REACH NETWORK INDIA P. LTD, MUMBAI V. ITO 9(3)(4), MUMBAI

ITA 5632/MUM/2013

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 0127 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 10 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-07-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: G
• Next Hearing Date: 27-04-2017
• Assessment Year: 2009-2010
• Appeal Filed On: 04-09-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: M C OMI NINGSHEN
• Keywords: Transfer pricing

Judgement Text

, INCOME-TAX APPELLATE TRIBUNAL -GBENCH MUMBAI , , BEFORE S/SH.RAJENDRA,ACCOUNTANT MEMBER AND A MARJIT SINGH,JUDICIAL MEMBER ./I.T.A./5632/MUM/2013, / ASSESSMENT YEAR: 2009-10 REACH NETWORK INDIA PRIVATE LTD. TIMES SQUARE, UNIT-4, B-WING, 3RD FLOOR ANDHERI KURLA ROAD ANDHERI EAST,MUMBAI-400 059. PAN:AABCT 2555 M VS. INCOME TAX OFFICER-9(3)(4) AAYAKAR BHAVAN, M.K. ROAD MUMBAI-400 020. ( /APPELLANT ) ( / RESPONDENT) / REVENUE BY: SHRI M.C. OMI NINGSHEN-CIT-DR /ASSESSEE BY: S/SHRI MILIN THAKORE &VALLABH GOKHALE-AR / DATE OF HEARING: 27/04/2017 / DATE OF PRONOUNCEMENT: 05/07/2017 PER RAJENDRA, AM - CHALLENGING THE ORDER DTD.07/11/2012 OF THE CIT(A)- 20, MUMBAI THE ASSESSEE HAS FILED THE PRESENT APPEAL.ASSESSEE-COMPANY,ENGAGED IN THE BUSI NESS OF PROVIDING INTERNET SERVICES AND NETWORK SUPPORT SERVICES, FILED ITS RETURN OF INCOM E ON 25/09/2009,DECLARING INCOME OF RS. 16.30 LAKHS. THE ASSESSING OFFICER(AO)COMPLETED THE ASSESSMENT ON U/S.143(3) OF THE ACT, ON 16/12/2011 ,DETERMINING THE INCOME OF THE ASSESS EE AT RS.3.32 CRORES.DURING THE COURSE OF HEARING BEFORE US,THE AUTHORISED REPRESENTATIVE (AR )STATED THAT THE ASSESSEE WAS NOT INTERESTED IN PURSUING GROUND NO.6, THEREFORE,SAME STANDS DISMISSED AS NOT PRESSED. 2. THOUGH THE ASSESSEE HAS RAISED FIVE OTHER GROUNDS O F APPEAL.BUT ALL OF THEM DEAL WITH THE SAME ISSUE-NON RECONCILIATION OF VARIOUS ITEMS OF I NCOME.FIRST EFFECTIVE GROUND OF APPEAL (GOA.1&2)IS ABOUT DIFFERENCE BETWEEN CUMULATIVE INC OME FOR THE PERIOD FY. 2005-06 TO FY.2008-09 AS PER TDS CERTIFICATE AND CUMULATIVE IN COME OFFERED TO TAX.DURING THE ASSESSMENT PROCEEDINGS,THE AO FOUND THAT THERE WAS DIFFERENCE BETWEEN CUMULATIVE INCOME FOR THE PERIOD FY.2005-06 TO FY.2008-09 AS PER TDS CERTIFICATE AND CUMULATIVE INCOME OFFERED TO TAX FOR FY.2005-06 TO 2008-09.HE DIRECTE D IT TO FILE RECONCILIATION IN THAT REGARD. DETAILS OF THE RECONCILIATION OF INCOME AS PER TDS CERTIFICATES AND THAT AS OFFERED TO TAX BY THE APPELLANT WERE SUBMITTED VIDE LETTERS DATED 20. 