Satyam Venture Engineering Services Pvt.Ltd., Hyd, Secunderabad V. ACIT, Central Circle-3(2), Hyd, Hyderabad

ITA 431/HYD/2015

• Counselvise Citation: 43122514 RSA 2015
• Duration Of Justice: 7 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-11-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 27-10-2015
• Assessment Year: 2005-2006
• Appeal Filed On: 17-04-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MOHAN SINGH SINGHANIA
• Assessee Lawyers: V SIVA KUMAR; C S SUBRAMANYAM
• Keywords: Reopening of assessment; Depreciation; Transfer pricing; International transaction; Difference of opinion; Notional interest; Reason to believe; Change of opinion; Reassessment proceedings
• Section: 143(3); 147; 148; 2

Judgement Text

THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B, HYDERABAD BEFORE SHRI P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA NOS. 431 & 432/HYD/2015 ASSESSMENT YEARS: 2005-06 & 2010-11 SATYAM VENTURE ENGG. SERVICES PVT. LTD., SECUNDERABAD. PAN AAFCS 3287 D VS. ASST. COMMISSIONER OF INCOME- TAX, CENTRAL CIRCLE 3(2), HYDERABAD. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI C.S. SUBRAMANYAM & SHRI V. SIVA KUMAR REVENUE BY : SHRI MOHAN SINGH SINGHANIA DATE OF HEARING : 27-10-2015 DATE OF PRONOUNCEMENT : 30-11-2015 O R D E R PER S. RIFAUR RAHMAN, A.M.: BOTH THESE APPEALS ARE PREFERRED BY THE ASSESSEE A GAINST THE ORDERS OF ACIT, CENTRAL CIRCLE 3(2), HYDERABAD, BOT H DATED 27/02/2015 FOR ASSESSMENT YEARS 2005-06 AND 2010-11. THE SAME WERE CLUBBED AND HEARD TOGETHER AND, THEREFORE, FIND IT CONVENIE NT TO DISPOSE OF THESE APPEALS BY WAY OF THIS CONSOLIDATED ORDER. ITA NO. 431/HYD/2015 FOR AY 2005-06 2. THE BRIEF FACTS OF THE CASE ARE, ASSESSEE IS A JOINT VENTURE COMPANY BETWEEN SATYAM COMPUTER SERVICES LTD (NOW T AKEN OVER BY M/S TECH MAHENDRA LTD) AND VENTURE GLOBAL ENGINEERI NG LCC, USA. BOTH THE PARTNERS ARE HOLDING EQUAL SHARES (50:50). THE ASSESSEE IS PROVIDING ENGINEERING AND COMPUTER SERVICES TO THE AUTOMOTIVE INDUSTRY AND PROVIDING SUPPORT, DEVELOPMENT, TRAINI NG AND CONSULTATION OF CAD/CAM/CAE PRODUCTS AND RELATED CU STOMIZATION ON BEHALF OF ITS CUSTOMERS. THE ASSESSEE IS ENTITLED TO EXEMPTION U/S 10A IN RESPECT OF INCOME FROM EXPORT OF SOFTWARE SE RVICES. 2 ITA NOS. 431 & 432/HYD/2015 SATYAM VENTURE ENGG. SERVICES PVT. LTD. 2.1 ASSESSEE FILED ITS RETURN OF INCOME FOR THE AY 2005-06 ON 30.10.2005, DECLARED A TOTAL INCOME OF RS. 4,77,83, 592/-. SUBSEQUENTLY, THE ASSESSMENT WAS COMPLETED U/S 143( 3) OF THE INCOME TAX ACT 1961 ON 17/12/2008 BY MAKING AN ADDI TION OF RS. 4,08,45,798/- AFTER CONSIDERING THE FINDINGS OF TPO VIDE ORDER U/S 92CA(3) OF THE ACT DATED 20.06.2008. AGGRIEVED BY T HIS ORDER, ASSESSEE PREFERRED AN APPEAL BEFORE CIT(A), WHICH W AS DISMISSED BY THE CIT(A) BY UPHOLDING THE ORDER OF THE AO. AGGRIE VED WITH THE ABOVE ORDER, ASSESSEE PREFERRED AN APPEAL BEFORE TH IS COORDINATE BENCH, WHICH IS PENDING UNDER APPEAL NO ITA 197/DYD /2011. 