DCIT, Circle-1(1), Hyderabad, Hyderabad V. ADP Pvt. Ltd., Hyd, Hyderabad

ITA 443/HYD/2015

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 6118 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 10 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-02-2017
• Appeal Filed By: Department
• Bench Allotted: B
• Next Hearing Date: 31-10-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 20-04-2015
• Court: TRIBUNAL
• Department Lawyers: U MINICHANDRAN
• Keywords: Transfer pricing; International transaction; Wholly owned subsidiary
• Section: 43B; 143(3); 234B; 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES B, HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER ITA NO. ASST. YEAR APPELLANT RESPONDENT 221/HYD/2015 2010 - 11 * AUTOMATIC DATA SOLUTIONS & TECHNOLOGY SERVICES PRIVATE LIMITED, HYDERABAD [PAN: AANCA8983A] THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-1(1) HYDERABAD 443/HYD/2015 2010 - 11 THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-1(1) HYDERABAD * AUTOMATIC DATA SOLUTIONS & TECHNOLOGY SERVICES PRIVATE LIMITED, HYDERABAD [PAN: AANCA8983A] ITA NO. ASST. YEAR CROSS-OBJECTOR RESPONDENT 32/HYD/2015 (IN ITA NO. 443/HYD/15) 2010-11 * AUTOMATIC DATA SOLUTIONS & TECHNOLOGY SERVICES PRIVATE LIMITED, HYDERABAD [PAN: AANCA8983A] THE ASST. COMMISSIONER OF INCOME TAX, CIRCLE-1(1) HYDERABAD * AMALGAMATING COMPANY HAVING AMALGAMATED M/S. ADP PV T. LTD., FOR ASSESSEE : SHRI RAVI BHARADWAJ, AR FOR REVENUE : SMT U. MINI CHANDRAN, DR DATE OF HEARING : 19-01-2017 DATE OF PRONOUNCEMENT : 28-02-2017 O R D E R PER B. RAMAKOTAIAH, A.M. : THESE ARE CROSS-APPEALS BY ASSESSEE AND REVENUE FO R THE AY. 2010-11 AGAINST THE ORDER OF THE ASSESSING OFFICER (AO ) U/S. 143(3) I.T.A. NOS. 221/HYD/15 443/HYD/15 & C.O.NO. 32/HYD/15 :- 2 - : R.W.S. 144C OF THE INCOME TAX ACT [ACT] CONSEQUENT TO THE DIRECTIONS OF THE DISPUTE RESOLUTION PANEL (DRP) DT. 28 -10-2014. 2. BRIEF FACTS OF THE CASE ARE THAT, ASSESSEE-COMPANY, ADP INDIA, A WHOLLY OWNED SUBSIDIARY OF ADP INC., USA ( TOGETHER WITH ITS GROUP COMPANIES REFERRED TO AS ADP GROUP OR THE AE), WAS SETUP TO PROVIDE SOFTWARE AND IT ENABLED SERVICES (IT ES) TO THE ADP GROUP. AFTER THE ORDER OF THE AO, THE COMPANY M/S. ADP PVT. LTD., HAS AMALGAMATED WITH M/S. AUTOMATIC DATA SOLUTIONS AND TECHNOLOGY SERVICES PVT. LTD., VIDE THE ORDERS OF HIGH COURT OF JUDICATURE AT HYDERABAD W.E.F. 01-11-2015. ASSESSEE H AS FILED REVISED FORM 36A AND REVISED CROSS-OBJECTION BEFORE THE ITAT. ACCORDINGLY, THE NAME OF THE COMPANY HAS BEEN TAKEN A S M/S. AUTOMATIC DATA SOLUTIONS AND TECHNOLOGY SERVICES PVT. LTD., 2.1. FOR THE AY. 2010-11, ASSESSEE FILED ITS RETURN OF INCOME ON 13 TH OCTOBER 2010 WITH AN INCOME OF RS. 50,87,04,320/- AF TER CLAIMING DEDUCTION OF RS. 18,47,85,336/- U/S 10A OF THE ACT IN RESPECT OF PROFIT FROM PUNE STPI UNIT. THE AO HAD SE LECTED THE CASE FOR SCRUTINY ASSESSMENT U/S 143(2) OF THE ACT, AN D FURTHER MADE A REFERENCE U/S 92CA(1) OF THE ACT TO THE TRANSFER PRICING OFFICER (TPO), HYDERABAD FOR DETERMINATION OF ARMS LENGTH PRICE (ALP) OF THE INTERNATIONAL TRANSACTIONS WITH ASSOCIATED ENTERPRISES (AES). ADP INDIA HAS INTERNATIONAL TRANSACTIONS RELATIN G TO PROVISION OF SERVICES