American Express (India) Pvt. Ltd., New Delhi V. DCIT, New Delhi

ITA 295/DEL/2012

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 65293 (ITAT-DELHI)
• Duration Of Justice: 7 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-08-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 16-07-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 19-01-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Transfer pricing; Opportunity of being heard; Principle of natural justice
• Section: 143(3); 234B; 133(6)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH C: NEW DELHI BEFORE SHRI S.V. MEHROTRA, ACCOUNTANT MEMBER AND SHRI A.D. JAIN, JUDICIAL MEMBER ITA NO. 295/DEL/2012 ASSESSMENT YEAR: 2007-2008 AMERICAN EXPRESS (INDIA) P. LTD., FIRST FLOOR, MERCANTILE HOUSE, 15, KASTURBA GANDHI MARG, NEW DELHI. AAACA8163F VS. DCIT, CIRCLE 1(1), NEW DELHI. (APPELLANT) (RESPONDENT) APPELLANT BY : S/SH. VIJAY IYER, MANONEET DALAL, J AGDEEP SINGH RESPONDENT BY : SH. PIYUSH JAIN, SR. DR O R D E R PER S.V. MEHROTRA, A.M. THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER OF LD. AO DATED 31.10.2011 FOR A.Y. 2007-08 PASSED IN TERM S OF DIRECTIONS OF DISPUTE RESOLUTION PANEL (DRP) U/S 144C(5) DATED 10 .08.2011. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE CO MPANY, A SERVICE PROVIDER, FILED ITS RETURN OF INCOME DECLARING INCO ME OF RS. 66,65,99,500/-. THE ASSESSMENT WAS COMPLETED AT TOTAL INCOME OF RS. 162,46,39,575/- AFTER MAKING FOLLOWING ADDITIONS: - I) TRANSFER PRICING ADJUSTMENTS; II) WITHDRAWAL OF 10A DEDUCTION OF RS. 40,71,12 ,732/-. ITA NO. 295/D/2012 2 3. BOTH THESE ADJUSTMENTS WERE MADE BY THE AO ON TH E BASIS OF DIRECTIONS GIVEN U/S 144C(5) BY DISPUTE RESOLUTION PANEL (IN SHORT DRP). 4. BEING AGGRIEVED WITH THE ORDER OF AO PASSED U/S 143(3) READ WITH SEC. 144C, THE ASSESSEE IS IN APPEAL BEFORE US AND HAS TAKEN FOLLOWING GROUNDS OF APPEAL: - 1. THE FINAL ASSESSMENT ORDER DATED OCTOBER 31, 2011 PASSED BY THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 1(1), NEW DELHI (LEARNED AO) PURSUANT TO THE DIRECTIONS OF THE HONBLE DISPUTE RESOLUTION PANEL (HONBLE DRP), DRAFT ASSTT. ORDER DATED DECEMBER 20, 2010 PASSED BY LEARNED AO AND THE ORDER DATED OCTOBER 26, 2010 PASSED BY ADDITIONAL COMMISSIONER OF INCOME TAX, TRANSFER PRICING-1(1), NEW DELHI (LEARNED TPO), ARE BAD IN LAW AND VOID-AB-INITIO. 