DCIT, CHENNAI V. Sensiple Software Solution Pvt Ltd., CHENNAI

ITA 556/CHNY/2015

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 8325 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 6 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-10-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 30-08-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 17-03-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: G SEETHARAMAN
• Assessee Lawyers: A B MAURYA
• Keywords: Transfer pricing; International transaction
• Section: 92

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, CHENNAI . . . , . !'# ! , % !& BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ./ ITA NO.556/MDS/2015 ( )( / ASSESSMENT YEAR : 2010-11 THE DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 6(1), CHENNAI - 600 034. V. M/S SENSIPLE SOFTWARE SOLUTION PVT. LTD., C/O S. VENKATRAM & CO., CHARTERED ACCOUNTANTS, 218, TTK ROAD, ALWARPET, CHENNAI - 600 018. PAN : AAGCS 4619 C (+,/ APPELLANT) (-.+,/ RESPONDENT) ./ ITA NO.600/MDS/2015 ( )( / ASSESSMENT YEAR : 2010-11 M/S SENSIPLE SOFTWARE SOLUTION PVT. LTD., C/O S. VENKATRAM & CO., CHARTERED ACCOUNTANTS, 218, TTK ROAD, ALWARPET, CHENNAI - 600 018. V. THE DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 6(1), CHENNAI - 600 034. (+,/ APPELLANT) (-.+,/ RESPONDENT) (/0 1 2 /ASSESSEE BY : SHRI A.B. MAURYA, CIT 3 1 2 /REVENUE BY : SHRI G. SEETHARAMAN, CA 4 1 0% / DATE OF HEARING : 30.08.2016 5') 1 0% / DATE OF PRONOUNCEMENT : 07.10.2016 2 I.T.A. NO.556 & 600/MDS/15 / O R D E R PER N.R.S. GANESAN, JUDICIAL MEMBER: BOTH THE APPEALS OF THE REVENUE AND ASSESSEE ARE DIRECTED AGAINST THE SAME ORDER OF THE ASSESSING OFFICER, CO NSEQUENT TO THE DIRECTIONS OF THE DISPUTE RESOLUTION PANEL. THEREF ORE, WE HEARD BOTH THE APPEALS TOGETHER AND DISPOSING OF THE SAME BY THIS COMMON ORDER. 2. LETS FIRST TAKE THE REVENUES APPEAL IN I.T.A. NO.556/MDS/2015. THE ONLY ISSUE ARISES FOR CONSIDE RATION IS EXCLUSION OF FOREIGN CURRENCY EXPENSES SAID TO BE I NCURRED BY THE ASSESSEE TOWARDS INTERNET EXPENSES AND FOREIGN TRAV EL EXPENSES. 3. SHRI A.B. MAURYA, THE LD. DEPARTMENTAL REPRESENT ATIVE, SUBMITTED THAT THE ASSESSING OFFICER EXCLUDED FOREI GN CURRENCY EXPENSES FROM THE EXPORT TURNOVER. HOWEVER, THE SA ME WAS NOT EXCLUDED FROM THE TOTAL TURNOVER. THEREFORE, THE D ISPUTE RESOLUTION PANEL, BY PLACING RELIANCE ON THE SPECIAL BENCH OF THIS TRIBUNAL IN CIT V. SAK SOFT LTD. [313 ITR (AT) 353], DIRECTED T HE ASSESSING OFFICER TO EXCLUDE THE FOREIGN CURRENCY EXPENSES TO WARDS INTERNET AND TRAVEL