GE Medical Systems (India) Pvt. Ltd., Bangalore V. Asst.C.I.T., Bangalore

ITA 563/BANG/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 5494 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-04-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 28-03-2017
• Assessment Year: 2011-2012
• Appeal Filed On: 24-03-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: G R REDDY BENGALURU
• Assessee Lawyers: K R PRADEEP
• Keywords: Transfer pricing; Opportunity of being heard; Principle of natural justice; Working capital adjustments; Validity of assessment
• Section: 92

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : BANGALORE BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI S. JAYARAMAN, ACCOUNTANT MEMBER IT(TP)A NO.563/BANG/2016 ASSESSMENT YEAR : 2011-12 GE MEDICAL SYSTEMS (INDIA) PRIVATE LTD., [SINCE MERGED WITH WIPRO GE HEALTHCARE PVT. LTD.], PLOT NO.3, 3A & 4, KADUGODI INDUSTRIAL AREA, BANGALORE 560 067. PAN: AAACG 7655G VS. THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 7(1)(2), BANGALORE. APPELLANT RESPONDENT APPELLANT BY : SHRI K.R. PRADEEP, CA RESPONDENT BY : SHRI G.R. REDDY, CIT(DR)(ITAT)-1, BENGALURU. DATE OF HEARING : 28.03.2017 DATE OF PRONOUNCEMENT : 21.04.2017 O R D E R PER SUNIL KUMAR YADAV, JUDICIAL MEMBER THIS APPEAL IS PREFERRED BY THE ASSESSEE AGAINS T THE ORDER OF THE ASSESSING OFFICER PASSED CONSEQUENT TO THE DIRECTIO NS OF THE DRP INTER ALIA ON THE FOLLOWING GROUNDS:- 1. THAT THE ORDER OF THE AUTHORITIES BELOW, THE D IRECTIONS OF THE DISPUTE RESOLUTION PANEL (DRP) AND THE ORDER OF THE TRANSFER PRICING OFFICER IN SO FAR AS IT IS AGAINST THE APPE LLANT IS AGAINST THE IT(TP)A NO.563/BANG/2016 PAGE 2 OF 10 LAW, FACTS, CIRCUMSTANCES, NATURAL JUSTICE, EQUITY, WITHOUT JURISDICTION, BAD IN LAW AND ALL OTHER KNOWN PRINCI PLES OF LAW. 2. THAT THE TOTAL INCOME COMPUTED AND THE TOTAL TA X COMPUTED IS HEREBY DISPUTED. VALIDITY OF ASSESSMENT IJURISDICTION 3. THE AUTHORITIES BELOW ERRED IN FRAMING AN ASSESSM ENT AGAINST THE APPELLANT COMPANY WHICH CEASED TO EXIST , CONSEQUENT TO THE ORDER OF MERGER DATED: 24.07.2013 OF KARNATA KA HIGH COURT EFFECTIVE FROM 01.04.2012. THUS, THE AUTHORIT IES ERRED IN MAKING AN ORDER OF ASSESSMENT AGAINST A NON-EXISTEN T ENTITY ON THE DATE OF ASSESSMENT. 