TO ITS AE. THE TPO HAS REJECTE D THE ECONOMIC ANALYSIS UNDERTAKEN BY THE ASSESSEE FOR DETERMINATION OF THE ALP OF THE SAID INTERNATIONAL TRANSACTION AND BASED ON FRESH ANALYSIS CONCLUDED THAT THE PRICE RECEIVED BY THE ASSESSEE FOR P ROVISION OF SERVICES IS NOT WITHIN THE ARMS LENGTH RANGE. THE TP O HAS I.T.A. NOS. 221/HYD/15 443/HYD/15 & C.O.NO. 32/HYD/15 :- 3 - : ACCEPTED THAT THE TRANSACTION RELATING TO PROVISION OF SOF TWARE SERVICES AT ARMS LENGTH AND FOR ITES DETERMINED THE A RMS LENGTH MARGIN AT 24.52%. ACCORDINGLY, THE TPO DETERMINED RS. 9,07,90,246/- AS THE DIFFERENTIAL ADJUSTMENT TO THE PRIC E RECEIVED BY ASSESSEE. THE AO VIDE HIS DRAFT ORDER HAS DETERM INED THE TOTAL INCOME OF ASSESSEE AT RS. 71,87,43,007/-. THE DIFFER ENCE BETWEEN THE ASSESSED INCOME AND RETURNED INCOME WAS ON ACCOUN T OF THE ADJUSTMENT PROPOSED BY TPO. FURTHER, AO CONSIDERED TH E ENTIRE COMMUNICATION CHARGES OF RS. 17,79,91,777/- AS DATA L INK CHARGES AND ASSUMED THAT THE SAME HAS BEEN INCURRED IN FOREIGN CURRENCY AND IS ATTRIBUTABLE TO DELIVERY OF SOFTWARE OUTSIDE INDI A. ACCORDINGLY, AO REDUCED THE SAME FROM EXPORT TURNOVER WHILE COMPUTING DEDUCTION U/S. 10A OF THE ACT. THE SAME HAS RESULTED IN REDUCTION OF DEDUCTION U/S. 10A OF THE ACT TO RS. 1 5,00,47,944/- AS AGAINST RS. 18,47,85,336/- AS CLAIMED BY ASSESSEE . AO ALSO DISALLOWED THE FOLLOWING EXPENDITURE U/S 43B OF THE A CT OF RS. 2,02,25,401/- ON THE ASSUMPTION THAT THE SAME HAS NOT BEEN PAID BEFORE FILING OF RETURN: I. EMPLOYEE CONTRIBUTION TO ESI - RS. 1,12,903/-; II. PROFESSIONAL TAX PAYABLE - RS. 6,93,472/-; III. TDS ON SALARY - RS. 1,90,50,026 ; IV. TDS ON CONTRACTOR - RS. 3,69,000/- THE AO ALSO DID NOT ALLOW THE SET OFF OF BROUGHT FORWAR D BUSINESS LOSS OF RS. 30,38,954/- WHILE COMPUTING THE TAXABLE IN COME. HE ALSO MADE CERTAIN OTHER ADJUSTMENTS TO THE INCOME DECLAR ED. AGGRIEVED BY THE DRAFT ORDER PROPOSED BY THE AO AND THE ORDER PASSED BY THE TPO, ASSESSEE HAS FILED ITS OBJECTIONS B EFORE THE DRP. ASSESSEE MADE VARIOUS OBJECTIONS ON THE DRAFT ORDER AND I.T.A. NOS. 221/HYD/15 443/HYD/15 & C.O.NO. 32/HYD/15 :- 4 - : DRP WHILE REJECTING MANY, HOWEVER ACCEPTED CERTAIN CO MPANIES SELECTED AS NOT COMPARABLE. IT ALSO GAVE DIRECTIONS TO VERIFY ON MANY ISSUES. REVENUE IS AGGRIEVED ON THE DELETION OF THREE COMPARABLES WHERE AS ASSESSEE IS AGGRIEVED ON ISSUE S WHICH DRP HAS NOT ACCEPTED OR AO HAS NOT FOLLOWED THE DIRECTIONS OF DRP. THESE ARE CONSIDERED IN RESPECTIVE APPEALS. APPEAL OF REVENUE IN ITA NO. 443/HYD/2015: 3. THE ISSUE IN THIS APPEAL IS WITH REFERENCE TO THE D ELETION OF THREE COMPARABLE WHILE DECIDING THE TRANSFER PRICI NG (TP) ADJUSTMENTS MADE BY THE AO/TPO. 4. THIS APPEAL HAS BEEN FILED BY REVENUE WITH A DEL AY OF 52 DAYS. FOR THAT DCIT, CIRCLE-1(1) HAS SUBMITTED AN AFFIDAVIT FOR CONDONING THE DELAY BY EXPLAINING THE REASONS AS UND ER: (A) THE AUTHORIZATION FOR FILING APPEAL WAS RECEIVED I N MARCH, 2015 WHICH IS PEAK PERIOD FOR TIME BARRING ASSESSMENTS. (B) IT IS ALSO SUBMITTED THAT M/S. APBCL WHICH IS ALSO ASSESSED IN THIS OFFICE HAD FILED WRIT PETITION IN HON'BLE HIGH COUR T WHICH HAD TO BE FOLLOWED UP WITH PERSONAL ATTENDANCE IN HON'BLE HIG H COURT. DUE TO THESE REASONS THERE IS DELAY IN FILING THE APPEAL. CONSIDERING THE ABOVE EXPLANATION OF THE REVENUE, WE CONDONE THE DELAY IN FILING THE APPEAL AND ADMIT THE APPEAL OF R EVENUE TO BE ADJUDICATED ON MERITS. 