RR Donnelley India Outsource Private Limited, CHENNAI V. ACIT, CHENNAI

ITA 889/CHNY/2015

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 8023 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 8 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-01-2017
• Appeal Filed By: Assessee
• Bench Allotted: D
• Next Hearing Date: 25-10-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 21-04-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Transfer pricing; Prejudicial to interest
• Section: 32; 147; 131; 68; 246; 69; 145; 27; 148; 54; 37; 6; 56; 263; 63; 132; 12; 28; 144; 10; 90; 154; 2; 11; 15; 271(1)(b); 139; 143(3); 92; 260A; 115JB; 10B; 143(2)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, CHENNAI , . , # $ BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI G. PAVAN KUMAR, JUDICIAL MEMBER ./ I.T.A. NO. 889/MDS/2015 / ASSESSMENT YEAR : 2008-09 RR DONNELLEY INDIA OUTSOURCE PRIVATE LIMITED, 43-A, I MAIN ROAD, R A PURAM, CHENNAI - 600 028. [PAN: AABCH 1990A] VS. COMMISSIONER OF INCOME TAX, COMPANY CIRCLE V(4), CHENNAI ( / APPELLANT) ( / RESPONDENT) & ' / APPELLANT BY : SHRI SAROJ KUMAR PARIDA, ADVOCATE *+& ' / RESPONDENT BY : SHRI V. VIVEKANANDAN, CIT ' /DATE OF HEARING : 25.10.2016 ' /DATE OF PRONOUNCEMENT : 18.01.2017 /O R D E R PER G. PAVAN KUMAR, JUDICIAL MEMBER: THE ASSESSEE HAS FILED AN APPEAL AGAINST THE REVI SION ORDER U/S. 263 OF THE INCOME TAX ACT PASSED BY COMMISSIONER OF INCOME TAX (APPEALS), CHENNAI -5, DATED 23.02.2015. :-2-: I.T.A. NO. 889/MDS/2015 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS: 2.1 JURISDICTION TO INITIATE PROCEEDINGS U/S. 263 O F THE ACT. 2.1.1 THE LD. CIT HAD ACTED WITHOUT JURISDICTION IN PASSING THE IMPUGNED ORDER AS THE ORDER IS PASSED WITHOUT THE TWIN COND ITIONS SPECIFIED IN THE SECTION 263 I.E., THE ORDER BEING 'ERRONEOUS' IN SO FAR AS IT IS 'PREJUDICIAL TO INTEREST OF REVENUE' HAVING BEEN S ATISFIED. 2.1.2 THE LD. CIT HAS ERRED IN SETTING ASIDE THE OR DER OF AO AS WELL AS ENHANCING THE INCOME AS ASSESSED BY THE AO ON THE BASIS OF THE DIRECTIONS OF THE DISPUTE RESOLUTION PANEL (DRP) T ANTAMOUNT TO SUBSTITUTION OF OPINION OF THE LD. CIT FOR THE OPI NION OF THE AO AND DRP. 2.1.3 THAT THE ASSESSMENT WAS FRAMED IN ACCORDANCE TO LAW AND DID NOT SUFFER FROM ANY INFIRMITY OF CONTAIN AN 'ERROR' SO AS TO JUSTIFY INVOCATION OF POWER U/S. 263 OF THE ACT BY THE CIT . 2.2 DEDUCTION U/S. 10A COMPUTED AND GRANTED AFTER E XCLUDING TELECOMMUNICATION COSTS FROM EXPORT TURNOVER. 2.2.1 THAT, THE LD. CIT WITHOUT FULLY APPRECIATING THAT TELECOMMUNICATION COSTS HAVE NOT BEEN INCLUDED WHILE COMPUTING EXPOR T TURNOVER, HAS ERRED IN DIRECTING TO EXCLUDE THE TELECOMMUNICATIO N COSTS FROM EXPORT TURNOVER FOR CALCULATING DEDUCTION U/S. 10A OF THE ACT. :-3-: I.T.A. NO. 889/MDS/2015 2.2.2 WITHOUT PREJUDICE TO OUR ARGUMENTS IN PARA 2. 