MSource (India) P. Ltd., V. DCIT,

ITA 819/BANG/2013

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 7003 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 3 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-09-2014
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 21-08-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 29-05-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: T S N MURTHY CITIIIDR
• Assessee Lawyers: PADAMCHAND KHINCHA
• Keywords: Business income; Transfer pricing; International transaction; Assessment record
• Section: 92C; 143(3); 10AA; 10B; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH C : BANGALORE BEFORE SMT. P. MADHAVI DEVI , JUDICIAL MEMBER A ND SHRI JASON P.BOAZ, ACCOUNTANT MEMBER ITA NO. 819 / BANG/20 1 3 (ASSESSMENT YEAR: 20 06 - 07 ) M/S. MSOURCEE(INDIA) PVT. LTD. BAGMANE W ORLD TECHNOLOGY CENTRE, BLOCK B, 1 ST FLOOR, KR PURAM - MARATHALLI ORR, DODDANEKUNDI, BANGALORE - 560048. APPELLANT VS. DEPUTY COMMISSIONER OF INCOME - TAX, CIRCLE 12(1), BANGALORE. RESPONDENT APPELLANT BY: SHRI PADAMCHAND KHINCHA, CA. RESPONDENT BY: SHRI T.S.N.MURTHY, CIT - III(DR). DATE OF HEARING : 21 - 08 - 2014 . DATE OF PRONOUNCEMENT: 12 - 0 9 - 2014 . O R D E R PER SMT. P.MADHAVI DEVI, JM : THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF THE COMMISSIONER OF INC OME - TAX [CIT] U/S 263 OF THE INCOME - TAX ACT, 1961[HEREINAFTER REFERRED TO AS 'THE ACT'] DATED 30 - 3 - 2013 FOR THE ASSESSMENT YEAR 2006 - 07. THE ASSESSEE IS AGGRIEVED BY THE ORDER OF THE CIT IN DIRECTING THE ASSESSING OFFICER (AO) TO RESTRICT THE DED UCTION U/S 10A OF THE ACT TO THE ITA NO . 819 /BANG/20 13 M/S.MSOURCEE(INDIA) PVT.LTD. PAGE 2 OF 10 EXTENT OF RS.32,59,19,968/ - REPRESENTING THE PROFITS AND GAINS FROM BUSINESS. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE - COMPANY FILED ITS RETURN OF INCOME FOR THE RELEVANT ASSESSMENT YEAR I.E. ASSESSMENT YEAR 2006 - 07 ON 27 - 11 - 2006 DECLARING A TOTAL INCOME OF RS.6,07,56,914/ - . DURING THE ASSESSMENT PROCEEDINGS U/S 143(3), THE AO NOTICED THAT THE ASSESSEE HAS ENTERED INTO INTERNATIONAL TRANSACTIONS WITH ITS ASSOCIATED ENTERPRISE. THEREFORE, REFERENCE WAS MADE TO THE TRANSFER PRICING OFFICER (TPO) U/S 92CA OF THE ACT FOR DETERMINATION OF THE ARMS LENGTH PRICE (ALP) . THE TPO DETERMINED THE ARMS LENGTH ADJUSTMENT OF RS.25,32,39,254/ - . IN ACCORDANCE WITH THE SAID ORDER OF THE TPO, THE AO PASSED THE DRAFT ASSESSMENT OR DER PROPOSING TRANSFER PRICING ADJUSTMENT OF RS.25,32,39,254/ - . IN THE SAID DRAFT ASSESSMENT ORDER, THE AO COMPUTED THE INCOME OF THE ASSESSEE AS UNDER: TOTAL INCOME DECLARED BEFORE CLAIM OF DEDUCTION U/S 10A RS.32,59,19,968/ - ADD: DIFFERENCE IN ALP AS DETERMINED BY THE TPO RS.25,32,39,254/ - -------------------- RS.57,91,59,222/ - ------------------- LESS: DEDUCTION U/S 10A ALLOWABLE RS.41,57,35,312 ------------------ RS.16,34,23 ,910 ADD: INCOME FROM OTHER SOURCES RS. 4,52,98,884/ - ------------------ TOTAL INCOME ASSESSED RS.20,87,22,804/ - =========== ITA NO . 