4. THE AUTHORITIES BELOW OUGHT TO HAVE APPRECIATED THAT THE SUCCESSOR COMPANY IS ASSESSED TO TAX IN BANGALORE B EFORE ACIT, CIRCLE-7(1)(2) WITH P A NO. AAACW1685J. FRAMING OF ASSESSMENT BY THE AUTHORITIES AMOUNTS TO PASSING OF TWO ASSESSMENTS FOR THE SAME YEAR WHICH IS CLEARLY UNWARRANTED UNDER THE ACT. ISSUE OF TRANSFER PRICING 5. THAT THE COMMUNICATION / ORDER OF THE TRANSFER PRICING OFFICER IS WITHOUT JURISDICTION, AGAINST THE LAW, F ACTS, CIRCUMSTANCES, NATURAL JUSTICE, EQUITY AND ALL OTHE R KNOWN PRINCIPLES OF LAW. 6. THAT THE FINDINGS, REASONS, CONCLUSIONS AND DIR ECTIONS OF DISPUTE RESOLUTION PANEL (DRP) U/S 144C ARE A BUNDL E OF CONTRADICTIONS AND CLEARLY UNSUSTAINABLE IN LAW REQ UIRES TO BE REJECTED. CONSEQUENTLY THE ADDITION BASED ON SUCH D IRECTIONS REQUIRES TO BE DELETED. 7. THE DRP ERRED IN NOT CONSIDERING THE RELEVANT M ATERIALS, EVIDENCES AND DATA AND THE DIRECTIONS ISSUED ARE WI THOUT APPLICATION OF MIND. 8. THAT THE ORDER OF THE DRP AND THE DIRECTIONS GI VEN THEREIN ARE BAD IN LAW AND NOT AS PER LAW REQUIRES TO BE CA NCELLED. 9. THAT THE AO/TPO/DRP ERRED M NOT PROVIDING ADEQU ATE AND SUFFICIENT OPPORTUNITY AS REQUIRED UNDER LAW TH US VIOLATING IT(TP)A NO.563/BANG/2016 PAGE 3 OF 10 THE PRINCIPLE OF NATURAL JUSTICE, HENCE ON THIS GRO UND ALONE THE ORDERS REQUIRES TO BE ANNULLED. 10. THE APPELLANT DENIES THE TAX LIABILITY ON THE SURPLUS ARISING ON THE COMPUTATION OF ARMS LENGTH PRICE FOR THE IMP UGNED ASSESSMENT YEAR. 11. THE LEARNED AO ERRED IN BRINGING TO TAX U/S 92 C AS OUTLINED BELOW IN THE TABLE AS PER THE COMMUNICATIO N/ORDER OF THE TRANSFER PRICING OFFICER AND THE DIRECTIONS OF DRP. SL.NO DESCRIPTION AMOUNT 1 ARM'S LENGTH PRICE DIFFERENCE IN SOFTWARE RS. 7,85,33,060/- DEVELOPMENT SERVICES 2 ARM'S LENGTH PRICE DIFFERENCE IN IT ENABLED RS. 28,15,78,052/ - SERVICES 3 ARM'S LENGTH PRICE DIFFERENCE IN THE CONTRACT RS. 30,72,68,521/ - MANUFACTURING TOTAL ADJUSTMENT U /S 92CA RS. 66,73,79,633/ - 12. THE AO/TPO/DRP ERRED IN MAKING ADJUSTMENT OF R S. 7,85,33,060/- TOWARDS THE SOFTWARE DEVELOPMENT SERV ICES, WHILE DETERMINING THE ALP OF THE INTERNATIONAL TRANSACTIO NS OF THE APPELLANT. 13. THE AO/TPO/DRP ERRED IN MAKING AN ADJUSTMENT O F RS. 28,15,78,052/- TOWARDS THE IT ENABLED SERVICES, WHI LE DETERMINING THE ALP OF THE INTERNATIONAL TRANSACTIO NS OF THE APPELLANT. 14. THE AO/TPO/DRP ERRED IN MAKING AN ADJUSTMENT O F RS. 30,72,68,521/- TOWARDS THE CONTRACT MANUFACTURING S EGMENT, WHILE DETERMINING THE ALP OF THE INTERNATIONAL TRAN SACTIONS OF THE APPELLANT. 15. THAT LEARNED DRP FAILED TO APPRECIATE THAT NO OPPORTUNITY WAS PROVIDED TO THE APPELLANT BY THE TPO BEFORE REC OMMENDING ADJUSTMENT IN THE CONTRACT MANUFACTURING SEGMENT. 