2.1 THE LD. AO, HAVING EXCLUDED THE TELECOMMUNICATION EXPENDITURE FROM EX PORT TURNOVER, HAS ERRED IN NOT EXCLUDING THE SAME FROM TOTAL TUR NOVER FOR THE PURPOSE OF COMPUTING THE DEDUCTION U/S. 10A/10B. 3. THE BRIEF FACTS OF THE CASE, THE ASSESSEE IS ENG AGED IN THE BUSINESS PROCESS OUTSOURCING AND FILED THE RETURN OF INCOME ON 30.09.2008 WITH NIL INCOME AS PER NORMAL PROVISIONS OF INCOME TAX AND U NDER THE PROVISIONS OF SECTION 115JB OF THE ACT HAS PAID THE TAX. SUBSEQU ENTLY, THE CASE WAS SELECTED FOR SCRUTINY AND NOTICE U/S. 143(2) OF THE ACT WAS ISSUED. DURING THE FINANCIAL YEAR M/S. OFFICE TIGER DATABASE SYSTEMS I NDIA PRIVATE LIMITED MERGED WITH THE ASSESSEE COMPANY AND THE COMPANY IS CLAIMING TAX HOLIDAY BENEFIT U/S. 10A OF THE ACT AND THE MERGER IS EFFEC TIVE FROM 01.04.2007. THE ASSESSING OFFICER FOUND THAT ASSESSEE COMPANY HAS I NTERNATIONAL TRANSACTIONS WITH ITS ASSOCIATE ENTERPRISE (AE) AND THE LD. A RE FERRED TO TPO U/S. 92CA(1) OF THE ACT FOR DETERMINING OF ARMS LENGTH PRICE (AL P). THE ASSESSING OFFICER FIND THAT THE LD. TPO HAS PASSED AN ORDER AND ON RE CTIFICATION AS PER DIRECTIONS THERE WAS NO ADJUSTMENT TO ALP AND LD AO MADE OTHER ADDITIONS TO THE RETURNED INCOME AND PASSED ORDER ON 30.12.2011. AGAINST THE DRAFT ASSESSMENT ORDER, THE ASSESSEE COMPANY FILED OBJECT IONS AND THE DISPUTE RESOLUTION PANEL (DRP) HAS ISSUED DIRECTIONS U/S. 1 44C(5) R.W.S. 144C(8) OF THE ACT DATED 09.08.2012. THE LD. ASSESSING OFFICE R FOLLOWED THE DIRECTIONS :-4-: I.T.A. NO. 889/MDS/2015 OF THE DRP AND ASSESSED THE TOTAL INCOME BY DISALLO WANCES U/S. 40(A)(I) OF THE ACT AND SET OF LOSSES OF OTHER UNITS AND DEDUC TION U/S. 10A OF THE ACT AND CALCULATED TAX LIABILITY UNDER PROVISIONS OF SECTIO N 115JB OF THE ACT. SINCE, THE TAX LIABILITY IS HIGHER UNDER SECTION 115JB, THE AS SESSING OFFICER CONSIDERED INCOME AS DETERMINED UNDER SECTION 115JB AND PASSED ORDER U/S. 143(3) R.W.S. 144(C) OF THE ACT DATED 28.09.2012. SUBSEQU ENTLY, THE COMMISSIONER OF INCOME TAX UNDER REVISIONARY POWERS FOUND THAT T HE ORDER PASSED BY THE ASSESSING OFFICER DATED 28.09.2012 IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. THE LD. CIT OBSERVED THAT THE LD. AO HAS VIOLATED THE DIRECTIONS GIVEN BY THE DRP IN CALCULATING DEDUCTIO N U/S. 10A OF THE ACT TO VERIFY WHETHER TELECOMMUNICATION EXPENDITURE HAS BE EN INCLUDED IN EXPORT TURNOVER. WHEREAS THE ASSESSING OFFICER HAS NOT EX CLUDED TELECOMMUNICATION EXPENDITURE AS THE INVOICE RAISED BY THE ASSESSEE C OMPANY DO NOT INCLUDE TELECOMMUNICATION EXPENDITURE. THE LD. AR OF THE A SSESSEE FILED THE WRITTEN SUBMISSIONS. THE LD. CIT PERUSED THE FINDINGS AND SUBMISSIONS CONSIDERED THE TOTAL TURNOVER AND EXPORT TURNOVER AND IS OF TH E OPINION THAT THE EXCLUSION OF THE ITEM OF COST IS NOT POSSIBLE AND THE ASSESSI NG OFFICER HAS OVERLOOKED THE DIRECTIONS