ITO, Bangalore V. M/s Open Silicon Research Pvt. Ltd., Bangalore

ITA 349/BANG/2015

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 8547 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 11 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-02-2017
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 13-02-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 11-03-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: G R REDDY BENGALURU
• Assessee Lawyers: G S PRASHANTH
• Keywords: Opportunity of being heard
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SHRI A.K. GARODIA, ACCOUNTANT MEMBER AND SHRI LALIET KUMAR, JUDICIAL MEMBER IT(TP)A NO.349/BANG/2015 ASSESSMENT YEAR : 2010-11 THE INCOME TAX OFFICER, WARD 5(1)(2), BANGALORE. VS. M/S. OPEN SILICON RESEARCH PVT. LTD., 11/1 & 12/1, MARUTHI INFOTECH CENTRE, GROUND FLOOR, INDIRANAGAR-KORAMANGALA INTERMEDIATE RING ROAD, BANGALORE 560 071. PAN: AAACO 5915B APPELLANT RESPONDENT APPELLANT BY : SHRI G.R. REDDY, CIT(DR)(ITAT-1), BENGALURU RESPONDENT BY : G.S. PRASHANTH, CA DATE OF HEARING : 13.02.2017 DATE OF PRONOUNCEMENT : 22.02.2017 O R D E R PER A.K. GARODIA, ACCOUNTANT MEMBER THIS IS A REVENUES APPEAL DIRECTED AGAINST THE A SSESSMENT ORDER PASSED BY THE ASSESSING OFFICER U/S. 143(3) R.W.S. 144C (13) OF THE INCOME- TAX ACT, 1961 [HEREINAFTER REFERRED TO AS THE ACT ] ON 23.01.2015 FOR THE ASSESSMENT YEAR 2010-11 AS PER THE DRP DIRECTIONS. 2. THE GROUNDS RAISED BY THE REVENUE ARE AS UNDER: - IT(TP)A NO.349/BANG/2015 PAGE 2 OF 6 1. DEDUCTION U/S 10A I) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E THE DISPUTE RESOLUTION PANEL ERRED IN LAW IN DIRECTING THE ASSE SSING OFFICER TO REDUCE EXPENSES INCURRED IN FOREIGN CURRENCY ON TEL ECOMMUNICATION AND TRAVELLING BOTH FROM THE EXPORT TURNOVER AND AS WELL AS TOTAL TURNOVER FOR THE PURPOSE OF COMPUTATION OF DEDUCTIO N U/S 10A OF THE IT ACT WITHOUT APPRECIATING THE FACT THAT THE S TATUTE ALLOWS EXCLUSION OF SUCH EXPENDITURE ONLY FROM THE ETO BY WAY OF SPECIFIC DEFINITION OF EXPORT TURNOVER DEFINED IN THE ACT. O N THE OTHER HAND, THERE IS NO SPECIFIC PROVISION IN 10A WARRANTING EX CLUSION OF THE ABOVE EXPENSES FROM THE TOTAL TURNOVER ALSO. II) THE DRP ALSO ERRED IN PLACING RELIANCE ON THE D ECISION OF THE HON'BLE HIGH COURT OF KARNATAKA IN THE CASE OF M/S TATA ELXSI LTD., WHICH HAS NOT BECOME FINAL SINCE THE SAME HAS BEEN NOT ACCEPTED BY THE DEPARTMENT AND SLPS ARE PENDING BEFORE THE HON' BLE SUPREME COURT. 2. TURNOVER FILTER I) THE LEARNED DRP MEMBER ERRED IN HOLDING THAT THE SIZE AND TURNOVER OF THE COMPANY ARE DECIDING FACTORS FOR TR EATING A COMPANY AS A COMPARABLE AND ACCORDINGLY ERRED IN EXCLUDING M/S TATA ELXSI LIMITED, SASKEN COMMUNICATION TECHNOLOGIES LTD., PE RSISTENT SYSTEMS LTD., MINDTREE LTD., L & T INFOTECH AND INF OSYS LIMITED AS COMPARABLES. II) THE LEARNED DRP MEMBER ERRED IN EXCLUDING UNCON TROLLED COMPARABLES HAVING TURNOVER MORE THAN RS.200 CRORES IN THE ABSENCE OF TURNOVER CRITERION PRESCRIBED IN RULE 10 B OF INCOME TAX RULES AND ALSO THERE BEING NO CORRELATION BETWEEN T URNOVER AND PROFIT MARGIN. 