5. IN THIS APPEAL, REVENUE HAS RAISED ONLY ONE GROU ND WHICH IS AS UNDER: THAT ON THE FACTS & IN THE CIRCUMSTANCES OF THE CA SE THE HON'BLE DRP ERRED IN DIRECTING THE AO TO EXCLUDE M/S. INFOS YS LTD., M/S. TCS E- I.T.A. NOS. 221/HYD/15 443/HYD/15 & C.O.NO. 32/HYD/15 :- 5 - : SERVE LTD., & M/S. ECLERX SERVICES LTD FROM LIST OF COMPARABLE COMPANIES ADOPTED BY THE TPO FOR DETERMINATION OF ARMS LENGTH PRICE (ALP) OF INTERNATIONAL TRANSACTIONS WHICH RESULTED IN NO ADJ USTMENT TO ALP AS AGAINST OF RS. 9,07,90,246/- PROPOSED BY THE AO IN DRAFT ASSESSMENT ORDER. GROUND NO.2 IS GENERAL IN NATURE. 6. THE TPO HAS SELECTED MANY COMPARABLES AND AMONG THEM M/S. INFOSYS BPO LTD., TCS E-SERVE LTD., AND ECLE RX SERVICES LTD., WERE OBJECTED TO ON THE REASON OF HIGH TURNOVER AND FUNCTIONALLY DIFFERENT. WITH REFERENCE TO INFOSYS BP O, THE OBJECTION WAS THAT THE SAID COMPANY RENDERS VIDE ARRAY OF SERVI CES AND HAS HIGH BRAND VALUE AND TURNOVER IS ALSO VERY HIGH. W ITH REFERENCE TO TCS E-SERVE LTD., THERE WAS EXCEPTIONAL EVENT AS THE CO MPANY WAS TAKEN OVER BY TATA CONSULTANCY SERVICES IN THE YEAR 200 8-09 AND HEAVY TURNOVER IS DUE TO ITS TAKEOVER. FURTHER, IT WAS SUBMITTED THAT THE COMPANY WAS FUNCTIONALLY DIFFERENT AS IT HAS THRE E DIFFERENT SERVICES AND SEGMENTAL INFORMATION WAS NOT AR RIVED. AS FAR AS E-CLERX SERVICES LTD., IT WAS SUBMITTED THAT THIS C OMPANY CATERS TO HIGH END KPO SERVICES AND CANNOT BE COMPARED TO ROUTINE BPO SERVICES PROVIDED BY ASSESSEE. THE DRP VIDE PA RA 3.10 HAS ACCEPTED THE ASSESSEES OBJECTIONS AND ACCORDINGLY, D IRECTED THE TPO TO EXCLUDE THE ABOVE THREE COMPANIES. THERE ARE OTH ER DIRECTIONS OF THE DRP ON TP ADJUSTMENTS ON WHICH NEITH ER PARTY HAS RAISED GROUNDS, EXCEPT THE REVENUE ON THE ABOVE EXCLUSION OF THREE COMPANIES. 7. REFERRING TO THE ORDER OF THE TPO, IT WAS THE CONTEN TION OF LD.DR THAT DRP WAS NOT CORRECT IN EXCLUDING THEM ON THE BASIS OF THE TURNOVER, WHEREAS LD. COUNSEL SUBMITTED THAT DRP H AS I.T.A. NOS. 221/HYD/15 443/HYD/15 & C.O.NO. 32/HYD/15 :- 6 - : FOLLOWED THE DECISIONS OF THE CO-ORDINATE BENCHES IN E XCLUDING THE ABOVE THREE COMPARABLES. 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE ORDER OF THE DRP AND CO-ORDINATE BENCHES. AS FAR AS M/S. TCS E-SERVE LTD., IS CONCERNED, THE CO-ORDINATE BENCH OF I TAT IN THE CASE OF M/S HYUNDAI MOTORS INDIA ENGINEERING P. LTD IN ITA NOS. 1743/HYD/2014 (AY.2010-11) & ITA NO. 1917/HYD/2014 (AY.2010-11) DT. 13-11-2015, HAS DECIDED THE ISSUE AS UNDER: TCS E-SERVE LIMITED 11.2.1. AS REGARDS TCS E-SERVE LIMITED IS CONCERNED , WE FIND THAT IT POSSESSES BRAND VALUE AS IS EVIDENT FROM THE SCHEDU LE-N (OPERATION AND OTHER EXPENSES) TO THE P & L A/C OF THE ANNUAL REPO RT FOR THE FINANCIAL YEAR 2009-10 OF RS.46,065 THOUSANDS AND ALSO THAT IT POS SESSES INTANGIBLES IN THE FORM OF SOFTWARE LICENSES WHICH HAVE NOT BEEN T AKEN NOTE OF BY THE AUTHORITIES BELOW WHILE ADOPTING ITS MARGIN. IT IS ALSO THE CASE OF THE ASSESSEE THAT THIS COMPANY HAS A TURNOVER OF RS.140 5.10 CRORES WHICH IS 25 TIMES OF THE TURNOVER OF THE