2.2 IN THE BACK DROP OF SATYAM EPISODE AND THE ASSE SSEE BEING JOINT VENTURE OF SATYAM COMPUTER SERVICES LTD, THE CASE WAS REOPENED. NOTICE U/S 148 WAS SERVED ON THE ASSESSEE . IN RESPONSE TO THE NOTICE, ASSESSEE FILED LETTER CONFIRMING THE RE TURN FILED BY IT ON 30.10.2005 AS THE ONE IN RESPONSE TO THE NOTICE U/S 148. SUBSEQUENTLY NOTICE U/S 143(2) AND 143(1) WERE ISSU ED. IN RESPONSE, ASSESSEE FURNISHED THE INFORMATION CALLED FOR. THE AO ALSO REFERRED THE CASE TO TPO AGAIN AFTER REOPENING THE ASSESSMEN T U/S 147 AND CONSIDERED THE REPORT OF TPO DATED 30.12.2013, FINA LIZED THE ASSESSMENT U/S 143(3) R.W.S 147 AND 144C AS UNDER: 1. ADJUSTMENT U/S 92CA AS SUGGESTED BY THE TPO RS. 3,23,99,937 2. CAPITAL INVESTMENT SUBSIDY RS. 3, 75,000 3. DISALLOWANCE OF EXEMPTION U/S 10A RS. 5,27,39, 154 TOTAL DISALLOWANCE BY AO RS. 8,55,14,091 2.3 BEFORE FINALIZING THE ABOVE ORDER, AO FORWARDE D THE DRAFT ASSESSMENT ORDER TO ASSESSEE ON 28.03.2014. AGGRIEV ED WITH THE DRAFT ORDER, ASSESSEE FILED ITS OBJECTION BEFORE DI SPUTE RESOLUTION PANEL (DRP). DRP ALLOWED SOME RELIEF TO THE ASSESSE E AND REJECTED THE PLEAS OF ASSESSEE ON THE REOPENING OF THE ASSES SMENT U/S 147. THE DRP CONFIRMED THE REOPENING OF THE ASSESSMENT U/S 147 AND 3 ITA NOS. 431 & 432/HYD/2015 SATYAM VENTURE ENGG. SERVICES PVT. LTD. OTHER DISALLOWANCES MADE BY THE TPO AND AO AND ACCO RDINGLY AO PASSED THE FINAL ASSESSMENT ORDER. 3. AGGRIEVED WITH THE ABOVE ORDER, ASSESSEE RAISED THE FOLLOWING GROUNDS OF APPEAL BEFORE US: I. THE ORDER OF THE LEARNED ASSESSING OFFICER IS E RRONEOUS IN LAW AND ON THE FACTS OF THE CASE. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LEARNED ASSESSING OFFICER ERRED IN REOPENING THE ASSESSMEN T ULS.L47 OF THE ACT. AFTER HAVING COMPLETED THE ASSESSMENT ORIGINALLY U /S 143(3). 3. ON THE FACTS AND IN THE CIRCUMSTANCES THE REOPE NING OF ASSESSMENT O/S. 147 IS NOT CORRECT AS THE REASSESSMENT RESULTED IN ADDITIONS EXACTLY AS IN ORIGINAL ASSESSMENT. 4. THE REFERENCE TO TRANSFER PRICING OFFICER UNDER SEC.147 PROCEEDINGS IN INCORRECT AS SUCH REFERENCE WAS EARLIER MADE IN U/ S.143(3). SUCH ILLEGAL REFERENCE RESULTED IN COMPLETION OF REASSESSMENT P ROCEEDINGS BEYOND THE PERIOD PROVIDED UNDER LAW INVALIDATING THE ORDER O /S. 143(3)R.W.S 147. 5 THE ORDER OF REASSESSMENT PASSED BY THE ASSESSIN G OFFICER IS LIABLE TO BE QUASHED FOR THE REASON THAT THE OBJECTIONS AGAI NST REOPENING OF THE ASSESSMENT HAVE NOT BEEN DISPOSED OF BY THE ASSESS ING OFFICER BY A SPEAKING ORDER BEFORE COMPLETION OF THE REASSESSME NT. TRANSFER PRICING ADJUSTMENT 6. THE LEARNED ASSESSING OFFICER ( AO ) / TRANSFER PRICING OFFICER ( TPO ) / DISPUTE RESOLUTION PANEL DRP) ERRED IN MAKING THE TRANSFER PRICING ADJUSTMENT OFRS.3,23,99,937/, COMPRISING OF AN ADJ USTMENT OF RS.3,20,92,192, IN RESPECT OF SALES COMMISSION PAI D AND A FURTHER ADJUSTMENT OF RS.3,07.745 IN RESPECT OF ENGINEERI NG SERVICES. 