Deputy Commissioner of Income Tax, Hyderabad V. M/s Login Soft India Pvt Limited, Hyderabad

ITA 766/HYD/2011

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 53548 (ITAT-HYDERABAD)
• Duration Of Justice: 3 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-08-2011
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2007-2008
• Appeal Filed On: 29-04-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: PHANI RAJU
• Assessee Lawyers: V ANANT RAO
• Keywords: Transfer pricing; International transaction
• Section: 92C; 92F; 92

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD B BENCH, HYDERABAD BEFORE SHRI G.C. GUPTA, VICE PRESIDENT AND SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER ITA NO. 766/HYD/2011 (ASSESSMENT YEAR : 2007-08) DY. COMMISSIONER OF I.T. CIRCLE 16(1) HYDERABAD VS M/S. LOGIN SOFT INDIA PVT. LTD. HYDERABAD PAN: AAACL7162P APPELLANT RESPONDENT APPELLANT BY: SHRI PHANI RAJU RESPONDENT BY: SHRI V. ANANT RAO ORDER DATE OF HEARING: 04.8.2011 DATE OF PRONOUNCEMENT: 26.8.2011 PER CHANDRA POOJARI, A.M. THIS APPEAL BY THE REVENUE IS DIRECTED AGAIN ST THE ORDER OF THE CIT(A)-V, HYDERABAD DATED 14.2.2011 FOR ASSESSMENT YEAR 2007-08. 2. THE FIRST GROUND IN THIS APPEAL IS WITH REGARD T O CIT(A) ACCEPTING THE PROFIT SHOWN BY THE ASSESSEE ON THE INTERNATION AL TRANSACTIONS HIGHER THAN THE ARMS LENGTH PRICE AND THEREBY GRANT ING DEDUCTION U/S. 10A OF THE INCOME-TAX ACT, 1961 ON THE ENTIRE INCOM E. 3. BRIEF FACTS OF THE ISSUE ARE THAT THE ASSESSEE C LAIMED EXEMPTION/S. 10A OF THE ACT AT RS. 87,34,406 WHEN T HE CLAIM WAS RS. 1,48,27,467. THE ASSESSEE HAD EXPORTED SOFTWARE DE VELOPED BY IT TO ITS ASSOCIATED ENTERPRISE (AE), NAMELY M/S. LOGIN S OFT INC., USA. THE ASSESSING OFFICER HELD THAT THERE WERE TRANSACTIONS WHICH ATTRACTED THE PROVISIONS OF SECTION 92 TO 92F OF THE ACT. ACCORD INGLY, THE ASSESSEE WAS ASKED TO FURNISH THE TRANSFER PRICING DOCUMENTA TION FOR THE FINANCIAL YEAR 2006-07 IN RESPECT OF THE ABOVE MENTIONED TRAN SACTIONS. THE ASSESSEE HAD DISCLOSED A 50% MARGIN OF PROFIT ON TH E TOTAL REVENUE AS AGAINST THE AVERAGE PROFIT MARGIN IN SIMILAR INDUST RY AMOUNTING TO 15%. ITA NO. 766 /HYD/2011 M/S. LOGIN SOFT INDIA PVT. LTD. ==================== 2 IN OTHER WORDS, THE ASSESSEE HAD DISCLOSED A MUCH H IGHER MARGIN OF PROFIT COMPARED TO OTHER ENTERPRISES. ACCORDINGLY, THE ASSESSING OFFICER HELD THAT THE ALP WOULD BE SUCH THAT THE AS SESSEE CAN BE ALLOWED A NET PROFIT MARGIN OF ONLY 20%. THE ASSES SING OFFICER DID NOT ADJUST ALP BUT RECOMPUTED THE EXEMPTION U/S. 10A. 4. ON APPEAL THE CIT(A) OBSERVED THAT THE ASSESSEE IS ENTITLED FOR EXEMPTION U/S. 10A AND THERE IS NO ENHANCEMENT OF I NCOME AND PROFIT SHOWN BY THE ASSESSEE IS HIGHER THAN THE ALP AND ON CE THERE IS NO ENHANCEMENT OF INCOME THE PROVISIONS OF SECTION 92C (4) ARE NOT APPLICABLE. AGAINST THIS, THE REVENUE IS IN APPEAL BEFORE US. 5. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL AVAILABLE ON RECORD. IN OUR OPINION, THE PROVISION S OF SECTION 10A(7) ARE APPLICABLE TO THE FACTS OF THE CASE WHICH HAS N OT BEEN CONSIDERED BY THE CIT(A). HENCE, WE DIRECT THE CIT(A) TO CONS IDER THE ISSUE IN THE LIGHT OF THE PROVISIONS OF SECTION 10A(7) AND PASS A SPEAKING ORDER IN ACCORDANCE WITH LAW. 6. THE ASSESSEE'S COUNSEL BEFORE US SUBMITTED THAT IN EARLIER YEAR SAME AMOUNT OF PROFIT HAS BEEN ALLOWED ON INTERNATI ONAL TRANSACTIONS AND IN THIS KIND OF INTERNATIONAL TRANSACTIONS CONS ISTENCY HAS TO BE FOLLOWED. IN OUR OPINION, EACH ASSESSMENT YEAR IS INDEPENDENT AND A SEPARATE ASSESSABLE UNIT. IT IS WELL SETTLED THAT THE PRINCIPLES OF RES JUDICATA OR ESTOPPEL BY RECORD, WHICH APPLY TO DECISIONS OF CIVIL COURT, HAS NO APPLICATION TO DECISIONS OF INCOME-TAX AUTHO RITIES SO AS TO PRECLUDE THE DETERMINATION OF A QUESTION IN THE PRE VIOUS ASSESSMENT ORDER FROM BEING REOPENED IN PROCEEDINGS RELATING T O THE SUBSEQUENT ASSESSMENT YEAR. THE REASONS ARE, FIRSTLY, THAT TH E INCOME-TAX AUTHORITIES INCLUDING THE APPELLATE TRIBUNAL ARE NO T COURTS; AND SECONDLY, THAT THE PURPOSE AND SUBJECT MATTER OF TH E PROCEEDINGS IN A SUBSEQUENT YEAR ARE NOT THE SAME AS THOSE IN A PREV IOUS YEAR. AN ASSESSMENT FOR A PARTICULAR YEAR IS FINAL AND CONCL USIVE BETWEEN THE PARTIES ONLY IN RELATION TO THAT YEAR. THE DECISIO NS GIVEN IN AN ITA NO. 766 /HYD/2011 M/S. LOGIN SOFT INDIA PVT. LTD. ==================== 3 ASSESSMENT FOR AN EARLIER YEAR ARE NOT BINDING EITH ER ON THE ASSESSEE OR ON THE DEPARTMENT IN A SUBSEQUENT YEAR. THE ONL Y THING IS THAT THERE CANNOT BE ANY UNJUST OR INEQUITABLE TO THE PA RTIES INVOLVED. BUT WHEN THE REVENUE AUTHORITIES TAKEN DECISION WITHOUT APPLYING THE MIND IN EARLIER YEAR, THEY ARE FREE TO LOOK INTO THE MAT TER AFRESH IN THE LIGHT OF THE MATERIAL AVAILABLE ON RECORD AND WE CANNOT SAY THAT ANY INJUSTICE HAS BEEN CAUSED TO THE ASSESSEE BY RECONSIDERING TH E ISSUE BY THE REVENUE AUTHORITIES IN A SUBSEQUENT YEAR. THE ASSE SSING AUTHORITY IS WITHIN THE JURISDICTION SINCE HIS DECISION IS NOT A RBITRARY OR PERVERSE AND HE HAD ARRIVED AT A CONCLUSION AFTER DUE ENQUIRY AN D CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE. IN THE RESULT , THIS GROUND OF THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES. 7. THE NEXT ISSUE IS THAT THE CIT(A) OUGHT TO HAVE HELD TELE- COMMUNICATION EXPENSES SHOULD BE EXCLUDED FROM EXPO RT TURNOVER BUT NOT FROM THE TOTAL TURNOVER. 8. WE HAVE HEARD BOTH THE PARTIES ON THIS ISSUE. T HIS ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE O RDER OF THE SPECIAL BENCH OF CHENNAI BENCH IN THE CASE OF ITO VS. SAK S OFT LTD., 313 ITR (AT) 353 WHEREIN IT WAS HELD THAT WHEN CERTAIN EXPE NSES ARE REDUCED FROM THE EXPORT TURNOVER, AN EQUAL AMOUNT SHOULD AL SO BE REDUCED FROM THE TOTAL TURNOVER. RESPECTFULLY FOLLOWING THE ABOV E ORDER OF THE SPECIAL BENCH OF CHENNAI TRIBUNAL, WE DECIDE THE ISSUE IN F AVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. 9. IN THE RESULT, THE APPEAL OF THE REVENUE IS PART LY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 26 TH AUGUST, 2011. SD/- (G.C. GUPTA) SD/- (CHANDRA POOJARI) VICE PRESIDENT ACCOUNTANT MEMBER HYDERABAD, DATED THE 26 TH AUGUST, 2011 ITA NO. 766 /HYD/2011 M/S. LOGIN SOFT INDIA PVT. LTD. ==================== 4 COPY FORWARDED TO: 1. ASST. COMMISSIONER OF INCOME-TAX, CIRCLE-16(1), ROOM NO. 612, 6 TH FLOOR, AAYAKAR BHAVAN, BASHEERBAGH, HYDERABAD. 2. M/S. LOGIN SOFT INDIA PVT. LTD., 201A, 2 ND FLOOR, B-WING, MAXMUS SPACE, HITECH CITY, MADHAPUR, HYDERABAD. 3. THE CIT(A)-V, HYDERABAD 4. THE CIT-IV, HYDERABAD 5. THE DR, B-BENCH, ITAT, HYDERABAD. TPRAO