10.2011 AND 30.11.2011.IT WAS ARGUED THAT ENTIRE INCOME AS PER TDS CERTIFICATE HAS BEEN OFFER ED TO TAX EITHER DURING THE YEAR; IN PRECEDING YEAR OR SUBSEQUENT YEAR,THAT IT HAD CLAIM ED TDS CREDIT DURING THE YEAR ;CORRESPONDING INCOME WHICH WAS OFFERED TO TAX IN E ARLIER YEARS, SINCE THE TDS CERTIFICATE HAD BEEN RECEIVED DURING THE YEAR,THAT IT WOULD RAI SE INVOICES ON ITS CUSTOMERS ON ADVANCE 5632/M/13(09-10) REACH NETWORK INDIA PVT. LTD. 2 BASIS AND WOULD ISSUE CREDIT NOTES IN CASE THERE WA S A DEFAULT IN SERVICES.THE ASSESSEE ALSO FILED RECONCILIATION OF INCOME WITH TDS CERTIFICAT E FROM AY.2005-06 TO FY.2008-09 AND STATED THAT DIFFERENCE WAS ON ACCOUNT OF CREDIT NO TES ISSUED TO HCL TOTALLING TO RS.25,50,994/- DURING THE PERIOD FY.2005-06 TO FY.2 008-09,THAT SAME WERE NOT CONSIDERED BY HCL BEFORE DEDUCTING TAX AT SOURCE,THAT IF CREDI T NOTES WERE CONSIDERED (RS. 25,50,994/- ),INCOME AS PER TDS CERTIFICATES WOULD BE LOWER TH AN INCOME AS PER BOOKS.ALTERNATIVELY,IT WAS ARGUED THAT INCOME FOR A PARTICULAR ASSESSMENT YEAR CAN BE BROUGHT TO TAX ONLY IN THAT ASSESSMENT YEAR AND NOT IN OTHER ASSESSMENT YEAR,TH AT THERE WAS SHORTFALL OF RS.5,13,541/- ONLY ON ACCOUNT OF DIFFERENCE BETWEEN INCOME OFFERE D TO TAX VIS-A-VIS TDS CERTIFICATES PERTAINING TO AY. 2009-10,THAT THE DISPUTED AMOUNT COULD BE TAXED IN THAT AY.,THAT SHORTFALL PERTAINING TO OTHER ASSESSMENT YEARS COULD NOT BE B ROUGHT TO TAX IN AY.2009-10 UNLESS IT WAS SHOWN THAT INCOME ACCRUED/ RECEIVED DURING THE YEAR ,THAT IT WAS NOT THE CASE OF THE AO THAT INCOME FOR FY.2005-06,2006-07, 2007-08 PERTAINED TO AY.2009-10.ALTERNATIVELY,IT WAS ARGUED THAT UNDER SECTION 199 R.W. RULE 37 BA(3) OF THE RULES PRO RATA TDS CREDIT PERTAINING TO SHORTFALL IN INCOME FOR THE YEAR RELATING TO HL INFINET SHOULD BE ALLOWED.HOWEVER,THE AO,AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSE E, HELD THAT THE ASSESSEE HAD NOT SHOWN THE INCOME ACCRUED TO IT FOR THE YEAR UNDER CONSIDE RATION, WHILE FILING THE RETURN OF INCOME. FINALLY, HE MADE AN ADDITION OF RS.23.95 LAKHS TO T HE TOTAL INCOME OF THE ASSESSEE. 2.1. AGGRIEVED BY THE ORDER OF THE AO,THE ASSESSEE FILED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY(FAA)AND MADE ELABORATE SUBMISSIONS.AFTER CONSIDERING THE ASSESSMENT ORDER AND THE SUBMISSIONS OF THE ASSESSEE,HE CONFIRMED THE OR DER OF THE AO AND DISMISSED THE APPEAL OF THE ASSESSEE. 2.2. DURING THE COURSE OF HEARING BEFORE US,THE AR STATE D THAT THE AO AND THE FAA HAD CONSIDERED THE RECONCILIATION FILED BY THE ASSESSEE ,THAT THERE WAS NO JUSTIFICATION FOR MAKING THE ADDITION.THE DEPARTMENTAL REPRESENTATIVE(DR) SU PPORTED THE ORDER OF THE FAA. 2.3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.WE FIND THAT MAIN ISSUE IS THE DIFFERENCE BETWEEN CUMULATIVE INC OME FOR THE PERIOD AY.2006-07 TO AY.2009-10 AS PER TDS CERTIFICATE(FORM 26AS) RS.3,2 5,58, 595/-AND CUMULATIVE INCOME OFFERED TO TAX FOR THAT PERIOD (RS.3,01,98,119/-), THAT THE ASSESSEE HAD FILED RECONCILIATION IN THAT MATTER,THAT SAME WAS NOT ANALYSED PROPERLY BY THE AO/FAA,THAT THERE IS NO EVIDENCE ON RECORD THAT UN-RECONCILED AMOUNT IS MORE THAN RS.5. 