ASSESSEE AND HENCE, IS NOT COMPARABLE TO THE ASSESSEE. THE LD. COUNSEL FOR THE ASSESSEE HAD ALSO PLACED RELIANCE UPON THE TPOS ORDER IN THE CASE OF M/S. IGS IMAGIN G SERVICES INDIA LTD., TO HOLD THAT THERE ARE EXCEPTIONAL CIRCUMSTANCES DU RING THE RELEVANT FINANCIAL YEAR DUE TO WHICH THIS COMPANY IS NOT COM PARABLE TO THE ASSESSEE. THE LD. COUNSEL FOR THE ASSESSEE ALSO SUB MITTED THAT THE SEGMENTAL DETAILS OF THIS COMPANY ARE NOT AVAILABLE AND HENCE, HAS TO BE EXCLUDED ON THIS COUNT ALSO. 11.2.2. WE FIND THAT THE ASSESSEES CONTENTIONS ABO UT THE PRESENCE OF BRAND VALUE AND OWNING OF INTANGIBLES IS SUPPOR TED BY THE EVIDENCE ON RECORD. HOWEVER, AS REGARDS THE EXTRAORDINARY EVEN T OR EXCEPTIONAL CIRCUMSTANCE THERE IS NO MATERIAL PLACED BEFORE US BY THE LD. COUNSEL FOR THE ASSESSEE. THEREFORE, MERELY BECAUSE THE TPO IN ANOTHER CASE HAS HELD THAT THERE IS AN EXTRAORDINARY EVENT FOR WHICH THIS COMPANY HAS TO BE EXCLUDED FROM THE LIST OF COMPARABLES, IT CANNOT BE EXCLUDED. SUCH CLAIM HAS TO BE SUPPORTED BY EVIDENCE ON RECORD. AS REGAR DS THE FUNCTIONAL DISSIMILARITY AND HUGE TURNOVER AND BRAND VALUE IS CONCERNED, WE FIND THAT THIS TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y.2 009-10 WHILE CONSIDERING THE COMPARABILITY OF THE ASSESSEE WITH INFOSYS BPO LTD., HAS TAKEN NOTE OF THE POSSESSION OF THE BRAND VALUE AND INTANGIBLES WHICH INFLUENCED THE FINANCIAL RESULTS OF THIS COMPANY. T HE HONBLE DELHI HIGH I.T.A. NOS. 221/HYD/15 443/HYD/15 & C.O.NO. 32/HYD/15 :- 7 - : COURT IN THE CASE OF CIT VS. AGNITY INDIA TECHNOLOG IES P. LTD., (2013) 219 TAXMAN 26 (DEL.), HELD THAT HUGE TURNOVER COMPANIES LIKE INFOSYS AND WIPRO CANNOT BE CONSIDERED AS COMPARABLE TO SMALLER COMPANIES LIKE ASSESSEE THEREIN. IN THE CASE BEFORE THE HONBLE HI GH COURT (SUPRA), THE TURNOVER OF THE ASSESSEE WAS ABOUT RS.15.79 CRORES AS AGAINST THE TURNOVER OF RS.1016 CRORES OF THE INFOSYS. CONSIDER ING THESE FACTS, THE HONBLE HIGH COURT HAD DIRECTED FOR EXCLUSION OF IN FOSYS BPO BECAUSE OF ITS BRAND VALUE AND ALSO ON THE GROUNDS OF FUNCTION AL DISSIMILARITY AND HUGE TURNOVER. THOUGH, THE COMPANY BEFORE US IS TCS E-SERVICE LTD., AND NOT INFOSYS BPO, WE FIND THAT THE TURNOVER OF THE A SSESSEE COMPANY FOR THIS ASSESSMENT YEAR IS AROUND RS.50 CRORES AS AGAI NST THE TURNOVER OF TCS E-SERVE LIMITED OF RS.1405.10 CRORES. THEREFORE , FOLLOWING THE TURNOVER FILTER AS WELL AS TAKING NOTE OF THE FACT THAT IT OWNS AND POSSESSES BRAND VALUE AND INTANGIBLES AS COMPARED TO THE ASSE SSEE WHICH DOES NOT OWN SUCH ASSETS, WE DIRECT THAT THIS COMPANY BE EXC LUDED FROM THE LIST OF FINAL COMPARABLES. ACCORDINGLY, ASSESSEES GROUNDS OF APPEAL NO.6 IS PARTLY ALLOWED. 8.1. RESPECTFULLY FOLLOWING THE ABOVE DECISION OF TH E CO- ORDINATE BENCH, WE CONFIRM THE ORDER OF DRP EXCLUDING THE ABOVE COMPANY FROM THE LIST OF COMPARABLES. 