Gateway Technolabs Pvt. Ltd., Ahmedabad V. The Deputy Commissioner of Income Tax, Circle-2(1)(1), Ahmedabad

ITA 677/AHD/2017

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 4640 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 7 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-10-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2012-2013
• Appeal Filed On: 17-03-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: APOORVA BHARADWAJ
• Assessee Lawyers: T P HEMANI
• Keywords: Transfer pricing; Earning of tax free income
• Section: 92C; 143(3); 14A

Judgement Text

ITA NO.677/AHD/2017 ASSESSMENT YEAR: 2012-13 PAGE 1 OF 4 IN THE INCOME TAX APPELLATE TRIBUNAL, AHMEDABAD D BENCH, AHMEDABAD [CORAM: PRAMOD KUMAR VICE PRESIDENT AND MADHUMITA R OY JM] ITA NO.677/AHD/2017 ASSESSMENT YEAR: 2012-13 GATEWAY TECHNOLABS PVT. LTD., .. APPELLANT B-81, CORPORATE HOUSE, JUDGES BUNGALOWS ROAD, S.G. HIGHWAY, BODAKDEV, AHMEDABAD 380 054. [PAN: AABCG 4206 C] VS. DY. COMMISSIONER OF INCOME TAX, CIRCLE 2(1)(1), AHMEDABAD. .......... RESPONDENT APPEARANCES BY T.P. HEMANI FOR THE APPELLANT APOORVA BHARADWAJ FOR THE RESPONDENT DATE OF CONCLUDING THE HEARING : 24.07.2018 DATE OF PRONOUNCEMENT : 22.10.2018 O R D E R PER PRAMOD KUMAR, VICE PRESIDENT: 1. BY WAY OF THIS APPEAL, THE ASSESSEE APPELLANT HA S CHALLENGED CORRECTNESS OF THE ORDER DATED 28 TH DECEMBER 2016, PASSED BY THE LEARNED CIT (A), IN T HE MATTER OF ASSESSMENT UNDER SECTION 143(3) OF THE INCOME TAX A CT, 1961, FOR THE ASSESSMENT YEAR 2012-13. 2. THE ASSESSEE HAS FILED CONCISE GROUNDS OF APPEAL , IN CONFORMITY WITH RULE 8 OF THE APPELLATE TRIBUNAL (INCOME TAX) RULES 1963, AND PRAYED THAT THE SAME BE SUBSTITUTED FOR THE ORIGINAL GROUNDS OF APPEAL PR AYER GRANTED. 3. IN THE FIRST GROUND OF APPEAL, THE ASSESSEE HAS RAISED THE FOLLOWING GRIEVANCE:- (1) THE LD. CIT(A) HAS ERRED, BOTH IN LAW AND ON T HE FACTS OF THE CASE, IN CONFIRMING THE UPWARD ADJUSTMENT OF RS.47,11,618 /- UNDER SECTION 92C OF THE ACT. 4. SO FAR AS THIS GRIEVANCE OF THE ASSESSEE IS CONC ERNED, THE RELEVANT MATERIAL FACTS ARE LIKE THIS. THE ASSESSEE IS ENGAGED IN TH E BUSINESS OF PROVIDING SOFTWARE DEVELOPMENT SERVICES. THE ASSESSING OFFICER HAD MA DE AN ARMS LENGTH PRICE ADJUSTMENT IN RESPECT OF SERVICES PROVIDED TO ASSOC IATED ENTERPRISES, AMOUNTING TO ITA NO.677/AHD/2017 ASSESSMENT YEAR: 2012-13 PAGE 2 OF 4 RS.2,11,46,680/- BUT IT WAS SUBSEQUENTLY RECTIFIED AND THEN QUANTIFIED AT RS.47,11,618/-. THE METHOD OF ASCERTAINING ARMS L ENGTH PRICE WAS ADOPTED AT TRANSACTIONAL NET MARGIN METHOD (TNMM). THERE WAS NO DISPUTE ON THIS ASPECT BUT THE DISPUTE WAS CONFINED TO COMPARABLES AND TO FORE IGN EXCHANGE BEING EXCLUDED FROM OPERATING REVENUE. THE GRIEVANCE OF THE ASSES SEE WAS ALSO REJECTED BY THE LEARNED CIT(A) AND THE IMPUGNED ALP ADJUSTMENT WAS THUS CONFIRMED IN APPEAL AS WELL. THE ASSESSEE IS NOT SATISFIED AND IS IN FURT HER APPEAL BEFORE US. 5. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED FACTS OF THE CASE IN THE LIGHT OF APPLIC ABLE LEGAL POSITION. 6. WE HAVE NOTED THAT SO FAR AS ASSESSEES GRIEVANC E AGAINST EXCLUSION OF CGA- AVK SOFTWARE & EXPORT LIMITED IS CONCERNED, IT HAS BEEN REJECTED AS CONSISTENTLY LOSS MAKING CONCERN WHICH IS CLEARLY INCORRECT, BEC AUSE ONCE FOREIGN EXCHANGE GAINS ARE TO BE INCLUDED AS OPERATING INCOME WHIC H IS WHAT OUGHT TO BE DONE, THE FIGURES AT PAGE 33 OF CIT(A)S ORDER ITSELF SHOW PR OFITABILITY IN THE FINANCIAL YEAR 2008- 09, 2010-11 AND 2012-13. IN OUR CONSIDERED VIEW, T HEREFORE, CGA-AVK SOFTWARE & EXPORT LIMITED WAS WRONGLY EXCLUDED. WE DIRECT THE ASSESSING OFFICER TO INCLUDE THE SAME IN THE LIST OF COMPARABLES. AS REGARDS THE QU ESTION AS TO WHETHER FOREIGN EXCHANGE GAINS ARE TO BE INCLUDED IN OPERATING PROF ITS OR NET, THE ISSUE IS SETTLED IN FAVOUR OF THE ASSESSEE BY A CO-ORDINATE BENCH DECIS ION IN THE CASE OF ITO VS. EDAG ENGINEERS & DESIGN INDIA LIMITED [(2014) 52 TAXMANN .COM 398 (DEL)] AND HONBLE JURISDICTIONAL HIGH COURTS JUDGEMENT IN THE CASE O F CIT VS. ALPS CHEMICALS PVT. LTD. (367 ITR 594). QUITE CLEARLY, THEREFORE, THE ASSES SEE DESERVES TO SUCCEED ON BOTH THE ISSUES. THE FOREIGN EXCHANGE GAINS ARE, IN OUR OPINION, REQUIRED TO BE TREATED AS PART OF OPERATING PROFITS AND CGA-AVK SOFTWARE & EX PORT LIMITED IS REQUIRED TO BE INCLUDED IN THE COMPARABLES. WE ACCEPT THE PLEA, AN D REMIT THE MATTER TO THE FILE OF THE ASSESSING OFFICER TO VERIFY WHETHER, UPON THE A BOVE DIRECTIONS BEING IMPLEMENTED, MARGIN WILL BE LESS THAN 5%. IF SO, T HE ENTIRE ALP ADDITION WILL STAND DELETED. IN ANY OTHER CASE, THE ALP ADJUSTMENT WIL L STAND MODIFIED SUITABLY. WITH THESE DIRECTIONS, MATTER STANDS RESTORED TO THE ASS ESSMENT STAGE. 7. GROUND NO.1 IS THUS ALLOWED FOR STATISTICAL PURP OSES IN THE ABOVE TERMS. 8. IN GROUND NO.2, THE ASSESSEE HAS RAISED THE FOLL OWING GRIEVANCE: (2) THE LD. CIT(A) HAS ERRED, BOTH IN LAW AND ON T HE FACTS OF THE CASE, IN CONFIRMING THE ADDITION OF RS.1,98,429/- MADE U/ S.36(1)(VA) R.W.S. 2(24(X) OF THE ACT TOWARDS LATE PAYMENT OF EMPLOYEE S CONTRIBUTION TO PF & ESIC. 9. LEARNED REPRESENTATIVE FAIRLY AGREE THAT THIS IS SUE IS COVERED, IN FAVOUR OF THE ASSESSEE, BY A CO-ORDINATE BENCH DECISION IN THE CA SE OF SUZLON ENERGY LIMITED VS. DCIT (ITA NOS.764 & 765/AHD/2018; ORDER DATED 27.06 .2018 WHEREIN THE CO- ORDINATE BENCH HAVE OBSERVED AS FOLLOWS :- 3. LEARNED REPRESENTATIVES FAIRLY AGREE THAT THE AFORESAID ISSUE IS SQUARELY COVERED AGAINST THE ASSESSEE BY HONBLE JU RISDICTIONAL HIGH COURTS JUDGMENT IN THE CASE OF CIT VS. GUJARAT STA TE ROAD TRANSPORT CORPORATION, 366 ITR 170 (GUJ.), WHEREIN IT IS CATE GORICALLY HELD THAT IN ITA NO.677/AHD/2017 ASSESSMENT YEAR: 2012-13 PAGE 3 OF 4 THE CASE OF DELAYED DEPOSIT OF EMPLOYEES CONTRIBUT ION TO PF, THE SAME WILL NOT BE DEDUCTABLE IN COMPUTING INCOME UNDER SE CTION 28 OF THE ACT. THE LAW SO LAID DOWN BY THE HONBLE JURISDICTIONAL HIGH COURT IS BINDING ON US. THE MERE FACT THAT AN APPEAL AGAINST THE SAI D DECISION IS PENDING BEFORE THE HONBLE SUPREME COURT DOES NOT DILUTE BI NDING NATURE OF THIS JUDICIAL PRECEDENT. AS REGARD DISMISSAL OF SLP IN T HE CASE OF RAJASTHAN STATE BEVERAGES CORPORATION LTD (2017) 84 TAXMANN.C OM 185 (SC), IT IS ONLY ELEMENTARY THAT WHEN A SLP IS DISMISSED BY A N ON-SPEAKING ORDER, IT DOES NOT CONSTITUTE A LAW DECLARED BY HONBLE SU PREME COURT, AND AS SUCH, IT IS NOT BINDING UNDER ARTICLE 141 OF THE CO NSTITUTION OF INDIA. THE AUTHORITY, FOR THIS PROPOSITION, IS CONTAINED IN A SERIES OF JUDGMENTS OF HONBLE SUPREME COURT, INCLUDING, INTER ALIA, IN TH E CASES OF STATE OF MANIPUR VS. THINGUJAM BROJEN MEETAI, (1996) 9 SCC 2 9; OM PRAKASH GARGI V. STATE OF PUNJAB, (1996) 11 SCC 399 AND SUN EXPORT CORPN V. COLLECTOR OF CUSTOMS, AIR 1997 SC 2658. WE, THEREFO RE, SEE NO LEGALLY SUSTAINABLE MERIT IN THE CASE OF THE ASSESSEE AND, RESPECTFULLY FOLLOWING THE JUDGMENT OF HONBLE JURISDICTIONAL HIGH COURT I N THE CASE OF GUJARAT STATE ROAD TRANSPORT CORPORATION (SUPRA), DISMISS T HE GRIEVANCE OF THE ASSESSEE IN PRINCIPLE. WE MAY, HOWEVER, ADD THAT A CO-ORDINATE BENCH OF THIS TRIBUNAL, IN THE CASE OF RAJJRATNA METAL INDUS TRIES LTD VS. ACIT (ITA NO.940/AHD/2015; ORDER DATED 22.09.2017), HAS OBSER VED AS FOLLOWS:- 3. ASSESSEE'S LATTER SUBSTANTIVE GROUND CHALLENGE S CORRECTNESS OF BOTH THE LOWER AUTHORITIES' ACTION DISALLOWING/ADDING A SUM OF RS.3,85,810/- U/S. 36(1 )(VA) R.W.S. 2(24) OF THE ACT ON ACCOUNT LATE PAYMENT OF EMPLOYEES' CO NTRIBUTION TO PF & ESI IN QUESTION. THERE IS NO DISPUTE THAT HON' BLE JURISDICTIONAL HIGH COURT'S DECISION IN CIT VS. GUJ ARAT STATE ROAD TRANSPORT CORPORATION (2014) 366 ITR 170 (GUJ) UPHO LDS SUCH A DISALLOWANCE IN PRINCIPLE. THE ASSESSEE'S CASE HOWE VER IS THAT RELEVANT DUE DATE HAS TO BE SEEN NOT FROM THE RELEV ANT MONTH OF SALARY BUT THE ONE PERTAINING TO ITS PAYMENT. HE TH EN FILES A COMPUTATION CHART INDICATING IT TO HAVE PAID ABOVE EMPLOYEES' PF/ESI CONTRIBUTIONS ON 22.05.2009 AND 28.05.2009 A S AGAINST THE DUE DATES THEREOF FOLLOWING ON 20.06.2009. THE REVE NUE FAILS TO DISPUTE THIS FACTUAL POSITION. WE THEREFORE QUOTE T HIS TRIBUNAL'S CO- ORDINATE BENCH DECISION IN KANOI PAPER & INDUSTRIES LTD. VS. ACIT 75 TTJ 448 THAT THE RELEVANT DATE IN SUCH CASE IS T HAT OF MONTH OF THE ACTUAL PAYMENT OF WAGES/SALARIES. WE THEREFORE RELY ON THE ABOVE CO-ORDINATE BENCH DECISION AND DIRECT THE ASS ESSING OFFICER TO DELETE THE IMPUGNED DISALLOWANCE AS WELL . 