13 LAKHS FOR THE YEAR UNDER APPEAL.THE AO HAS NOT GIVEN ANY FINDING ABOUT THE BALANCE AMOU NT.IN THESE CIRCUMSTANCES,WE HOLD THAT THE MATTER NEEDS FURTHER VERIFICATION AND INVESTIGA TION.SO,IN THE INTEREST OF JUSTICE,WE ARE 5632/M/13(09-10) REACH NETWORK INDIA PVT. LTD. 3 REMITTING BACK THE MATTER TO THE FILE OF THE AO FOR FRESH ADJUDICATION.HE IS DIRECTED TO AFFORD A REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE.F IRST EFFECTIVE GROUND OF APPEAL(GOA- 2&3)IS DECIDED IN FAVOUR OF THE ASSESSEE,IN PART. 3. ADDITION ON ACCOUNT OF CREDIT NOTES ISSUED TO REACH GLOBAL SERVICES LTD (RGSL),AN ASSOCIATED ENTERPRISE (AE) OF THE ASSESSEE IS THE S UBJECT MATTER OF THE SECOND GROUND OF APPEAL.DURING THE ASSESSMENT PROCEEDINGS,THE AO FOU ND THAT THE ASSESSEE HAS ENTERED INTO AN AGREEMENT WITH RGSL WHEREBY IT WAS TO PROVIDE NETWO RK SUPPORT SERVICES TO RGSL,THAT AS PER THE TP ARRANGEMENT,THE AMOUNT RECEIVABLE FROM R GSL FOR SERVICES WAS TO BE DETERMINED AS PER A FORMULAE VIZ. (RETURN ON COSTS + RETURN ON ASSETS)-(EXTERNAL CUSTOMER REVENUE + ISP REVENUE + OTHER INCOME),THAT DURING THE YEAR UNDER APPEAL THE ASSESSEE HAD RAISED INVOICES OF RS.15.76 CRORES ON AE ON PROVISIONAL BASIS, THAT ON THAT BASIS THE ASSESSEE ESTIMATED THAT THE INCOME RECEIVABLE AS PER THE AGREEMENT WOULD BE LES S THAN THE INVOICES RAISED,THAT IT ISSUED A CREDIT NOTE OF RS.2.49 CRORES,THAT SUBSEQUENTLY IT RAISED AN INVOICE ON RGSL FOR AN AMOUNT OF RS.1.91 CRORES.HOWEVER,THE AO DID NOT ACCEPT THE CR EDIT NOTES ISSUED FOR PARTIAL REVERSAL OF INVOICES RAISED ON THE GROUND THAT THESE CREDIT NOT ES WERE ISSUED TO REDUCE/SUPPRESS THE TAXABLE INCOME. 3.1. IN THE APPELLATE PROCEEDINGS,THE FAA CONFIRMED THE ORDER OF THE AO. 3.2. BEFORE US,THE AR ARGUED THAT DURING THE PERIOD FROM 01/04/2008 TO 28/02/2009, THE ASSESSEE HAD RAISED INVOICES OF RS.15,76,51,854/- ( INCLUDING SERVICE TAX) ON RGSL ON PROVISIONAL BASIS,THAT AMOUNT EXCLUDING SERVICE TAX WAS RS.14,04,15,739/-,THAT COPIES OF INVOICES AND LEDGER A/C WITH RGSL SUBMITTED VIDE LE TTER DT.7/12/2011,THAT ON 31/3/2009, BASED ON PROVISIONAL ACCOUNTS THE ASSESSEE ESTIMAT ED THAT THE INCOME RECEIVABLE AS PER THE AGREEMENT WOULD BE LESS THAN THE INVOICES RAISED T ILL DATE AND ACCORDINGLY IT ISSUED A CREDIT NOTE OF RS.2,49,73,220/- (DT. 6/04/2009) OF USD 5, 01,570 (EXCLUDING SERVICE TAX),THAT THE SAME WAS REFLECTED IN RGSL LEDGER A/C.,THAT THE AMO UNT BILLED BY IT TO RGSL (NET OF CREDIT NOTE) UPTO MARCH,2009 WAS RS.11,54,42,519/-,THAT S UBSEQUENTLY BASED ON FINAL ACCOUNTS THE INCOME TO BE INVOICED TO RGCL AS PER ARRANGEMENT WA S WORKED OUT AT RS.13,45,69,123/,THAT LATER ON IT RAISED AN INVOICE ON RGSL FOR AN AMOUNT OF RS.1,91,26,604/- THAT WAS EXCLUSIVE OF SERVICE TAX,THAT THERE WAS NO JUSTIFICATION FOR MAK ING ANY ADDITION.THE DR STATED THAT MATTER COULD BE DECIDED ON MERITS. 