Cincom Systems India Pvt. Ltd., New Delhi V. DCIT, New Delhi

ITA 5015/DEL/2010

• Counselvise Citation: [2011] 135 COUNSELVISE.COM (IT) 0361 (ITAT-DELHI)
• Duration Of Justice: 2 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-02-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 07-02-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 15-11-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: STEPHEN GEORGE
• Assessee Lawyers: V MOHAN
• Keywords: Transfer pricing; Opportunity of being heard; Principle of natural justice; Application of stay

Judgement Text

ITA NO. 5015/DEL/2010 & STAY APPLICATION NO. 107/DEL/2010 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH B NEW DELHI BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER I.T.A. NO. 5015/DEL/2010 AND STAY APPLICATION NO. 107/DEL/2010 A.Y. : 2006-07 M/S CINCOM SYSTEMS INDIA PVT. LTD., D-74, HIMALAYA HOUSE, 23, KG MARG, NEW DELHI 110 001 (PAN/GIR NO. : AAACC8712E) VS. DCIT, CIRCLE 3(1), NEW DELHI (APPELLANT ) (APPELLANT ) (APPELLANT ) (APPELLANT ) (RESPONDENT ) (RESPONDENT ) (RESPONDENT ) (RESPONDENT ) ASSEESSEE BY : MS. RANO JAIN AND SH. V. MOHAN, CA DEPARTMENT BY : MR. STEPHEN GEORGE, C.I.T.(D.R.) ORDER ORDER ORDER ORDER PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM THIS APPEAL BY THE ASSESSEE AND STAY APPLICATION BY THE ASSESSEE ARE DIRECTED WITH RESPECT TO THE ORDER OF THE ASSESSING OFFICER DATED 21.9.2010 AND PERTAINS TO ASSESSMENT YEAR 200 6-07. 2. DRAFT ORDER OF THE ASSESSING OFFICER WAS PASSED PURSUANT TO DIRECTION U/S 144C BY THE DISPUTE RESOLUTION PANEL D ATED 30.8.2010. 3. AT THE OUTSET, LD. COUNSEL OF THE ASSESSEE ASSAI LED THAT THE DISPUTE RESOLUTION PANEL (DRP) HAS NOT AT ALL CONSIDER ED THE ASSESSEES SUBMISSIONS AND PASSED A VERY LACONIC AND NON-SPEAKING DIRECTION. IN THIS REGARD, LD. COUNSEL OF THE ASS ESSEE ALSO REFERRED TO THE ORDER SHEET NOTING DATED 23.12.2006 BY THIS TRI BUNAL IN ASSESSEES ITA NO. 5015/DEL/2010 & STAY APPLICATION NO. 107/DEL/2010 2 OWN CASE PERTAINING TO STAY. IN THE SAID ORDER SHE ET, IT WAS OBSERVED THAT ORDER OF THE DRP IS NOT A SPEAKING ORDER. ASSE SSEE VIDE ITS GROUND HAS ALSO RAISED THAT DIRECTION GIVEN BY THE DRP ARE NOT VALID AND BAD IN LAW AS THE SAME HAS BEEN GIVEN WITHOUT CONSIDERI NG THE ARGUMENTS, EVIDENCE AND FACTUAL ERROR POINTED OUT BY THE ASSES SEE AND WITHOUT GIVING ANY REASON FOR NOT ACCEPTING THE SAME. 4. IN THIS CASE, THE DRPS ADJUDICATION REGARDING ARM S LENGTH PRICE IS AS UNDER:- 2. ARMS LENGTH PRICE U/S. 92C(3): 2.1 THE ASSESSEE COMPANY HAS RAISED EIGHT GROUNDS O F OBJECTION WITH RESPECT TO TRANSFER PRICING RELATED I SSUES. THE ASSESSEE COMPANY HAS CONTENDED NAMELY THAT (A) THE STATUTORY ONUS TO ESTABLISH