2. THAT ON FACTS AND IN LAW, THE LD. AO HAS ERRED IN COMPUTING THE TOTAL INCOME OF THE APPELLANT AT RS. 1,624,639,580 AS AGAINST THE RETURNED INCOME OF RS. 666,599,500. PART I TRANSFER PRICING GROUNDS OF APPEAL 3. THAT THE STATUTORY ONUS ON THE LD. TPO TO ESTABLISH THAT AN APPELLANTS CASE IS COVERED UNDER ANY OF (A) TO (D) CLAUSE OF SEC. 92C(3) OF THE ACT HAS NOT BEEN DISCHARGED BY THE LD. TPO. 4. THAT ON FACTS AND IN LAW, THE LD. TPO/AO HAVE ERRED IN REJECTING THE ECONOMIC ANALYSIS UNDERTAKEN BY THE APPELLANT AND CONDUCTING A FRESH SEARCH TO IDENTIFY CERTAIN COMPANIES AS COMPARABLE TO THE APPELLANT. 5. THAT ON FACTS AND IN LAW, THE LD. TPO/AO HAVE ERRED BY DETERMINING THE ARMS LENGTH MARGINS/PRICES USING ONLY FY 2006-07 DATA WHICH WAS NOT AVAILABLE TO THE APPELLANT AT THE TIME OF COMPLYING WITH THE TP DOCUMENTATION REQUIREMENTS. 6. THE TPO ERRED BY APPLYING INAPPROPRIATE ADDITIONAL FILTERS FOR SELECTING/REJECTING COMPANIE S AS COMPARABLE TO THE APPELLANT. ITA NO. 295/D/2012 3 7. THAT ON FACTS AND IN LAW, THE LD. TPO/AO HAVE ERRED IN CHERRY PICKING COMPARABLES TO ACCOMPLISH PRE-CONCEIVED CONCLUSIONS, WITH THE SOLE OBJECTIVE OF REJECTING COMPARABLES SELECTED BY THE APPELLANT AND ARRIVING AT SKEWED RESULTS. 8. THAT ON FACTS AND IN LAW, THE LD. TPO/AO HAVE ERRED BY SELECTING CERTAIN COMPANIES WHICH ARE EARNING SUPER NORMAL PROFITS AS COMPARABLE TO THE APPELLANT. 9. THAT ON FACTS AND IN LAW, THE LD. TPO/AO HAVE ERRED BY EXERCISING HIS POWERS U/S 133(6) OF THE I.T. ACT, 1961 (THE ACT) TO OBTAIN INFORMATION WHICH WAS NOT AVAILABLE IN PUBLIC DOMAIN AND RELYING ON THE SAME FOR COMPARABILITY PURPOSES. 10. THAT THE LD. TPO HAS FAILED TO MAKE APPROPRIATE ADJUSTMENTS TO ACCOUNT FOR DIFFERENCES IN VARYING RISK PROFILE OF THE APPELLANT VIS--VIS THE COMPARABLES AND IN THE PROCESS ALSO IGNORED INDIAN TRANSFER PRICING REGULATIONS AND JUDICIAL PRECEDENCE. 11. THAT ON FACTS AND IN LAW, THE LD. TPO/AO HAVE ERRED BY NOT CONSIDERING THAT THE ADJUSTMENT TO THE ARMS LENGTH PRICE, IF ANY, SHOULD BE LIMITED TO TH E LOWER END OF THE 5 PERCENT RANGE AS THE APPELLANT HAS THE RIGHT TO EXERCISE THIS OPTION UNDER THE PRE - AMENDED SECOND PROVISO TO SECTION 92C(2) OF THE ACT. PART II CORPORATE TAX GROUNDS OF APPEAL 12. THAT ON THE FACTS OF THE CASE AND IN LAW, THE HONBLE DRP HAS ERRED IN CONFIRMING AND ACCORDINGLY, THE LD. AO HAS ERRED IN DENYING THE DEDUCTION U/S 10A OF THE ACT AMOUNTING TO RS. 407,112,732 IN RESPECT OF THE AEGSC (STP) UNIT, SET UP BY THE APPELLANT DURING FY 2002-03 ON THE ALLEGED GROUND THAT THE SAID STP UNIT WAS SET UP AFTER SPLITTING UP ITS EXISTING BUSINESS OF FCE (EOU) UNIT. PART III GENERAL GROUNDS OF APPEAL 13. WITHOUT PREJUDICE TO THE ABOVE GROUND, THE HONBLE DRP HAS ERRED IN CONFIRMING THE CONCLUSIONS DRAWN BY THE LD. AO IN LEVYING INTEREST ITA NO. 295/D/2012 4 U/S 234B AND 234D OF THE ACT WHILE COMPLETELY DISREGARDING THE PROVISIONS OF THE ACT AND THE JUDICIAL PRECEDENTS. 14. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE HONBLE DRP HAS ERRED IN CONFIRMING AND ACCORDINGLY, THE LD. AO HAS ERRED IN INITIATING PENALTY PROCEEDINGS U/S 271(1)(C) OF THE ACT. 5. GROUND NO. 1 & 2 ARE GENERAL AND, THEREFORE, DO NOT CALL FOR ANY ADJUDICATION. 6. BRIEF FACTS APROPOS GROUND NOS. 3 TO 11 ARE THAT A REFERENCE U/S 92CA WAS MADE BY THE ASSESSING OFFICER TO TRANSFER PRICING OFFICER FOR DETERMINATION OF ARMS LENGTH PRICE OF INTERNATIONA L TRANSACTIONS UNDERTAKEN BY THE ASSESSEE WITH THE ASSOCIATED ENTE RPRISE. TPO PASSED THE ORDER U/S 92CA(3), WHEREIN HE MADE THE UPWARD A DJUSTMENT OF RS. 55,99,65,116/- TO THE INCOME OF THE ASSESSEE, BEING THE DIFFERENCE BETWEEN ARMS LENGTH PRICE AND THE PRICE CHARGED BY THE ASS ESSEE. 7. AFTER CONSIDERING THE ASSESSEES REPLY, THE AO P ASSED THE DRAFT ORDER AND PROPOSED THE ADDITION OF RS. 55,99,65,116 /-. THE ASSESSEE FILED OBJECTIONS BEFORE DRP, WHICH AFTER CONSIDERING THEM , DIRECTED THE TPO TO RECOMPUTE ALP AS PER DIRECTIONS. 8. LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT TPO HAD OBTAINED INFORMATION FROM COMPANIES U/S 133(6) WHICH WAS NOT COMPLETELY PROVIDED TO ASSESSEE. 9. LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT IN I DENTICAL CIRCUMSTANCES IN THE CASE OF AGILENT TECHNOLOGIES ( INTERNATIONAL) PVT. LTD. VS. ACIT, ITA NO. 5352/DEL/2011 DATED 15.06.2012, T HE MATTER HAS BEEN ITA NO. 295/D/2012 5 RESTORED BACK TO THE FILE OF AO. HE SUBMITTED THA T IT WAS INCUMBENT UPON TPO TO FURNISH SUCH INFORMATION TO THE ASSESSEE BEF ORE ARRIVING AT ALP. 10. LD. DR REFERRED TO PAGE 55 OF TRANSFER PRICING OFFICERS ORDER AND POINTED OUT THAT TPO HAS OBSERVED THAT ALL THE INFO RMATION RECEIVED FROM THE COMPANIES WAS PROVIDED TO THE TAX PAYER FOR ITS COMMENTS. 11. IN THE REJOINDER, LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT IN CASE OF THE FOLLOWING COMPANIES THE INFORMATION GATHERED U/S 133(6) WAS NOT PROVIDED. IN THIS REGARD LD. COUNSEL HAS FILED A D ETAILED CHART, WHICH IS KEPT ON FILE: - S.NO . COMPANY NAME 1. ACCENTIA TECHNOLOGIES LTD. (SEG.) 2. ADITYA BIRLA MINACS WORLDWIDE 3. ALLSEC TECHNOLOGIES LTD. 4. APEX KNOWLEDGE SOLUTIONS LTD. 5. APPOLLO HEALTHSTREET LTD. 6. ASIT C. MEHTA FINANCIAL SERVICES LTD. 7. BODHTREE CONSULTING LTD. (SEG.) 8. CALIBER POINT BUSINESS SOLUTIONS LTD. 