3.3. WE FIND THAT THE ASSESSEE HAD FILED COPY OF LEDGER ACCOUNTS OF RGSL CONSIDERING CREDIT NOTE AND FINAL INVOICE VIDE LETTER DTD. 07/12/2011, COPY OF INVOICES,COPY OF CREDIT NOTE DTD. 6/04/2009 ISSUED FOR RS.2,49,73,220/- AND CONFIRMAT ION OF ACCOUNTS FROM RGSL FOR YEAR 5632/M/13(09-10) REACH NETWORK INDIA PVT. LTD. 4 UNDER APPEAL.FROM THE STATEMENT (PG. 207 OF THE PB) ,IT IS CLEAR THAT RGSL HAD INCLUDED THE CREDIT NOTE OF USD $5,53,232 IN ITS BOOKS OF ACCOUN T AND WORKING OF FINAL FEES RECEIVABLE FROM RGSL (RS.13, 45, 69,123/-).WE FIND THAT ALL TH E ABOVE FACTS WERE NOT ANALYSED PROPERLY BY THE AO/ FAA DURING THE ASSESSMENT/APPELLATE PROC EEDINGS.THEREFORE,IN THE INTEREST OF JUSTICE,WE ARE RESTORING BACK THE ISSUE TO THE FILE OF THE AO FOR FRESH ADJUDICATION.HE IS DIRECTED TO DECIDE THE ISSUE AFTER AFFORDING REASON ABLE OPPORTUNITY OF HEARING TO THE ASSESSEE.SECOND EFFECTIVE GROUND OF APPEAL (GOA-3) IS PARTLY ALLOWED. 4. NEXT TWO GROUNDS OF APPEAL DEAL WITH ADDITION ON AC COUNT OF CREDIT NOTES ISSUED TO BROADBAND PACENET (BP)-,AMOUNTING TO RS.52.50 LAKHS (GOA-4) AND SHORTFALL ON ACCOUNT OF DIFFERENCE IN INCOME OFFERED TO TAX BY THE APPELLAN T AND THAT AS PER AIR DATA AMOUNTING TO RS.22.14 LAKHS (GOA-5) RESPECTIVELY. 4.1. DURING THE COURSE OF HEARING BEFORE US,REPRESENTATI VES OF BOTH THE SIDES AGREED THAT ISSUES INVOLVED IN THE ABOVE MENTIONED TWO GROUNDS NEED FU RTHER VERIFICATION AND INVESTIGATION AS THE DOCUMENTS PRODUCED BEFORE THE TRIBUNAL HAVE TO CONSIDERED IN PROPER PERSPECTIVE. THEREFORE, IN THE INTEREST OF JUSTICE, WE ARE RESTO RING BACK BOTH THE ISSUES TO THE FILE OF THE AO FOR FRESH ADJUDICATION, WHO WOULD DECIDE THE SAME A FTER AFFORDING A REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE. GROUNDS NO.4 AND 5 ARE DEC IDED IN FAVOUR OF THE ASSESSEE, IN PART. 5. SEVENTH GROUND OF APPEAL IS AN ALTERNATIVE GROUND, HENCE, IS NOT BEING ADJUDICATED. AS A RESULT, APPEAL FIL ED BY THE ASSESSEE STANDS PARTLY ALLOWED. ! ' #$% &'() . ORDER PRONOUNCED IN THE OPEN COURT ON 5 TH JULY , 2017. &* + ' 5 ,2017 SD/- SD/- ( / AMARJIT SINGH ) ( / RAJENDRA ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; + ' /DATED : 05.0 7 .2017. JV.SR.PS. / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR BENCH, ITAT, MUMBAI / , , . . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , /ITAT, MUMBAI.