M/s Softwae Paradigms Infotech Pvt Ltd , Mysore V. Assistant Commissioner of Income Tax Circle-1(2), Mysore

ITTPA 150/BANG/2014

• Counselvise Citation: [2018] 124 COUNSELVISE.COM (IT) 9678 (ITAT-BANGALORE)
• Duration Of Justice: 3 year(s) 9 month(s) 22 day(s)
• Appeal Type: Income Tax (Transfer Pricing) Appeal
• Pronouncement Date: 05-01-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2009-2010
• Appeal Filed On: 14-03-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: C H SUNDAR RAO
• Assessee Lawyers: G S PRASHANTH
• Keywords: Principle of natural justice
• Section: 143(3); 234B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, BANGALORE BENCH A BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI JASON P BOAZ, ACCOUNTANT MEMBER IT(TP)A NO.15 0/BANG/2014 (ASST. YE AR 2009-10) M/S SOFTWARE PARADIGMS INFOTECH PVT. LTD., SPI CITY, #316318 (P), HEBBAL INDUSTRIAL AREA, MYSORE-570 016. . APPELLANT PAN. AALCS7583C. VS. THE ASST. COMMISSIONER OF INCOME-TAX, CIRCLE-1(2), MYSORE. . RESPONDENT APPELLANT BY : SHRI G.S P RASHANTH, C.A RESPONDENT BY : SHRI C.H SUN DAR RAO, CIT DATE OF HEARING : 2-1-2018 DATE OF PRONOUNCEMENT : 5-1-2018 O R D E R PER SHRI JASON P BOAZ, ACCOUNTANT MEMBER : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF ASSESSMENT PASSED BY THE ASST. COMMISSIONER OF I NCOME-TAX, CIRCLE-1(2), MYSORE U/S 143(3) R.W.S 92CA OF THE IN COME-TAX ACT, 1961 (IN SHORT 'THE ACT') VIDE ORDER DATED 17/1/ 2014 FOR ASST. YEAR 2009-10. IT(TP)A NO.150/B/14 2 2. IN THIS APPEAL, THE ASSESSEE HAS RAISED THE FOLL OWING GROUNDS OF APPEAL:- 'THE ORDER OF THE TPO /DRP /ASSESSING OFFICER IN SO FAR AS IT IS AGAINST THE APPELLANT, IS OPPOSED TO L AW, WEIGHT OF EVIDENCE, NATURAL JUSTICE, PROBABILITIES, FACTS AND CIRCUMSTANCES OF THE APPELLANT'S CASE. 2. THE APPELLANT DENIES ITSELF TO BE ASSESSED ON A TOTAL INCOME OF RS. 3,82,59,3501- AS AGAINST INCOME OF RS. 1.09,28,410/- AS DECLARED BY THE APPELLANT. 3. A) THE ORDER OF THE ASSESSMENT IS BAD IN LAW AS THE MANDATORY CONDITIONS TO INVOKE THE JURISDICTION UND ER SECTION 92CA OF THE ACT DID NOT EXIST, OR HAVING NO T BEEN COMPLIED WITH AND CONSEQUENTLY THE ORDERS OF T HE ASSESSING OFFICER IS BAD IN LAW FOR WANT OF REQUISI TE JURISDICTION. B) THE ASSESSING OFFICER ERRED IN NOT PROVIDING THE COPY OF THE APPROVAL GRANTED BY THE COMMISSIONER WHICH IS IN VIOLATION OF THE SETTLED PRINCIPLES OF NATURAL JUSTICE AND THUS THE ORDER OF ASSESSMENT NEEDS TO B E SET ASIDE. 