2. RPT FILTER THE HON'BLE DRP HAS ERRED IN APPLYING 0% RPT. 3. RISK ADJUSTMENT I) IN SO FAR AS THE ISSUE OF WORKING CAPITAL ADJUST MENT IS CONCERNED, WHETHER THE LEARNED DRP IS JUSTIFIED IN HOLDING THA T CAPITAL ADJUSTMENT HAS NOT BEEN PROVIDED AS IT HAS NEGATIVE IMPACT. THIS IS IT(TP)A NO.349/BANG/2015 PAGE 3 OF 6 BECAUSE WORKING CAPITAL ADJUSTMENT IS GIVEN TO INCR EASE COMPARABILITY ON THE UNCONTROLLED COMPARABLE WITH T ESTED PARTY AND NOT TO PROVIDE BENEFIT TO THE ASSESSEE. INCIDENTALL Y, THE ADJUSTMENT MAY OR MAY NOT LEAD TO A BENEFIT FOR THE ASSESSEE. IN THE INSTANT CASE WRONG CAPITAL ADJUSTMENT MADE BY THE TPO. II) WHETHER THE LEARNED DRP IS JUSTIFIED IN DIRECTI NG THE TPO TO GRANT RISK ADJUSTMENT WITHOUT ADVISING ANY REASONAB LE ACCURATE METHOD IN THE ABSENCE OF WHICH THE TPO HAD NOT PROV IDED THE SAME. 3. THE LD. DR OF REVENUE SUPPORTED THE ASSESSMENT O RDER, WHEREAS THE LD. AR OF ASSESSEE SUPPORTED THE ORDER OF DRP. HE ALSO SUBMITTED THAT THE ASSESSEES APPEAL FOR THE SAME ASSESSMENT YEAR WAS DECIDED BY THE TRIBUNAL IN IT (TP) A NO.458/BANG/2015 DATED 14.05. 2015 AND HE SUBMITTED A COPY OF THIS TRIBUNALS ORDER. IT WAS ALSO SUBMITTED THAT AT THAT POINT OF TIME, THE ASSESSEE WAS NOT AWARE ABOUT THE APPEAL OF REVENUE, WHICH HAS BEEN FILED ON 11.03.2015. IT WAS FURTHER POINTED OUT THAT AS PER THIS TRIBUNALS ORDER, THE TRIBUNAL HAS RESTORED BA CK THE MATTER TO THE FILE OF AO/TPO FOR A FRESH DECISION REGARDING CLAIM OF ASSE SSEE FOR EXCLUSION OF KALS INFORMATION SYSTEMS (SEG.). 4. HE FURTHER SUBMITTED THAT THE DRP HAS ADOPTED 0% RPT FILTER, BUT NOW THE TRIBUNAL IS ADOPTING AND APPROVING 15% RPT FILTER AND ONCE 15% RPT FILTER IS ADOPTED INSTEAD OF 0% RPT FILTER, SOM E COMPARABLES EXCLUDED BY THE DRP WILL COME BACK. IT WAS ALSO SUBMITTED T HAT THE TURNOVER FILTER ADOPTED BY THE DRP IS THE UPPER FILTER OF RS.200 CR ORES TURNOVER BUT THE TRIBUNAL IS NOW ADOPTING THE UPPER TURNOVER FILTER OF 10 TIMES THE TURNOVER OF IT(TP)A NO.349/BANG/2015 PAGE 4 OF 6 THE ASSESSEE COMPANY. HE SUBMITTED THAT UNDER THES E FACTS, THE TP ISSUE INVOLVED IN THE APPEAL OF REVENUE MAY ALSO BE RESTO RED BACK TO THE FILE OF TPO FOR FRESH DECISION SIMULTANEOUSLY WITH THE DECI SION ON TP ISSUE RESTORED BACK BY THE TRIBUNAL TO THE FILE OF TPO WH ILE DECIDING THE APPEAL OF ASSESSEE FOR THE SAME ASSESSMENT YEAR. 5. REGARDING THE ISSUE IN RESPECT OF DEDUCTION U/S. 10A OF THE ACT, HE SUBMITTED THAT THIS ISSUE IS COVERED IN FAVOUR OF A SSESSEE BY THE JUDGMENT OF HONBLE HIGH COURT OF KARNATAKA IN THE CASE OF TATA ELXSI LTD., 349 ITR 98 (KARN). 