7. THE LEARNED AO / DRP ERRED IN DENYING THE +/- 5 % OPTION TO THE ARM'S LENGTH PRICE DETERMINED FOR ITES SALES TO AE AS PE R SEC.92C(2) OF THE IT ACT. 8. THE LEARNED AO / DRP ERRED IN NOT APPLYING ANY OF THE ACCEPTED METHODS OF DETERMINING ARM'S LENGTH FOR THE PURPOS E OF DETERMINING ARM'S LENGTH PRICE FOR COMMISSION PAYABLE TO VENTURE LLC . 9. THE LEARNED AO / DRP INCORRECTLY INCORPORATED T HE COMMERCIAL ASPECT OF ALLOWABILITY OF SUCH EXPENDITURE BASED ON BENEFIT DERIVED THEREON. NON- TRANSFER PRICING ADDITIONS 10. THE LEARNED AO / DRP ERRED IN DENYING THE EXCL USION OF OTHER CHARGES INCURRED IN FOREIGN CURRENCY FROM THE TOTAL TURNOV ER, ALSO, DESPITE CATENA OF DECISIONS IN FAVOUR OF SUCH EXCLUSION. 4 ITA NOS. 431 & 432/HYD/2015 SATYAM VENTURE ENGG. SERVICES PVT. LTD. 4. THE MAIN ISSUES RAISED BY THE ASSESSEE IN THE AB OVE GROUNDS ARE: A. GROUND 1 BEING GENERAL, DOES NOT NEED ANY ADJUDI CATION B. GROUND 2 TO 5, RELATING TO REOPENING OF THE ASSE SSMENT U/S 147. C. GROUND 6 TO 9, RELATING TO TRANSFER PRICING ADJU STMENTS. D. GROUND 10, RELATING TO NON TRANSFER PRICING ADDI TIONS. (RELATING TO 10A DISALLOWANCES). 5. GROUND 2 TO 5. REOPENING OF ASSESSMENT: LD. AR SUBMITTED THAT WHEN ASKED FOR THE REASON FOR REOPENING, AO FURNISHED THE REASONS AS UNDER: 1. THE ASSESSEE, M/S SATYAM VENTURE ENGG. SERVICES PVT. LTD. (PAN AAFC3287D), HAS FILED ITS RETURN OF INCOME FOR THE AY 2005-06 ON 30/10/2005 DECLARING INCOME OF RS. 4,77,83,592. THE ASSESSMENT UNDER SECTION 143(3) WAS COMPLETED ON 17/12/2008 DETERMIN ING AN INCOME OF RS. 8,86,29,390, AFTER MAKING ADJUSTMENT AS SUGGESTED B Y THE TPO U/S 92CA IN RESPECT OF INCOME FROM EXPORT OF ENGINEERING SER VICES AND COMMISSION PAYMENT TO ONE OF THE AE I.E. VENTURE GLOBAL (USA), AFTER EXCLUDING TELECOMMUNICATION CHARGES FROM EXPORT TURNOVER TO A RRIVE THE DEDUCTION U/S 10A AND ADDITION ON ACCOUNT OF CAPITAL INVESTMENT S UBSIDY. SUBSEQUENTLY, ON APPEAL CIT(A) DISMISSED THE ASSESSEES APPEAL AN D NOW THE ASSESSEES APPEAL IS PENDING BEFORE THE HONBLE ITAT. 2. DURING THE YEAR 2004-05, ASSESSEE CLAIMED RS. 4, 64,47,567 AS SALES COMMISSION TO VENTURE GLOBAL, USA ONE OF THE PARE NT COMPANY. ON MANY OCCASIONS DURING THE PROCEEDING BEFORE THE TPO , CIT(A) AND DRP, THE ASSESSEE FAILED TO ESTABLISH THE GENUINENESS OF THE PAYMENT OF SALES COMMISSION TO VENTURE GLOBAL BEFORE THE DEPARTMENT, EVEN NOT PRODUCED THE ORIGINAL AGREEMENTS FOR VERIFICATION. NO EVIDEN CE WAS PRODUCED TO ASCERTAIN THE NATURE OF SERVICES RENDERED BY THE PA YEE I.E. THE VENTURE GLOBAL DURING THE COURSE OF ASSESSMENT AND OTHER PR OCEEDINGS. THUS, THERE IS NO NECESSITY FOR THE ASSESSEE COMPANY TO M AKE THE PAYMENT TO VENTURE GLOBAL AND ACCORDINGLY THE ARMS LENGTH PRI CE ON THE COMMISSION PAYMENT IS TO BE NIL AS AGAINST THE PAYMENT CLAIMED BY ASSESSEE OF RS. 4,64,47,567 AND ALP DETERMINED BY THE TPO OF RS. 1, 43,55,375 ON THE FACTS MISLED BY THE ASSESSEE. 