4. THE ADJUSTMENT UNDER SECTION 92CA OF THE ACT IS BAD IN LAW AND CONTRARY TO THE FACTS OF THE CASE. 5 . A) THE ADDITION OF RS. 1.81.99,085/- BEING ADJUSTMENT UNDER SECTION 92CA OF THE ACT TO WARDS SOFTWARE DEVELOPMENT SERVICES IS BAD IN LAW. IT(TP)A NO.150/B/14 3 B) THE ADDITION OF RS.91,31,8581- BEING ADJUSTMENT UNDER SECTION 2 OF THE ACT TOWARDS IT ENABLED SERVICES(ITES) IS BAD IN LAW. 6. THE TPO. DRP AND THE ASSESSING OFFICER ERRED IN EXCLUDING THE FOREIGN EXCHANGE GAIN FROM THE OPERATING INCOME WHEN IT HAS A DIRECT NEXUS WITH THE REVENUE EARNED. RELIANCE IS PLACED ON THE DECISIONS OF THE JURISDICTIONALHIGH COURT IN THE CASE OF CIT VS INFO SYS TECHNOLOGIES LTD IN ITA NO. 118912006 AND CIT VS ENCORE SOFTWARE LTD IN ITA NO. 1142 OF 2006 7. THE TPO, DRP AND THE ASSESSING OFFICER ERRED IN REJECTING THE COMPARABLES SELECTED BY THE APPELLANT WITHOUT GIVING ANY COGENT REASONS. 8. THE TPO, DRP AND THE ASSESSING OFFICER ERRED IN NOT APPLYING EMPLOYEE COST FILTERS FOR A LABOUR INTENSIVE INDUSTRY WHEREIN THE APPELLANT OPERATES. 9. THE TPO, DRP AND THE ASSESSING OFFICER FAILED TO UNDERSTAND THE SPIRIT AND INTENT OF RULE JOB (1) (E ) (II) AS PER WHICH EVEN IF ONE OF THE COMPARABLES SELECTE D BY THE APPELLANT SATISFIES THE COMPUTATION MECHANISM F OR DETERMINATION OF THE ALP, THE DETERMINATION OF ALP BY USING ARITHMETIC MEAN OF DIFFERENT COMPARABL ES NOT WARRANTED. IT(TP)A NO.150/B/14 4 10. THE TPO, DRP AND THE ASSESSING OFFICER ERRED IN SELECTING THE FOLLOWING NEW COMPANIES AS COMPARABLE S TOWARDS SOFTWARE DEVELOPMENT SERVICES UNDER THE FAC TS AND CIRCUMSTANCES OF THE CASE A) BODHTREE CONSULTING LTD., B) INFOSYS LTD C) KALS INFORMATION SYSTEMS LTD., D) LARSEN &TUBRO INFOTECH E) MINDTREE LTD., J) PERSISTENT SYSTEMS LTD., G) SASKEN COMMUNICATION TECHNOLOGIES LTD., H) TATA ELSXI LTD., I) ZYLOG SYSTEMS LTD., H. THE TPO, DRP AND THE ASSESSING OFFICER ERRED IN SELECTING THE FOLLOWING NEW COMPANIES AS COMPARABLE S TOWARDS IT ENABLED SERVICES (ITES) UNDER THE FACTS AND / CIRCUMSTANCES OF THE CASE A) ACCENTIA TECHNOLOGIES LTD. B) ADITYA BIRLA MINACS WORLDWIDE LTD C) ECLERX SERVICES LTD D) MICROLAND LTD., 12. THE TPO, DRP AND THE ASSESSING OFFICER FURTHER ERRED IN - A) REJECTING THE TP STUDY OF THE APPELLANT B) CONDUCTING THE NEW STUDY WITHOUT REJECTING ALL T HE COMPARABLES OF THE APPELLANT IT(TP)A NO.150/B/14 5 C) NOT CONSIDERING EARLIER YEARS' DATA IN DETERMINA TION OF THE ALP D) USING INCORRECT METHOD FOR WORKING CAPITAL ADJUSTMENT E) CONSIDERING COMPANIES WITH SUPER-PROFIT. J) NOT APPLYING REASONABLE EMPLOYEE COST FILTERS. 13. A) THE AUTHORITIES BELOW ARE NOT JUSTIFIED IN M AKING WORKING CAPITAL ADJUSTMENT OF 1.71% IN SOFTWARE DEVELOPMENT SERVICES AND CONSEQUENTLY THE INCREASE IN THE ALP MARGIN IS UNSUSTAINABLE IN LAW. B) THE AUTHORITIES BELOW ARE NOT JUSTIFIED IN MAKIN G WORKING CAPITAL ADJUSTMENT OF 0.91% IN IT ENABLED SERVICES (ITES) AND CONSEQUENTLY THE INCREASE IN TH E ALP MARGIN IS UNSUSTAINABLE IN LAW. 14. THE TPO, DRP AND THE ASSESSING OFFICER ERRED IN NOT GRANTING THE BENEFIT OF THE PROVISO TO SECTION 92C(2) OF THE ACT WHICH