819 /BANG/20 13 M/S.MSOURCEE(INDIA) PVT.LTD. PAGE 3 OF 10 THE ASSESSEE RAISED OBJECTIONS BEFORE THE DISPUTES RESOLUTION PANEL(DRP) WHICH DIRECTED THE AO TO SU BSTITUTE THE TP ADJUSTMENT U/S 92CA AT RS.11,35,16,498/ - AS AGAINST ADJUSTMENT OF RS.25,32,95,254/ - IN THE FINAL ASSESSMENT ORDER. THEREAFTER, THE AO PASSED THE FINAL ASSESSMENT ORDER U/S 143(3) READ WITH SEC.144C(13) OF THE ACT ASSESSING THE TOTAL TAXABL E INCOME AT RS.6,90,00,048/ - . WHILE DOING SO, THE AO HAS COMPUTED THE INCOME AS UNDER: TOTAL INCOME DECLARED BEFORE CLAIM OF DEDUCTION U/S 10A RS.32,59,19,968/ - ADD: DIFFERENCE IN ALP AS DETERMINED BY THE TPO RS.11,35,16,498/ - -------------------- RS.43,94,36,466/ - ------------------- LESS: DEDUCTION U/S 10A ALLOWABLE RS.41,57,35,312 ------------------ RS. 2,37,01,154/ - ADD: INCOME FROM OTHER SOURCES RS. 4,52,98,884/ - -- ---------------- TOTAL INCOME ASSESSED RS.6,90,00,498/ - =========== 3. THE CIT PERUSED THE ASSESSMENT RECORDS OF THE ASSESSEE U/S 263 OF THE ACT AND OBSERVED THAT WHILE FINALIZING THE SCRUTINY ASSESSMENT, THE DIFFERENCE IN ALP AS DE TERMINED BY THE TPO AS PER THE DIRECTIONS OF THE DRP OF RS.11,35,16,498/ - HAS BEEN ADDED TO THE INCOME FROM BUSINESS AND PROFESSION AND THEREAFTER 10A DEDUCTION HAS BEEN ALLOWED. THE CIT OBSERVED THAT U/S 92C(4) OF THE ACT, NO DEDUCTION U/S 10A OR CHAPTER VIA SHALL BE ALLOWED ON THE TOTAL INCOME ENHANCED ON ACCOUNT OF ADJUSTMENT TO THE ALP. HE, THEREFORE, CAME TO THE CONCLUSION ITA NO . 819 /BANG/20 13 M/S.MSOURCEE(INDIA) PVT.LTD. PAGE 4 OF 10 THAT THE AO OUGHT TO HAVE RESTRICTED THE DEDUCTION U/S 10A TO THE EXTENT OF RS.32,59,19,968/ - WHICH REPRESENTS THE PROFITS AND G AINS FROM BUSINESS OF THE ELIGIBLE UNIT AND THEREFORE THE ORDER OF THE AO IS ERRONEOUS AS WELL AS PREJUDICIAL TO THE INTERESTS OF THE REVENUE. ACCORDINGLY, HE REVISED THE ASSESSMENT ORDER BY CANCELLING THE ORDER PASSED U/S 143(3) OF THE ACT AND DIRECTED T HE AO TO MAKE AN ORDER DE NOVO AFTER CONSIDERING THE OBSERVATIONS OF THE CIT. 4. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US. THE LEARNED COUNSEL FOR THE ASSESSEE, SHRI PADAMCHAND KHINCHA , SUBMITTED THAT AGAINST THE ORDER OF THE TPO AND THE DRAFT ASS ESSMENT ORDER PURSUANT TO THE SAME, THE ASSESSEE HAD RAISED OBJECTIONS BEFORE THE DRP AND THE DRP HAS REDUCED THE TP ADJUSTMENT AND CONFIRMED THE COMPUTATION PART OF THE DRAFT ASSESSMENT ORDER . HE SUBMITTED THAT THE DRP CONSISTS OF THREE COMMISSIONERS AND THEREFORE, THE CIT U/S 263, HAS NO JURISDICTION TO REVISE THE ASSESSMENT ORDER PASSED IN COMPLIANCE WITH THE DIRECTIONS OF THE DRP. FOR THIS PROPOSITION, HE PLACED RELIANCE UPON THE FOLLOWING DECISIONS: (I) CIT VS. SMT.ANNAPOORNAMMA CHANDRASHEKAR REPORTE D IN 204 TAXMAN 158(KAR) WHEREIN THE HON BLE HIGH COURT WAS DEALING WITH REVISION OF ASSESSMENT COMPLETED U/S 158BG OF THE ACT AND IT WAS HELD THAT U/S 1548BG, THE DRAFT OF BLOCK ITA NO . 