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE FI ND THAT IN THE PRESENT APPEAL OF THE REVENUE, ONE ISSUE INVOLVED I S REGARDING QUANTUM OF DEDUCTION ALLOWABLE TO THE ASSESSEE U/S. 10A WHICH HAS BEEN REDUCED BY THE AO BY REDUCING THE EXPORT TURNOVER ON ACCOUNT O F EXPENSES INCURRED IN FOREIGN CURRENCY ON TELECOMMUNICATION AND TRAVELLIN G. THE DRP HAS HELD THAT SAME EXPENSES BE REDUCED FROM THE EXPORT TURNO VER AS WELL AS FROM TOTAL TURNOVER. NOW THIS ISSUE IS COVERED IN FAVOU R OF ASSESSEE BY THE JUDGMENT OF HONBLE HIGH COURT OF KARNATAKA RENDERE D IN THE CASE OF TATA ELXSI LTD. (SUPRA) WHEREIN IT WAS HELD BY THE HONBLE HIGH COURT OF KARNATAKA THAT TOTAL TURNOVER IS SUM TOTAL OF EXPOR T TURNOVER AND DOMESTIC TURNOVER AND THEREFORE, IF AN AMOUNT IS REDUCED FRO M THE EXPORT TURNOVER, THEN TOTAL TURNOVER ALSO GOES DOWN AUTOMATICALLY BY THE SAME AMOUNT. SINCE THE DECISION OF THE DRP ON THIS ISSUE IS IN L INE WITH THIS JUDGMENT OF IT(TP)A NO.349/BANG/2015 PAGE 5 OF 6 HONBLE HIGH COURT OF KARNATAKA, WE FIND NO REASON TO INTERFERE IN THE ORDER OF DRP ON THIS ISSUE. ACCORDINGLY, GROUND NO.1 OF R EVENUE IS REJECTED. 7. THE REMAINING GROUNDS OF REVENUES APPEAL ARE IN RESPECT OF TP ISSUES, WHICH ARE IN RESPECT OF TURNOVER FILTER, RP T FILTER AND RISK ADJUSTMENT. THE DRP HAS ADOPTED THE TURNOVER FILTE R OF RS.200 CRORES AND RPT FILTER OF 0%, WHEREAS THE TRIBUNAL IS NOW ADOPT ING TURNOVER FILTER OF 10 TIMES THE ASSESSEES TURNOVER AND 15% RPT FILTER. WITH THE CHANGE OF THESE TWO FILTERS, SOME COMPARABLES WHICH WERE REJE CTED BY APPLYING THESE FILTERS WILL COME BACK AND THEN THESE COMPARABLES H AVE TO BE EXAMINED ON OTHER ASPECTS. THEREFORE, WE FEEL IT PROPER TO RES TORE ALL THE TP ISSUES TO THE FILE OF THE AO/TPO FOR A FRESH DECISION AFTER A PPLYING PROPER TURNOVER FILTER AND PROPER RPT FILTER. NEEDLESS TO SAY THAT AO/TPO SHOULD ALLOW ADEQUATE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE . 8. REGARDING RISK ADJUSTMENT ALSO, WE FEEL IT PROPE R TO RESTORE BACK THE MATTER TO THE FILE OF AO/TPO FOR A FRESH DECISION B ECAUSE IT WAS HELD BY THE DRP THAT NO WORKING CAPITAL ADJUSTMENT IS TO BE ALL OWED BECAUSE IT HAD NEGATIVE IMPACT. IN OUR CONSIDERED OPINION, WHETHE R THE IMPACT IS NEGATIVE OR POSITIVE IS NOT RELEVANT TO DECIDE AS TO WHETHER ANY ADJUSTMENT IS TO BE MADE OR NOT. THEREFORE, THE ISSUE REGARDING ADJUST MENT ON ACCOUNT OF RISK ADJUSTMENT AND WORKING CAPITAL ADJUSTMENT IS ALSO R ESTORED BACK TO THE FILE OF AO/TPO FOR A FRESH DECISION. IT(TP)A NO.349/BANG/2015 PAGE 6 OF 6 9. IN THE RESULT, THE APPEAL OF REVENUE IS PARTLY A LLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON THIS 22 ND DAY OF FEBRUARY, 2017. SD/- SD/- ( LALIET KUMAR ) (A.K. GAR ODIA) JUDICIAL MEMBER ACCOUNTAN T MEMBER BANGALORE, DATED, THE 22 ND FEBRUARY, 2017. /D ESAI S MURTHY / COPY TO: 1. APPELLANT 2. RESPONDENTS 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, ITAT, BANGALORE.