IS MANDATORY UNDER THE SCHEME OF THE ACT. 15. WITHOUT PREJUDICE, THE TPO, DRP AND THE ASSESSING OFFICER ERRED IN SELECTING COMPANIES WITH VERY HIGH TURNOVER (MORE THAN RS. 200 CRORES) AS COMPARABLES ON THE FACTS AND CIRCUMSTANCES OF THE CASE. 16 THE DRP EXCEEDED ITS JURISDICTION BY DIRECTING T HE TPO TO CONSIDER THE CLAIM OF ACCEPTANCE OF THE INTERNAL COMPARABLES SELECTED BY THE APPELLANT WHIC H IT(TP)A NO.150/B/14 6 IS VIOLATIVE OF THE PROVISIONS OF SECTION 144C(8) O F THE ACT. 17. THE ASSESSMENT ORDER PASSED IS BAD IN LAW AS TH E ORDER OUGHT TO HAVE BEEN PASSED UNDER SECTION 143(3 ) R.V.S 144C OF THE ACT AND NOT UNDER SECTION UNDER SECTION 143(3) R.W.S 92CA OF THE ACT. 18. THE APPELLANT DENIES ITSELF LIABLE TO BE LEVIED TO INTEREST UNDER SECTION 234B OF THE ACT AND FURTHER THE COMPUTATION OF INTEREST UNDER SECTION 234B WAS NOT PROVIDED TO THE APPELLANT AS REGARD TO THE RATE, PE RIOD AND METHOD OF CALCULATION OF INTEREST UNDER THE FAC TS AND CIRCUMSTANCES OF THE CASE. THE APPELLANT EXPRES SLY URGES THAT THE PERIOD OF LEVY OF INTEREST IS NOT IN ACCORDANCE WITH SECTION 234B OF THE ACT. 19. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, DELET E, MODIFY ANY OF THE GROUNDS WHICH ARE URGED ABOVE. 20. FOR THE ABOVE AND SUCH OTHER GROUNDS AS MAY BE URGED AT THE TIME OF HEARING THE APPELLANT PRAYS YO UR HONOUR TO CONSIDER THE FACTS AND CIRCUMSTANCES OF T HE CASE AND JUSTICE BE RENDERED.' 3. GROUND NO.17 3.1.1 AT THE OUTSET OF THE HEARING, THE ID AR OF TH E ASSESSEE SOUGHT TO BE HEARD ON GROUND NO.17 (SUPRA), WHICH IS A TECHNI CAL GROUND. IN THIS GROUND THE ASSESSEE HAS ASSAILED THE IMPUGNED ORDER OF ASSESSMENT DATED 17/1/2014 FOR ASST. YEAR 2009-10 TO BE BAD IN LAW, IT(TP)A NO.150/B/14 7 AS THE SAID ORDER OUGHT TO HAVE BEEN PASSED U/S 143 (3) R.W.S 144C OF THE ACT AND NOT UNDER SEC. 143(3) R.W.S 92CA OF THE ACT. 3.1.2 ACCORDING TO THE ID AR FOR THE ASSESSEE, THE DIRECTIONS ISSUED BY THE DISPUTE RESOLUTION PANEL ('DRP') U/S 144C(5) OF THE ACT ARE BINDING ON THE AO/TPO, AS HAS BEEN LAID OUT IN SEC. 144C(1O) OF THE ACT. THEREFORE, THE AO OUGHT TO HAVE PASSED THE IMP UGNED ORDER OF ASSESSMENT U/S 143(3) R.W.S 144C(13) OF THE ACT IN CONFORMITY WITH THE DIRECTIONS ISSUED BY THE DRP, WITHIN ONE MONTH FROM THE END OF THE MONTH IN WHICH SUCH DIRECTION IS RECEIVED. 3.1.3 THE ID AR FOR THE ASSESSEE SUBMITTED THAT THE MATERIAL FACTS IN THE CASE ON HAND ARE THAT A DRAFT ORDER OF ASSESSME NT FOR ASST. YEAR 2009-10 WAS COMPLETED U/S 143(3) R.W.S 92CA OF THE ACT VIDE ORDER DATED 14/3/2013. AGGRIEVED BY THIS ORDER, THE ASSES SEE FILED ITS OBJECTIONS THERETO BEFORE THE DRP, WHO ISSUED ITS D IRECTIONS THEREON U/S 144C(5) OF THE ACT ON 30/12/2013. THE ID AR SUB MITS THAT, AS PER LAW, I.E THE PROVISIONS OF SEC. 144C OF THE ACT, TH E