819 /BANG/20 13 M/S.MSOURCEE(INDIA) PVT.LTD. PAGE 5 OF 10 ASSESSMENT ORDER IS TO BE APPROVED BY THE CIT AND SUCH AN ORDER CANNOT BE REV ISED U/S 263 OF THE ACT. (II) R.SRINIVASAN VS. ACIT (360 ITR 471)(MADRAS) WHEREIN SIMILAR VIEW HAS BEEN EXPRESSED AFTER CONSIDERING THE DECISION OF THE HON BLE KARNATAKA HIGH COURT CITED SUPRA. 5. THUS, ACCORDING TO THE LEARNED COUNSEL FOR THE ASSESSEE, THE ASSESSMENT ORDER BEING APPROVED BY THE DRP CONSISTING OF THREE COMMISSIONERS, IT CANNOT BE REVISED BY THE CIT U/S 263 OF THE ACT. WITHOUT PREJUDICE TO THE ABOVE, THE LEARNED COUNSEL FOR THE ASSESSEE FURTHER SUBMITTED THAT THE ORDER OF THE AO WAS NOT E RRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE AND HENCE THE JURISDICTION U/S 263 COULD NOT HAVE BEEN INVOKED. IN SUPPORT OF HIS CONTENTION, HE PLACED RELIANCE UPON THE DECISION OF THE HON BLE SUPREME COURT IN THE CASE OF MALABAR INDUSTRIAL CO.L TD. VS. CIT (200) 243 ITR 83(SC). 6. WITHOUT PREJUDICE TO THE ABOVE CONTENTION, THE LEARNED COUNSEL FOR THE ASSESSEE FURTHER SUBMITTED THAT THE ASSESSEE WAS ELIGIBLE FOR DEDUCTION U/S 10A WITH REGARD TO THE INCOME EARNED BY THE STPI UNIT AND ALL THE RELEV ANT MATERIAL WAS BEFORE THE AO AND AFTER CONSIDERING THE SAME, THE AO HAS TAKEN ONE OF THE POSSIBLE VIEWS AND THEREFORE THE ORDER CANNOT BE SAID TO BE ERRONEOUS OR PREJUDICIAL TO THE INTERESTS OF THE REVENUE. HE ITA NO . 819 /BANG/20 13 M/S.MSOURCEE(INDIA) PVT.LTD. PAGE 6 OF 10 SUBMITTED THAT WHE RE TWO VIEWS ARE POSSIBLE AND THE AO HAS ADOPTED ONE OF THE VIEWS, THEN THE ORDER OF THE AO CANNOT BE SAID TO BE ERRONEOUS. 7. THE LEARNED DEPARTMENTAL REPRESENTATIVE, SHRI T.S.N.MURTHY, ON THE OTHER HAND, SUPPORTED THE ORDERS OF THE CIT AND SUBMITTED THAT THE ISSUE BEFORE THE DRP WAS ONLY DETERMINATION OF THE ALP AND NOT THE COMPUTATION OF DEDUCTION U/S 10A OF THE ACT. HE SUBMITTED THAT THOUGH IN THE DRAFT ASSESSMENT ORDER ALSO, THE AO HAS ADDED THE ALP ADJUSTMENT TO THE INCOME FROM PROFITS AND GAINS OF BUSINESS AND THEREAFTER HA S ALLOWED THE DEDUCTION U/S 10A OF THE ACT, THE DRP HAS NOT DELIBERATED UPON THE COMPUTATION PART OF THE ASSESSMENT ORDER BUT HAS ONLY DECIDED ON THE ADJUSTMENT TO THE ALP AND HAS REDUCED THE ADJUSTMENT SUBSTANTIALLY. HE SUBMITTED THAT IT WAS IN THE FINAL ASSESSMENT ORDER THAT THE AO HAS COMPUTED THE DEDUCTION U/S 10A OF THE ACT WHICH HAS RESULTED IN THE ASSESSMENT ORDER BEING ERRONEOUS AS WELL AS PREJUDICIAL TO THE INTERESTS OF THE REVENUE. HE SUBMITTED THAT THE BUSINESS INCOME OF THE ASSESSEE AS COMPUTED UNDER CHAPTER IV - D OF THE ACT WAS RS.32,59,19,967/ - I.E. AFTER SET OFF OF LOSS OF NON - STPI UNIT OF RS.11,87,00,018/ - FROM THE INCOME OF THE FOUR UNITS I.E. RS.43,60,08,285/ - . THE ASSESSEE WOULD, THEREFORE, BE ELIGIBLE FOR DEDUCTION U/S 10A TO A SUM OF RS .32,59,19,967/ - ONLY WHEREAS THE AO HAS ALLOWED THE DEDUCTION OF RS.41,57,35,312/ - ITA NO . 