THAT ASSESSEES CASE IS COVERED UNDER ANY OF THE CLAUSES U/S 92C(3) HAS NOT BEEN DISCHARGED BY LD. TPO. (B) LD. TPO DID NOT APPLY COMPARABILITY CRITERION JU DICIALLY AND DISREGARDED COMPARABLES IDENTIFIED BY THE ASSESSEE. (C) THE TPO FAILED TO MAKE APPROPRIATE ADJUSTMENTS F OR VARYING RISK PROFILES OF THE ASSESSEE VIS-A-VIS THE COMPARABLES. (D) THE TPO REJECTED THE ASSESSEES CLAIM TO USE MULT IPLE YEAR DATA FOR COMPUTING THE ARMS LENGTH PRICE AND HAS USED SINGLE YEAR UPDATED DATA. ITA NO. 5015/DEL/2010 & STAY APPLICATION NO. 107/DEL/2010 3 (E) TPO HAS FAILED TO MAKE APPROPRIATE ADJUSTMENT TO ACCOUNT FOR DIFFERENCES IN THE WORKING CAPITAL EMPLOYED BY T HE ASSESSEE VIS A VIS THE COMPARABLES. (F) TPO HAS DISREGARDED TRANSFER PRICING REGULATIONS AND JUDICIAL PRECEDENCE AND ORDER PASSED IS BAD IN LAW. (G) TPO HAS FAILED TO ALLOW THE APPELLANT THE BENEFI T OF DOWNWARD VARIATION OF 5% IN DETERMINING THE ARMS LEN GTH PRICE. (H) THE TPO HAS NOT INCLUDED THE SOFTWARE TESTING SERVICES IN COMPUTATION OF ARMS LENGTH PRICE. 2.2 THE DRP HAS CONSIDERED THE OBJECTIONS RAISED BY THE ASSESSEE COMPANY AND HAS ALSO GONE THROUGH THE SUBMISSIONS FILED. NO MERIT IS SEEN IN THE OBJECTIO NS OF THE ASSESSEE ON THE ISSUE OF INITIAL REFERENCE TO THE TPO BY THE ASSESSING OFFICER. THIS MATTER IS SETTLED BY THE C OURTS AND THE REFERENCE MADE BY THE ASSESSING OFFICER IS VAL ID. THE ORDER OF THE TPO IS ABUNDANTLY CLEAR THAT THE ASSESS EE WAS GIVEN SUFFICIENT OPPORTUNITY OF BEING HEARD. 2.3 REGARDING THE CHOOSING OF COMPARABLES, THE DRP HA S CONSIDERED THE COMPANIES SELECTED BY THE TPO. THE VI EW OF THE DRP IS THAT SATYAM COMPUTERS SHOULD BE REMOVED FRO THE LIST OF COMPARABLE COMPANIES CHOSEN BY THE TPO AS COMPARABLES AND THE ORDER BE MODIFIED ACCORDINGLY. 2.4 THE TPO HAS TAKEN THE CURRENT YEAR DATA WHICH I S AGAIN OBJECTED BY THE ASSESSEE. AS PER THE PROVISIONS OF LAW, IT IS ITA NO. 5015/DEL/2010 & STAY APPLICATION NO. 107/DEL/2010 4 MANDATED THAT ONLY THE CURRENT YEAR DATA IS TO BE US ED AND THE TPO HAS DONE SO. 2.5 THE OBJECTIONS OF RISK ADJUSTMENT AND FUNCTIONAL COMPARABILITY WERE RAISED BY THE ASSESSEE COMPANY BEF ORE THE TPO ALSO AND HAVE BEEN EXAMINED IN DETAIL BY THE TPO IN HIS ORDER; THEREFORE WE DECLINE TO INTERFERE ON THIS ISSUE. 5. WE HAVE HEARD BOTH THE COUNSEL AND PERUSED THE R ECORDS. WE FIND THAT SECTION 144C ENVISAGES FOLLOWING ON THE P ART OF THE DRP:- (5) THE DISPUTES RESOLUTION PANEL SHALL, IN CASE W HERE ANY OBJECTION IS RECEIVED UNDER SUB-SECTION (2), IS SUE SUCH DIRECTIONS, AS IT THINKS FIT, FOR THE GUIDANCE OF THE ASSESSING OFFICER TO ENABLE HIM TO COMPLETE THE ASSESSMENT. (6) THE DISPUTE RESOLUTION PANEL SHALL ISSUE THE DIR ECTIONS REFERRED TO IN SUB-SECTION (5), AFTER CONSIDERING T HE FOLLOWING, NAMELY :- (A) DRAFT ORDER; (B) OBJECTIONS FILED BY THE ASSESSEE; (C) EVIDENCE FURNISHED BY THE ASSESSEE; (D) REPORT, IF ANY, OF THE ASSESSING OFFICER, VALUA TION OFFICER OR TRANSFER PRICING OFFICER OR ANY OTHER AUTHORITY; (E) RECORDS RELATING TO THE DRAFT ORDER; ITA NO. 5015/DEL/2010 & STAY APPLICATION NO. 107/DEL/2010 5 (F) EVIDENCE COLLECTED BY, OR CAUSED TO BE COLLECTE D BY, IT; AND (G) RESULT OF ANY ENQUIRY MADE BY, OR CAUSED TO BE MADE BY, IT. (7) THE DISPUTE RESOLUTION PANEL MAY, BEFORE ISSUING ANY DIRECTIONS REFERRED TO IN SUB-SECTION (5), - (A) MAKE SUCH FURTHER ENQUIRY, AS IT THINKS FIT; OR (B) CAUSE ANY FURTHER ENQUIRY TO BE MADE BY ANY INCOME TAX AUTHORITY AND REPORT THE RESULT OF THE SAME TO IT. (8) THE DISPUTE RESOLUTION PANEL MAY CONFIRM, REDUCE OR ENHANCE THE VARIATIONS PROPOSED IN THE DRAFT ORDER SO, HOWEVER, THAT IT SHALL NOT SET ASIDE ANY PROPOSED V ARIATION OR ISSUE ANY DIRECTION UNDER SUB-SECTION (5) FUR FU RTHER ENQUIRY AND PASSING OF THE ASSESSMENT ORDER. (9) IF THE MEMBERS OF THE DISPUTE RESOLUTION PANEL DIF FER IN OPINION ON ANY POINT, THE POINT SHALL BE DECIDE D ACCORDING TO THE OPINION OF THE MAJORITY OF THE MEMBER S. (10) EVERY DIRECTION ISSUED BY THE DISPUTE RESOLUTIO N PANEL SHALL BE BINDING ON THE ASSESSING OFFICER. (11) NO DIRECTION UNDER SUB-SECTION (5) SHALL BE IS SUED UNLESS AN OPPORTUNITY OF BEING HEARD IS GIVEN TO TH E ASSESSEE AND THE ASSESSING OFFICER ON SUCH DIRECTI ONS WHICH ARE PREJUDICIAL TO THE INTEREST OF THE ASSESS EE OR THE INTEREST OF THE REVENUE, RESPECTIVELY. ITA NO. 5015/DEL/2010 & STAY APPLICATION NO. 107/DEL/2010 6 (12) NO DIRECTION UNDER SUB-SECTION (5) SHALL BE IS SUED AFTER NINE MONTHS FROM THE END OF THE MONTH IN WHICH THE DRAFT ORDER IS FORWARDED TO THE ELIGIBLE ASSESSEE. (13) UPON RECEIPT OF THE DIRECTIONS ISSUED UNDER SU B- SECTION (5), THE ASSESSING OFFICER SHALL, IN CONFO RMITY WITH THE DIRECTIONS, COMPLETE, NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN SECTION 153, THE ASSESSMENT W ITHOUT PROVIDING ANY FURTHER OPPORTUNITY OF BEING HEARD TO THE ASSESSEE, WITHIN ONE MONTH FROM THE END OF THE MONT H IN WHICH SUCH DIRECTION IS RECEIVED. 6. AS AGAINST THE ABOVE PROVISIONS OF THE ACT HERE THE DRP HAS PASSED A VERY LACONIC ORDER. LD. COUNSEL OF THE AS SESSEE CONTENDED THAT VOLUMINOUS SUBMISSIONS HAVE BEEN MADE BEFORE THE DRP AGAINST THE DRAFT ASSESSMENT ORDER. BUT THE DRP HAS BRUSHED ASIDE EVERYTHING WITHOUT EVEN A WHISPER OF THE ASSESSEES OBJECTION S AND THE SUBMISSIONS OF THE ASSESSEE. UNDER THE CIRCUMSTAN CES, IN OUR OPINION, THE DIRECTIONS OF THE DRP ARE TOO LACONIC T O BE LEFT UNCOMMENTED. THE DIRECTIONS GIVEN BY THE DRP ALMOST TANTAMOUNTS TO SUPERVISING THE ASSESSING OFFICERS DRAFT ORDER AND IN THAT SENSE IT CAN BE EQUATED THAT APPELLATE JURISDICTION BEING EX ERCISED. WE FIND THAT H ONBLE APEX COURT IN THE CASE M/S SAHARA INDIA (FAR MS) VS. CIT & ANR. IN [2008] 300 ITR 403 HAS HELD THAT EVEN AN ADMINISTR ATIVE ORDER HAS TO BE CONSISTENT WITH THE RULES OF NATURAL JUSTICE. 