16. THE LEARNED DRP ERRED IN SUMMARILY REJECTING T HE OBJECTIONS OF THE APPELLANT WITH REGARD TO THE NON PROVIDING OF IT(TP)A NO.563/BANG/2016 PAGE 4 OF 10 ADEQUATE AND SUFFICIENT OPPORTUNITY AS REQUIRED UND ER LAW BY THE TPO BEFORE PASSING ORDER U/ S 92CA. 17. THE LEARNED DRP ERRED IN ADJUDICATING ITES SEG MENT BY OVERLOOKING AND NOT CONSIDERING THE FINANCIAL INFOR MATION OF 5 COMPANIES WHICH WAS AVAILABLE IN THE CAPITALINE DAT ABASE AND PROVIDED BY THE APPELLANT. 18. THE AO/DRP ERRED IN NOT FOLLOWING THE ORDERS O F THE CIT(A) AND DRP FOR EARLIER YEARS IN THE APPELLANT'S OWN CASE ON SIMILAR ISSUE, WHEN THE FACTS BEING THE SAME FOR TH IS YEAR. 19. THE LEARNED DRP ERRED IN GIVING DIRECTIONS WHI CH ENHANCED THE ADJUSTMENT WITH REGARD TO IT ENABLED S ERVICES AND SOFTWARE DEVELOPMENT SERVICES WITHOUT GIVING ADEQUA TE AND SUFFICIENT OPPORTUNITY AS REQUIRED UNDER LAW. 20. THE AO /TPO /DRP ERRED IN NOT CARRYING OUT THE ADJUSTMENTS SOUGHT BY THE APPELLANT. 21. THE LEARNED DRP ERRED IN NOT GIVING CLEAR DIRE CTIONS ON RISK ADJUSTMENTS, SELLING AND MARKETING ADJUSTMENT, RISK LEVEL, WORKING CAPITAL ADJUSTMENTS, SOUGHT BY THE APPELLA NT. 22. THAT THE AO/DRP ERRED IN HOLDING THAT IPSO FAC TO THE DETERMINATION/CALCULATION OF ARM'S LENGTH PRICE AMO UNTS TO EARNING OF INCOME BY THE APPELLANT, THEREBY TAXABLE IN ITS HANDS. 23. THE ORDER OF THE TRANSFER PRICING OFFICER, DIR ECTIONS OF DRP AND THAT OF THE AO IS IN CLEAR VIOLATION OF THE LAW ON THIS ISSUE AND THE PRINCIPLES ENUNCIATED BY VARIOUS COUR TS MORE PARTICULARLY ON THE ISSUE OF REFERENCE, SANCTION OF APPROVAL, RECORDING OF REASONS AND LACK OF SATISFACTION. 24. THAT NO COPY OF THE REASONS RECORDED FOR MAKI NG THE REFERENCE TO THE TPO HAS BEEN FURNISHED NOR COPY OF THE APPROVAL OBTAINED FOR MAKING THE REFERENCE HAS BEEN FURNISHE D TO THE APPELLANT. 25. THE TPO ERRED IN IGNORING THE FACT THAT BEFORE MAKING AN ADJUSTMENT NEITHER A COMPARABLE TRANSACTION ENTERED INTO HAS BEEN IDENTIFIED NOR THE ENTERPRISE WHICH HAS ENTERED INT O SUCH A TRANSACTION HAS BEEN IDENTIFIED. UNLESS THESE TWO A RE IDENTIFIED AS EXPLAINED IN RULE 10B(2) NO FURTHER P ROCEEDINGS ARE IT(TP)A NO.563/BANG/2016 PAGE 5 OF 10 POSSIBLE. IN THIS CASE, IN VIEW OF NON-IDENTIFICATI ON, THE ENTIRE ORDER REQUIRES TO BE VACATED. 26. THE AUTHORITIES BELOW ERRED IN IGNORING THE ME THOD FOLLOWED BY THE APPELLANT. THE AUTHORITIES BELOW OU GHT TO HAVE ADDUCED COGENT REASONS FOR REJECTING THE METHOD FOL LOWED BY THE APPELLANT BEFORE SUBSTITUTING AND PRESCRIBING A NEW METHOD. 