3. FURTHER, THERE IS ALSO A LEGAL DISPUTE BETWEEN V ENTURE GLOBAL AND SATYAM COMPUTERS, THE PROMOTERS OF THE ASSESSEE COM PANY WHEREIN VENTURE GLOBAL ALLEGED EXCESS LEVY OF CERTAIN ADMIN ISTRATIVE CHARGES ON SERVICES RENDERED TO TRW, A MANUFACTURER AND SUPPLI ER OF AUTOMOTIVE EQUIPMENTS BY THE INDIAN PARTNER, SATYAM COMPUTER S ERVICES AGAINST THE AGREED RATES. AS PER SATYAM COMPUTER SERVICES, US $ 859,899 WAS RETAINED FROM TRW RECEIPTS BEFORE THE SAME WAS PASS ED ON TO THE 5 ITA NOS. 431 & 432/HYD/2015 SATYAM VENTURE ENGG. SERVICES PVT. LTD. ASSESSEE COMPANY AND VENTURE GLOBAL ALLEGED RETENTI ON OF US $ 2,188,000 ON THE SAME CONTRACTS. THE ALLEGED EXCESS LEVY OF T HE ADMINISTRATIVE CHARGES BY SATYAM AND THE CORRESPONDING ALLOWANCE O F THE SAME IN COMPUTING THE TOTAL INCOME OF THE ASSESSEE LED TO E SCAPEMENT OF INCOME CHARGEABLE TO TAX. THE ASSESSEE COMPANY NEITHER DIS CLOSED THE ABOVE DISPUTE IN ITS ANNUAL REPORT FOR THE AY 2004-05 NOR DISCLOSED DURING THE ORIGINAL ASSESSMENT PROCEEDINGS. 4. GIVEN THE FACT THAT THE ASSESSEE COMPANY BEING A JOINT VENTURE COMPANY PROMOTED BY SATYAM COMPUTER SERVICES LTD. U NDER THE CHAIRMANSHIP OF SHRI B. RAMALINGA RAJU, WHO HAVING CONFESSED TO THE FACT THAT THE ACCOUNTS OF SCSL WERE FUDGED AND CHARGED W ITH SEVERAL OFFENCES BY THE INVESTIGATING AGENCIES IN THE AFTERMATH OF T HE SATYAM SCAM AND ON ASSESSEE COMPANYS FAILURE TO ESTABLISH THE GENUINE NESS OF THE CLAIM OF COMMISSION PAYMENT WORTH CRORES OF RUPEES AND THE A LLEGED EXCESS LEVY OF CERTAIN ADMINISTRATIVE CHARGES BY SATYAM COMPUTERS, I HAVE REASON TO BELIEVE THAT INCOME CHARGEABLE TO TAX HAS ESCAPED A SSESSMENT, WITHIN THE MEANING OF SECTION 147 READ WITH SECTION 149 OF THE IT ACT AND THERE IS FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FUL LY AND TRULY ALL MATERIAL FACTS NECESSARY FOR ITS ASSESSMENT FOR AY 2005-06. FOR THE ABOVE DETAILED REASONS, IT IS PROPOSED TO ISSUE NOTICE TO THE ASSE SSEE U/S 148 OF THE IT ACT TO REOPEN THE ASSESSMENT IN THE ASSESSEES CASE FOR THE ASSESSMENT YEAR 2005-06 FOR BRINGING TO TAX THE INCOME CHARGEA BLE TO TAX WHICH HAS ESCAPED ASSESSMENT. 5.1 LD AR SUBMITTED THAT THE REASONS FURNISHED ABOV E WERE IDENTICAL TO THE REASONS FURNISHED FOR IN THE EARLI ER YEARS EXCEPT THE REASON NO 3. FOR REASONS 1,2 AND 4, HE SUBMITTED TH AT THE ASSESSMENT REOPENED APPLYING THE ABOVE REASONS WERE CANCELLED BY THE CO ORDINATE BENCH OF THIS TRIBUNAL IN ORDERS VI DE ITA 1904/HYD/2011 RELATING TO AY 2002-03, ITA 492, 196, 783, 924/HYD/2008, 1136/HYD/2013 RELATING TO AY 2003-04 AND ITA 1137/HYD/2013 RELATING TO AY 2004-05. 