7. IN THIS REGARD, WE ALSO NOTE THAT HONBLE JURISD ICTIONAL HIGH COURT IN THE CASE OF VODAFONE ESSAR LTD. VS. DISPUTES RESOLUTION PANEL VIDE ORDER DATED 2.12.2010 THE HONBLE COURT HAS HELD THAT WHEN A QU ASI JUDICIAL AUTHORITY DEALS ITA NO. 5015/DEL/2010 & STAY APPLICATION NO. 107/DEL/2010 7 WITH THE LIS, IT IS OBLIGATORY ON ITS PART TO ASCR IBE COGENT AND GERMANE REASON AS THE SAME IS A HEART AND SOUL OF THE MATTER AND FURT HER THE SAME ALSO FACILITATES APPRECIATION WHEN THE ORDER IS CALLED IN QUESTION B EFORE THE SUPERIOR FORUM. ACCORDINGLY, THE HONBLE COURT HAS REMANDED THE MAT TER FOR FRESH ADJUDICATION. 8. UNDER THE CIRCUMSTANCES, IN THE BACKGROUND OF TH E AFORESAID DISCUSSION AND PRECEDENT ABOVE, WE FIND THAT CONSIDERABLE COGENCY IN THE ASSESSEES COUNSEL SUBMISSION THAT THE ASSESSEES SUBMISSION HAS BEEN BRUSHED ASIDE WITHOUT GIVING PROPER CONSIDERATION BY THE DRP. 9. LD. DEPARTMENTAL REPRESENTATIVE COULD NOT CONTROV ERT THIS PROPOSITION. 10. UNDER THE CIRCUMSTANCES, IN OUR CONSIDERED OPI NION, THE ISSUE IS REMITTED TO THE FILES OF THE DRP TO CONSIDER THE ISSU E ONCE AGAIN TO PASS A PROPER AND SPEAKING DIRECTION U/S 144C OF TH E IT ACT. SINCE WE ARE REMITTING THE MATTER TO THE FILES OF THE DRP FOR P ASSING A FRESH DIRECTION, MERITS OF THE CASE ARE NOT BEING ADJUDICA TED. NEEDLESS TO ADD THAT THE ASSESSEE SHOULD BE GIVEN ADEQUATE OPPO RTUNITY OF BEING HEARD. ASSESSEES ASSESSEES ASSESSEES ASSESSEES STAY APPLICATION NO. STAY APPLICATION NO. STAY APPLICATION NO. STAY APPLICATION NO. 107/DEL/2010 107/DEL/2010 107/DEL/2010 107/DEL/2010 11. SINCE WE HAVE ALREADY REMITTED THE MATTER TO THE FILES OF THE DRP. THE SAID STAY APPLICATION BY THE ASSESSEE HAS BECO ME INFRUCTUOUS AND HENCE, DISMISSED AS SUCH. ITA NO. 5015/DEL/2010 & STAY APPLICATION NO. 107/DEL/2010 8 12. IN THE RESULT, THE APPEAL FILED BY THE ASSESSE E IS ALLOWED FOR STATISTICAL PURPOSES AND STAY APPLICATION FILED BY THE ASSESSEE IS DISMISSED AS INFRUCTUOUS. ORDER PRONOUNCED IN THE OPEN COURT ON 11/02/2011. SD/- SD/- [R [R[R [RAJPAL YADAV AJPAL YADAV AJPAL YADAV AJPAL YADAV] ]] ] [SHAMIM [SHAMIM [SHAMIM [SHAMIM YAHYA] YAHYA] YAHYA] YAHYA] JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER DATE 11/02/2011 SRB COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: - -- - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY BY ORDER, DEPUTY REGISTRAR, ITAT, DELHI BENCHES