9. AS FAR AS M/S. E-CLERX SERVICES LTD., IS CONCERN ED, THE CO-ORDINATE BENCH OF ITAT IN THE CASE OF M/S HYUNDAI MOTORS INDIA ENGINEERING P. LTD IN ITA NOS. 1743/HYD/2014 ( AY.2010-11) & ITA NO. 1917/HYD/2014 (AY.2010-11) DT. 13-11-2015, HAS DECIDED THE ISSUE AS UNDER: 16. AS REGARDS M/S. ECLERX SERVICES LTD., IS CONCE RNED, WE FIND THAT THIS COMPANY WAS ALSO DIRECTED TO BE EXCLUDED BY FOLLOWI NG THE DECISION OF ITAT IN ASSESSEES OWN CASE FOR THE A.Y. 2009-2010 ON THE GROUND THAT IT IS A KPO. THE LD. COUNSEL FOR THE ASSESSEE HAS DRAW N OUR ATTENTION TO THE ANNUAL REPORT OF THE SAID COMPANY TO DEMONSTRATE TH AT THE FACTS AND CIRCUMSTANCES AND THE NATURE OF THE ACTIVITIES CARR IED ON BY THE SAID COMPANY IN THE A.Y. 2010-11 ARE ALSO SAME. 17. LD. D.R. HAS NOT BEEN ABLE TO REBUT THIS FACTUA L ASPECTS OF THE SAID COMPANY WITH ANY EVIDENCE TO THE CONTRARY. THE ONLY GROUND RELIED ON BY THE REVENUE IS THAT IN THE CASE OF AGILENT TECHNOLO GIES INTERNATIONAL P. LTD., THE ITAT, DELHI BENCH HAS UPHELD SELECTION OF M/S. ECLERX SERVICES LTD. A COPY OF THE SAID ORDER IS FILED BEFORE US. A SSESSEES CONTENTIONS I.T.A. NOS. 221/HYD/15 443/HYD/15 & C.O.NO. 32/HYD/15 :- 8 - : THEREIN THAT THE KPO SERVICES ARE DISTINCT FROM BPO SERVICES AND ARE NOT COMPARABLE, HAS BEEN REJECTED BY THE TRIBUNAL. HOWE VER, SINCE A UNIFORM AND CONSISTENT STAND HAS TO BE TAKEN IN THE CASE OF THE SAME ASSESSEE ON SIMILAR FACTS AND CIRCUMSTANCES, WE, RESPECTFULLY F OLLOWING THE DECISION OF THE COORDINATE BENCH IN ASSESSEES OWN CASE, DO NOT SEE ANY REASON TO INTERFERE WITH THE ORDER OF THE DRP. GROUND NO.2 IS ACCORDINGLY REJECTED. 9.1. RESPECTFULLY FOLLOWING THE ABOVE DECISION OF TH E CO- ORDINATE BENCH, WE CONFIRM THE ORDER OF DRP EXCLUDING THE ABOVE COMPANY FROM THE LIST OF COMPARABLES. 10. AS FAR AS M/S. INFOSYS LTD., IS CONCERNED, THE CO- ORDINATE BENCH OF ITAT IN THE CASE OF M/S HYUNDAI MO TORS INDIA ENGINEERING P. LTD IN ITA NOS. 1743/HYD/2014 (AY.201 0-11) & ITA NO. 1917/HYD/2014 (AY.2010-11) DT. 13-11-2015, HAS DECIDED THE ISSUE AS UNDER: 15. . AS FAR AS INFOSYS BPO IS CONCERNED, THE DRP HAS CONSIDERED THE DECISION OF ITAT IN ASSESSEES OWN C ASE FOR THE A.Y. 2009- 10 AND DIRECTED IT TO BE EXCLUDED. THE LD. D.R. HAS NOT BEEN ABLE TO BRING TO OUR NOTICE ANY DISTINGUISHING FEATURES AND FACTS FOR THE A.Y. 2010-11 FROM THAT OF THE A.Y. 2009-10 TO TAKE ANY OTHER VIE W. THEREFORE, WE DO NOT SEE ANY REASON TO INTERFERE WITH THE ORDER OF THE D RP ON THIS ISSUE. 10.1. RESPECTFULLY FOLLOWING THE ABOVE DECISION OF T HE CO- ORDINATE BENCH, WE CONFIRM THE ORDER OF DRP EXCLUDING THE ABOVE COMPANY FROM THE LIST OF COMPARABLES. 11. SINCE THERE IS NO INFIRMITY IN THE ORDER OF DRP IN REJECTING THE ABOVE THREE COMPANIES FROM THE LIST OF CO MPARABLES, WE UPHELD THE ORDER OF DRP AND DISMISS THE GROUND OF REVENUE. IN THE RESULT, APPEAL OF REVENUE IS DISMISSED. I.T.A. NOS. 221/HYD/15 443/HYD/15 & C.O.NO. 32/HYD/15 :- 9 - : 12. ASSESSEE HAS RAISED CROSS-OBJECTION NO. 32/HYD/ 2015 AGAINST THE ABOVE APPEAL OF REVENUE. SINCE THE APPEAL OF REVENUE IS DISMISSED, THE CROSS-OBJECTIONS OF ASSESSEE HAVE B ECOME INFRUCTUOUS AND HENCE, DISMISSED. APPEAL OF ASSESSEE IN ITA NO. 221/HYD/2015: 13. THIS IS AN ASSESSEES APPEAL IN WHICH ASSESSEE HAS RAISED THE FOLLOWING GROUNDS: 1. THE ORDER OF THE LEARNED AO IS BASED ON INCORRE CT INTERPRETATION OF LAW AND FACTS AND THEREFORE IS BAD IN LAW. 2. DISALLOWING AN AMOUNT OF RS 3,69,000 TOWARDS TDS PAYABLE ON CONTRACTORS AND RS 41,809 TOWARDS TDS PAYABLE ON SA LARIES U/S. 43B OF THE INCOME TAX ACT. 1961 ('ACT') WITHOUT APPRECIATI NG THE FACT THAT THE APPELLANT HAS NOT CLAIMED THE DEDUCTION OF THE AFOR ESAID TDS PAYABLE WHILE COMPUTING THE TAXABLE INCOME. 