5.2 LD AR FURTHER SUBMITTED THAT THE AO REOPENED TH E ASSESSMENT AND COMPLETED THE REASSESSMENT WITHOUT ANY NEW FIND INGS CONTRARY TO THE REASONS RECORDED BY HIM. MERELY ENHANCED SOME A DDITIONS, WHICH WERE ALREADY ASSESSED IN THE ORIGINAL ASSESSMENT. T HEY ARE HIGHLIGHTED BY THE LD AR IN THE BELOW CHART, WHICH HE SUBMITTED DURING THE APPELLATE PROCEEDINGS: S. NO. REASON FOR REOPENING ADJUSTMENT/ADDITION IN REASSESSMENT REMARKS 1 ALP FOR THE COMMISSION PAID TO VENTURE SHOULD ALP WAS TAKEN AT RS. 1,43,55,375 AS WAS THE REASON DID NOT SURVIVE. 6 ITA NOS. 431 & 432/HYD/2015 SATYAM VENTURE ENGG. SERVICES PVT. LTD. BE ASSESSED AT RS. NIL ORIGINALLY ASSESSED 2 DISPUTE BETWEEN SATYAM COMPUTER SERVICES LTD. AND VENTURE AS TO ADMINISTRATIVE CHARGES NO ADDITION WAS MADE ON THIS COUNT THE REASON DID NOT SURVIE 3 SATYAM COMPUTER SERVICES LTD. BOOKS ARE FUDGED. NO ADDITION WAS MADE ON THIS COUNT SINCE THE ASSESSEES BOOKS ARE NOT MANIPULATED THE REASON DID NOT SURVIVE. 4 ADJUSTMENT OF RS. 3,07,745 FOR THE ITES INCOME THE SAME IS NOT IN THE REASONS FOR REOPENING. HOWEVER, THIS ADDITION WAS EXACTLY THE SAME AS DONE IN ORIGINAL ASSESSMENT. 5 ADDITION OF RS. 3,75,000 TOWARDS DEPRECIATION ON CAPITAL INVESTMENT SUBSIDY THE SAME IS NOT IN THE REASONS FOR REOPENING. HOWEVER, THIS ADDITION WAS EXACTLY THE SAME AS DONE IN ORIGINAL ASSESSMENT. 6 INCREASE OF DISALLOWANCE OF DEDUCTION CLAIMED U/S 10A THIS WAS A NEW ADDITION NOT SPECIFIED IN THE REASONS FOR REOPENING. 5.3 LD AR SUBMITTED THAT THE REASON NO 3, WHICH THE AO NARRATED IN THE REASONS FOR REOPENING, HAS NO RELEVANCE TO THE ASSESSEE. THESE TRANSACTIONS WERE LEGAL DISPUTES BETWEEN VENTURE GL OBAL AND SATYAM COMPUTERS, WHO ARE PROMOTERS OF THE ASSESSEE COMPAN Y. HOWEVER, THE AO HAS NOT INVESTIGATED ANYTHING IN THE REASSES SMENT PROCEEDINGS. IT CLEARLY SHOWS THAT THERE IS NO RELE VANCE TO THE ASSESSEE AND AO WRONGLY RELIED ON THIS REASON TO RE OPEN THE ASSESSMENT. 5.4 LD AR ALSO EXPRESSED THAT THE ASSESSEE FILED IT S OBJECTIONS FOR REOPENING OF ASSESSMENT U/S 147, VIDE LETTER DATED 08.01.2014, WHICH WAS NOT ADDRESSED BY THE AO WHILE COMPLETING THE REASSESSMENT ORDER AND THE REASSESSMENT ORDER WAS N OT A SPEAKING ORDER. 7 ITA NOS. 431 & 432/HYD/2015 SATYAM VENTURE ENGG. SERVICES PVT. LTD. 5.5 LD AR SUBMITTED THAT THE REFERENCE TO TPO IN TH E REOPENED ASSESSMENT IS BEYOND LIMITATION OF TIME. HE ARGUED THAT THE AO CANNOT REFER TO THE TPO, WHEN THE TPO HAD ALREADY E XAMINED THE RECORDS RELATING TO THE INTERNATIONAL TRANSACTIONS AND GIVEN ITS REPORT. THERE IS NO FRESH MATERIAL ENUMERATED WHICH WARRANT ED THE AO TO REFER THE MATTER TO TPO. 6. LD DR ON THE OTHER HAND SUBMITTED THAT THERE WA S NO PREJUDICE CAUSED TO THE ASSESSEE EXCEPT THERE WAS ADJUSTMENT MADE TO THE ALLOWANCE U/S 10A. HE JUSTIFIED THE REASSESSMENT PR OCEEDINGS AND RELIED ON THE REASSESSMENT ORDER. ON THE REASON NO 3, AR SUBMITTED THAT IT IS JOINT VENTURE AND NOT A DISPUTE BETWEEN SHAREHOLDERS. THE FUNDS WITHHELD BY THE SHAREHOLDERS HAD IMPACT ON TH E REVENUE OF THE ASSESSEE BUSINESS. IT IS THE FAILURE OF THE ASSESSE E, WHO HAD NOT BROUGHT THE ABOVE REVENUE TO THE BOOKS. 