Saksoft Ltd., CHENNAI V. DCIT, CHENNAI

ITA 517/CHNY/2015

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 8875 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 5 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-08-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 02-08-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 12-03-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: DR AUN C BHARATH IRS
• Assessee Lawyers: T BANUSEKAR
• Keywords: Transfer pricing; Opportunity of being heard; Principle of natural justice; International transaction
• Section: 14A

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, CHENNAI , . ! ' , #'$ BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI G. PAVAN KUMAR, JUDICIAL MEMBER ./ I.T.A. NO.517/MDS/2015 # % &% / ASSESSMENT YEAR :2009-2010 SAKSOFT LTD, NO.40, S.P. INFOCITY, M.G.R. SALAI, KANDANHAVADI, PERUNGUDI, CHENNAI 600 096. VS. THE DEPUTY COMMISSIONER OF INCOME TAX, COMPANY CIRCLE VI(1) CHENNAI. [PAN AADCS 9979E ] ( / APPELLANT) ( /RESPONDENT) '( ) * / APPELLANT BY : SHRI. T. BANUSEKAR, C.A. +,'( ) * /RESPONDENT BY : DR. AUN C. BHARATH, IRS, CIT. ! ) - / DATE OF HEARING : 02-08-2016 ./& ) - / DATE OF PRONOUNCEMENT : 10-08-2016 / O R D E R PER G. PAVAN KUMAR, JUDICIAL MEMBER : THE APPEAL FILED BY THE ASSESSEE IS DIRECTED AG AINST ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-15, CHE NNAI IN ITA NO.516/13-14/A-15, DATED 20.01.2015 FOR THE ASSESSM ENT YEAR 2009- ITA NO.517/MDS/2015. :- 2 -: 2010 PASSED U/S.143(3) R.W.S. 144C (3) AND 250 OF THE INCOME TAX ACT, 1961 (HEREIN AFTER REFERRED TO AS THE ACT). 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF A PPEAL:- 1. FOR THAT THAT THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) IS CONTRARY TO LAW. FACTS AND CIRCUMSTANCES OF THE CASE TO THE EXTENT PREJUDICIAL TO THE INTEREST OF THE APPELLANT AND AT ANY RATE IS OPPOSE D TO THE PRINCIPLES OF EQUITY., NATURAL JUSTICE AND FAIR PLA Y. 2. FOR THAT THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS), PASSED MERELY 14 MONTHS OF THE ONLY HEARING IS OPPOSED TO EQUITY. NATURAL JUSTICE AND F AIR PLAY AND CONTRARY TO THE INSTRUCTIONS OF THE BOARD. 3. FOR THAT THE COMMISSIONER OF INCOME TAX (APPEALS ) FAILED TO APPRECIATE THAT THE ORDER OF THE ASSESSIN G OFFICER IS WITHOUT JURISDICTION. 4. FOR THAT THE COMMISSIONER OF INCOME TAX (APPEALS ) ERRED IN UPHOLDING TILE TRANSFER PRICING ADDITION O F RS.5, 15, 11,202/- 5. FOR THAT THE COMMISSIONER OF INCOME TAX (APPEALS ) ERRED IN ALLOWING ONLY 50 LAKHS OUT OF 5,65, 11,202/- CLAIMED BY THE APPELLANT 6. FOR THAT THE COMMISSIONER OF INCOME TAX (APPEALS ) ERRED IN REJECTING THE TNMM METHOD AS THE MOST APPROPRIATE METHOD 7. FOR THAT THE COMMISSIONER OF INCOME TAX (APPEALS ) FAILED TO APPRECIATE THAT THERE WAS NO SHIFTING OF PROFITS OUTSIDE INDIA. 