OF THE HON'BLE DRP, WHERE THE ASSESS EE CLAIMED EXCESS DEDUCTION U/S. 10A OF THE ACT THE LD. CIT FOUND TH E ORDER OF THE ASSESSING OFFICER IS ERRONEOUS AND PREJUDICIAL TO THE INTERES T OF THE REVENUE DUE TO EXCESS CLAIM AND THE LD. CIT FURTHER OBSERVED THAT THE TELECOMMUNICATION EXPENDITURE IS EMBEDDED INTO THE INVOICE COST OF EX PORT TURNOVER WHICH IS :-5-: I.T.A. NO. 889/MDS/2015 REQUIRED TO BE EXCLUDED AS PER THE DEFINITION OF EX PORT TURNOVER U/S. 10A OF THE ACT AND DIRECTED THE ASSESSING OFFICER TO REVIS E THE CLAIM OF DEDUCTION EXCLUDING TELECOMMUNICATION EXPENDITURE IN THE EXPO RT TURNOVER AND ALLOW THE DEDUCTION AND PASSED ORDER U/S. 263 ON 23.02.2015. 4. AGGRIEVED BY THE ORDER U/S. 263 OF THE ACT, THE ASSESSEE HAS FILED APPEAL TO THE TRIBUNAL AND CHALLENGED THE JURISDICT ION OF INITIALLING REVISIONARY PROCEEDINGS U/S. 263 OF THE ACT AND DEDUCTION U/S. 10A OF THE ACT EXCLUDING THE TELECOMMUNICATION EXPENDITURE, THE LD. AR OF TH E ASSESSEE ARGUED THE GROUNDS AND REITERATED THE SUBMISSIONS OF ASSESSMEN T PROCEEDINGS, TRANSFER PRICING PROCEEDINGS AND DRP AND REVISION PROCEEDING S AND FURTHER EMPHASIZED THAT THE ORDER PASSED BY THE DRP IS BIND ING ON THE ASSESSING OFFICER AND REFERRED TO PROVISIONS OF SECTION 144C( 10) OF THE ACT WHICH DEALT WITH EVERY DIRECTIONS ISSUED BY THE DISPUTE RESOLUT ION PANEL SHALL BE BINDING ON THE ASSESSING OFFICER. THE LD. AR SUBMITTED THA T THE REVISION ORDER DOES NOT SATISFY TWIN CONDITIONS BEING ERRONEOUS AND PRE JUDICIAL TO THE INTEREST OF THE REVENUE AND LD. CIT HAS DIRECTED THE ASSESSING OFFICER TO EXCLUDE TELECOMMUNICATION EXPENDITURE FROM THE EXPORT TURNO VER FOR CALCULATING THE DEDUCTION U/S. 10A OF THE ACT. WHEREAS, SAME HAS T O BE EXCLUDED FROM THE TOTAL TURNOVER FOR THE PURPOSE OF COMPUTING THE DED UCTION U/S. 10A OF THE ACT AND RELIED ON JUDICIAL DECISIONS. CONTRA, THE LD. DR RELIED ON THE ORDER OF LOWER AUTHORITIES AND OPPOSED THE GROUNDS. :-6-: I.T.A. NO. 889/MDS/2015 5. WE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MATE RIAL ON RECORD AND JUDICIAL DECISIONS. THE LD. AR CONTENTION THAT THE ORDER PASSED BY THE CIT(A) IS NOT IN ACCORDANCE WITH LAW AND DOES NOT SATISFY THE TWIN CONDITIONS. WE FOUND THE LD. CIT GAVE DIRECTIONS TO THE ASSESSING OFFICER IN RESPECT OF CLAIM OF DEDUCTION U/S. 10A AND EXCLUSION OF TELECOMMUNIC ATION EXPENDITURE FROM THE EXPORT TURNOVER SHOULD BE EXCLUDED FROM TOTAL T URNOVER UNDER THE PROVISIONS OF SECTION 144C(10) OF THE ACT, THE DIRE CTIONS OF THE DRP SHALL BE BINDING ON THE ASSESSING OFFICER AND THE ACTION HAS TO JUSTIFIED ON MERITS. WE FOUND THE ASSESSING OFFICER AT PAGE 5 OF HIS ORDER DEALT ON THE ASSESSEE'S OWN CASE FOR EARLIER ASSESSMENT YEARS WHERE THE RELIEF WAS GRANTED BASED ON THE CHENNAI SPECIAL BENCH CASE OF ITO VS M/S. SAK SOFT LTD., 313 ITR 353, WHERE IT WAS HELD THAT THE