EXPENSES FROM THE TOTAL TURNOVER ALSO. ACCORDING TO THE LD. D.R., THE REVENUE HAS ALREADY FILED AN APPEAL B EFORE THE HIGH 3 I.T.A. NO.556 & 600/MDS/15 COURT AGAINST THE DECISION OF THIS TRIBUNAL IN SAK SOFT LTD. (SUPRA). THEREFORE, THE DRP IS NOT JUSTIFIED IN DIRECTING TH E ASSESSING OFFICER TO EXCLUDE THE FOREIGN CURRENCY EXPENSES FROM TOTAL TURNOVER ALSO. 4. WE HAVE HEARD SHRI G. SEETHARAMAN, THE LD. REPRE SENTATIVE FOR THE ASSESSEE ALSO. THE TPO COMPUTED ELIGIBLE DE DUCTION UNDER SECTION 10A OF THE ACT BY HOLDING THAT THE NUMERATO R AND DENOMINATOR SHOULD BE OF SAME FIGURE. IN OTHER WOR DS, THE EXPORT TURNOVER AND TOTAL TURNOVER SHALL INCLUDE THE SAME EXPENDITURE AND THE RECEIPTS. NO DOUBT, THE EXPENDITURE INCURRED I N THE FOREIGN CURRENCY TOWARDS INTERNET AND FOREIGN TRAVEL EXPENS ES CANNOT FORM PART OF EXPORT TURNOVER OF THE ASSESSEE. IF THAT I S SO, SUCH AN EXPENDITURE IN FOREIGN CURRENCY TOWARDS INTERNET AN D FOREIGN TRAVEL EXPENSES CANNOT ALSO BE PART OF TOTAL TURNOVER. TH EREFORE, THE ASSESSING OFFICER IS NOT JUSTIFIED IN EXCLUDING SUC H EXPENDITURE FROM THE EXPORT TURNOVER AND INCLUDING THE SAME IN TOTAL TURNOVER. AS OBSERVED EARLIER, BOTH DENOMINATOR AND NUMERATOR SH OULD BE OF SAME FIGURE, OTHERWISE THE COMPUTATION MAY NOT RESU LT IN CORRECT PROFIT. THE ONLY OBJECTION OF THE LD. DEPARTMENTAL REPRESENTATIVE IS THAT AN APPEAL IS PENDING BEFORE THE HIGH COURT AGA INST THE ORDER OF THIS TRIBUNAL IN SAK SOFT LTD. (SUPRA). THIS TRIBU NAL IS OF THE 4 I.T.A. NO.556 & 600/MDS/15 CONSIDERED OPINION THAT MERE PENDENCY OF AN APPEAL BEFORE HIGH COURT CANNOT BE A REASON FOR NOT FOLLOWING THE DECI SION OF THIS TRIBUNAL. IT IS NOBODYS CASE THAT THE MADRAS HIGH COURT HAS STAYED THE OPERATION OF ORDER OF THIS TRIBUNAL IN SAK SOFT LTD. (SUPRA). THEREFORE, THIS TRIBUNAL IS OF THE CONSIDERED OPINI ON THAT THE DISPUTE RESOLUTION PANEL HAS RIGHTLY DIRECTED THE ASSESSING OFFICER TO EXCLUDE THE FOREIGN CURRENCY EXPENSES TOWARDS INTER NET AND FOREIGN TRAVEL EXPENSES FROM BOTH TOTAL TURNOVER AND EXPORT TURNOVER. THEREFORE, THIS TRIBUNAL DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE LOWER AUTHORITY AND ACCORDINGLY THE SA ME IS CONFIRMED. 5. NOW COMING TO THE ASSESSEES APPEAL IN I.T.A. NO.600/MDS/2015. THE FIRST GROUND IS WITH REGARD T O REFERENCE MADE TO THE TRANSFER PRICING OFFICER. 