8. FOR THAT THE COMMISSIONER OF INCOME TAX (APPEALS ) ERRED IN UPHOLDING THE ADDITION OF 50 LAKHS U/S, 40(A)(I) 9. FOR THAT THE COMMISSIONER OF INCOME TAX (APPEALS ) ITA NO.517/MDS/2015. :- 3 -: FAILED APPRECIATE THAT THE FEES PAID TOWARDS PROFES SIONAL SERVICES RENDERED BY M/S.ACUMA SOLUTIONS. UK WAS NO T CHARGEABLE TO TAX IN INDIA. 10. - FOR THAT WITHOUT PREJUDICE TO OUR CONTENTION THAT DISALLOWANCE U/S 40(A)(L) IS NOT WARRANTED, THE SAM E OUGHT BE CONSIDERED WHILE COMPUTING THE DEDUCTION U/S.L0A. 11. FOR THAT THE COMMISSIONER OF INCOME TAX (APPEAL S) ERRED IN CONFIRMING THE DISALLOWANCE U/S.14A READ W ITH RULE 8D.. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE C OMPANY IS IN BUSINESS OF SOFTWARE SOLUTIONS INCLUDING CONSULT ING DESIGN, DEVELOPMENT, RE-ENGINEERING, SYSTEMS IMPLEMENTATION TESTING AND PLACEMENT SERVICES AND FILED RETURN OF INCOME ON 28 .09.2009 DISCLOSING TOTAL INCOME OF <73,35,240/- AND THE RET URN OF INCOME WAS PROCESSED U/S.143(1) OF THE ACT. SUBSEQUENTLY THE CASE FOR SELECTED FOR SCRUTINY AND NOTICE U/SEC. 143(2) OF THE ACT WA S ISSUED. IN COMPLIANCE TO NOTICE, THE LD. AUTHORISED REPRESENTA TIVE OF ASSESSEE APPEARED FROM TIME TO TIME AND FURNISHED INFORMATI ON. THE LD. ASSESSING OFFICER FOUND THAT THE ASSESSEE HAS INTER NATIONAL TRANSACTIONS AND REFERENCE WAS MADE TO TRANSFER PRI CING OFFICER FOR DETERMINING ARMS LENGTH PRICE. THE LD. TPO ISSUED NOTICE U/S.92CA OF THE ACT FOR DETERMINATION OF ARMS LENGTH PRICE IN R ELATION TO INTERNATIONAL TRANSACTIONS. THE LD. TPO ON THE BAS IS OF THE TRANSACTIONS REPORTED IN AUDIT FORM UNDER 3CEB, FOUND THE ASSES SEE COMPANY HAS INTERNATIONAL TRANSACTION, ON SEGMENT WISE AGGREGA TING TO ITA NO.517/MDS/2015. :- 4 -: <40,26,63,930/-. THE ASSESSEE COMPANY HAS ADOPTED TRANSACTIONAL NET MARGIN METHOD (TNMM) AND CUP METHOD AS MOST APP ROPRIATE METHOD AND HAVING 15 COMPARABLES WHOSE ARITHMETIC MEAN OF PLI (OPERATING PROFIT /OPERATING COST) IS 12.30% AS AG AINST THE ASSESSEES PLI AT 12.58%. THE LD. TPO HAS ISSUED SHOW CAUSE N OTICE IN RESPECT OF PROFESSIONAL SERVICES PAID TO ACUMA SOLUTIONS, U K. DURING THE FINANCIAL YEAR 2008-09, THE ASSESSEE COMPANY PAID <5.65 CRORES TO ITS ASSOCIATED ENTERPRISE ACUMA SOLUTIONS, UK AS PROFES SIONAL CHARGES. THE LD. AUTHORISED REPRESENTATIVE EXPLAINED THAT A CUMA SOLUTIONS WAS ACQUIRED BY SAKSOFT IN SEPTEMBER, 2006 AS ACUMA SOL UTIONS IS LEADING BUSINESS INTELLIGENCE COMPANY IN UK. THE BUSINESS CONNECTION OF ACUMA SOLUTIONS WITH OTHER AREAS HAVE VALUE ADDED RESELLER (VAR) AND ACUMA IS A EDUCATIONAL PARTNER TO PROVIDE TRA INING FOR BUSINESS OBJECTS AND RUNS NUMBER OF BUSINESS COURSES. THE BA SIC OBJECT OF ACQUIRING ACUMA SOLUTIONS TO GAIN AND