819 /BANG/20 13 M/S.MSOURCEE(INDIA) PVT.LTD. PAGE 7 OF 10 OUT OF ENHANCED INCOME BY MAKING ALP ADJUSTMENT WHICH IS ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE. AS REGARDS THE DECISIONS RELIED UPON BY THE LEARNED COUN SEL FOR THE ASSESSEE, THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THEY ARE DISTINGUISHABLE ON FACTS. 8. HAVING HEARD BOTH THE PARTIES AND HAVING CONSIDERED THE RIVAL CONTENTIONS AS WELL AS THE MATERIAL ON RECORD, WE FIND THAT THE ASSESSMENT ORD ER IS PASSED AFTER THE DRAFT ASSESSMENT ORDER HAS BEEN APPROVED BY THE DRP BY REDUCING THE ALP ADJUSTMENT. FROM THE ORDER OF THE DRP, WE FIND THAT THE DRP WAS ONLY SEIZED OF THE OBJECTIONS OF THE ASSESSEE WITH REGARD TO THE TP ADJUSTMENT AS WELL AS THE GR ANT OF LOWER DEDUCTION U/S 10A OF THE ACT. THE DRP HAS NOT CONSIDERED THE COMPUTATION OF PART OF DEDUCTION U/S 10A OF THE ACT. THEREFORE, IT CANNOT BE SAID THAT THERE IS APPROVAL OF THE DRP WITH REGARD TO THE COMPUTATION OF DEDUCTION . H ENCE THE ASSESSEE S CONTENTION THAT THE DRP HAVING APPROVED THE COMPUTATION PART OF THE DRAFT ASSESSMENT ORDER CANNOT AGAIN BE REVISED BY THE CIT U/S 263 IS NOT SUSTAINABLE. THE HON BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. N.V.VIRWANI REPORTED IN 207 ITR 225 (BOM) WAS CONSIDERING A CASE OF REVISION OF THE ASSESSMENT ORDER PASSED U/S 143(3) OF THE ACT BY THE ITO AFTER OBTAINING THE APPROVAL OF THE IAC AS REQUIRED UNDER LAW AND HELD THAT SUCH AN ORDER CONTINUES TO BE AN ORDER U/S 143(3) AND IS SUBJECT TO REVISIONAL JURIS DICTION OF ITA NO . 819 /BANG/20 13 M/S.MSOURCEE(INDIA) PVT.LTD. PAGE 8 OF 10 CIT U/S 263 OF THE ACT. THE DECISIONS RELIED UPON BY THE LEARNED COUNSEL FOR THE ASSESSEE ARE DISTINGUISHABLE ON FACTS AS THEY WERE DEALING WITH THE ASSESSMENT ORDER IN SEARCH CASES REQUIRING MANDATORY APPROV AL BY THE RELEVANT COMMISSIONER WHIC H WAS SOUGHT TO BE REVISED BY THE CIT U/S 263 OF THE ACT. WHILE IN THE CASE BEFORE US, THE ROLE OF DRP CANNOT BE EQUATED WITH THE ROLE OF THE CIT U/S 158BC OF THE ACT. EVERY ASSESSMENT ORDER PASSED U/S 158BC REQUIRES MANDATORY APPROVAL OF THE CIT, WHEREA S EVERY ASSESSMENT ORDER INVOLVING TRANSFER PRICING ISSUE DOES NOT REQUIRE THE PRIOR APPROVAL OF THE DRP. U/S 144C, THE AO SHALL PASS AND FORWARD A DRAFT ASSESSMENT ORDER TO THE RELEVANT ASSESSEE WHO, THEREAFTER SHALL, WITHIN 30 DAYS OF RECEIPT OF THE DRA FT ORDER (A) FILE HIS ACCEPTANCE OF THE VARIATIONS TO THE AO; OR (B) FILE HIS OBJECTIONS WITH THE DRP AND THE AO. SUB - SECTION (5) OF SEC.144C PROVIDES THAT THE DRP, IN A CASE WHERE ANY OBJECTION IS RECEIVED SHALL ISSUE THE DIRECTIONS, AS IT THINKS FIT, FO R THE GUIDANCE OF THE AO TO ENABLE HIM TO COMPLETE THE ASSESSMENT. SUB - SEC.