3. WITHOUT PREJUDICE TO THE ABOVE, NOT GIVING EFFEC T TO THE DIRECTIONS OF THE HON'BLE DISPUTE RESOLUTION PANEL THAT THE REVISED P ROFITS I.E. PROFITS AFTER GIVING EFFECT TO THE DISALLOWANCE PRESCRIBED U/S. 3 0 TO 43D, TO BE CONSIDERED WHILE COMPUTING THE DEDUCTION U/S. 10A. 4. ADDITION OF INTEREST ON SHORT TERM DEPOSIT TO TH E EXTENT OF RS 3,59,083 WITHOUT APPRECIATING THE FACT THAT THE INTEREST INC OME AS DISCLOSED BY THE APPELLANT IN THE FINANCIAL STATEMENTS IS MORE THAN THE INTEREST INCOME AS PER FORM 26AS. 5. ALLOWING TDS CREDIT OF ONLY RS. 63,27,723 AS AGA INST RS. 67,79,643 CLAIMED IN THE RETURN OF INCOME. 6. NOT PROVIDING CLAIM OF SET OFF OF BROUGHT FORWAR D LOSSES OF RS 30,38,954. 7. LEVY OF TAX AND INTEREST ON DISTRIBUTABLE PROFIT U/S. 115-0 OF THE ACT OF RS 5,77,830 WITHOUT APPRECIATING THE FACT THAT THE APPELLANT HAS PAID THE APPLICABLE TAX U/S. 115-0 WITHIN THE DUE DATE AS PR OVIDED U/S. 1150(3) OF THE ACT. 8. IMPOSING INTEREST U/S. 234A, 234B AND 234C OF TH E ACT. 9. INITIATING PENALTY PROCEEDINGS UNDER SECTION 271 (1) (C) OF THE ACT. I.T.A. NOS. 221/HYD/15 443/HYD/15 & C.O.NO. 32/HYD/15 :- 10 -: GROUND NOS. 1 & 9 ARE GENERAL IN NATURE AND DOES NO T REQUIRE ANY ADJUDICATION. 14. GROUND NOS. 2 & 3 PERTAINS TO ISSUE OF DISALLOWA NCE OF AN AMOUNT OF RS. 3,69,000/- TOWARDS TDS PAYABLE ON CONTRACTS AND RS. 41,809/- PAYABLE TOWARDS SALARIES, INVOKING THE PROVISIONS OF SECTION 43B OF THE ACT. IT WAS THE CONTENTION THAT THE ABOVE AMOUNTS HAVE NOT BEEN CLAIMED AS A DEDUCTION, HENCE DISALLOWANCE DOES NOT ARISE. OBJECTION WAS RAISED BE FORE THE DISPUTE RESOLUTION PANEL [DRP], HYDERABAD AND THE DRP HAS DIRECTED THE AO TO EXAMINE AND ALLOW WHICH WAS NOT FO LLOWED. HENCE THE PRESENT GROUNDS. 15. IT WAS SUBMITTED THAT THE AMOUNTS OF TDS, IF ANY NOT PAYABLE CAN ONLY BE RECOVERED U/S. 201 AND INTEREST U /S. 201(1A) CAN ONLY BE LEVIED, BUT THE SAME AMOUNT CANNOT BE DISAL LOWED INVOKING SECTION 43B. THE DISALLOWANCE IS NEITHER U /S. 40(A)(IA) NOR U/S. 37(1), HENCE THE SAME IS NOT SUSTAINABLE. IN THE ALTERNATE, IT WAS ALSO SUBMITTED THAT ANY AMOUNT ADDED TO THE TOTAL IN COME WOULD INCREASE THE PROFITS FOR DEDUCTION U/S. 10A WHIC H WAS ALSO NOT CONSIDERED BY THE AO. 15.1. AFTER CONSIDERING THE RIVAL CONTENTIONS, WE ARE OF THE OPINION THAT THE DISALLOWANCE MADE BY THE AO IS NOT ACCO RDING TO THE PROVISIONS OF LAW. THE TDS IF ANY NOT PAID OR SH ORT PAID, THE SAME CAN BE RECOVERED BY SEPARATE PROCEEDINGS BUT TH E SAME CANNOT BE DISALLOWED U/S. 43B, AS THE SAID TDS IS N OT ALLOWABLE DEDUCTION TO ASSESSEE. IT IS OUT OF THE PAYMENTS PAYABLE TO CONTRACTORS/SALARIES, TDS IS BEING DEDUCTED ON BEHALF OF THE I.T.A. NOS. 221/HYD/15 443/HYD/15 & C.O.NO. 32/HYD/15 :- 11 -: GOVERNMENT. SINCE THE TDS AMOUNT ITSELF IS NOT A CLA IM MADE U/S. 37(1), DISALLOWANCE OF THE SAME DOES NOT ARISE. AO I S DIRECTED TO DELETE THE SAME. 16. GROUND NO. 4 PERTAINS TO ADDITION OF INTEREST ON SHORT TERM DEPOSIT TO AN EXTENT OF RS. 3,59,083/-. AO IN THE DRAFT ASSESSMENT ORDER ORIGINALLY HAS PROPOSED AN AMOUNT OF RS. 3,29,082/- ON THE REASON THAT FORM 26AS SHOWS THE REC EIPTS AT RS. 