PROMOTE TR AINING AND EXPERTISE IN THE FIELD OF BUSINESS INTELLIGENCE AND IMPARTING BUSINESS OBJECTS. THE LD. TPO FOUND THAT THE ASSESSEES EMPL OYEES UPON TRAINING IN BUSINESS OBJECTS AND BUSINESS SKILLS CO ULD OBTAIN NEW BUSINESS ORDER FROM CITIBANK TO THE EXTENT OF <1.2 2 CRORES IN FINANCIAL YEAR 2008-09 AND <2.10 CRORES IN FINANCIAL YEAR 200 9-2010. THE ASSESSEE COMPANY TRAINED 120 EMPLOYEES IN THE SAID FINANCIAL YEAR RELATING TO BUSINESS OBJECTS AND WEB BASED LEARNING . THE LD.TPO ITA NO.517/MDS/2015. :- 5 -: HAVING CONSIDERED THE SUBMISSIONS HAS CALLED FOR TH E DETAILS. THE LD. AUTHORISED REPRESENTATIVE EXPLAINED THAT THE ASSESS EE COMPANY IS IN THE EXISTENCE FROM THE YEAR 2001 AND LD. TPO OBSE RVED THAT THE COMPANY GOT ORDERS FROM CITIBANK ONLY TO THE EXTEN T OF <1.25 CRORES WHICH DOES NOT COMMENSURATE WITH THE RETURNS. THE UK BASED COMPANY M/S. ACUMA SOLUTIONS LTD, WAS FUNCTIONING W ITH LOSS AND COMPANY TURNED INTO PROFITS BY INFUSING FUNDS. THE ASSESSEE COMPANY IS MAKING ATTEMPTS IN SHIFTING PROFITS OUTSIDE THE COUNTRY AS THE TRAINING WAS PROVIDED TO THE SAID SET OF EMPLOYEES AND THE BENEFICIARY IS THE ASSOCIATED ENTERPRISE. THE ASSESSEE COMPANY INCURRED <12 CRORES EXPENSES IN TWO YEARS FOR TRAINING THEIR EMP LOYEES BUT PROJECT OBTAINED WAS ONLY <1.25 CRORES. THE LD. TPO RELIED ON THE DECISION OF GEMPLUS INDIA PRIVATE LIMITED, THE BANGALORE BENCH OF THE TRIBUNAL WERE HELD THAT THE ASSESSEE COMPANY HAS ADOPTED THE TNMM METHOD AS MAM WHICH IS NOT APPROPRIATE AND REJECTED ARMS L ENGTH PRICE DETERMINED BY THE TNMM METHOD. THE LD. AUTHORISED REPRESENTATIVE FILED SUBMISSIONS WERE THE LD. TPO DETERMINED ARMS LENGTH PRICE OF PROFESSIONAL FEES AS <50 LAKHS AS AGAINST <5.7 CROR ES PAID BY THE ASSESSEE COMPANY. THE LD. AUTHORISED REPRESENTATIV E FILED DETAILED EXPLANATIONS AND SUBMISSIONS ALONGWITH THE MARGINS AND THE TRANSACTIONS BETWEEN PARTIES. BUT SUBSEQUENTLY, TH E LD. TPO DETERMINED THE ARMS LENGTH PRICE OF PROFESSIONAL SE RVICES AS <50 LAKHS ITA NO.517/MDS/2015. :- 6 -: AND DIRECTED TO REDUCE <5,15,11,202/- FROM PROFESS IONAL SERVICES PAID TO ACUMA, UK. THE LD. ASSESSING OFFICER PASSED OR DER U/S.143(3) R.W.S. 144C(3) OF THE ACT DATED 28.05.2013. CONSIDE RING THE DIRECTION OF LD. TPO AND WITH OTHER CORPORATE ADDITIONS. AGGRIEVED BY THE ORDER, THE ASSESSEE FILED AN APPEAL BEFORE COMMISSI ONER OF INCOME TAX (APPEALS). 