27. THE ONUS IS ON THE DEPARTMENT TO ESTABLISH THE RE IS ANY TAX AVOIDANCE AND IT IS ESSENTIAL THAT INCONTROVERTIBLE EVIDENCES ARE IN THE POSSESSION OF THE AO BEFORE A REFERENCE IS MADE AS HELD BY THE SUPREME COURT IN 131 ITR 597 AND FURTHER HAS ER RED IN NOT RELYING ON THE CIRCULAR. 28. THE LEARNED AO/TPO/DRP HAVE FAILED TO IDENTIFY COMPARABLES IN TERMS OF RULE 10B(3). 29. THE LEARNED AO/TPO/DRP FAILED TO MAKE THE NECE SSARY ADJUSTMENTS AS IS REQUIRED IN TERMS OF RULE 10B(2). 30. THE AO/TPO/DRP ERRED IN NOT GRANTING THE VARIA NCES DEDUCTION OF 5% ENVISAGED IN THE ACT AND CIRCULAR. 31. NO OPPORTUNITY WAS GIVEN TO THE ASSESSEE BEFOR E MAKING THE REFERENCE AND BEFORE ACCORDING THE APPROVAL BY THE CIT. THIS IS AGAINST THE PRINCIPLES SET OUT BY THE HON'BLE SU PREME COURT IN RAJESH KUMAR VS. DCIT - 287 ITR 91. OTHER ISSUES/ADDITIONS/DISALLOWANCES 32. THE LEARNED DRP FAILED TO ADJUDICATE THE DISAL LOWANCE U/S 40(A)(IA) OF THE ACT OF PROFESSIONAL FEES FOR MISCE LLANEOUS SERVICES AND PUBLIC ACCOUNTANTS' FEES TO THE EXTENT OF RS. 2,52,58,803/- INSPITE OF PROOF OF DEDUCTION OF TAX AT SOURCE WAS PRODUCED. 33. THE LEARNED DRP FAILED TO ADJUDICATE THE DISAL LOWANCE U/S 40(A)(IA) OF THE ACT THE RENT PAID TO THE EXTENT OF RS. 5,58,40,000/-. 34. THE LEARNED AO FAILED TO APPRECIATE AND CONSID ER THE DEDUCTION OF TAX AT SOURCE BY THE APPELLANT. IT(TP)A NO.563/BANG/2016 PAGE 6 OF 10 35. THE LEARNED AO / DRP FAILED TO APPRECIATE THAT NO DISALLOWANCE U/S 40(A)(IA) CAN BE MADE FOR SHORT FA LL IN DEDUCTION OF TAX AT SOURCE OR APPLYING LOWER RATE. 36. THE AO/DRP FAILED TO APPRECIATE AND TAKE COGNI ZANCE OF THE FACT THAT THE PAYEES / RECEIVERS / DEDUCTEES HA VE PAID THE TAXES ON THE INCOME, THEN NO DISALLOWANCE CAN BE MADE U/S 40(A)(IA) OF THE ACT. 37. THE LEARNED AO/DRP ERRED IN NOT PROVIDING ADEQ UATE AND SUFFICIENT OPPORTUNITY TO THE APPELLANT THUS VIOLAT ING THE PRINCIPLES OF NATURAL JUSTICE AND ON THIS GROUND ALONE THE ABOVE DISALLOWANCES REQUIRES TO BE DELETE D. ISSUE OF INTEREST U/ S 234A, B AND 234C 38. THE APPELLANT DENIES THE LIABILITIES FOR INTER EST U/S 234A, B & 234C OF THE ACT. FURTHER PRAYS THAT THE INTEREST IF ANY SHOULD BE LEVIED ONLY ON RETURNED INCOME. 39. NO OPPORTUNITY HAS BEEN GIVEN BEFORE THE LEVY OF INTEREST U/S 234A, B & C OF THE ACT. 40. WITHOUT PREJUDICE TO THE APPELLANT'S RIGHT OF SEEKING WAIVER BEFORE APPROPRIATE AUTHORITY THE APPELLANT B EGS FOR CONSEQUENTIAL RELIEF IN THE LEVY OF INTEREST U/S 23 4A, BAND 234C. 41. THE APPELLANT DENIES LIABILITY FOR INTEREST U/ S 234A &B ON THE ADJUSTMENT MADE U/S 92CA OF THE ACT AND RELIES ON THE DECISION OF THE SUPREME COURT IN THE CASE OF CIT V KWALITY BISCUITS LTD REPORTED IN 284 ITR 434. 