7. IN REJOINDER, LD AR SUBMITTED THAT THE DEPARTME NT HAD RECORDED THE REASONS BUT NOT THE BELIEF. THEY WERE IN WRONG BELIEF AFTER THE SATYAM EPISODE. STILL HE INSISTED THAT THE REFERENC E TO THE TPO IN THE REASSESSMENT PROCEEDINGS IS BAD IN LAW. 8. HEARD ARGUMENTS OF BOTH THE SIDES AND BASED ON THE INFORMATION AND SUBMISSIONS MADE BY THE COUNSELS, W E ARE OF THE VIEW THAT THE SERIES OF REASSESSMENT PROCEEDINGS WE RE INITIATED BY THE AO ON THE BACK DROP OF SATYAM EPISODE WITHOUT A PPLYING MIND OR WITHOUT COGENT EVIDENCE ON RECORD. IT WAS DONE MECH ANICALLY, AS IT IS EVIDENT FROM THE FACT THAT THE EARLIER YEARS REOPEN ING ASSESSMENTS WERE DISMISSED BY THE COORDINATE BENCH OF THIS TRIB UNAL. 8.1 MOREOVER, THE FINDINGS AND CONCLUSION DRAWN IN THE FINAL ASSESSMENT ORDERS ARE NOTHING BUT SAME FINDINGS OF THE AO IN THE ORIGINAL ASSESSMENT ORDER. MERELY CERTAIN ENHANCEME NT WERE MADE ON THE SAME FINDINGS GIVES THE IMPRESSION THAT THIS IS ONLY CHANGE OF OPINION RATHER THAN ESCAPEMENT OF INCOME, WHICH WAR RANTED AO TO 8 ITA NOS. 431 & 432/HYD/2015 SATYAM VENTURE ENGG. SERVICES PVT. LTD. REOPEN THE ASSESSMENT. WE OBSERVE THAT THIS IS MER ELY CHANGE OF OPINION BY REFERRING TO THE CHART (REFER PARA 4.2), WHICH HIGHLIGHTS THE FINAL OUTCOME OF THE REASSESSMENT PROCEEDING. HENCE , CONSIDERING THE ABOVE FINDINGS, WE QUASH THE ORDER PASSED BY TH E AO. 9. WITH REGARD TO OTHER GROUNDS, SINCE WE HAVE QUAS HED/CANCELLED THE REASSESSMENT PROCEEDINGS U/S 147, THE GROUNDS B ECOME INFRUCTUOUS, HENCE, NO ADJUDICATION IS REQUIRED. 10. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWE D. ITA NO. 432/HYD/2015 11. ASSESSEE FILED ITS RETURN FOR THE AY 2010-11 ON 30/10/2010, DECLARED TOTAL INCOME OF RS. 43,62,886 AND CLAIMED REFUND OF RS. 72,08,345. THE CASE WAS SELECTED FOR SCRUTINY AND A NOTICE U/S 143(2) WAS SERVED ON ASSESSEE ON 13/09/2010. ASSESSMENT WA S COMPLETED U/S 143(3) R.W.S. 144C OF THE INCOME-TAX ACT (ACT) DETERMINING TAXABLE INCOME AT RS. 12,13,95,731. 12. THE ONLY DISPUTE IN THIS APPEAL IS, IN THE ORDE R U/S 92CA(3) OF THE ACT, DATED 30/12/2013 BY THE TPO DETERMINED THE ARMS LENGTH PRICE OF THE NOTIONAL INTEREST ON OUTSTANDING WITH AE TRANSACTIONS AND DID NOT SUGGEST ANY ADJUSTMENT OF THE ABOVE MENTION ED TRANSACTION, BUT, HE HAS DETERMINED THE INTEREST OF RS. 65,40,78 7 ON THE RECEIVABLES OF RS. 27,26,01,273/- WHICH ASSESSEE WA S FAILED TO REPORT IN THE FORM 3CEB. AGGRIEVED WITH THE ABOVE ADDITION , THE ASSESSEE HAS RAISED OBJECTIONS BEFORE THE DISPUTE RESOLUTION PANEL (DRP). 