE SUITE ON THE CONDITION THAT AIRCOM, UK SHALL BE PAID 45% OF THE GROSS SUM PAYABLE BY THE CUSTOMERS IN RELATION TO THE SALE OF SUCH LICEN CED SOFTWARE. ON THIS BASIS, IT WAS CLAIMED THAT THE PAYMENT WAS OF REVEN UE CHARACTER AND HENCE DEDUCTIBLE. THE ASSESSING OFFICER TREATED SUCH PAYM ENT AS LEADING TO GENERATING AN INTANGIBLE ASSET. AFTER ALLOWING DEPR ECIATION @ 25%, HE MADE AN ADDITION OF RS.2,13,10,317/-. THE ASSESSEE REMAINED UNSUCCESSFUL BEFORE THE DRP. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. THE ISSUE RAISED THROUGH THIS G ROUND IS OF RECURRING NATURE. THE TRIBUNAL IN ITS ORDER DATED 27.07.2017 IN ITA NO.5743/DEL/2011 FOR THE ASSESSMENT YEAR 2007-08 DE ALT WITH IT AND EVENTUALLY DELETED THE ADDITION MADE BY THE ASSESSI NG OFFICER. RELEVANT DISCUSSION HAS BEEN MADE IN PARA 17 OF THE TRIBUNAL ORDER. FOR ASSESSMENT YEAR 2009-10 ALSO, THE TRIBUNAL HAS REPEATED ITS EA RLIER VIEW IN DELETING THE ADDITION. SINCE THE FACTS AND CIRCUMSTANCES OF THE INSTANT GROUND ARE ITA NO.2073/DEL/2015 7 MUTATIS MUTANDIS SIMILAR TO THOSE OF THE PRECEDING YEARS, RESPECTFU LLY FOLLOWING THE PRECEDENT, WE ORDER TO DELETE THE ADD ITION MADE BY THE ASSESSING OFFICER BY CAPITALIZING PAYMENT MADE BY T HE ASSESSEE TO AIRCOM, UK AND THEN MAKING DISALLOWANCE AFTER ALLOWING DEPR ECIATION THEREON. 8. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED. THE ORDER PRONOUNCED IN THE OPEN COURT ON 02.05.201 8. SD/- SD/- [LALIET KUMAR] [R.S. SYAL] JUDICIAL MEMBER VICE PRESIDENT DATED, 02 ND MAY, 2018. DK COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT AR, ITAT, NEW DELHI.