42. WITH PRIOR PERMISSION OF THE ITAT, THE APPELLA NT RESERVES THE RIGHT TO ADD/ DELETE/ AMEND ANY OR ALL THE GROU ND STATED ABOVE. 43. FOR THE ABOVE AND OTHER GROUNDS AND REASONS WH ICH MAY BE SUBMITTED DURING THE COURSE OF HEARING OF THIS A PPEAL, THE ASSESSEE REQUESTS THAT THE APPEAL BE ALLOWED AS PRA YED AND JUSTICE BE RENDERED. 2. DURING THE COURSE OF HEARING, THE LD. COUNSEL F OR THE ASSESSEE HAS RAISED THE VALIDITY OF ASSESSMENT ON THE GROUND THA T ASSESSMENT WAS IT(TP)A NO.563/BANG/2016 PAGE 7 OF 10 FRAMED IN THE HANDS OF NON-EXISTING ENTITY. THE LD . COUNSEL FOR THE ASSESSEE FURTHER INVITED OUR ATTENTION TO THE FACT THAT ASSESSMENT ORDER WAS PASSED ON 27.03.2015, WHEREAS THE MERGER OF M/S. GE MEDICAL SYSTEMS (INDIA) PVT. LTD. WITH M/S. WIPRO GE HEALTHCARE PV T LTD. TOOK PLACE ON 01.04.2012 VIDE ORDER OF MERGER DATED 24.07.2013 OF THE HONBLE HIGH COURT OF KARNATAKA. DESPITE THE FACT OF MERGER OF ASSESSEE COMPANY I.E., M/S. GE MEDICAL SYSTEMS (INDIA) PVT. LTD. WITH M/S . WIPRO GE HEALTHCARE PVT LTD. BROUGHT TO THE NOTICE OF THE AO, BUT HE HA S FRAMED THE ASSESSMENT IN THE HANDS OF THE MERGING COMPANY I.E., M/S. GE M EDICAL SYSTEMS (INDIA) PVT. LTD. HE HAS ALSO INVITED OUR ATTENTION TO TH E FACT THAT EVEN DRP HAS RECOGNIZED THIS FACT AND HAS PASSED THE ORDER IN TH E HANDS OF THE MERGED COMPANY I.E., M/S. WIPRO GE HEALTHCARE PVT LTD. SI NCE THE ASSESSMENT ORDER WAS PASSED IN THE HANDS OF NON-EXISTING COMPA NY, THE ASSESSMENT ORDER IS NOT SUSTAINABLE IN THE EYES OF LAW AND DES ERVES TO BE QUASHED. 3. THE LD. DR EMPHATICALLY REFUTED THE CONTENTION O F THE ASSESSEE WITH THE SUBMISSION THAT THE AO ISSUED NOTICE UPON THE E RSTWHILE COMPANY I.E., M/S. GE MEDICAL SYSTEMS (INDIA) PVT. LTD. U/S. 143 (2) DATED 31.07.2012. AT THE TIME OF ISSUANCE OF NOTICE, THE FACT OF MERG ER OF M/S. GE MEDICAL SYSTEMS (INDIA) PVT. LTD. WITH M/S. WIPRO GE HEALT HCARE PVT LTD. WAS NOT BROUGHT TO THE NOTICE OF THE AO. MORE OVER, THE PR OCEEDINGS WERE ATTENDED BY THE REPRESENTATIVES OF THE MERGED COMPANY. THER EFORE, NOTHING IS WRONG IN THE ORDER OF THE AO. IT(TP)A NO.563/BANG/2016 PAGE 8 OF 10 4. THE LD. DR FURTHER CONTENDED THAT THOUGH DRP HAS PASSED AN ORDER IN THE HANDS OF MERGED COMPANY M/S. WIPRO GE HEALTH CARE PVT LTD., BUT THE PAN NO. GIVEN IN THE ORDER IS OF THE ERSTWHILE COMPANY I.E., M/S. GE MEDICAL SYSTEMS (INDIA) PVT. LTD. THEREFORE, THE ASSESSEE HAS NOT BROUGHT THE CLEAR FACTS TO THE NOTICE OF THE AO. T HUS, THE AO ALONE CANNOT BE HELD RESPONSIBLE FOR PASSING THE ORDER IN THE HA NDS OF THE ERSTWHILE COMPANY I.E., M/S. GE MEDICAL SYSTEMS (INDIA) PVT. LTD. AFTER THE MERGER. 