AO IS BOUND TO HAVE PASSED THE FINAL ORDER OF ASSESSMENT IN CONFOR MITY WITH THE DIRECTIONS OF THE DRP WITHIN ONE MONTH FROM THE END OF THE MONTH WHICH SUCH DIRECTIONS ARE ISSUED; BUT FAILED TO DO SO. IN THIS CONTEXT, THE ID DR DREW THE ATTENTION OF THE BENCH TO THE IM PUGNED FINAL ORDER OF ASSESSMENT TO ILLUSTRATE THAT THE SAME WAS PASSE D ON 17/1/2014 U/S 143(3) R.W.S 92CA OF THE ACT AND NOT AS IT SHOULD H AVE BEEN; U/S 143(3) R.W.S 144C OF THE ACT IN CONFORMITY WITH THE DRP'S DIRECTIONS ISSUED U/S 144C(5) OF THE ACT ON 30/12/2013 AS WAS MANDATORILY REQUIRED AND THIS HAS RENDERED THE IMPUGNED ORDER B AD IN LAW. THE LD AR CONTENDS THAT THE AFORESAID CONTENTIONS AR E IN ORDER. IN THIS IT(TP)A NO.150/B/14 8 CONTEXT THE ID AR DREW THE ATTENTION OF THE BENCH T O BOTH THE DRAFT ORDER OF ASSESSMENT PASSED U/S 143(3) R.W.S 92CA OF THE ACT ON 14/3/2013 AND THE IMPUGNED FINAL ORDER PASSED ON 17 /1/2014 U/S 143(3) R.W.S 92CA OF THE ACT. IT WAS POINTED OUT TH AT BOTH THESE ORDERS WERE IDENTICAL IN SUM AND SUBSTANCE EXCEPT F OR THE DIFFERENT DATES ON WHICH THEY WERE PASSED. IT IS CONTENDED TH AT, AS PER LAW, THE FINAL ORDER OF ASSESSMENT DATED 17/1/2014 OUGHT TO HAVE BEEN PASSED BY THE AO IN CONFORMITY WITH THE DRP BINDING DIRECT IONS ISSUED U/S 144C(5) AND WITHIN ONE MONTH FROM THE END OF THE MO NTH IN WHICH THEY WERE ISSUED. EVIDENT FAILURE TO DO SO, HAS REN DERED THE IMPUGNED FINAL ORDER OF ASSESSMENT PASSED U/S 143(3 ) R.W.S 92CA OF THE ACT VIDE ORDER DATED 14/1/2014 TO BE BAD IN LAW AND LIABLE TO BE QUASHED. 3.2 THE LD DR FOR REVENUE, WHEN CONFRONTED BY THE B ENCH BY THE AFORESAID FACTS OF THE MATTER ON RECORD (SUPRA), FA IRLY AGREED THAT THE IMPUGNED FINAL ORDER OF ASSESSMENT DATED 17/1/2014 OUGHT TO HAVE BEEN PASSED U/S 143(3) R.W.S 144C OF THE ACT IN CON FORMITY WITH THE BINDING DIRECTION OF THE DRP ISSUED ULS 144C(5) OF THE ACT, WHICH HAS CLEARLY NOT BEEN DONE. THE ID DR, HOWEVER, PRAY ED THAT, IN THE INTEREST OF EQUITY AND JUSTICE, SINCE THE AO'S ERRO R IS NOT FATAL THE IMPUGNED FINAL ORDER OF ASSESSMENT BE SET ASIDE AND THE AO BE DIRECTED TO PASS A FRESH FINAL ORDER IN CONFORMITY WITH THE DRP'S DIRECTIONS. 3.3.1 WE HAVE HEARD THE RIVAL CONTENTION OF BOTH PA RTIES IN THE MATTER AND PERUSED AND CAREFULLY CONSIDERED THE MATERIA L ON RECORD. THE UNDISPUTED FACTS ON RECORD, AS BROUGHT OUT BY THE DISCUSSIONS ABOVE, IT(TP)A NO.150/B/14 9 IS THAT THE AO, AS PER LAW, WAS REQUIRED TO PASS TH E FINAL ORDER OF ASSESSMENT DATED 17/1/2014 FOR ASST. YEAR 2009-10 U /S 143(3) R.W.S 144C OF THE ACT IN CONFORMITY WITH THE DIRECTIONS I SSUED BY THE DRP U/S 144C(5) OF THE ACT, WHICH ARE BINDING ON HIM AS PER SECTION 144C(10) THEREOF AND WITHIN THE TIME PRESCRIBED U/S 144C(13) OF THE ACT. WE FIND THAT INSTEAD OF PASSING THE FINAL ORDE