M/s Meritor LVS India (P) Ltd., Bangalore V. ACIT, Bangalore

ITA 405/BANG/2011

• Counselvise Citation: 40521114 RSA 2011
• Duration Of Justice: 1 year(s) 5 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-09-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 21-06-2012
• Assessment Year: 2005-2006
• Appeal Filed On: 11-04-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Transfer pricing; Principle of natural justice; International transaction; Unabsorbed depreciation
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, BANGALORE BENCH A BEFORE SMT. P MADHAVI DEVI, JUDICIAL MEMBER AND SHRI JASON P BOAZ, ACCOUNTANT MEMBER ITA NO.405/BAN G/2011 (ASST. YEAR - 2005-06) M/S MERITOR LVS INDIA (P) LTD., CAD TECHNICAL CENTRE DIVISION, NO.69, A1-AMEEN TOWERS, 3 RD FLOOR, HOSUR ROAD, NEAR LALBAGH MAIN ROAD, BENGALURU-560 027. . APPELLANT PAN NO.AABCM 9623 K. VS. THE ASST. COMMISSIONER OF INCOME-TAX, CIRCLE-12(1), BANGALORE. . RESPONDENT AND ITA NO.523/BANG/2011 (BY REVENUE) REVENUE BY : SHRI S.K AMBASTHA, JCIT RESPONDENT BY : SHRI C RAMESH, C.A DATE OF HEARING : 11-09-2012 DATE OF PRONOUNCEMENT : 21-09-2012 ITA NO.405 & 523 /B/11 2 O R D E R PER P MADHAVI DEVI, JUDICIAL MEMBER : THESE ARE CROSS APPEALS FILED BY THE ASSESSEE AS WE LL AS THE REVENUE. THE RELEVANT ASSESSMENT YEAR IS 2005-06. THE APPEALS ARE DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF I NCOME-TAX - (APPEALS) IV AT BANGALORE DATED 23.02.2011. THE A PPEALS ARISE OUT OF THE ASSESSMENT COMPLETED U/S 143(3) OF THE INCOM E-TAX ACT, 1961. 2. THE ASSESSEE HAS RAISED VARIOUS GROUNDS RELATING TO THE DETERMINATION OF THE ARMS LENGTH PRICE OF THE INTE RNATIONAL TRANSACTION BETWEEN THE ASSESSEE AND ITS ASSOCIATED ENTERPRISE. THE GROUND RELATING TO PRINCIPLES OF NATURAL JUSTICE AND ALSO RELATING TO PROCEDURE OF MAKING REFERENCE TO THE TPO U/S 92CA OF THE ACT ARE NOT PRESSED BY THE ASSESSEE. THEY ARE, THEREFORE, REJECTED AS NOT PRESSED. THE ASSESSEE ALSO SUBMITTED THAT THE ASSESSEE DOES NOT WISH TO PRESS GROUND RELATING TO CHARGE OF INCOME-TAX. ACCORDINGL Y THIS GROUND OF APPEAL IS ALSO REJECTED. ITA NO.405 & 523 /B/11 3 3. OTHER THAN THE TRANSFER PRICING ISSUE I.E DETERM INATION OF ARMS LENGTH PRICE AND THE ADJUSTMENT THEREON, THE OTHER GROUND OF APPEAL IS AGAINST THE DENIAL OF DEDUCTION U/S 10A OF THE ACT CLAIMED BY THE ASSESSEE ON THE GROUND THAT BROUGHT FORWARD LOSSES/ DEPRECIATION ARE REQUIRED TO BE SET OFF BEFORE COMPUTING DEDUCTION U /S10A OF THE ACT. 4. THE BRIEF FACTS RELATING TO THE DISALLOWANCE OF THE DEDUCTION U/S 10A OF THE ACT ARE THAT THE ASSESSEE COMPANY WHICH IS ENGAGED IN THE BUSINESS OF EXPORT OF COMPUTER SOFTWARE FILED ITS R ETURN OF INCOME FOR THE ASSESSMENT YEAR 2005-06 ON 29.1.2010 DECLARING NIL INCOME. DURING THE ASSESSMENT PROCEEDINGS U/S 143(3) OF THE ACT, THE AO DISALLOWED THE CLAIM OF THE ASSESSEE U/S 10A OF THE ACT AS THE INCOME ARRIVED AT AFTER REDUCING THE LOSS FOR THE ASSESSME NT YEAR 2002-03 SET OFF BY THE ASSEESSEE WAS NIL. 5. AGGRIEVED, THE ASSESSEE PREFERRED