Satyam venture Engineering Services P. Ltd., Sec'bad, Secunderabad V. ACIT,Central Circle-3(2), Hyd, Hyderabad

ITA 250/HYD/2016

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 3039 (ITAT-HYDERABAD)
• Duration Of Justice: 4 year(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-03-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB-A
• Next Hearing Date: 11-12-2019
• Assessment Year: 2011-2012
• Appeal Filed On: 04-03-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: Y V S T SAI
• Assessee Lawyers: C S SUBRAHMANYAM
• Keywords: Transfer pricing; International transaction; TDS
• Section: 143(3); 92B; 40(a)(ia); 144C; 194J; 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A, HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ITA NO. 250/HYD/2016 ASSESSMENT YEAR: 2011 - 12 SATYAM VENTURE ENGINEERING SERVICES PRIVATE LIMITED, SECUNDERABAD - 003. PAN: AAFCS 3287 D VS. ACIT, CENTRAL CIRCLE - 3(2), HYDERABAD. (APPELLANT) (RESPONDENT) ITA NO. 222/HYD/2016 ASSESSMENT YEAR: 2011 - 12 ACIT, CENTRAL CIRCLE - 3(2), HYDERABAD. VS. SATYAM VENTURE ENGINEERING SERVICES PRIVATE LIMITED, SECUNDERABAD - 003. PAN: AAFCS 3287 D (APPELLANT) (RESPONDENT) ASSESSEE BY: SRI C.S. SUBRAHMANYAM REVENUE BY: SRI Y.V.S.T. SAI, DR DATE OF HEARING: 11/12/2019 DATE OF PRONOUNCEMENT: 05 /03/2020 ORDER PER A. MOHAN ALANKAMONY, AM.: THESE ARE CROSS APPEALS FILED BY THE ASSESSEE AND THE REVENUE IN ITA NO.250/HYD/2016 AND ITA NO. 222/HYD/2016 RESPECTIVELY FOR THE 2 A.Y. 2011 - 12 AGAINST THE FINAL ASSESSMENT ORDER OF THE LD. A.O. DATED 31.12.2015 PASSED U/S. 143(3) R.W.S. 144C OF THE ACT. 2. THE REVENUE HAS RAISED THREE GROUNDS IN ITS APPEAL HOWEVER, THE CRUX OF THE ISSUE IS THAT THE HONBLE DRP HAD ERRED IN NOT CONSIDERING THE OUTSTANDING BALANCES OF ITS AES WITH RESPECT TO PAYABLES AND RECEIVABLES FOR ESTIMATING THE NOTIONAL INTERES T FOR THE PURPOSE OF TP ADJUSTMENT. 3. THE ASSESSEE IN ITS CROSS APPEAL HAS ALSO RAISED THREE GROUNDS IN ITS APPEAL HOWEVER, THE CRUX OF THE ISSUE IS THAT THE LD. AO / HONBLE MEMBERS OF THE DRP HAD ERRED IN DISALLOWING RS. 13,00,56,397/ - BEING REIMBURSEM ENT OF SALARY INVOKING THE PROVISIONS OF SECTION 194J R.W.S 40(A)(IA) OF THE ACT. ITA NO. 222/HYD/2016 (REVENUES APPEAL) 4. AT THE OUTSET, THE LD. DR SUBMITTED BEFORE US THAT THE LD. MEMBERS OF THE DRP HAD ERRED IN NOT CONSIDERING THE INTEREST ON THE OU TSTANDING RECEIVABLES AND PAYABLES FROM THE AE WHILE DETERMINING THE ARMS LENGTH PRICE. IT WAS THEREFORE PLEADED THAT DIRECTIONS MAY BE GIVEN TO THE LD. AO TO CONSIDER THE SAME WHILE DETERMINING THE ALP BECAUSE IT AMOUNTS TO CROSS BORDER TRANSACTION AS P ER SECTION 92B OF THE ACT. THE LD. AR COULD NOT CONTROVERT TO THE SUBMISSION OF THE LD. DR. 3 5. ON THIS ISSUE, IN THE PREVIOUS OCCASION IN THE CASE OF M/S. KONY INDIA PRIVATE LIMITED IN ITA NO.2305/HYD/2018 FOR THE AY 2014 - 15, WE HAVE CATEGORICALLY HELD AS FOLLOWS: 16. AS REGARD TO GROUND NO.8 IN RELATION TO INTEREST ON OUTSTANDING RECEIVABLES THE LD AR