R OF ASSESSMENT AS REQUIRED BY LAW, THE AO PASSED THE IMPUGNED FINAL O RDER OF ASSESSMENT DATED 17/1/2014 U/S 143(3) R.W.S 92CA OF THE ACT; WHICH, AS CONTENDED BY THE ID AR, IS IDENTICAL TO THE DRAF T ORDER OF ASSESSMENT PASSED ON 14/3/2013 BY ONLY INCORPORATIN G THIS TPO'S PROPOSALS AND , THEREBY EVIDENTLY GIVING THE DRP'S MANDATORY DIRECTIONS ISSUED U/S 144C(5) OF THE ACT A COMPLETE GO-BY. IN OUR VIEW, IT IS FACTUALLY ESTABLISHED THAT THE AO IN THE FINAL ORDER OF ASSESSMENT DATED 17/1/2014 HAS NOT GIVEN EFFECT TO OR CARRIED OUT THE BINDING DIRECTIONS OF THE DRP AS REQUIRED U/S 1 44C(10) WITHIN THE TIME SPECIFIED U/S 144C(13) OF THE ACT; WHICH IS A CLEAR VIOLATION OF THE BINDING PROVISIONS OF SEC. 144C(10) AND (13) OF THE ACT. THEREFORE, IN OUR CONSIDERED OPINION, THE CONDUCT O F THE AO/TPO IN PASSING THE IMPUGNED FINAL ORDER OF ASSESSMENT DATE D 17/1/2014 IS A CLEAR CASE OF DEFIANCE AND DISREGARD TO THE BINDING DIRECTIONS OF THE HIGHER AUTHORITIES, I.E, THE DRP IN THE CASE ON HAN D. IN FACT, IN THE IMPUGNED ORDER DATED 17/1/2014 THERE IS NOT EVEN A SINGLE REFERENCE TO THE DRP'S DIRECTIONS ISSUED US/ 144C(5) OF THE A CT VIDE ORDER DATED 30/12/2013. 3.3.2 IN THE FACTUAL AND LEGAL MATRIX OF THE CASE O N HAND, AS DISCUSSED ABOVE, WE ARE OF THE CONSIDERED VIEW THAT THE IMPUG NED FINAL ORDER OF IT(TP)A NO.150/B/14 10 ASSESSMENT FOR ASST. YEAR 2008-09 PASSED U/S 143( 3) R.W.S 92CA OF THE ACT BY THE AO, IN VIOLATION OF THE EXPRESS MAND ATORY PROVISIONS OF SEC. 144C(10) AND (13) OF THE ACT BY NOT PA SSING THE IMPUGNED ORDER IN PURSUANCE OF AND IN CONFORMITY WITH THE BI NDING DIRECTIONS OF THE DRP ISSUED U/S 144C(5) OF THE ACT, WITHIN TH E TIME SPECIFIED FOR THIS PURPOSE, HAS RENDERED THE SAID IMPUGNED FI NAL ORDER OF ASSESSMENT UNSUSTAINABLE IN LAW. WE, THEREFORE, QUA SH THE IMPUGNED FINAL ORDER OF ASSESSMENT FOR ASST. YEAR 2009-10 PA SSED BY THE AO U/S 143(3) R.W.S 92CA OF THE ACT DATED 17/1/2014 IN THE CASE ON HAND. WE HOLD AND DIRECT ACCORDINGLY. CONSEQUENTLY, GROUN D NO. 17 OF ASSESSEE'S APPEAL IS ALLOWED. 4. SINCE WE HAVE QUASHED THE IMPUGNED FINAL ORDER O F ASSESSMENT DATED 17/1/2014 FOR ASST. YEAR 2009-10 PASSED U/S 1 43(3) R.W.S 92CA OF THE ACT (SUPRA), THERE IS NO REQUIREMENT FOR US TO ADJUDICATE THE OTHER GROUNDS RAISED BY THE ASSESSEE (I.E GROUNDS 1 TO 16 AND 18 TO 20). 5. IN THE RESULT, THE ASSESSEE'S APPEAL FOR ASST. Y EAR 2009-10 IS ALLOWED AS INDICATED ABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON 5 TH JANUARY, 2018 . SD/- SD/- (SUNIL KUMAR YADAV) (JASON P BOAZ) JUDICIAL MEMBER ACCOUNTANT MEMB ER BANGALORE DATED : 5/1/2018 VMS IT(TP)A NO.150/B/14 11 COPY TO :1. THE ASSESSEE 2. THE REVENUE 3.THE CIT CONCERNED. 4.THE CIT(A) CONCERNED. 5.DR 6.GF BY ORDER SR. PRIVATE SECRETARY, ITAT, BANGAL ORE.