4,08,97,182/-, WHEREAS ASSESSEE HAS SHOWN THE INCOME UNDER THE HEAD OTHER INCOME TO AN EXTENT OF RS. 4,05,98,100/-. THE DIFFERENCE OF RS. 3,29,082/- WAS PROPOSED TO BE ADDE D TO THE TOTAL INCOME. ASSESSEE OBJECTED BEFORE THE DRP THAT THE AMOUN T TAKEN BY THE AO IS NOT CORRECT AND THE CORRECT AMOUNT AS PER F ORM 26AS WAS ONLY RS. 4,05,38,239/-. ASSESSEE FILED A PETITION U/S. 154 BEFORE THE AO ALSO. DRP DIRECTED THE AO TO EXAMINE AN D DISPOSE- OFF THE PETITION U/S. 154. HOWEVER, IN THE FINAL ORDER , AO INCREASED THE DISALLOWANCE BY STATING THAT THE ACTUAL AMOUNT WAS R S. 4,09,27,183/- INSTEAD OF RS. 4,08,97,182/- REFERRED EARLIER. 17. IT WAS THE CONTENTION OF THE LD. COUNSEL THAT THE AMOUNT AS SHOWN IN FORM 26AS WAS ONLY RS. 4,05,38,23 9/-, WHEREAS ASSESSEE OFFERED RS. 4,09,27,183/- WHICH WA S MORE THAN AMOUNT SHOWN IN FORM 26AS. IT WAS SUBMITTED THAT THE BASIS FOR THE AOS DISALLOWANCE IS NOT FORTHCOMING. WE HAVE EXA MINED THE PETITION U/S. 154 FILED BEFORE THE AO AS WELL AS THE CO NTENTIONS BEFORE THE DRP AND THE COPY OF THE FORM 26AS FILED BE FORE US AT PAGE 76. THE BASIS FOR THE AOS OBSERVATION OF HIGHE R AMOUNT IS NOT FORTHCOMING FROM THE RECORD. IN SPITE OF DIRECTION FROM THE DRP, AO HAS NOT FOLLOWED THE VERIFICATION OR THE PETI TION U/S. 154 I.T.A. NOS. 221/HYD/15 443/HYD/15 & C.O.NO. 32/HYD/15 :- 12 -: WAS DISPOSED-OFF. WE ARE OF THE OPINION THAT THERE I S NO BASIS FOR MAKING SUCH ADDITION, AFTER VERIFICATION OF THE DETAI LS FILED BY THE ASSESSEE. ACCORDINGLY, AO IS DIRECTED TO DELETE THE A MOUNT. GROUND IS ALLOWED. 18. GROUND NO. 5 PERTAINS TO ALLOWING SHORT TDS CREDI T. ASSESSEE CLAIMED AN AMOUNT OF RS. 67,79,643/- IN THE RETURN OF INCOME, WHEREAS THE AO ALLOWED ONLY RS. 63,27,723/- IN THE FINAL ORDER WITHOUT GIVING ANY BASIS FOR THE SAME. AO IS DI RECTED TO VERIFY THE RECORD AND ALLOW THE CLAIM AFTER DUE VERIF ICATION. GROUND IS ALLOWED FOR STATISTICAL PURPOSES. 19. GROUND NO. 6 PERTAINS TO NOT ALLOWING THE CLAIM O F SET OFF OF BROUGHT FORWARD LOSSES. THERE IS NO DISCUSSI ON IN THE ORDER ABOUT THE SET OFF OF LOSSES AND INSPITE OF DIRECTIONS F ROM THE DRP, THE SAME WERE NOT ALLOWED. LD. COUNSEL FAIRLY ADMITTE D THAT THESE LOSSES ARE SUBJECT TO THE ORDERS IN EARLIER YEARS, A CCORDINGLY, WE DIRECT THE AO TO VERIFY THE PAST RECORD AND DETERMINE TH E LOSSES TO BE BROUGHT FORWARD AND ALLOW THE SET OFF AS PER THE PR OVISIONS OF LAW. GROUND IS CONSIDERED ALLOWED. 20. GROUND NO. 7 PERTAINS TO LEVY OF TAX AND INTEREST ON DISTRIBUTABLE PROFIT U/S. 115-O OF THE ACT. IT WAS THE C ONTENTION THAT THE AMOUNT WAS PAID WITHIN THE DUE DATE AS PROVI DED U/S. 115-O SUB-SECTION (3) OF THE ACT. IT WAS SUBMITTED THAT THE DIVIDEND WAS DECLARED ON 23-12-2009 AND THE AMOUNT WA S PAID ON 06-01-2010 I.E., 14 TH DAY FROM THE DATE OF DECLARATION. FURTHER, IT WAS SUBMITTED THAT ONE DAY HAS TO BE EXCLUDED WHILE COUN TING THE PERIOD OF FIFTEEN DAYS. LD. COUNSEL RELIED ON THE DE CISION OF THE I.T.A. NOS. 221/HYD/15 443/HYD/15 & C.O.NO. 32/HYD/15 :- 13 -: HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. HERI TAGE ESTATE (P) LTD., [303 ITR 469]. 