6. SHRI G. SEETHARAMAN, THE LD. REPRESENTATIVE FOR THE ASSESSEE, SUBMITTED THAT THE TURNOVER OF THE ASSESS EE ADMITTEDLY WAS ` 7,78,58,274/-. THE CENTRAL BOARD OF DIRECT TAXES I N ITS CIRCULAR F.NO.225/93/2009/ITA-II DATED 10.09.2011IN STRUCTED ITS OFFICERS NOT TO REFER THE MATTER TO THE TRANSFER PR ICING OFFICER FOR THE ASSESSMENT YEAR 2010-11 IN CASE THE TOTAL TURNOVER WAS LESS THAN ` 15 CRORES. THIS CIRCULAR OF THE CBDT WAS BROUGHT T O THE NOTICE OF 5 I.T.A. NO.556 & 600/MDS/15 THE ASSESSING OFFICER AS WELL AS THE DRP BY WAY OF OBJECTION. REFERRING TO PAGE 10 OF OBJECTION SAID TO BE FILED BEFORE THE ASSESSING OFFICER, CONSEQUENT TO THE DRAFT ASSESSME NT FRAMED BY THE ASSESSING OFFICER, THE LD. REPRESENTATIVE SUBMI TTED THAT INSPITE OF THE CIRCULAR WHICH WAS BROUGHT TO THE NOTICE OF THE ASSESSING OFFICER AS WELL AS THE DRP, NO FINDING WAS RECORDED BY ANY OF THE AUTHORITIES BELOW. ACCORDING TO THE LD. REPRESENTA TIVE, WHEN THE CBDT INSTRUCTED ITS OFFICERS NOT TO REFER THE MATTE R TO THE TPO WHEREVER THE TURNOVER WAS LESS THAN ` 15 CRORES, THE SAME WAS BINDING ON THE ASSESSING OFFICER AND HE CANNOT MAKE ANY UPWARD ADJUSTMENT EITHER BY HIMSELF OR BY MAKING REFERENCE TO THE TRANSFER PRICING OFFICER. INSPITE OF THIS SPECIFIC OBJECTIO N RAISED BY THE ASSESSEE IN THE OBJECTION FILED BEFORE THE ASSESSIN G OFFICER AND DRP, BOTH THE AUTHORITIES BELOW HAVE NOT RECORDED A NY FINDING. REFERRING TO THE DECISION OF DELHI BENCH OF THIS TR IBUNAL IN CRYSTAL PHOSPHATES LTD. V. ACIT IN I.T.A. NO. 3630/DEL/2009 , THE LD. REPRESENTATIVE SUBMITTED THAT ON IDENTICAL FACTUAL SITUATION, AFTER CONSIDERING THE CIRCULAR ISSUED BY CBDT FOR SELECTI ON FOR SCRUTINY ASSESSMENT, THE DELHI BENCH FOUND THAT SINCE THE RE TURN WAS SELECTED CONTRARY TO THE INSTRUCTION ISSUED BY THE CBDT, THE 6 I.T.A. NO.556 & 600/MDS/15 TRIBUNAL HELD THAT THE RETURN SELECTED FOR SCRUTINY ASSESSMENT IS NOT VALID. 7. ON THE CONTRARY, SHRI A.B. MAURYA, THE LD. DEPAR TMENTAL REPRESENTATIVE, SUBMITTED THAT REFERENCE TO TRANSFE R PRICING OFFICER IS DISCRETION OF THE ASSESSING OFFICER. WHEN THE A SSESSING OFFICER FINDS THAT IT IS NECESSARY TO DETERMINE THE ARM'S L ENGTH PRICE IN RELATION TO INTERNATIONAL TRANSACTION, HE HAS TO NE CESSARILY MAKE A REFERENCE TO TRANSFER PRICING OFFICER. WITHOUT MAK ING ANY REFERENCE, THE ASSESSING OFFICER CANNOT MAKE ANY UP WARD ADJUSTMENT AND DETERMINE THE ARM'S LENGTH PRICE. T HEREFORE, ACCORDING TO THE LD. D.R., IT CANNOT BE SAID THAT N O REFERENCE COULD BE MADE TO THE TRANSFER PRICING OFFICER WHEREVER TU RNOVER WAS LESS THAN ` 15 CRORES. 