AN APPEAL BEFO RE THE CIT(A) STATING THAT WHILE COMPUTING THE TOTAL INCOME, THE DEDUCTION U/S 10A HAS TO BE ALLOWED FIRST AND LATER ON, SET OFF OF BROUGHT FORWARD LOSSES AND UNABSORBED DEPRECIATION ARE TO BE SET OFF. THE CIT(A) HOWEVER CONFIRMED THE ORDER OF THE AO. ITA NO.405 & 523 /B/11 4 6. AGGRIEVED THE ASSESSEE IS IN SECOND APPEAL BEFOR E US. 7. THE LEARNED COUNSEL FOR THE ASSESSEE SHRI C RAM ESH REITERATED THE SUBMISSIONS MADE BY THE ASSESSEE BEFORE THE AUT HORITIES BELOW AND HAS DRAWN OUR ATTENTION TO THE DECISION OF THE HON BLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. YOKOGOWA LTD., WHEREIN IT HAS BEEN HELD IF AN ASSESSEE IS ELIGIBLE FOR EXEMPTION/DEDUCTION U/S 10A OF THE ACT, THE SAME SHOULD BE ALLOWED FIRST, THEN ONLY BROUGHT FORWARD LOSS AND DEPRESSION ARE TO BE SET OFF. 8. THE LEARNED DR HOWEVER RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW. 9. HAVING HEARD BOTH THE PARTIES AND HAVING CONSIDE RED THE RIVAL CONTENTIONS, WE FIND THAT THE ISSUE IS FAIRLY COVER ED BY THE DECISION OF HONBLE KARNATAKA HIGH COURT IN THE CASE OF YOKOGOW A LTD. RESPECTFULLY FOLLOWING THE SAME, THE AO IS DIRECTED TO ALLOW DEDUCTION U/S. 10A OF THE ACT BEFORE SETTING OFF UN ABSORBED BUSINESS LOSSES/DEPRECIATION CARRY FORWARD LOSSES FROM THE E ARLIER YEARS. THIS GROUND OF APPEAL IS ACCORDINGLY ALLOWED. ITA NO.405 & 523 /B/11 5 10. COMING TO THE GROUND RELATING TO THE TRANSFER PRICING ADJUSTMENT, THE BRIEF FACTS ARE THAT SINCE THERE WA S INTERNATIONAL TRANSACTION BETWEEN THE ASSESSEE AND ITS ASSOCIATED ENTERPRISES, THE TPO U/S 92CA(2) QUANTIFIED THE ARMS LENGTH PRICE AT RS.9,22,43,407/ - AND SUGGESTED ADJUSTMENT OF RS.93,12,012/- TO THE A RMS LENGTH PRICE OF THE ASSESSEE IN RESPECT OF THE INTERNATIONAL TRA NSACTION. THE ASSESSING OFFICER AFTER CONSIDERING THE ASSESSEES OBJECTIONS TO THE TRANSFER PRICING ADJUSTMENT ACCEPTED THE ARMS LENGT H PRICE SUGGESTED BY THE TPO AND MADE THE ADJUSTMENT TO THE INCOME RE TURNED BY THE ASSESSEE ACCORDINGLY. 11. AGGRIEVED THE ASSESSEE PREFERRED AN APPEAL BEFO RE THE CIT(A), RAISING THE SAME OBJECTIONS THAT WERE RAISED BEFORE THE TPO RELATING TO THE FILTERS ADOPTED BY THE TPO AND ALSO THE EXCLUSI ON OF THE COMPARABLES IDENTIFIED BY THE ASSESEE AND INCLUSION OF THE COMPANIES WHOSE INFORMATION WAS NOT AVAILABLE IN PUBLIC DOMAI N. THE CIT(A) AFTER CONSIDERING THE ASSESSEES OBJECTIONS EXCLUDE D SUPER PROFIT MAKING COMPANIES FROM THE FINAL COMPARABLES ADOPTED BY THE TPO AND ALSO EXCLUDED THE COMPARABLES WITH LOWER MARGIN S FOR MAKING THE TP ADJUSTMENT. AGAINST THE EXCLUSION OF THE SUPER PROFIT MARKING ITA NO.405 & 523 /B/11 6 COMPANIES, THE REVENUE IS IN APPEAL BEFORE US, WHI LE THE ASSESSEE IS IN APPEAL AGAINST THE EXCLUSION OF COMPARABLES HAV ING LOWER MARGINS. 12. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE VARIOUS BENCHES OF THE TRIBUNAL HAVE HELD THAT SUPER PROFIT MAKING COMPANIES ARE NOT TO BE CONSIDERED TO ARRIVE AT ARMS LENGTH P RICE OF THE INTERNATIONAL TRANSACTION OF AN ASSESSEE WITH LOWER MARGIN OF PROFITS. HE SUBMITTED THAT FOLLOWING THE SAME, THE CIT(A) HA S RIGHTLY EXCLUDED THE RESULTS OF SATYAM, INFOSYS AND M/S EX ENSYS SOFTWARE SOLUTIONS PVT. LTD FROM THE LIST OF COMPARABLES. HOWEVER, ACCORDING TO HIM, THE CIT(A) OUGHT NOT TO HAVE EXCLUDED THE C OMPANIES HAVING LOWER MARGINS, AS THESE COMPANIES WERE ADOPTED BY T HE TPO HIMSELF. THUS ACCORDING TO HIM, THE CIT(A) OUGHT NOT TO HAVE EXCLUDED THESE COMPANIES WITHOUT GIVING REASONING FOR EXCLUDING TH E SAME. 13. THE LEARNED DR ON THE OTHER HAND SUPPORTED THE ORDER OF THE CIT(A) AS FAR AS EXCLUSION OF COMPARABLES OF LOWER MARGINS IS CONCERNED AND OBJECTED TO THE EXCLUSION SATYAM FROM THE LIST OF COMPARABLES ON THE GROUND THAT ITS RESULTS ARE NOT RELIABLE. THE LEARNED DR SUBMITTED THAT THE ASSESSMENT YEAR BEFOR E US IS 2005-06, WHEREAS THE SCAM IN THE CASE OF SATYAM COMPUTERS H AD COME TO LIGHT ITA NO.405 & 523 /B/11 7 MUCH LATER AND, THEREFORE, IT CANNOT BE SAID THAT T HE RESULTS OF SATYAM ARE NOT RELIABLE FOR ALL THE YEARS. SIMILARLY, HE SUBMITTED THAT THE CIT(A) HAS NOT GIVEN ANY REASONING FOR EXCLUSION O F M/S EXENSYS SOFTWARE SOLUTIONS AND THIRD WARE SOLUTIONS AS COMP ARABLES. 14. HAVING HEARD BOTH THE PARTIES AND HAVING CONSID ERED THEIR RIVAL CONTENTIONS, WE FIND THAT THE GRIEVANCE OF BOTH THE PARTIES ARE AGAINST EXCLUSION OF THE SUPER PROFIT MAKING COMPARABLES AN D THE LOW PROFIT MAKING COMPARABLES FROM THE LIST OF COMPARABLES ADO PTED BY THE TPO. WE FIND THAT THE CIT(A) HAS NOT GIVEN ANY REA SONING FOR SUCH EXCLUSION. WE FIND THAT VARIOUS BENCHES OF THE TRI BUNAL HAVE HELD THAT SUPER PROFIT MAKING COMPANIES HAVE TO BE EXCL UDED FROM THE LIST OF COMPARABLES WHILE DETERMINING THE ARMS LENGTH PR ICE. BUT HOWEVER FOR ARRIVING AT THE CONCLUSION THAT THESE COMPANIES ARE TO BE EXCLUDED, THE CIT(A) IS BOUND TO GIVE THE REASONING. AS FAR AS INFOSYS IS CONCERNED, WE FIND THAT IT SATISFIES THE TURNOVER F ILTER, AS ITS TURNOVER IS 6,850 CRORES AS AGAINST THE ASSESSEES TURNOVER OF 8.29 CRORES. SO THE SAID COMPANY IS RIGHTLY EXCLUDED FROM THE LIST OF COMPARABLES. BUT HOWEVER, AS REGARDS OTHER COMPARABLES WITH BOTH HIGH MARGIN AND LOW MARGIN COMPANIES, WE ARE OF THE OPINION THAT TH E CIT(A) OUGHT TO GIVE REASONING BEFORE EXCLUDING THE SAME. AS THE O RDER OF THE CIT(A) ITA NO.405 & 523 /B/11 8 IS SILENT AS REGARDS THE REASON FOR THEIR EXCLUSION , WE DEEM IT FIT AND PROPER TO REMIT THE ISSUE BACK TO THE FILE OF THE C IT(A) FOR RECONSIDERATION IN THE LIGHT OF THE JUDICIAL PRECED ENTS ON THE ISSUE AND ALSO FOR PASSING A DETAILED ORDER. NEEDLESS TO MEN TION THAT THE ASSESEE SHALL BE GIVEN A FAIR OPPORTUNITY OF HEARING. 15. IN THE RESULT, THE APPEALS OF BOTH THE ASSESSEE AS WELL AS THE REVENUE ARE ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 21 SEPT, 2012. SD/- SD/- (JASON P BOAZ) (MADHAVI DEVI) ACCOUNTANT MEMBER JUDICIAL MEMBER VMS. BANGALORE DATED : 21 /09/2012 COPY TO : 1. THE ASSESSEE 2. THE REVENUE 3.THE CIT CONCERNED. 4.THE CIT(A) CONCERNED. 5.DR 6.GF BY ORDER SR. PRIVATE SECRETA RY, ITAT, BANGALORE.