21. WE HAVE CONSIDERED THE ISSUE AND EXAMINED THE DA TES INVOLVED. THERE IS NO BASIS FOR LEVY OF INTEREST ON THE AMOUNT AS WAS DONE BY THE AO. EVEN IF ONE DAY IS EXCLUDED, THEN , THE PERIOD OF PAYMENT WILL BE WITHIN THE STATUTORY PROVISIONS AS P ROVIDED. FURTHER, AS SEEN FROM THE PART B OF FORM 26AS PLACED O N RECORD, IT INDICATE THAT AMOUNT OF RS. 5,77,830/- PERTAINS TO DIVIDE ND TAX WAS REMITTED ON 6 TH JANUARY, 2010 ITSELF. SINCE THE PAYMENT WAS WITHIN THE LIMITS AS PROVIDED, QUESTION OF LEVY OF IN TEREST DOES NOT ARISE. ACCORDINGLY, GROUND OF ASSESSEE IS ALLOWED. AO IS DIRECTED TO WITHDRAW THE LEVY OF TAXES AND INTEREST. 22. GROUND NO. 8 PERTAINS TO LEVY OF INTEREST U/S. 2 34A, 234B & 234C. EVEN THOUGH THESE ARE CONSEQUENTIAL, IT W AS THE CONTENTION OF LD. COUNSEL THAT DUE DATE FOR FILING RETUR N WAS EXTENDED UPTO 15-10-2010 AND THE RETURN WAS FILED ON 1 3-10-2010 WITHIN THE DUE DATE, THEREFORE, LEVY OF INTEREST U/S. 234A DOES NOT ARISE. IT WAS FURTHER SUBMITTED THAT AO HAS NOT NOTICED TH E EXTENSION OF TIME PERIOD BY THE BOARD FOR THAT YEAR, VIDE NOTIFICATION [F.NO. 225/72/2010/IT(A-II)], DT. 27-09 -2010. INSPITE OF SPECIFICALLY BRINGING IT TO THE NOTICE OF THE AO BY WAY OF AN APPLICATION U/S. 154 FILED ON 28 TH JANUARY, 2015, AO HAS NOT TAKEN ANY STEPS TO EXAMINE NOR WITHDRAW THE INTEREST SO LEVIED . SINCE THE RETURN FILED WAS WITH IN THE DUE DATE, WE ARE OF TH E OPINION THAT INTEREST U/S. 234A IS NOT LEVIABLE. WITH REFERENCE TO O THER INTERESTS, AO IS DIRECTED TO EXAMINE WHETHER ANY INTERE ST IS LEVIABLE AS PER THE PROVISIONS OF THE ACT, AFTER GIVING DUE CR EDIT TO THE TAXES I.T.A. NOS. 221/HYD/15 443/HYD/15 & C.O.NO. 32/HYD/15 :- 14 -: PAID/CLAIMED. THIS ASPECT SHOULD BE EXAMINED BY THE AO IN DETAIL AND IF ANY INTEREST IS TO BE LEVIED, THE WORKING SHOULD BE PROVIDED SO THAT ASSESSEE CAN HAVE KNOWLEDGE OF THE SAME, SO AS TO CONTEST IF REQUIRED. WITH THESE OBSERVATIONS, THE GROUND IS CON SIDERED ALLOWED FOR STATISTICAL PURPOSES. 23. MANY OF THE ISSUES CONTESTED IN ASSESSEES APPE AL ARE IN FACT WITHIN THE DOMAIN OF AO, WHICH WAS BROUGHT TO HIS KNOWLEDGE BY WAY OF PETITION U/S. 154. EVEN THOUGH DRP HAS DIRE CTED THE AO TO EXAMINE, THE AO HAS NOT EXAMINED THE SAME. WE ONLY REITERATE THAT AO SHOULD PASS NECESSARY MODIFICATION ORDERS WITH IN TIME, SO THAT ASSESSEES ARE NOT UNNECESSARILY DRIVEN TO APPELLATE FORUMS. 24. IN THE RESULT, APPEAL OF ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 25. TO SUM-UP, APPEAL OF ASSESSEE IS ALLOWED FOR S TATISTICAL PURPOSES. APPEAL OF REVENUE AND CROSS-OBJECTION OF ASSESSEE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 28 TH FEBRUARY, 2017 SD/- SD/- (P. MADHAVI DEVI) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEM BER HYDERABAD, DATED 28 TH FEBRUARY, 2017 TNMM I.T.A. NOS. 221/HYD/15 443/HYD/15 & C.O.NO. 32/HYD/15 :- 15 -: COPY TO : 1. AUTOMATIC DATA SOLUTIONS & TECHNOLOGY SERVICES P RIVATE LIMITED, 6-3-1091/C/1, FORTUNE 9, RAJBHAVAN ROAD, SOMAJIGUDA, HYDERABAD. 2. THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-1( 1), HYDERABAD. 3. THE ASST. COMMISSIONER OF INCOME TAX, CIRCLE-1(1 ), HYDERABAD. 4. DISPUTE RESOLUTION PANEL (DRP), HYDERABAD. 5. DIRECTOR OF INCOME TAX (IT & TP), HYDERABAD. 6. ADDL. COMMISSIONER OF INCOME TAX (TRANSFER PRICI NG), HYDERABAD. 7. D.R. ITAT, HYDERABAD. 8. GUARD FILE.