EXPENSES EXCLUDED FROM EXPORT TURNOVER SHOULD BE EXCLUDED FROM TOTAL TURNOVER AND SINCE THE ISSUE HA S NOT BECOME FINAL AS THE REVENUE HAS FILED THE APPEAL U/S. 260A OF THE ACT I N THE HON'BLE HIGH COURT OF MADRAS. THE LD. AO IS OF THE OPINION THAT THE APPE AL IS PENDING BEFORE THE HIGH COURT AND HAS DEDUCTED TELECOMMUNICATION EXPEN DITURE ONLY FROM THE EXPORT TURNOVER. WE FOUND THAT THE ACTION OF THE A SSESSING OFFICER IS NOT JUSTIFIED AND WHEREAS, LD. AR RELIED AND DREW OUR A TTENTION TO ASSESSEE'S OWN CASE IN ITA NO. 2049/MDS/2012 AT PAGE 15 PARA 6.1, WHICH READS AS UNDER: :-7-: I.T.A. NO. 889/MDS/2015 '6.1 GROUND NOS. 1 & 2 - EXCLUDING TELECOMMUNICATIO N EXPENDITURE AND TRAVELLING EXPENDITURE INCURRED IN FOREIGN CURRENCY FROM EXPORT TURNOVER, THOUGH THE SAME WERE NOT INCL UDED IN THE EXPORT TURNOVER. IT APPEARS FROM THE GROUND RAISED BY THE ASSESSE E THAT THE LD. AO HAD EXCLUDED THE TELECOMMUNICATION EXPENDITU RE AND TRAVELLING EXPENDITURE FROM THE EXPORT TURNOVER, THOUGH IT WAS NOT INCLUDED IN THE EXPORT TURNOVER. ON THIS ISSUE, WE HAVE ONLY TO SA Y THAT IF THESE EXPENDITURE HAVE ALREADY BEEN EXCLUDED BY THE ASSES SEE, THE SAME NEED NOT BE EXCLUDED ONCE AGAIN. FURTHER, THE LD. AO IS HEREBY DIRECTED TO FOLLOW THE DECISION OF THE SPECIAL BENC H OF THE TRIBUNAL IN THE CASE OF SAK SOFT CITED (SUPRA) WHILE GIVING EFF ECT TO THE ORDER OF TRIBUNAL IN THIS RELEVANT CASE BEFORE US. ' FURTHER, THE LD. AR ALSO RELIED ON THE DECISIONS O F COGNIZANT TECHNOLOGY SOLUTIONS INDIA VS. ACIT (2013) 35 CCH 0122, (CHENN AI) AND HYDERABAD TRIBUNAL DECISION OF PATNI TELECOM (P) LTD., VS. IN COME TAX OFFICER(2009) ITD 105. 6. WE CONSIDERING THE APPARENT FACTS, MATERIAL ON R ECORD AND JUDICIAL DECISIONS AND FIND THE CO-ORDINATE BENCH OF THIS TR IBUNAL HAS DIRECTED IN THE ASSESSEE'S OWN CASE FOR THE EARLIER YEARS TO EXCLUD E TELECOMMUNICATION EXPENDITURE FROM THE EXPORT TURNOVER AND ALSO FROM THE TOTAL TURNOVER AND FURTHER WE SUPPORT OUR VIEW ON THE DECISION OF SPEC IAL BENCH (CHENNAI) ITO VS. SAK SOFT LTD., 313 ITR 353, WHERE IT WAS HELD T HAT COMMUNICATION :-8-: I.T.A. NO. 889/MDS/2015 EXPENDITURE AND ENTIRE FOREIGN CURRENCY EXPENDITURE ARE TO BE REDUCED FROM EXPORT TURNOVER AND TOTAL TURNOVER FOR THE PURPOSE OF DEDUCTION U/S. 10B OF THE ACT AND ACCORDINGLY WE DIRECT THE ASSESSING OFF ICER TO FOLLOW THE DECISION OF SPECIAL BENCH SAK SOFT (SUPRA) AND RECOMPUTED TH E DEDUCTION U/S. 10A OF THE ACT AND PARTLY ALLOW THE APPEAL FOR STATISTICAL PURPOSE 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED ON WEDNESDAY, THE 18TH DAY OF JANU ARY, 2017 AT CHENNAI. SD/- ( ' ) (CHANDRA POOJARI) $ / ACCOUNTANT MEMBER SD/ - ( . ) (G. PAVAN KUMAR) ) $ /JUDICIAL MEMBER /CHENNAI, 1 /DATED: 18TH JANUARY, 2017 JPV ' *#34 54 /COPY TO: 1. APPELLANT 2. *+& /RESPONDENT 3. 6 ( )/CIT(A) 4. 6 /CIT 5. 4 *## /DR 6. 9 /GF