(8) PROVIDES THAT THE DRP MAY CONFIRM, REDUCE OR ENHANCE THE VARIATIONS PROPOSED IN THE DRAFT ORDER SO, HOWEVER, SHALL NOT SET ASIDE ANY PROPOSED VARIATION OR ISSUE ANY DIRECTION UN DER SUB - SECTION (5) FOR FURTHER ENQUIRY AND PASSING OF THE ASSESSMENT ORDER. THUS, IT CAN BE SEEN THAT ONLY WHERE VARIATIONS ARE MADE TO THE RETURNED INCOME OF THE ASSESSEE , THAT THE AO HAS TO FORWARD THE DRAFT ASSESSMENT ORDER TO THE ASSESSEE AND THE A SSESSEE SHALL ACCEPT THE VARIATIONS OR FILE ITA NO . 819 /BANG/20 13 M/S.MSOURCEE(INDIA) PVT.LTD. PAGE 9 OF 10 OBJECTIONS WITH THE DRP AND THE DRP MAY CONFIRM, REDUCE OR ENHANCE THE VARIATIONS. THUS, THE APPROVAL OF THE DRP IS NOT TO THE ENTIRE DRAFT ASSESSMENT ORDER BUT IS ONLY TO THE VARIATIONS PROPOSED BY THE AO , U NLI KE THE MANDATORY APPROVAL OF THE CIT OF EVERY ORDER PASSED U/S 158BC OF THE ACT. THEREFORE, WE ARE NOT INCLINED TO ACCEPT THE CONTENTIONS OF THE ASSESSEE ON THIS ISSUE. 9. AS REGARDS WHETHER THE ORDER OF THE AO IS ERRONEOUS AND PREJUDICIAL TO THE INTERE STS OF THE REVENUE, WE FIND THAT FOR ASSUMING JURISDICTION U/S 263 BY THE CIT, THE ORDER OF THE AO MUST BE BOTH ERRONEOUS AS WELL AS PREJUDICIAL TO THE INTERESTS OF THE REVENUE. U/S 92C(4) OF THE ACT , IT IS CLEARLY PROVIDED BY THE FIRST PROVISO THERETO THA T NO DEDUCTION U/S 10A OR U/S 10AA OR SECTION 10B OR UNDER CHAPTER VIA SHALL BE ALLOWED IN RESPECT OF THE AMOUNT OF INCOME BY WHICH THE TOTAL INCOME OF THE ASSESSEE IS ENHANCED AFTER COMPUTATION OF INCOME UNDER SUB - SECTION (4) OF 92C OF THE ACT. WE FIND FROM THE DRAFT ASSESSMENT ORDER AS WELL AS THE ASSESSMENT ORDER THAT THE AO HAS INITIALLY AGGREGATED THE BUSINESS INCOME DECLARED BY THE ASSESSEE AND ALSO THE ALP ADJUSTMENT AND THEREAFTER HAS ALLOWED DEDUCTION U/S 10A OF THE ACT. THIS IS IN CLEAR VIOLATI ON OF THE PROVISIONS OF SEC.92C(4) OF THE ACT AND HENCE, THE ORDER OF THE AO IS ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE. IN OUR OPINION ALSO, THE AO OUGHT TO HAVE ALLOWED DEDUCTION U/S 10A OF THE ACT ITA NO . 819 /BANG/20 13 M/S.MSOURCEE(INDIA) PVT.LTD. PAGE 10 OF 10 BEFORE AGGREGATING ALP ADJUSTMENT AND THEREAFTER SHOULD HAVE ADDED THE ALP ADJUSTMENT AND COMPUTED THE TAXABLE INCOME. IF COMPUTATION IS TO BE MADE AS ABOVE, THEN THE CLAIM OF DEDUCTION U/S 10A WOULD HAVE TO BE RESTRICTED TO THE INCOME FROM BUSINESS AVAILABLE BEFORE DEDUCTION U/S 10A I.E. RS .32,59,19,968/ - AS RIGHTLY OBSERVED BY THE CIT. IN VIEW OF THE SAME, WE DO NOT SEE ANY REASON TO INTERFERE WITH THE ORDER OF THE CIT U/S 263 OF THE ACT. 10. ACCORDINGLY, THE ASSESSEE S APPEAL IS DISMISSED. PRON OUNCED IN THE OPEN COURT ON 12 T H OF SEPTEMBER , 201 4. SD/ - SD/ - (JASON P BOAZ ) ( SMT. P.MADHAVI DEVI ) ACCOUNTANT MEMBER JUDICIAL MEMBER EKSRINIVASULU COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME - TAX APPELLATE T RIBUNAL BANGALORE