SUBMITTED THAT INTEREST ON OUTSTANDING RECEIVABLES IS NOT AN INTERNATIONAL TRANSACTION AS PER SECTION 92B OF THE ACT. FURTHER, IT WAS SUBMITTED THAT THE COMPANY IS A DEBT FREE COMPANY AND THEREFORE, NO INTEREST SHOULD BE CHARGED. IN THIS REGARD, LD. AR RELIED ON VARIOUS CASE LAWS IN SUPPORT OF THE ABOVE CONTENTION. IT WAS FURTHER ARGUED THAT WITH RESPECT TO CERTAIN TRANSACTIONS WITH TH E AE THE ASSESSEE HAD ALSO RECEIVED ADVANCES. HENCE, IT WAS SUBMITTED THAT IF INTEREST WAS TO BE CHARGED ON RECEIVABLES, THEN THE ADVANCE RECEIVED FROM THE AES SHOULD BE FIRST ADJUSTED TOWARDS THE RECEIVABLES ON FIFO BASIS AND THEREAFTER, INTEREST MAY BE CHARGED ON THE BALANCE RECEIVABLES. THE LD.AR ALSO SUBMITTED THE WORKING IN THIS REGARD. ON EXAMINING THE ISSUE, WE FIND THAT THE AMENDMENT TO SECTION 92B COVERS INTEREST ON OUTSTANDING RECEIVABLES AS INTERNATIONAL TRANSACTION AND HENCE, WE DO NOT FIND ME RITS IN THE ARGUMENT ADVANCED BY THE LD. AR THAT INTEREST ON OUTSTANDING RECEIVABLES IS NOT AN INTERNATIONAL TRANSACTION AS PER SECTION 92B OF THE ACT. IN RESPECT OF THE APPLICATION OF FIFO METHOD ON REALIZATION OF OUTSTANDING RECEIVABLES WITH ADVANCE REC EIVED TOWARDS CERTAIN OTHER TRANSACTION WITH AE, WE AGREE WITH THE LD. ARS ARGUMENT THAT PRIMARILY THE ADVANCE RECEIVED HAS TO BE ADJUSTED AGAINST ANY ADVANCE RECEIVED AND THEREAFTER, THE INTEREST HAS TO BE CHARGED ON THE OUTSTANDING RECEIVABLES. THIS MET HODOLOGY SHALL RESULT IN THE EXACT OUTSTANDING INVOICES AGAINST WHICH PAYMENT IS NOT RECEIVED. ACCORDINGLY, WE REMIT THE ISSUE BACK TO THE FILE OF LD. TPO TO CONSIDER THE ISSUE AFRESH IN THE LIGHT OF THE OBSERVATIONS MADE BY US HEREINABOVE. THE ASSESSEE I S ALSO HEREBY DIRECTED TO FURNISH THE COMPUTATION OF INTEREST IN THE AFORE - STATED MANNER BEFORE THE LD. TPO IN ORDER TO FACILITATE THE PROCEEDINGS. 6. SINCE THE FACTS O F THE ABOVE REFERRED CASE IS IDENTICAL TO THE CASE OF THE ASSESSEE, WE HEREBY REMIT THE ISSUE BACK TO THE FILE OF TPO WITH SIMILAR DIRECTION. ITA NO.250/HYD/2016 (ASSESSEES APPEAL) 7. WITH RESPECT TO THE ISSUE OF DISALLOWANCE OF REIMBURSEMENT OF SALARY EXPENSE INVOKING THE PROVISIONS OF SECTIO N 194J R.W.S 40(A)(IA) OF THE ACT, THE LD. AR SUBMITTED THAT THE IT IS COVERED BY THE DECISION OF THE 4 HYDERABAD BENCH OF THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE AY 2012 - 13 IN ITA NO. 382/HYD/2017. THE LD. DR COULD NOT CONTROVERT TO THE SUBMISSION OF THE LD. AR. 8. AFTER HEARING BOTH THE PARTIES AND PERUSING THE ORDER OF THE TRIBUNAL, WE FIND THAT THE HYDERABAD BENCH OF THE TRIBUNAL IN THE CASE CITED SUPRA HAS DECIDED THE MATTER AS UNDER: 2.6 AFTER HEARING BOTH THE PARTIES, WE FIND THA T THE PAYMENTS ARE MADE FOR THE SERVICES RENDERED BY EMPLOYEES OF TECH MAHINDRA TO THE ASSESSEE AND THEREFORE IT IS CLEAR THAT THE TECHNICAL SERVICES HAVE BEEN RENDERED TO THE ASSESSEE BY TECH MAHINDRA, THE ASSESSEES PARENT COMPANY AND ALSO A RESIDENT COM PANY. THEREFORE, THE PAYMENT MADE TO THE TECH MAHINDRA HAS TO BE MADE ONLY