4. IN THE APPELLATE PROCEEDINGS, THE LD. AUTHORISED REPRESENTATIVE OF ASSESSEE ARGUED THE GROUNDS ON TH E ADDITIONS MADE BY THE LD. ASSESSING OFFICER BASED ON THE DIRECTION S OF LD. TPO IN DETERMINING ARMS LENGTH PRICE AND PAYMENT OF PROFES SIONAL FEES IMPARTING TRAINING TO EMPLOYEES OF ASSOCIATE EMPLOY ER COMPANY. THE MAIN CONTENTION OF THE ASSESSEE COMPANY IS THAT THE LD. TPO HAS FAILED TO CONSIDER THE CLAIMS AS PER THE GROUNDS RAISED N O. 2 AND OTHER GROUNDS. THE LD. AUTHORISED REPRESENTATIVE REITERA TED THE SUBMISSIONS MADE IN THE ASSESSMENT AND TRANSFER PRICING PROCEE DINGS ALONGWITH EVIDENCE. THE LD. COMMISSIONER OF INCOME TAX (APPE ALS) ON THE DISALLOWANCE OF TRANSFER PRICING (TP) TRANSACTIONS RELIED ON THE ORDER OF THE TPO AND CONCLUDED THAT THE LD. TPO WAS LEGAL LY CORRECT IN QUESTIONING THE GENUINENESS OF PAYMENTS MADE FOR TR AINING GIVEN TO EMPLOYEES OF SUBSIDIARY COMPANY AND SHIFTING OF PR OFITS AND IS OF THE OPINION THAT THE ADDITION MADE BY THE LD. ASSESSING OFFICER IS APPROPRIATE. FURTHER IN RESPECT OF CORPORATE GROUN DS RAISED BY THE ITA NO.517/MDS/2015. :- 7 -: ASSESSEE NO. 3, 4 & 5 APPLYING THE PROVISIONS OF SE C. 40(A)(IA) OF THE ACT WERE THE LD. ASSESSING OFFICER MADE AN ADDITION OF <50 LAKHS FOR NON DEDUCTION OF TDS OF PROFESSIONAL PAYMENTS AND C ONFIRMED THE SAME. FURTHER, THE LD. COMMISSIONER OF INCOME TAX (APPEALS) GRANTED PARTIAL RELIEF IN RESPECT OF DEDUCTION U/S.10B OF T HE ACT IN DETERMINATION OF EXPORT TURNOVER FOLLOWING THE ASSESSEES OWN CAS E FOR THE ASSESSMENT YEARS 2002-2003 & 2003-2004 IN 313 ITR 3 53 AND DIRECTED THE LD. ASSESSING OFFICER TO RECOMPUTE THE DEDUCTION U/S.10B OF THE ACT AND ON THE LAST GROUND OF DISALLOWANCE U /S.14A OF THE ACT, THE LD. COMMISSIONER OF INCOME TAX (APPEALS) CONSID ERED THE PROVISIONS AND APPLICABILITY OF RUE 8D AND JUDICIA L DECISIONS CONCLUDED THAT THE ACTION OF THE LD. ASSESSING OFFICER IS RIG HT IRRESPECTIVE OF THE FACT THAT WHEN THERE IS NO INCOME IS RECEIVED BUT D ISALLOWANCE U/S. 14A OF THE ACT IS CONFIRMED AND PARTLY ALLOWED THE APPE AL. AGGRIEVED BY THE COMMISSIONER OF INCOME TAX (APPEALS) ORDER, THE ASSESSEE HAS ASSAILED AN APPEAL BEFORE TRIBUNAL. 5. BEFORE US, THE LD. AUTHORISED REPRESENTATIVE REITE RATED THE SUBMISSIONS MADE BEFORE THE LD. ASSESSING OFFICER, LD. TPO AND LD. COMMISSIONER OF INCOME TAX (APPEALS) AND ARGUED THE GROUNDS THAT THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEAL S) WAS PASSED AFTER FOURTEEN MONTHS OF HEARING AND OPPOSED TO EQU ITY, NATURAL ITA NO.517/MDS/2015. :- 8 -: JUSTICE AND CONFIRMING THE ACTION OF THE LD. ASSES SING OFFICER WITHOUT GIVING PROPER CLARIFICATIONS AND ALSO NON ADJUDICAT ION ON MATERIAL FILED ON THE ACTION OF THE LD. TPO IN DETERMINING ARMS LE NGTH PRICE OF INTERNATIONAL TRANSACTIONS WITHOUT MENTIONING THE N ATURE OF UPWARD ADJUSTMENT AND THE METHOD APPLIED AND DIRECTED THE LD. ASSESSING OFFICER TO REDUCE <5,15,11,202/- FROM PROFESSIONAL SERVICES. THE LD. TPO OVERLOOKED THE DETAILS OF INTERNATIONAL TRANSAC TIONS I.E. INFORMATION TECHNOLOGY SERVICES AND SUPPORT SERVICE S, PROFESSIONAL SERVICES, INTER-CORPORATE ADVANCES, RECOVERY OF EXP ENSES AND REIMBURSEMENT OF EXPENSES AGGREGATING TO <40,26,63, 930/-. FURTHER, THERE IS NO PROPER FINDINGS BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS) IN ADJUDICATING THE GROUNDS RAISED BEFORE AND PRAYED FOR ALLOWING THE APPEAL. 