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. IT IS NOT IN DISPUTE THAT THERE WAS A CIRCULAR ISSUED BY THE CBD T NOT TO REFER THE MATTER TO THE TRANSFER PRICING OFFICER FOR DETERMIN ATION OF ARM'S LENGTH PRICE IN RELATION TO INTERNATIONAL TRANSACTI ON. WE HAVE CAREFULLY GONE THROUGH THE PROVISIONS OF SECTION 92 CA OF THE ACT. IF THE ASSESSING OFFICER CONSIDERS IT NECESSARY TO DET ERMINE ARM'S 7 I.T.A. NO.556 & 600/MDS/15 LENGTH PRICE IN RELATION TO INTERNATIONAL TRANSACTI ON, WITH PREVIOUS APPROVAL OF THE PRINCIPAL COMMISSIONER OR COMMISSIO NER, AS THE CASE MAY BE, REFER THE MATTER TO THE TRANSFER PRICI NG OFFICER. THEREFORE, THE REFERENCE TO BE MADE TO THE TRANSFER PRICING OFFICER IS AFTER PREVIOUS APPROVAL OF THE COMMISSIONER OR P RINCIPAL COMMISSIONER, AS THE CASE MAY BE. NOW THE CBDT VID E ITS CIRCULAR INSTRUCTED ITS OFFICERS NOT TO REFER THE MATTER TO THE TRANSFER PRICING OFFICER WHEREVER THE TURNOVER WAS LESS THAN ` 15 CRORES. IN THE CASE BEFORE US, IT IS NOT IN DISPUTE THAT THE TURNO VER OF THE ASSESSEE IS LESS THAN ` 15 CRORES. WHEN THE CBDT DECIDED NOT TO REFERE TH E MATTER TO THE TRANSFER PRICING OFFICER WHEREVER THE TRANSACTION OF THE INTERNATIONAL TRANSACTION WAS LESS THAN ` 15 CRORES, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE REFERENCE MADE B Y THE ASSESSING OFFICER IS CONTRARY TO THE INSTRUCTION GIVEN BY THE CBDT. THE CBDT BEING THE ADMINISTRATIVE BODY TO ADMINISTER THE DIR ECT TAX LAWS, THE INSTRUCTION ISSUED BY IT IS BINDING ON ALL THE LOWE R AUTHORITIES. THEREFORE, THE INSTRUCTION ISSUED BY THE CBDT TO AL L ITS OFFICERS NOT TO REFER THE MATTER TO THE TRANSFER PRICING OFFICER WHEREVER THE TOTAL TURNOVER WAS LESS THAN ` 15 CRORES IS BINDING ON THE ASSESSING OFFICER. HENCE, THE ASSESSING OFFICER SHOULD NOT H AVE REFERRED THE MATTER TO THE TRANSFER PRICING OFFICER. SINCE THE REFERENCE ITSELF WAS 8 I.T.A. NO.556 & 600/MDS/15 CONTRARY TO THE INSTRUCTION ISSUED BY THE CBDT, THI S TRIBUNAL IS OF THE CONSIDERED OPINION THAT THERE CANNOT BE ANY ADJUSTM ENT TOWARDS INTERNATIONAL TRANSACTION BY DETERMINING THE ARM'S LENGTH PRICE. IN VIEW OF THE ABOVE, THIS TRIBUNAL IS UNABLE TO UPHOL D THE ORDER OF THE LOWER AUTHORITY AND ACCORDINGLY THE SAME IS SET ASI DE. THE ADJUSTMENT MADE BY THE ASSESSING OFFICER TOWARDS IN TERNATIONAL TRANSACTION IS DELETED. 9. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED AND THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED ON 7 TH OCTOBER, 2016 AT CHENNAI. SD/- SD/- (. !'# ! ) ( . . . ) (A. MOHAN ALANKAMONY) (N.R.S. GANESAN) % / ACCOUNTANT MEMBER /JUDICIAL MEMBER /CHENNAI, 7 /DATED, THE 7 TH OCTOBER, 2016. KRI. 1 -089 :9)0 /COPY TO: 1. (/0 /ASSESSEE 2. ASSESSING OFFICER 3. SECRETARY, DRP, CHENNAI 4. 4 ;0 /CIT, CHENNAI-VI, CHENNAI 5. 9< -0 /DR 6. ( = /GF.