9. COSMIC GLOBAL LTD. 10. DATAMATICS FINANCIAL SERVICES LTD. (SEG.) 11. ECLERX SERVICES LTD. 12. FLEXTRONICS SOFTWARE SYSTEMS LTD. (SEG.) 13. GENESYS INTERNATIONAL 14. HCL COMNET SYSTEMS & SERVICES LTD. (SEG.) 15. ICRA TECHNO ANALYTICS LTD. 16. INFORMED TECHNOLOGIES INDIA 17. INFOSYS BPO LTD. 18. ISSERVICES INDIA PVT. LTD. 19. MAPLE ESOLUTIONS LTD. 20. MOLD-TEK TECHNOLOGIES LTD. (SEG.) 21. R. SYSTEMS INTERNATIONAL LTD. 22. SPANCO LTD. (SEG.) 23. TRITON CORP. LTD. 24. VISHAL INFORMATION TECHNOLOGIES LTD. 25. WIPRO LTD. (SEG.) 26. APEX ADVANCE TECHNOLOGIES PRIVATE LIMITED ITA NO. 295/D/2012 6 12. LD. COUNSEL SUBMITTED THAT SAME CD WAS PROVIDED IN THE CASE OF AGILENT TECHNOLOGIES (INTERNATIONAL) AND IN CASE OF ASSESSEE IN RESPECT OF INFORMATION OBTAINED U/S 133(6). HE SUBMITTED THE DATA IN RESPECT OF AFOREMENTIONED COMPANIES WHICH WAS UTILIZED BY TPO WAS MISSING IN CD. 13. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND HAVE PERUSED THE RECORD OF THE CASE. WE FIND THAT TRIBU NAL HAS OBSERVED AS UNDER IN THE CASE OF AGILENT TECHNOLOGIES VIDE ITA NO. 5352/DEL/11: 5. WE HAVE HEARD RIVAL CONTENTIONS AND GONE THROU GH THE RELEVANT MATERIAL AVAILABLE ON RECORD. FROM TH E MATERIAL PLACED BEFORE US IT EMERGES THAT TPO HAS UTILIZED INFORMATION FOR COMPARABILITY FROM THE COMPANIES WHICH ARE NOT IN PUBLIC DOMAIN. THE INFORMATION HAS BEEN OBTAINED BY ISSUING NOTICES U/ S 133(6) AND THE GATHERED INFORMATION IS NOT SUPPLIED TO ASSESSEE TO ENABLE IT TO MEET THE OBJECTIONS. THE PRINCIPLE OF NATURAL JUSTICE ENUNCIATE THAT BEFORE PROCEEDING TO USE SOME MATERIAL AGAINST ASSESSEE, T HE SAME SHOULD BE SUPPLIED AND THE ISSUE SHOULD BE DEC IDED AFTER HEARING THE OBJECTIONS IN THIS BEHALF. THIS VIEW IS SUPPORTED BY THE COORDINATE BENCHES OF THE ITAT IN THE CASES OF M/S GENISYS INTEGRATING SYSTEMS (INDIA) PV T. LTD. AND M/S KODIAK NETWORKS (INDIA) PVT. LTD. (SUP RA). CONSEQUENTLY, WE ARE OF THE VIEW THAT SUCH INFORMAT ION GATHERED BY THE TPO U/S 133(6) SHOULD BE PROVIDED T O THE ASSESSEE TO ENABLE IT TO VERIFY THE COMPARABLE FIGU RES WITH A RIGHT TO FILE OBJECTION/APPLY THEREON. THE TPO SHALL ARRIVE AT THE ALP AFTER PROVIDING THE ASSESSE E ADEQUATE OPPORTUNITY OF BEING HEARD IN ACCORDANCE W ITH LAW. CONSEQUENTLY, WE SET ASIDE THE MATTER BACK TO THE FILE OF AO/TPO ACCORDINGLY. 14. RESPECTFULLY FOLLOWING THE AFOREMENTIONED DECIS ION, WE SET ASIDE THE MATTER BACK TO THE FILE OF AO/TPO IN TERMS OF D IRECTIONS GIVEN IN THE SAID ORDER. 15. IN THE RESULT, GROUND NOS. 3 TO 11 ARE ALLOWED FOR STATISTICAL PURPOSES. ITA NO. 295/D/2012 7 16. BRIEF FACTS APROPOS GROUND NO. 12 ARE THAT ASSE SSEE HAD CLAIMED DEDUCTION OF RS. 40,71,12,732/- U/S 10A. THE AO DI SALLOWED THE ASSESSEES CLAIM FOLLOWING EARLIER YEARS ORDER AS T HE MATTER WAS SUBJUDICE. 17. LD. COUNSEL FILED BEFORE US A COPY OF ORDER I N ASSESSEES OWN CASE FOR AY 2003-04 AND POINTED OUT THAT TRIBUNAL H AS HELD THAT AEGSC UNIT IS A NEWLY SET UP UNIT AND HAS NOT BEEN CREATE D BY SPLITTING UP OF THE EXISTING UNIT. HE, THEREFORE, SUBMITTED THAT ASSES SEE WAS ENTITLED FOR DEDUCTION U/S 10A. 18. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND HAVE PERUSED THE RECORD OF THE CASE. 19. WE FIND THAT TRIBUNAL IN ASSESSEES OWN CASE FO R AY 2003-04 HAS HELD AS UNDER: - 36. WE HAVE HEARD BOTH THE PARTIES AND PERUSED TH E MATERIAL PLACED BEFORE US. WE FIND THAT THE CIT(A) HAS CONSIDERED ALL THE PARAMETERS WHICH MAY BE NECESSAR Y FOR ADJUDICATING WHETHER THE SET UP OF THE NEW UNIT IS BY WAY OF SPLITTING UP OF THE EXISTING BUSINESS OR IT IS A NEW SET UP OVER AND ABOVE THE EXISTING SET UP. HE HAS RECORDED THE FINDING THAT THE PHYSICAL LOCATION OF BOTH THE UNITS IS DIFFERENT. THE NATURE OF ACTIVITIES IS DI FFERENT, SEPARATE LICENSE IS OBTAINED FOR THE NEW UNIT, SEPA RATE INFRASTRUCTURE IS CREATED IN THE NEW UNIT, FRESH FU NDS HAVE BEEN INVESTED IN THE NEW UNIT AND EVEN AFTER THE SE TTING UP OF THE NEW UNIT, THE TURNOVER OF THE OLD UNIT HA S NOT REDUCED BUT, ON THE OTHER HAND, INCREASED. DURING AY 2002-03, WHEN NO NEW UNIT WAS IN EXISTENCE, THE TUR NOVER OF OLD UNIT WAS RS. 129 CRORES WHICH, AFTER THE SET TING UP OF THE NEW UNIT, HAS INCREASED TO RS. 294 CRORES IN AY 2008-09. IN VIEW OF THE ABOVE FACTS, WE DO NOT FIN D ANY INFIRMITY IN THE ORDER OF LD. CIT(A). THE SAME IS SUSTAINED AND GROUND NO. 3 OF THE REVENUES APPEAL IS REJECTED. ITA NO. 295/D/2012 8 20. RESPECTFULLY FOLLOWING THE DECISION OF TRIBUNAL WE HOLD THAT ASSESSEE WAS ENTITLED FOR DEDUCTION U/S 10A AS IT HAD ESTABL ISHED A NEW UNIT. THIS GROUND IS ALLOWED. 21. GROUND NO. 13 IS CONSEQUENTIAL AND GROUND NO. 1 4 IS MISCONCEIVED AS NO PENALTY ORDER HAS BEEN PASSED. 22. IN THE RESULT, GROUND NO. 13 IS DISMISSED BEING CONSEQUENTIAL AND GROUND NO. 14 IS DISMISSED BEING MISCONCEIVED. 23. IN THE RESULT, THE ASSESSEES APPEAL IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 24/08/2012 SD/- SD/- (A.D. JAIN) JUDICIAL MEMBER (S.V. MEHROTRA) ACCOUNTANT MEMBER DATED: 24.8.12 *KAVITA COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, NEW DELHI. TRUE COPY BY ORDER DEPUTY REGISTRAR