6. CONTRA, LD. DEPARTMENTAL REPRESENTATIVE RELIED ON THE ORDERS OF COMMISSIONER OF INCOME TAX (APPEALS) AND VEHEMEN TLY OPPOSED TO THE GROUNDS. 7. WE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MATERIA L ON RECORDS, JUDICIAL DECISIONS CITED AND PAPER BOOK FILED. THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS PASSED ORD ER OVERLOOKING VOLUMINOUS INFORMATION FILED IN THE APP ELLATE PROCEEDINGS AGAINST THE ORDER PASSED BY THE LD. ASS ESSING OFFICER. ITA NO.517/MDS/2015. :- 9 -: THE COMMISSIONER OF INCOME TAX (APPEALS) HAS TO CON SIDER EVERY POINT OF DISPUTE OF ASSESSEE AND PASS A SPEAKING O RDER. BUT, THE ORDER PASSED BY THE COMMISSIONER OF INCOME TAX (APP EALS) IS CRYPTIC AND WAS NOT PROPERLY ADJUDICATED. THEREFOR E, WE ARE NOT IN A POSITION TO UPHOLD THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) BEING INCONSISTENT WITH TRANSFER PRICING PROVISIONS. WE RELY ON THE DECISION OF SUPREME COURT IN THE CASE O F SAHARA INDIA VS. CIT & ANR. (300 ITR 403 ) WERE HELD THAT 'AN ADMINISTRATIVE ORDER HAS TO BE CONSISTENT WITH THE RULES OF NATURAL JUST ICE' AND SIMILAR VIEW WAS CONSIDERED BY THE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF GAP INTERNATIO NAL SOURCING INDIA (P) LTD. VS. DCIT (8 ITR 0177 ) AND M/S. ADOBE SYSTEMS INDIA PRIVATE LTD. V. ADDL. CIT IN ITA NO.5043/DEL/2010 D ATED 21.01.2011 , THE ORDER PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS) IS WITHOUT GOING INTO THE DETAILS OF THE SUBMISSIONS A ND SHOULD BE DECIDED AFRESH. CONSIDERING APPARENT FACTS, MATERIA L EVIDENCE AND JUDICIAL DECISIONS, WE ARE INCLINED TO THE REMIT TH E DISPUTED ISSUES BACK TO THE FILE OF COMMISSIONER OF INCOME TAX (AP PEALS) TO PASS A SPEAKING ORDER ON MERITS AND ASSESSEE SHALL BE PROV IDED WITH ADEQUATE OPPORTUNITY OF BEING HEARD BEFORE PASSING THE ORDER. SINCE WE REMITTED THE DISPUTED ISSUE TO THE FILE OF COMMISSIONER OF INCOME TAX (APPEALS), WE ARE NOT ADJUDICATING GROUN D NOS. 3 TO 11 ITA NO.517/MDS/2015. :- 10 -: OF GROUNDS OF APPEAL FILED BY THE ASSESSEE AND THE APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSE. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOW ED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED ON WEDNESDAY, THE 10TH DAY OF A UGUST, 2016, AT CHENNAI. SD/- SD/- ( ) (CHANDRA POOJARI) / ACCOUNTANT MEMBER ( . ! ' ) (G. PAVAN KUMAR) / JUDICIAL MEMBER / CHENNAI 1 / DATED: 10.08.2016 KV 2 ) +#-34 54&- / COPY TO: 1 . '( / APPELLANT 3. ! 6- () / CIT(A) 5. 4 9: +#-# / DR 2. +,'( / RESPONDENT 4. ! 6- / CIT 6. :% ; / GF