5. HAVING CAREFULLY EXAMINED THE ORDERS OF LOWER AU THORITIES IN THE LIGHT OF THE RIVAL SUBMISSIONS, WE FIND THAT UNDISPUTEDLY NOTICE WAS ISSUED U/S. 143(2) ON 31.07.2012 AND TILL THEN, THERE IS NOTHIN G ON RECORD TO ESTABLISH THAT THE FACT OF MERGER WAS BROUGHT TO THE NOTICE O F AO. THE ASSESSMENT WAS COMPLETED ON 27.03.2015 AND IN THE ASSESSMENT O RDER, THE AO HAS MENTIONED AGAINST THE NAME OF ASSESSEE AS M/S. GE M EDICAL SYSTEMS (INDIA) PVT. LTD. (SINCE MERGED WITH M/S. WIPRO GE HEALTHCARE PVT LTD.), MEANING THEREBY THAT DURING THE ASSESSMENT PROCEEDI NGS, THESE FACTS WERE BROUGHT TO THE NOTICE OF THE AO. WHILE PASSING TH E ORDER, THE DRP HAS ALSO PASSED THE ORDER THOUGH IN THE NAME OF MERGED COMPANY I.E., M/S. WIPRO GE HEALTHCARE PVT LTD., BUT THE PAN NO. IS OF THE ERSTWHILE COMPANY I.E., M/S. GE MEDICAL SYSTEMS (INDIA) PVT. LTD. D ESPITE THIS DEFECT IN THE ORDER OF DRP WITH REGARD TO PAN NO., THE ASSESSEE H AS NOT POINTED OUT THESE FACTS TO THE AO AND THE AO HAS COMMITTED THE SAME MISTAKE BY MENTIONING THE PAN NO. OF ERSTWHILE COMPANY. IT(TP)A NO.563/BANG/2016 PAGE 9 OF 10 6. KEEPING THE TOTALITY OF FACTS OF THE CASE, WE AR E OF THE VIEW THAT COMPLETE FACTS WERE NOT BROUGHT TO THE NOTICE OF AO AT THE TIME OF COMPLETION OF ASSESSMENT AS NOTHING HAS BEEN PLACED ON RECORD BY THE ASSESSEE TO DEMONSTRATE THAT ASSESSEE HAS FURNISHED THE NAME OF THE MERGED COMPANY ALONG WITH THEIR PAN NO. THEREFORE, WE ARE OF THE VIEW THAT FOR THE MISTAKE IN THE ASSESSMENT ORDER, THE A O ALONE CANNOT BE HELD RESPONSIBLE AND THE ASSESSEE IS ALSO EQUALLY RESPON SIBLE FOR IT. WE THEREFORE SET ASIDE THE ORDER OF THE AO AND RESTORE THE MATTER TO HIS FILE WITH A DIRECTION TO PASS APPROPRIATE ORDER IN THE N AME OF MERGED COMPANY AGAINST ITS PAN NO., AFTER AFFORDING OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 7. IN THE RESULT, THE APPEAL OF ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON THIS 21 ST DAY OF APRIL, 2017. SD/- SD/- ( S. JAYARAMAN ) (SUNIL KUMAR YA DAV ) ACCOUNTANT MEMBER JUDIC IAL MEMBER BANGALORE, DATED, THE 21 ST APRIL, 2017. / D ESAI S MURTHY / IT(TP)A NO.563/BANG/2016 PAGE 10 OF 10 COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, ITAT, BANGALORE.