4. IN EFFECT THUS WHILE ANY DELAYED DEPOSIT OF PF/ ESI IS TO BE DISALLOWED, IN TERMS OF HONBLE GUJARAT HIGH COURT S JUDGMENT IN THE CASE OF GUJARAT STATE ROAD TRANSPORT CORPORATION (S UPRA), THE QUESTION AS TO WHETHER THERE IS A DELAY OR NOT MAY BE DECIDE D BY THE ASSESSING OFFICER IN THE LIGHT OF ABOVE OBSERVATIONS BY THE C OORDINATE BENCH. THE ASSESSEE WILL GET RELIEF, IF FOUND ADMISSIBLE, ON T HAT BASIS ITA NO.677/AHD/2017 ASSESSMENT YEAR: 2012-13 PAGE 4 OF 4 10. FOLLOWING THE CO-ORDINATE BENCH DECISION, WE RE MIT THIS ISSUE ALSO TO THE FILE OF THE ASSESSING OFFICER FOR READJUDICATION IN THE LIG HT OF ABOVE OBSERVATIONS WHICH WILL APPLY MUTATIS MUTANDIS HERE AS WELL. ORDERED, ACCORDINGLY. 11. GROUND NO.2 IS ALSO ALLOWED FOR STATISTICAL PUR POSES IN THE ABOVE TERMS. 12. IN GROUND NO.3, THE ASSESSEE HAS RAISED THE FOL LOWING GRIEVANCE:- (3) THE LD. CIT(A) HAS ERRED, BOTH IN LAW AND ON T HE FACTS OF THE CASE, IN CONFIRMING DISALLOWANCE UNDER SECTION 14A OF THE ACT TO THE EXTENT OF RS.1,04,115/-. 13. SO FAR AS THE ABOVE GRIEVANCE OF THE ASSESSEE I S CONCERNED, IT IS SUFFICIENT TO TAKE NOTE OF THE FACT THAT THE ASSESSING OFFICER HA S ALSO INCLUDED THE INVESTMENTS NOT YIELDING TAX EXEMPT INCOME, I.E. MUTUAL FUNDS DEB T FUNDS, IN COMPUTATION OF 0.5% AMOUNT BEING TREATED AS ADMINISTRATIVE EXPENSES. T HIS ACTION OF THE ASSESSING OFFICER HAS BEEN CONFIRMED BY LEARNED CIT(A) AS WEL L. THE ASSESSEE IS NOT SATISFIED AND IS IN FURTHER APPEAL BEFORE US. 14. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED TH E MATERIAL ON RECORD AND DULY CONSIDERED FACTS OF THE CASE IN THE LIGHT OF APPLIC ABLE LEGAL POSITION. 15. IT IS, IN OUR CONSIDERED VIEW, ONLY ELEMENTARY THAT FOR THE PURPOSE OF COMPUTING ADMINISTRATIVE EXPENSES TO BE DISALLOWED UNDER RULE 14A R.W.R. 8D, ONLY SUCH INVESTMENTS ARE TO BE TAKEN INTO ACCOUNT AS YI ELD TAX EXEMPT INCOME. THE 0.5% OF INVESTMENTS IS TO BE TREATED AS INADMISSIBL E ADMINISTRATIVE EXPENSES UNDER RULE 8D MUST THEREFORE BE COMPUTED WITH RESPECT TO EQUITY FUNDS MUTUAL FUNDS ONLY. THE PLEA OF THE ASSESSEE IS THUS INDEED WELL TAKEN AND MEETS OUR APPROVAL. WE REMIT THIS ISSUE ALSO TO THE FILE OF THE ASSESSING OFFICER FOR RECOMPUTATION OF DISALLOWANCE UNDER SECTION 14A R.W.R. 8D IN THE LIG HT OF ABOVE OBSERVATIONS. ORDERED, ACCORDINGLY. 16. GROUND NO.3 IS ALSO THUS ALLOWED FOR STATISTICA L PURPOSES. 17. IN THE RESULT, THE APPEAL IS ALLOWED FOR STATIS TICAL PURPOSES. PRONOUNCED IN THE OPEN COURT TODAY ON THE 22 ND DAY OF OCTOBER, 2018. SD/- SD/- MADHUMITA ROY PRAMOD KUMAR (JUDICIAL MEMBER) (VICE PRESIDENT) AHMEDABAD, DATED THE 22 ND DAY OF OCTOBER, 2018 COPIES TO: (1) THE APPELLANT (2) THE RESPOND ENT (3) CIT (4) CIT(A) (5) DR (6) GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCHES, AHMEDABAD