AFTER MAKING TDS. THE ALTERNATIVE ARGUMENT OF THE ASSESSEE, IN GROUND OF APPEAL NO. 3 IS THAT THE RECIPIENT HAS OFFERED THE INCOME TO TAX IN ITS HANDS. WE FIND THAT THE A.O AND THE 7 SATYAM VENTURE ENGINEERING SERVICES PVT LTD. SECUNDERABAD.. DRP HAVE NOT ACCEPTED THE SAME ON THE GROUND THAT THE PROVISO TO SEC. 40(A)(IA) OF THE ACT IS APPLICABLE PROSPECTIVELY AND IS NOT APPLICABLE TO THE YEAR BEFORE US. THE LD. COUNSEL FOR THE ASSESS EE HAS RELIED UPON THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF ANSAL LAND MARK TOWNSHIP (2014) 61 TAXMANN.COM 45 (DELHI), WHEREIN THE SAID PROVISO TO SEC. 40(A)(IA) OF THE ACT HAS BEEN HELD TO BE CURATIVE IN NATURE AND THEREFORE APPLICABLE RETROSPECTIVELY. THE COORDINATE BENCHES OF THE TRIBUNAL, HAVE BEEN FOLLOWING THE SAID JUDGMENT TO GRANT RELIEF IN VARIOUS CASES. THEREFORE, WE HOLD THAT IN THE CASE BEFORE US ALSO, IF THE RECIPIENT HAS OFFERED THE RECEIPT AS ITS INCOME, THEN THE DISALLOWAN CE U/S 40(A)(IA) OF THE AT CANNOT BE MADE. THE ASSESSEE HAS FILED THE RELEVANT DETAILS BEFORE THE DRP AND THE DRP HAS CALLED FOR A REMAND REPORT, WHEREIN THE A.O HAS SUPPORTED THE DISALLOWANCE ON THE GROUND THAT THE PROVISO TO SEC. 40(A)(IA) OF THE ACT IS APPLICABLE PROSPECTIVELY. HE FURTHER COMMENTED THAT CERTAIN PART OF THE EXPENDITURE IS NOT ALLOWABLE AND THE DRP CONFIRMED THE ORDER OF THE A.O ONLY ON THE GROUND THAT THE PROVISO IS APPLICABLE PROSPECTIVELY. THUS, WE FIND THAT THE A.O HAS ALREADY CONSIDER ED EVIDENCE FILED BY THE 8 SATYAM VENTURE ENGINEERING SERVICES PVT LTD. SECUNDERABAD.. ASSESSEE BUT HAS NOT GIVEN ANY FINDING AS TO WHETHER THE RECIPIENT HAS OFFERED THE SAID INCOME TO TAX. THEREFORE, WE DEEM IT FIT AND PROPER TO REMAND THE ISSUE TO THE FI LE OF THE A.O WITH A DIRECTION TO THE ASSESSEE TO FILE THE RELEVANT EVIDENCE BEFORE THE A.O AND THE A.O SHALL THEN VERIFY IF THE RECIPIENT HAD PAID TAXES ON SUCH SUM AND IF IT IS FOUND TO BE PAID THEN NO DISALLOWANCE U/S 40(A)(IA) OF THE ACT SHALL BE MADE IN THE HANDS OF THE ASSESSEE 5 9. SINCE, THE ISSUE IS DECIDED BY US IN THE ASSESSEES OWN CASE FOR THE AY 2012 - 13, WE HEREBY REMIT THE ISSUE BACK TO THE FILE OF TPO WITH SIMILAR DIRECTION. 10. IN THE RESULT, ASSESSEES APPEAL A S WELL AS THE REVENUES APPEAL S ARE ALLOWED FOR STATISTICAL PURPOSES AS INDICATED HEREINABOVE . PRONOUNCED IN THE OPEN COURT ON 05 TH MARCH , 2020. SD / - SD / - (P. MADHAVI DEVI) ( A. MOHAN ALANKAMONY ) JUDICIAL MEMBER ACCOUNTANT MEMBER HYDERABAD, DATED: 05 TH MARCH , 2020 OKK COPY TO: - 1) M/S. SATYAM VENTURE ENGINEERING SERVICES PRIVATE LIMITED, 3 RD FLOOR, ASHOKA MY HOME CHAMBERS, 1 - 8 - 301 TO 306, S P ROAD, SECUNDERABAD - 500 003. 2) ASST. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE - 3(2), R.NO.310, 3 RD FLOOR, POSNET BHAVAN, TILAK ROAD, HYDERABAD. 3) THE DISPUTE RESOLUTION PANEL, G - 16, GROUND FLOOR, CENTRAL REVENUE BUILDINGS, QUEENS ROAD, BENGALURU 560 001. 4) THE CIT, CENTRAL CIRCLE - 3, HYDERABAD. 5) THE DR, ITAT, HYDERABAD 6) GUARD FILE