13. THE DRP VIDE ITS DIRECTION DATED 24/12/2014, GA VE ITS DECISION AS UNDER: IT IS SEEN THAT THE TPO HAS ONLY WORKED OUT THE INTEREST RATE ON THE RECEIVABLES DUE TO THE ASSESSEE. HE HAS NOT CONSID ERED THE FACT THAT OUT OF THE TOTAL RECEIVABLES, RS. 6,59,65,875 WAS DUE FRO M SATYAM COMPUTER SERVICES LTD., WHICH CANNOT BE CONSIDERED FOR ARM S LENGTH PRICE ADJUSTMENT. ALSO, THE AMOUNTS PAYABLE BY THE ASSES SEE WAS NOT TAKEN INTO ACCOUNT. THE PANEL IS OF THE OPINION THAT THE TPO SHOULD CONSIDER THE TOTAL 9 ITA NOS. 431 & 432/HYD/2015 SATYAM VENTURE ENGG. SERVICES PVT. LTD. AMOUNT OF DUES/RECEIVABLES (EXCLUDING RECEIVABLES/ DUES RELATING TO INDIAN ASSOCIATES). IF THERE IS. 14. SINCE THE ABOVE DIRECTION APPEARS TO BE INCONCL USIVE, BOTH THE DEPARTMENT AND ASSESSEE FILED APPLICATION BEFORE TH E DRP FOR CLEAR DIRECTION ON THE ABOVE FINDINGS. SINCE THERE WAS NO RESPONSE/ORDER FROM THE DRP, AO HAS COMPLETED THE ASSESSMENT U/S 1 43(3). 15. AGGRIEVED WITH THE ABOVE ORDER, ASSESSEE IN APP EAL BEFORE US AND RAISED THE FOLLOWING GROUNDS: 1. THE ORDER OF THE LEARNED ASSESSING OFFICER IS ERRONEOUS IN LAW AND ON THE FACTS OF THE CASE. TRANSFER PRICING ADJUSTMENT 2. THE LEARNED ASSESSING OFFICER ( AO ) / TRANSFER PRICING OFFICER ( TPO ) / DISPUTE RESOLUTION PANEL (DRP) ERRED IN MAKING THE TRANSFER PRICING ADJUSTMENT OFRS.65,40,787. 2.1 THE LEARNED ASSESSING OFFICER ( AO ) / TRANSFE R PRICING OFFICER ( TPO ) / DISPUTE RESOLUTION PANEL ( DRP ) ERRED IN MAKING THE TRANSFER PRICING ADJUSTMENT OF RS.65,40,787 TOWARDS NOTIONAL INTERE ST ON RECEIVABLES FROM AES IGNORING THE FACT THAT OUT OF THE SAID RECEIVA BLES, A SUM OF RS.6.60 CRORES WAS RECEIVABLE FROM AN INDIAN PARTY WHICH N EEDED TO BE EXCLUDED FROM RECKONING AND ALSO OMITTING TO CONSIDERING TH AT AN AMOUNT OF RS.2.88 CRORES REPRESENTED UNBILLED REVENUE AND FURTHER, T HAT THE AMOUNTS PAYABLE TO ALL AES WERE RS.30.1L CRORES. 2.2 THE LEARNED ASSESSING OFFICER ( AO ) OUGHT TO HAVE APPRECIATED THAT THERE WERE NO SPECIFIC INSTRUCTIONS FROM THE DRP C ONFIRMING THE TPO'S ORDER TO CHARGE NOTIONAL INTEREST OF RS.65,40,787 AND HENCE THE ASSESSING OFFICER IS NOT JUSTIFIED IN MAKING THE ADJUSTMENT OF RS.65,40,787 WHILE COMPUTING TOTAL INCOME. PRAYER: THE APPELLANT CLAIMS RELIEF IN TERMS OF THE ABOVE GROUNDS FOR SATYAM VENTURE ENGINEERING SERVICES PVT. LTD. 16. THE LD. AR SUBMITTED THAT THE TPO HAS MADE THE ADDITION OF RS. 65,40,787 TOWARDS INTEREST ON OVERDUE INVOICES CONS IDERED AS TP ISSUE. HE HAD CONSIDERED ONLY ACCOUNT RECEIVABLES F ROM THE AE WITHOUT LOOKING AT THE ACCOUNT PAYABLES TO THE AE B Y THE ASSESSEE. THE LD. AR POINTED OUT THAT THIS WAS ALSO SUBMITTED BEFORE THE DRP VIDE ITS LETTER DATED 06/12/2014. FROM THE SAID LET