Nuwave Esolutions Pvt. Ltd., New Delhi V. CIT, New Delhi

ITA 3231/DEL/2013

• Counselvise Citation: [2018] 118 COUNSELVISE.COM (IT) 8880 (ITAT-DELHI)
• Duration Of Justice: 5 year(s) 7 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-12-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 20-06-2017
• Assessment Year: 2007-2008
• Appeal Filed On: 22-05-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PRAMITA M BISWAS
• Assessee Lawyers: DR RAKESH GUPTA; SOMIL AGGARWAL ADVS
• Keywords: Transfer pricing; Revised return
• Section: 143(3); 10AA; 148; 263; 10; 92

Judgement Text

1 ITA NO. 3231/DEL/2013 IN THE INCOME TAX APPELLAT E TRIBUNAL DELHI BENCH: E NEW DELHI BEFORE SHRI G. D. AGRAWAL, VICE PRESIDENT AND MS SUCHITRA KAMBLE, JUDIC IAL MEMBER ITA NO. 3231DEL/2013 ( A. Y 2007-08) NUWAVE ESOLUTIONS PVT. LTD. 3 RD FLOOR, DISTRICT CENTRE, DDA BUILDING, NEHRU PLACE NEW DELHI AABCN5790Q (APPELLANT) VS CIT(A) DELHI-V NEW DELHI (RESPONDENT) APPELLANT BY DR. RAKESH GUPTA & SH. SOMIL AGGARWAL, ADVS RESPONDENT BY MS. PRAMITA M. BISWAS, CIT (DR) ORDER PER SUCHITRA KAMBLE, JM THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE OR DER DATED 28/3/2013 PASSED BY CIT(A)- NEW DELHI FOR ASSESSMENT YEAR 20 07-08. 2. THE GROUNDS OF APPEAL ARE AS UNDER:- 1. THAT THE LD.CIT(A) IS ERRED UNDER THE LAW WHILE EXERCISING HIS POWER U/S 263 OF THE ACT IN VIEW OF FOLLOWING FACTS:- IN THE ORIGINAL ASSESSMENT ORDER U/S 143(3) DATED 3 1/12/2010 IN THE A.O HAS ALREADY DENIED EXEMPTION TO THE APPELLANT U/S 1 0A WITH RESULT, THE IMPUGNED ASSESSMENT ORDER IS NEITHER ERRONEOUS NOR PREJUDICIAL TO THE INTEREST OF REVENUE. THE A.O HAS ALREADY INITIATED REASSESSMENT PROCEEDI NG U/S 148 OF THE ACT DATE OF HEARING 20.12.2018 DATE OF PRONOUNCEMENT 27.12.2018 2 ITA NO. 3231/DEL/2013 FOR THE YEAR UNDER REVIEW TO REVISIT THE CLAIM OF T HE APPELLANT U/S 10A OF THE ACT. THE PROVISION CONTAINED U/S 263 (1)(C) OF THE ACT D OES NOT EMPOWER THE LD.CIT(A) TO REVIEW THE DEDUCTION U/S 10(A) WHICH I S ALREADY SUBJECT MATTER OF APPEAL FILED BY THE DEPARTMENT AGAINST THE ORDER DA TED 15/3/2011 PASSED BY THE LD.CIT(A)-XIII, NEW DELHI. 2. THAT ANY OTHER GROUNDS OF APPEAL MAY BE ADDED/DE LETED OR AMEND AT THE TIME OF HEARING. 3. THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF DEVELOPMENT OF SOFTWARE AND ITS EXPORT. IT IS A CERTIFIED 100% EXP ORT ORIENTED UNIT AS PER THE CERTIFICATE OF REGISTRATION ISSUED BY THE DIRECTOR, SOFTWARE TECHNOLOGY PARK OF INDIA DATED 31.03.1999. THE ASSESSEE FILED RETURN D ECLARING INCOME OF RS. 1,45,48,453/- ON 30.10.2007 AFTER CLAIMING DEDUCTIO N U/S 10A OF THE INCOME TAX ACT, 1961 AT RS. 49,33,50,421/-. THE SAID CLAI M OF DEDUCTION WAS REVISED TO RS. 50,52,24,355/- BY WAY OF FILING REVISED RETU RN ON 20.08.2008. THE ASSESSEE COMPANY REVISED ITS RETURN AS IT DID NOT C ONSIDER THE GAIN ON ACCOUNT OF CURRENCY FLUCTUATION OF EXPORT PROCEED AMOUNTING TO RS. 1,23,33,934/- IN ITS ORIGINAL I. T. RETURN. THE ASSESSEE COMPANY IS A PR IVATE LTD. COMPANY AND ITS ENTIRE SHARE CAPITAL IS HELD BY ITS TWO DIRECTORS D R. ANIL GUPTA, AN NRI AND MRS. SEEMA GUPTA. THE SHAREHOLDING PATTERN OF THE ASSESS EE COMPANY IS AS UNDER:- NAME OF THE SHAREHOLDER NO. OF EQUITY SHARES HELD PERCENTAGE OF HOLDING DR. ANIL GUPTA 19126 99% DR. SEEMA GUPTA 207 1% MR. ANIL GUPTA HAS 99% SHAREHOLDING IN THE ASSESSEE COMPANY AND 100% EQUITY IN THE ASSOCIATE ENTERPRISE I.E. CAE SOLUTIO NS INC. USA. THE ASSESSEE COMPANY IS EXPORTING SOFTWARE WHOLLY AND EXCLUSIVEL Y TO ITS ASSOCIATE 3 ITA NO. 3231/DEL/2013 ENTERPRISE CAE SOLUTIONS USA SINCE 2002. THE TRANSA CTIONS BETWEEN THE ASSESSEE COMPANY AND ITS ASSOCIATE ENTERPRISE AT US A ARE SUBJECT TO TRANSFER PRICING PROCEEDINGS U/S 92, CHAPTER X OF THE I.T. A CT ON YEAR TO YEAR BASIS. THE ASSESSMENT PROCEEDINGS FOR LAST THREE PREVIOUS YEAR S HAVE BEEN COMPLETED U/S 143(3) AFTER CONSIDERING REPORT OF TPO U/S 92 OF TH E ACT, WITHOUT ANY ADVERSE FINDING. THE ASSESSING OFFICER DETERMINED TAXABLE I NCOME OF THE ASSESSEE AT RS. 49,74,14,740/- DECLARED IN THE REVISED I.T. RETURN. THE ASSESSING OFFICER REDUCED THE EXEMPTION U/S 10A TO THE EXTENT OF RS. 43,49,83,092/- AND FURTHER HELD THAT GAIN ON ACCOUNT OF CURRENCY FLUCTUATION T O THE EXTENT OF RS.1,23,33,934/- IS ALSO NOT ELIGIBLE FOR EXEMPTION AS THE SAME IS DUE TO POST EXPORT EVENTS AS RESULT OF WHICH THE ASSESSING OFFI CER DENIED THE EXEMPTION TO THE ASSESSEE TO THE EXTENT OF RS. 44,73,17,026/- (R S.43,49,83,092/- + RS.1,23,33,934/-), AS AGAINST RS. 50,52,24,355/- CL AIMED IN THE REVISED RETURN. THE ASSESSING OFFICER ALSO MADE DISALLOWANC E TO THE EXTENT OF RS.3,55,47,260/- U/S40(A)(IA)/40(A)(I) IN THE ABSEN CE OF TDS BEING DEDUCTED AT THE PRESCRIBED RATE ON PAYMENT MADE BY THE ASSESSEE TO ITS SHAREHOLDER ON ACCOUNT OF BUY-BACK OF SHARES. THE ASSESSEE FILED A PPEAL BEFORE THE CIT(A). THE CIT(A) ALLOWED THE APPEAL OF ASSESSEE GRANTING RELI EF AND ALLOWED EXEMPTION UNDER SECTION 10A OF THE ACT. 4. THE COMMISSIONER OF INCOME TAX, DELHI-V ISSUED S HOW CAUSE U/S 263 ON 26/3/2013 TO THE ASSESSEE. THE ASSESSEE FILED REPL IES TO THE SAID SHOW CAUSE NOTICE. THE COMMISSIONER OF INCOME TAX PASSED ORDE R U/ S 263 OF THE ACT ON 28/03/2013, THEREBY HOLDING THAT THE ORDER PASSED B Y THE ASSESSING OFFICER ON 31/12/2010 FOR ASSESSMENT YEAR 2007-08 IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE AND SET ASIDE/CANCELLED THE SAID ASSESSMENT ORDER AND DIRECTED THE ASSESSING OFFICER TO MAKE A FRESH ASSE SSMENT. 5. THE LD. AR SUBMITTED THAT THE ISSUE OF DEDUCTION U/S 10A WAS CONSIDERED IN ASSESSMENT INCLUDING BY THE TPO IN DE TAIL WHILE COMPUTING THE ARMS LENGTH PRICE DURING THE TRANSFER PRICING PROCE EDINGS AND BY THE ASSESSING 4 ITA NO. 3231/DEL/2013 OFFICER DURING ORIGINAL ASSESSMENT PROCEEDINGS IN M OST EXTENSIVE MANNER AND IT CANNOT BE SAID THAT THERE WAS ERROR DUE TO LACK OF APPLICATION OF MIND IN ASSESSMENT WHICH IS EVIDENT FROM THE PLAIN READING OF THE IMPUGNED ASSESSMENT ORDER. ALL THE ASPECTS WERE CONSIDERED A S SHOWN BELOW AND IT MAY BE APPRECIATED THAT THE TPO CANNOT DETERMINE ALP WI THOUT GOING INTO THESE ASPECTS AS RAISED BY THE COMMISSIONER OF INCOME TAX IN NOTICE AS WELL AS ORDER U/S 263. THE TPO CONSIDERED COMPARABLE COMPANIES WH ICH OBVIOUSLY WOULD MEAN THAT HE HAS SEEN THE NATURE OF PRODUCT OF THE ASSESSEE AND OTHER COMPARABLE COMPANIES AND FUNCTIONS PERFORMED BY THE ASSESSEE AND COMPARABLE COMPANIES. THE TPO RECORDED IN THE TP OR DER THAT RECORDS HAVE BEEN KEPT AS PER RULE 10D WHICH MEANS THAT COMPREHE NSIVE RECORDS HAVE BEEN KEPT AND WERE EXAMINED BY THE TPO. THE TPO CONSIDER ED AUDIT REPORT IN FORM NO. 3CEB. A COPY OF COMPUTATION OF INCOME AND ACKNO WLEDGMENT OF RETURN CLAIMING DEDUCTION U/S 10A AND THE PART OF BALANCE SHEET SHOWING EXPORT OF SOFTWARE AND SOFTWARE DEVELOPMENT EXPENSE WERE CONS IDERED IN ORIGINAL ASSESSMENT BY THE ASSESSING OFFICER. THE ASSESSING OFFICER ALSO CONSIDERED THE AUDIT REPORT U/S 10AA SHOWING VARIOUS ASPECTS OF TH E DEDUCTION U/S 10A AND ALSO THIS FACT THAT THE CLAIM U/S 10A WAS NOT NEW I N THIS YEAR BUT SINCE LAST 7 YEARS, THIS DEDUCTION WAS BEING CLAIMED. THE SUBMISSIONS OF ASSESSEE WERE ALSO FILED BEFORE THE TPO EXPLAINING THE NATURE OF BUSINESS, NATURE OF UNDERTAKING AND DETAILS ABOUT ALP. THE ORDER OF THE TPO DETERMINING ALP MENTIONING THAT RECORDS AS PER RULE 10D AND OTHER D ETAILS ASKED WERE SUBMITTED AND TAKEN ON RECORD AND REGARDING EXPORT OF SOFTWARE NO ADVERSE INFERENCE IS DRAWN BY THE TPO. THE SUBMISSIONS FILE D BEFORE THE ASSESSING OFFICER BY THE ASSESSEE, EXPLAINED ABOUT THE NATURE OF EXPORT BUSINESS OF THE ASSESSEE, NATURE OF UNDERTAKING, NOTE ON SECTION 10 , FOREIGN INWARD REMITTANCE CERTIFICATE, SOFTWARE EXPORT RETURN, EEFC ACCOUNT, FOREIGN EXCHANGE GAIN, REASON FOR HIGH PROFIT AND ROLE OF DR. ANIL GUPTA. THE COPIES OF SOFTEX AND OTHER DETAILS AND FORMS SHOWING THE VARIOUS FACETS OF THE IMPUGNED TRANSACTIONS WERE ALSO SUBMITTED DURING THE ORIGINAL ASSESSMENT PROCEEDINGS. THE LD. AR RELIED UPON THE FOLLOWING CASE LAWS: 5 ITA NO. 3231/DEL/2013 I. CIT VS. MALABAR INDUSTRIES 243 ITR 83(S.C) II. CROWN FROZEN FOODS VS. ADDL. CIT 93 TTJ 485 (MU M). III. RAM KISHAN DASS VS. ITO 149 TAXMAN 55 DEL-(MAG .) IV. INFOSYS TECHNOLOGIES LTD. VS. JOINT CIT(A) (ASS ESSMENT)-VOL-287-ITR- 211 (BANGALORE). V. PAWAN KUMAR VS. ASSESSING OFFICER VOL.106-TTJ-4 94 (JD.) VI. CIT(A) VS. BHARAT ALUMINIUM CO. LTD. (2008) 303 ITR 256 (DEL.) VII. CIT(A) VS. DESIGN & AUTOMATION ENGINEERS (BOMB AY) (P) LTD. 13 DTR 145 (BOM) VIII. MS. MAYAWATI VS. CIT(A) 18 DTR 46 (TRB, 2009) IX. RAJIV AGNIHOTRI VS. CIT(A) 23 DTR 476 (DEL) TRI B. X. KULBIR SINGH VS. ASST. CIT(A) 24 DTR 421 (AGRA) TRIB. XI. CIT(A) VS. UNIQUE AUTOFELTS (P) LTD. 30 DTR 231 (P & H). XII. CIT(A) VS. DEEPAK MITTAL 37 DTR 8 ( P & H), 20 10) 37 DTR (P & H) 8 XIII. DOUBLE DOT FINANCE LTD. VS. ASSTT. CIT(A) 38 DTR 220 (MUMBAI) XIV CIT(A) VS. HINDUSTAN MARKETING AND ADVERTISING CO. LTD. 46 DTR 109 (DEL.) XV. RAJ SHYAMA CONSTRUCTION (P) LTD. VS. ASSTT. CIT 135 TTJ 33 (DEL.) XVI. CIT(A) VS. HERO AUTO LTD. 343 ITR 342 (DEL.) XVII. 203 ITR 108 (BOM)- XVIII. 348 ITR 485 (DEL) (FB) THE LD. AR FURTHER SUBMITTED THAT WHEN THE DEDUCTIO N U/S 10A HAS BEEN DEALT BY THE ASSESSING OFFICER IN ORIGINAL ASSESSME NT U/S 143(3) (PB 30-41) IN MOST EXTENSIVE MANNER AND ULTIMATELY DISALLOWED THE CLAIM, THEN HOW THAT ORDER CAN BE SAID TO BE PREJUDICIAL TO THE INTEREST OF THE REVENUE AS THE ORDER UNDER REVISION HAS TO BE ERRONEOUS AND PREJUDICIAL BOTH 243 ITR 83(SC). THE LD. AR RELIED UPON THE DECISION OF THE TRIBUNAL IN CASE OF HUKMI HUF VS CIT (DEL) (TRIB). THE LD. AR SUBMITTED THAT THE ISSUE O F DEDUCTION U/S 10A HAS BEEN THE SUBJECT MATTER OF APPEAL BEFORE THE CIT(A) AND THE SAME IS PENDING FOR DISPOSAL BEFORE INCOME TAX APPELLATE TRIBUNAL. HENC E, IT IS A CASE OF MERGER WITH RESPECT TO THE ISSUE OF DEDUCTION U/S 10A AND THEREFORE, INITIATION OF 6 ITA NO. 3231/DEL/2013 PROCEEDINGS U/S 263 ON THE ISSUE OF DEDUCTION U/S 1 0A IS NOT POSSIBLE IN LAW. THE LD. AR RELIED UPON THE FOLLOWING JUDICIAL DECIS IONS WHEREIN IT HAS BEEN HELD THAT ONCE THE ISSUE BECOMES SUBJECT MATTER OF APPEA L, THE SAID ISSUE IS MERGED WITH THE APPELLATE ORDER AND REVISIONAL JURISDICTIO N OF THE CIT CANNOT BE EXERCISED IN RESPECT OF THE SAID ISSUE IN VIEW OF E XPLANATION (C) TO SECTION 263:- I. RANKA JEWELLERS VS. ADDL. CIT(A) 328 ITR 148 (BO M) II. CIT(A) VS. NIRMA CHEMICALS WORKS (P) LTD. 309 I TR 67 (GUJ) III. MARICAL INDUSTRIES LTD. VS. ASSTT. CIT(A) (200 8) 5 DTR 263. IV. SADHU RAM & SONS VS. COMMISSIONER OF INCOME TAX & ANR. (2007) 108 TTJ (ASR) 373. V. SONAL GARMENTS VS JT. CIT 95 ITD 363(MUM) (2005) VI. SAW PIPES LTD VS ADD. CIT 94 TTJ 1036(DEL) VII. HOOGLY MILLS VS ACIT 71 ITD 264 (CAL) VIII. SAHARA INDIA MUTUAL VS CIT 74 TTJ 67 (ALL) IX. SAHARA VS CIT 90 TTJ 878(A11) X. SHEENA INDUSTRIES VS CIT (DEL)(TRIB) THE LD AR FURTHER SUBMITTED THAT THE CASE OF CIT IS THAT ASSESSING OFFICER OUGHT TO HAVE DONE MORE DETAILED ENQUIRY WH ICH CANNOT BE THE BASIS FOR REVISION AS HELD IN CASE OF CIT VS. HINDUSTAN MARKE TING & ADVT. CO. 341 ITR 180(DEL). THE LD. AR SUBMITTED THAT ONCE ASSESSMENT ORDER IS PASSED AFTER TPO ORDER, REVISION IS NOT POSSIBLE AS HELD IN 55 S OT L(MUM) AND IN CASE OF TATA CHEMICALS LTD. ITA (TP) 3121, 3122/MUM/2013 DA TED 20.12.2013. THE LD. AR FURTHER SUBMITTED THAT IF THE CIT FELT THAT THE ENQUIRY WAS INADEQUATE THEN HE MUST MAKE ENQUIRY AND SHOW THAT ASSESSMENT ORDER IS ERRONEOUS. THE REVISING AUTHORITY HAS NO POWER TO REMAND AND DIREC T THE ASSESSING OFFICER TO CONDUCT ENQUIRY AS HELD IN 357 ITR 388 (DEL). THE L D. AR FINALLY SUBMITTED THAT SECTION 148 OF THE INCOME TAX ACT TOO WAS ATTE MPTED ON THE SAME GROUND AND THE HONBLE HIGH COURT QUASHED NOTICE U/S 148 O N THE GROUND THAT THE SAID ISSUE WAS SUBJECT MATTER OF ASSESSMENT, HOW CA N THERE BE THEN 263 PROCEEDING. 7 ITA NO. 3231/DEL/2013 6. THE LD. DR SUBMITTED THAT THE ORDER OF THE CIT(A ) IS JUST AND PROPER AS THE ASSESSING OFFICER HAS NOT PROPERLY DISCUSSED T HE ISSUE U/S 10A. 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL AVAILABLE ON RECORD. FROM THE RECORDS, THE ASSESSING OFFICER HA S SPECIFICALLY RAISED QUERY REGARDING EXEMPTION U/S 10A DURING THE ORIGINAL ASS ESSMENT PROCEEDINGS AND ALL THE DETAILS WERE GIVEN BY THE ASSESSEE DURING T HE ASSESSMENT PROCEEDINGS WHICH IS LATER ON DELETED BY THE CIT(A). THESE FAC TS WERE PRESENT BEFORE THE COMMISSIONER OF INCOME TAX WHILE GIVING SHOW CAUSE NOTICE U/S 263 OF THE ACT. THE ORDER PASSED BY THE COMMISSIONER IN CAPAC ITY OF SECTION 263 IS MERELY A SECOND OPINION AND DOES NOT FALL IN THE CA TEGORY OF PREJUDICIAL TO THE INTEREST OF REVENUE. MERELY TAKING A SECOND OPINIO N ON THE ISSUE WHICH IS ALREADY CONCLUDED BY THE REVENUE AUTHORITIES CANNOT BE A GROUND FOR INVOKING SECTION 263 OF THE ACT. THE ASSESSING OFFICER SHOUL D HAVE DONE THIS OR THAT IS NOT A PREROGATIVE WHILE INVOKING SECTION 263 OF THE ACT BY THE COMMISSIONER OF INCOME TAX. IN THE PRESENT CASE, THE ASSESSING OFF ICER HAS TAKEN COGNIZANCE OF ALL THE MATERIAL PROVIDED BY THE ASSESSEE DURING TH E ASSESSMENT PROCEEDINGS AND AFTER VERIFYING THE SAME HAS PASSED JUST AND PR OPER ORDER. THEREFORE, IN LIGHT OF THE ABOVE FINDINGS, THE ORDER OF THE COMMI SSIONER U/S 263 OF THE ACT IS SET ASIDE. 8. IN RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON 27 TH DECEMBER, 2018 . SD/- SD/- (G. D. AGRAWAL) (SUCHITRA KAMBLE) VICE PRESIDENT JUDICIAL MEMB ER DATED: 27/12/2018 R. NAHEED 8 ITA NO. 3231/DEL/2013 COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI DATE OF DICTATION 20.12.2018 DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 20.12.2018 DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE OTHER MEMBER DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. PS/PS DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. PS/PS 27 .12.2018 DATE ON WHICH THE FINAL ORDER IS UPLOADED ON THE WEBSITE OF ITAT 27 .12.2018 DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 27 .12.2018 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER DATE OF DISPATCH OF THE ORDER