Innodata Isogen Pvt. Ltd., New Delhi V. ITO, New Delhi

ITA 5785/DEL/2010

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 90948 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 3 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-04-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Next Hearing Date: 10-04-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 20-12-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: JUDY JAMES STANDING COUN SEL
• Keywords: Transfer pricing; Opportunity of being heard; International transaction; Rule of consistency
• Section: 6; 15

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH I NEW DELHI BEFORE SHRI S.V. MEHROTRA : ACCOUNTANT MEMBER AND SHRI A.T. VARKEY: JUDICIAL MEMBER ITA NO. 5785/DEL/2010 A.Y. 2006-07 INNODATA ISOGEN PVT. LTD., VS. INCOME-TAX OFFICER, 708, SURYA KIRAN BUILDING, COY. WARD NO. 11(4), 19, KASTURBA GANDHI MARG, NEW DELHI. NEW DELHI-110001. PAN: AAACI 2425 G ( APPELLANT ) ( RESPONDENT ) APPELLANT BY : SHRI AJAY VOHRA SR. ADV. MS. LALITA KRISHNAMURTHY CA SH. R. KATYAL CA MS. MEHAK GUPTA ADV. SH. R. BALASUBRAMANIAN CA RESPONDENT BY : SHRI JUDY JAMES STANDING C OUNSEL DATE OF HEARING : 10/04-2015 DATE OF ORDER : 17-04-2015. O R D E R PER S.V. MEHROTRA, A.M:- THIS APPEAL, PREFERRED BY THE ASSESSEE, IS DIRECTE D AGAINST THE ASSESSMENT ORDER DATED 13-10-2010, PASSED U/S 143(3 ) READ WITH SECTION 144C(3) OF THE I.T. ACT, 1961. FOLLOWING GROUNDS AR E RAISED: 1. THAT THE LEARNED ASSESSING OFFICER HAD ERRED IN DETERMINING THE TOTAL INCOME AT RS.2,77,35,851/- AS AGAINST THE CORRECT DETERMINATION OFRS.L,15,182. 2. THE CALCULATIONS OF TAX ALLEGED TO BE DUE BY THE APPELLANT ARE WRONG AND THE NOTICE OF DEMAND UNDER SECTION 15 6 OF THE 2 ITA 5785/DEL/2010 INNODATA ISOGEN PVT. LTD. INCOME-TAX ACT, 1961 DATED 13.10.2010 AND THE INCOM E TAX COMPUTATION IN FORM I1NS 150 CREATING THE SUM PAYAB LE AT RS.L,43,64,088 (INCLUDING INTEREST OF RS.50,20,912 UNDER SECTION 234 B, RS.46,060 BEING WITHDRAWAL OF INTEREST UNDER SECTION 234D) IS WRONG. 3. THAT THE ADDITION OF RS.2,76,20,669 AS MADE BY T HE ASSESSING OFFICER UNDER SECTION 92CA(1) OF THE INCO ME TAX ACT, 1961 ON THE BASIS OF DIRECTIONS OF THE TPO READ WIT H THE DIRECTIONS OF DISPUTE RESOLUTION PANEL (DRP) ISSUED UNDER SECTION 144C (5) OF THE INCOME TAX ACT, 1961, IS AR BITRARY, UNJUST, BASED ON IRRELEVANT MATERIAL AND AT ANY RAT E EXCESSIVE. 4. THAT THE LOWER AUTHORITIES HAD ERRED IN HOLDING THAT THE APPLICATION OF CURRENT YEAR FINANCIAL DATA TO DETER MINE THE ASSESSABLE PROFIT ON THE INTERNATIONAL TRANSACTION IS MANDATORY AND CONSEQUENTLY THE ADDITION OF RS.2,76,20,669 BAS ED ON THE ORDER OF TPO READ WITH THE DIRECTIONS OF DRP ISSUED UNDER SECTION 144C (5) OF THE INCOME TAX ACT, 1961 IS ARB ITRARY, UNJUST AND UNSUSTAINABLE IN LAW. 5. THAT THE LOWER AUTHORITIES HAD ERRED IN HOLDING THAT THE MULTIPLE YEAR DATA IS NOT APPROPRIATE FOR BENCH MAR KING INTERNATIONAL TRANSACTIONS AND CONSEQUENTLY THE ADD ITION OF RS.2,76,20,699 MADE BY THE ASSESSING OFFICER IN ACC ORDANCE WITH THE ORDER OF THE TPO READ WITH THE DIRECTIONS OF DRP ISSUED UNDER SECTION 144C (5) OF THE INCOME TAX ACT , 1961 THEREBY APPLYING THE OPERATING PROFIT MARGIN OF 19. 74% IS ARBITRARY, UNJUST, BASED ON IRRELEVANT MATERIAL, NO T SUSTAINABLE UNDER THE LAW AND AT ANY RATE EXCESSIVE. 6. THAT THE ACTION OF THE LOWER AUTHORITIES IN NOT FOLLOWING THE MULTIPLE YEAR DATA OF THE TWO PRECEDING YEARS A ND THEN MAKING THE ADDITION OF RS.2,76,20,699 IS ARBITRARY, AGAINST THE PRINCIPLE OF CONSISTENCY AND NOT SUSTAINABLE IN LAW . 3 ITA 5785/DEL/2010 INNODATA ISOGEN PVT. LTD. 7. THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN CHARGING INTEREST UNDER SECTION 234B, 234D OF THE A CT. 8. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND, OR VARY THE ABOVE GROUNDS OF APPEAL AT OR BEFORE THE TIME O F HEARING. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASESSSEE CO MPANY, IN THE RELEVANT YEAR WAS ENGAGED IN THE BUSINESS OF PURCHASE OF COM PUTER AND COMMUNICATION RELATED PERIPHERALS. THE ASSESSEE COM PANY WAS FOUNDED IN 1988 AND IS A WORLDWIDE SOLUTION-DRIVEN COMPANY IN THE VANGUARD OF THE DIGITAL EXPORT OF COMPUTER SOFTWARE REVOLUTION WITH ADVANCED TECHNOLOGY AS ITS MAINSPRING. 2.1. THE ASSESSEE COMPANY HAD ENTERED INTO FOLLOWIN G INTERNATIONAL TRANSACTIONS. THE SUMMARY OF ECONOMIC ANALYSIS OF A SSESSEE COMPANY IS AS UNDER: NATURE OF INTERN ATIONAL TRANSACTION METHOD SELECTED PROFIT LEVEL INDICATOR INNODATA INDIAS RESULTS. COMPARABLE RESULTS - PROVISION OF IT ENABLED SERVICES - PURCHASE OF SOFTWARE TRANSACTIONAL NET MARGIN METHOD (TNMM) OPE RATING PROFIT/ TOTAL COST (OP/TC) 9% 8% 2.2. THE TPO ACCEPTED THE TNMM METHOD SELECTED BY T HE ASSESSEE AND ALSO THE PLI BEING OPERATING PROFIT/ TOTAL COST AS THE BENCH MARKING OF THE INTERNATIONAL TRANSCTIONS. THE ASSESSEE SELECTED A TOTAL OF 22 COMPANIES IN RESPECT OF INNODATA INDIAS PROVISION OF IT ENABLED BACK-OFFICE SERVICES ACTIVITY, THE PLI IN RESPECT OF WHICH WORKED OUT TO 8%. 4 ITA 5785/DEL/2010 INNODATA ISOGEN PVT. LTD. 2.3. THE ASSESSEE HAD CONSIDERED MULTIPLE YEAR DATA IN RESPECT OF COMPARABLES AND TOOK AVERAGE OF THE SAME. HOWEVER, TPO CONSIDERED ONLY THE CURRENT YEARS DATA. THE TPO HAD REJECTED SOME OF THE COMPARABLES SELECTED BY ASSESSEE, WHICH WERE LOSS MAKING AND AL SO ON CERTAIN OTHER COUNTS. THE ASSESSEE FILED OBJECTIONS BEFORE LD. D RP, INTER ALIA, FOR INCLUSION OF FOLLOWING COMPARABLES: - ASK ME INFO HUB LTD. (SHREEJAL INFO HUBS LTD.); - CMC LTD. - HYPERSOFT TECHNOLOGIES LTD. - MCS LTD. - MAPRO INDUSTRIES LTD. - TATA SERVICES LTD. 2.4. THE LD. DRP WHILE DISPOSING OF THE ASSESSEES OBJECTIONS, HELD AS UNDER: WE HAVE GONE THROUGH THE DETAILED SUBMISSIONS MADE BY THE AR. WE FIND THAT THE TPO HAS DISCUSSED THE VARIOUS OBJECTI ONS RAISED BY THE AR ON THIS ISSUE IN PARA 7 OF THE ORDER. IN SHORT T HE TPO HAS REJECTED THE VARIOUS COMPARABLES ON THE GROUNDS SUCH AS (A) FUNCTIONAL DISSIMILARITY (B) RPT BEING MORE THAN 40% (C) PERSI STENT LOSS MAKING COMPANIES(D) NEGATIVE NETWORTH (E) PROVIDING SERVIC ES ON NO PROFIT NO LOSS BASIS. THE PANEL IS OF THE VIEW THAT THE TPO H AS GIVEN VALID REASONS IN REJECTING THESE COMPARABLES AFTER DETAIL DISCUSSION IN THE DRAFT ORDER. HENCE THE OBJECTIONS RAISED BY THE ASS ESSEE ARE REJECTED. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US. 3. LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE LEARNED DRP DISMISSED THE ASSESSEES OBJECTIONS REGARDING REJECTION OF COMPAR ABLES SELECTED BY THE ASSESSEE WITHOUT ASSIGNING ANY REASON. THEREFORE, THE MATTER MAY BE RESTORED TO THE FILE OF DRP WITH A DIRECTION TO DECIDE THE ISSUE BY PASSIN G A REASONED ORDER. 5 ITA 5785/DEL/2010 INNODATA ISOGEN PVT. LTD. 4. HAVING HEARD BOTH THE PARTIES AND GOING THROUGH THE MATERIAL AVAILABLE ON RECORD, WE FIND FORCE IN THE CONTENTION OF THE LEAR NED COUNSEL FOR THE ASSESSEE. FROM THE DIRECTIONS OF LD. DRP, WE FIND THAT THE LD . PANEL HAS SIMPLY REJECTED THE ASSESSEES OBJECTIONS WITHOUT ASSIGNING ANY REASON . THE ORDER OF THE LEARNED DRP ON THIS ISSUE BEING A NON-SPEAKING ORDER, THE ASSES SMENT ORDER PASSED IN PURSUANCE THERETO CANNOT STAND IN THE EYE OF LAW. ACCORDINGL Y, WE SET ASIDE THE ORDER OF LD. DRP ON THIS ISSUE AND RESTORE THE MATTER TO THE F ILE OF THE LD. DRP TO PASS A REASONED ORDER IN ACCORDANCE WITH LAW, AFTER AFFORD ING REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. WE ORDER ACCORDINGLY. 5. IN THE RESULT, ASSESSEE'S APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN OPEN COURT ON 17-04-2015. SD/- SD/- (A.T. VARKEY ) ( S.V. MEHROTRA ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 17-04-2015. MP: C OPY TO : 1. ASSESSEE 2. AO 3. CIT 4. CIT(A) 5. DR