TER WE EXTRACT THE DETAILS OF OUTSTANDING BALANCES OF ACCOUNT PAYABLE AND RECEIVABLE, WHICH ARE AS UNDER: 10 ITA NOS. 431 & 432/HYD/2015 SATYAM VENTURE ENGG. SERVICES PVT. LTD. DESCRIPTION BALANCES AS AT MARCH 31, 2010 SATYAM COMPUTERS SERVICES LTD. & ITS AFFILIATES VENTURE GLOBAL ENGG LLC & ITS AFFILICATES RECEIVABLES 26,88,97,856 37,03,875 PAYABLES 1,52,29,851 28,58,98,204 THE LD. AR SUBMITTED THAT THE ACCOUNT PAYABLE BY TH E ASSESSEE EXCEEDS THE ACCOUNT RECEIVABLE FROM THE AE AND FU RTHER SUBMITTED THAT THE ASSESSEE COMPANY FOLLOWED THE SAME POLICY OF NOT CHARGING INTEREST ON DUES FROM THE TRANSACTIONS OF ITES FOR BOTH AE DEBTORS AND NON-AE DEBTORS. 17. THE LD. DR, ON THE OTHER HAND, RELIED UPON THE ASSESSMENT ORDER 18. WE HAVE HEARD THE ARGUMENTS OF BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD AS WELL AS THE ORDERS OF REV ENUE AUTHORITIES. FROM THE ABOVE, IT MAY BE PERCEIVED THAT ASSESSEE H AS NOT CHARGED ANY INTEREST TO AE AS WELL AS NON-AE ENTITIES. MORE OVER, THE TPO HAS CONSIDERED ONLY THE ACCOUNT RECEIVABLE OF AE WITHOU T CONSIDERING THE ACCOUNT PAYABLE TO AES. IT IS PERTINENT TO NOTE THA T ACCOUNT PAYABLE TO AE AND ITS AFFILIATES ARE RS. 28,58,98,204 COMPARE D TO ACCOUNT RECEIVABLES FROM AE AND ITS AFFILIATES OF RS. 26,88 ,97,856. WE FIND THAT THE ACCOUNT PAYABLES ARE MORE THAN THE ACCOUNT RECEIVABLES FROM AE. HENCE, CHARGING OF NOTIONAL INTEREST DOES NOT A RISE. THEREFORE, WE ARE INCLINED TO REMIT THE ISSUE BACK TO THE FILE OF DRP TO GIVE THEIR FINDINGS CLEARLY IN THIS MATTER AFTER GOING THROUGH THE MATERIAL AVAILABLE ON RECORD AND GIVE THEIR FINDINGS ACCORDI NG TO THE PROVISIONS OF THE INCOME-TAX ACT. 19. IN THE RESULT, THIS APPEAL IS TREATED AS ALLOWE D FOR STATISTICAL PURPOSES. 11 ITA NOS. 431 & 432/HYD/2015 SATYAM VENTURE ENGG. SERVICES PVT. LTD. 20. TO SUM UP, APPEAL IN ITA NO. 431/H/15 IS ALLOWE D AND APPEAL IN ITA NO. 432/H/15 IS ALLOWED FOR STATISTICAL PURPOSE S. PRONOUNCED IN THE OPEN COURT ON 30 TH NOVEMBER, 2015. SD/- SD/- (P. MADHAVI DEVI) (S. RIFAUR RAHMAN) JUDICIAL MEMBER AC COUNTANT MEMBER HYDERABAD, DATED: 30 TH NOVEMBER, 2015 KV COPY TO:- 1) SATYAM VENTURE ENGG. SERVICES PVT. LTD., ASHOKA MY HOME CHAMBERS, 1-8-301-306, 3 RD FLOOR, SP ROAD, SECUNDERABAD. 2) ACIT, CENTRAL CIRCLE 3(2), AAYAKAR BHAVAN, BASHEERBAGH, HYDERABAD 3 DRP, HYDERABAD 4) CIT, INTERNATIONAL TAXATION, IT TOWERS, 10-2 -3, AC GUARDS, HYDERABAD. 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., H YDERABAD. DESCRIPTION DATE INTLS 1. DRAFT DICTATED ON SR.P.S. 2. DRAFT PLACED BEFORE AUTHOR SR.P.S 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER VP 5 APPROVED DRAFT COMES TO THE SR.P.S./PS SR.P.S. 6. KEPT FOR PRONOUNCEMENT ON SR.P S. 7. FILE SENT TO THE BENCH CLERK SR.P.S. 8 DATE ON WHICH FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER