M/s Sasken Communication Technologies Limited, Bangalore V. Asst.C.I.T., Circle-6(1)(1), Bangalore

MA 38/BANG/2019

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 9346 (ITAT-BANGALORE)
• Duration Of Justice: 4 month(s)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 28-06-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2011-2012
• Appeal Filed On: 28-02-2019
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: DR SHANKAR PRASAD BENGALURU
• Assessee Lawyers: PADAMCHAND KHINCHA
• Keywords: Business income; Transfer pricing; International transaction; Earning of tax free income; Rule 8D; Set aside
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, VICE PRESIDENT AND SHRI A.K. GARODIA , ACCOUNTANT MEMBER M.P. NO.38/BANG/2019 [IN IT(TP)A 550/BANG/2016 ] ASSESSMENT YEAR : 2011 - 12 M/S. SASKEN TECHNOLOGIES LTD., 139/25, AMARJYOTHI LAYOUT, RING ROAD, DOMLUR, BANGALORE 560 071. PAN: AAECS 6424R VS. THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 6(1)(1), BANGALORE. APPLICANT RESPONDENT APP LICANT BY : SHRI PADAMCHAND KHINCHA, CA RESPONDENT BY : DR. SHA NKA R PRASAD, ADDL. CIT(DR)(ITAT), BENGALURU. DATE OF HEARING : 1 4 .0 6 .2019 DATE OF PRONOUNCEMENT : 28 . 0 6 .201 9 O R D E R PER N.V. VASUDEVAN, VICE PRESIDENT THIS MISCELLANEOUS APPLICATION FILED BY THE ASSE SSEE U/S. 254(2) OF THE INCOME-TAX ACT, 1961 [THE ACT] PRAYING FOR CE RTAIN APPARENT ERRORS IN THE ORDER OF TRIBUNAL DATED 16.11.2018 PASSED IN TH E AFORESAID APPEAL. 2. THE FIRST MISTAKE POINTED OUT IN THE ORDER OF TRIBUNAL IS WITH REGARD TO ADJUDICATION OF GROUND NO.5 RAISED BY THE ASSESS EE IN ITS APPEAL. AS FAR AS GROUND NO.5 IS CONCERNED, THE QUESTION BEFORE TH E TRIBUNAL WAS WITH REGARD TO DETERMINATION OF ARMS LENGTH PRICE (ALP) IN RESPECT OF AN M.P. NO.38/BANG/2019 PAGE 2 OF 8 INTERNATIONAL TRANSACTION OF GIVING UP LOAN B THE A SSESSEE TO ITS ASSOCIATED ENTERPRISE (AE) AND INTEREST INCOME THAT THE ASSESS EE OUGHT TO HAVE RECEIVED ON SUCH LOAN. IT WAS THE PLEA OF THE ASSE SSEE THAT SINCE THE LOAN IN QUESTION WAS IN US DOLLARS, LIBOR RATE OF EXCHAN GE + 200 POINTS SHOULD BE APPLIED AND INTEREST INCOME SHOULD HAVE BEEN DET ERMINED ACCORDINGLY. THE TRIBUNAL, HOWEVER, REMANDED THE ISSUE TO THE AO FOR CONSIDERATION AFRESH, BY OBSERVING THAT NO MATERIAL WAS BROUGHT O N RECORD INDICATING THE TERMS OF LOAN, SECURITY OFFERED, TERMS OF REPAYMENT , CURRENCY IN WHICH THE LOAN WAS TO BE REPAID, RBI POLICY GOVERNING ADVANCI NG OF LOANS BY INDIAN HOLDING COMPANY TO ITS FOREIGN SUBSIDIARY COMPANIES , CREDIT RATING, ETC. THE TRIBUNAL REMANDED THE ISSUE TO THE TPO AND DIRECTED THE ASSESSEE TO SUBMIT TP STUDY AND THE TPO SHALL CONSIDER THE ISSU ES AFRESH IN ACCORDANCE WITH LAW. 3. IT IS THE PLEA OF ASSESSEE THAT ALL FACTUAL DETA ILS WERE ALREADY ON RECORD AND HENCE THE ORDER OF TRIBUNAL SUFFERS FROM A MISTAKE APPARENT ON THE FACE OF RECORD. 4. WE HAVE HEARD THE LD. COUNSEL FOR THE ASSESSEE, WHO REITERATED THE STAND OF ASSESSEE AS CONTAINED IN THE MP. ADMITTE DLY, THE FACTORS ON WHICH THE TRIBUNAL PASSED AN ORDER OF REMAND WERE N OT INDICATED EITHER IN THE ORDER OF TPO OR IN THE ORDER OF DRP. THAT IS WHY THE TRIBUNAL HAS OBSERVED IN ITS ORDER THAT NO MATERIAL WAS BROUGHT ON RECORD INDICATING THE TERMS OF LOAN, LOAN TENURE, SECURITY OFFERED, ETC. WE ARE, THEREFORE, OF THE VIEW THAT THERE IS NO MISTAKE IN THE ORDER OF TRIBU NAL AND THE CONTENTIONS OF THE ASSESSEE IN PARA 4.5 TO 4.10 OF THE MISCELLANEO US PETITION MAKING REFERENCE TO DECIDED CASES ON THE POINT DO NOT REQU IRE DISCUSSION. WE HOWEVER MAKE IT CLEAR THAT THE ISSUE WILL BE CONSID ERED AFRESH BY THE TPO AND ALL ASPECTS OF THE ISSUE ARE LEFT OPEN AND THAT IS THE PURPORT OF THE ORDER M.P. NO.38/BANG/2019 PAGE 3 OF 8 OF THE TRIBUNAL. ACCORDINGLY, THE MP OF THE ASSESS EE ON GROUND NO.5 IS DISMISSED. 5. THE SECOND MISTAKE POINTED OUT IN THE ORDER OF T RIBUNAL IS WITH REGARD ADJUDICATION OF GROUND NO.6 RAISED BY THE AS SESSEE IN ITS APPEAL, WHICH IS AGAIN A TRANSACTION OF GIVING OF GUARANTEE BY THE ASSESSEE TO ITS AE. HERE ALSO, THE TRIBUNAL HAS REMANDED THE ISSUE TO TPO FOR FRESH CONSIDERATION DIRECTING THE TPO TO ANALYSE THE TRAN SACTION AND THEN APPLY THE APPROPRIATE RATE OF COMMISSION THAT THE ASSESSE E OUGHT TO HAVE CHARGED IN THE INTERNATIONAL TRANSACTION OF PROVIDI NG GUARANTEE TO AE. IN PARA 5.3 TO 5.7 OF THE MP, THE ASSESSEE HAS CONTEND ED THAT CORPORATE GUARANTEE IS NOT AN INTERNATIONAL TRANSACTION AND T HAT THE TRIBUNAL OVERLOOKED CERTAIN JUDICIAL PRONOUNCEMENTS AND THAT DETAILS OF CORPORATE GUARANTEE AND CREDIT RATING WERE ALSO FILED BORE TH E TRIBUNAL AS WELL AS BEFORE THE REVENUE AUTHORITIES. WE ARE OF THE VIEW THAT ALL THESE ASPECTS CAN BE CANVASSED IN THE SET ASIDE PROCEEDINGS BEFOR E THE TPO. THE GROUND ON WHICH THE TRIBUNAL REMANDED THE MATTER BA CK TO THE TPO WAS THAT SUFFICIENT ECONOMIC AND BUSINESS FACTORS WERE NOT CONSIDERED BY THE TPO BEFORE DETERMINING THE ALP. WE ARE, THEREFORE, OF THE VIEW THAT THERE IS NO MISTAKE APPARENT ON THE FACT OF RECORD IN THE ORDER OF TRIBUNAL CALLING FOR INTERFERENCE U/S. 254(2) OF THE ACT. ACCORDING LY, THE MP ON GROUND NO.6 IS ALSO DISMISSED. 6. THE NEXT GRIEVANCE PROJECTED IN THIS MP IS WITH REGARD TO DISALLOWANCE U/S. 14A OF THE ACT. THE TRIBUNAL IN PARA 14.4 WHILE DECIDING THE ISSUE U/S. 14A HAS OBSERVED AS FOLLOWS:- 14.4. WE HEARD RIVAL SUBMISSIONS AND PERUSED MAT ERIAL ON RECORD. THERE IS NO DISPUTE ABOUT APPLICABILITY OF RULE 14A AS THE ASSESSEE HAD EARNED EXEMPT INCOME. THE ASSESSEE ALS O NOT DENYING APPLICABILITY OF RULE 8D OF IT RULES. HOWEV ER, ONLY M.P. NO.38/BANG/2019 PAGE 4 OF 8 CONTENTION ADVANCED IS WHILE COMPUTING AVERAGE VALU E OF INVESTMENTS FOR THE PURPOSE OF COMPUTING DISALLOWAN CE UNDER SUBCLAUSE (3) OF RULE 8D, IT IS CONTENDED THAT INVE STMENTS WHICH YIELDED EXEMPT INCOME SHOULD BE TAKEN INTO CONSIDER ATION AND THE VALUE OF INVESTMENTS IN EQUITY OF OVERSEAS/SUBSIDIA RIES, DEBENTURES, SHARE APPLICATION MONEY SHOULD NOT BE TAKEN INTO CO NSIDERATION. FROM THE PERUSAL OF ORDERS OF THE LOWER AUTHORITIES , IT IS CLEAR THAT THE ASSESSEE HAD NOT RAISED THIS CONTENTION BEFORE THE LOWER AUTHORITIES. WE FIND THAT THE ASSESSEE HAD NEITHER FILED ANY APPLICATION FOR ADMISSION OF THIS ADDITIONAL GROUND OF APPEAL NOR HAD THE ASSESSEE HAD FILED EVIDENCE IN SUPPORT OF T HE ABOVE CONTENTION. THEREFORE, IN THE ABSENCE OF APPLICATIO N FOR ADMISSION OF ADDITIONAL GROUNDS OF APPEAL, THE CONTENTION CAN NOT BE ADMITTED AS IT IS A MIXED QUESTION OF FACT AND LAW. THUS, GR OUNDS OF APPEAL NO.10 TO 13 ARE DISMISSED. 7. THE LD. COUNSEL FOR THE ASSESSEE BROUGHT TO OUR NOTICE THAT THIS ISSUE WAS AGITATED BY THE ASSESSEE BEFORE THE DRP. HE BROUGHT TO OUR NOTICE THAT IN THE SUBMISSIONS BEFORE THE DRP, THIS ASPECT WAS HIGHLIGHTED AS FOLLOWS:- FURTHER, THE ITAT BANGALORE BENCH IN M/S. ALLIANCE INFRASTRUCTURE PROJECT P LTD. V. DCIT ITA NOS.220 & 1043/BANG/2013 DATED 12.9.2014 AND IN KINGFISHER FI NVEST INDIA LIMITED V. AD. CIT ITA NO.1368/B/2012 DATED 17.10.2 014 HELD THAT ONLY THOSE INVESTMENTS WHICH HAVE ACTUALLY RES ULTED IN DIVIDENDS DURING THE YEAR SHOULD BE CONSIDERED FOR THE PURPOSE OF RULE 8D(2)(III) COMPUTATION. IN OTHER WORDS, IF AN Y INVESTMENT IN SHARES OR MUTUAL FUND HAS NOT RESULTED OR DECLARED DIVIDENDS DURING THE YEAR, THE SAME SHOULD NOT BE INCLUDED FOR THE P URPOSE OF COMPUTING DISALLOWANCE UNDER RULE 8D(2)(III). 8. WE HAVE PERUSED THE MATERIAL ON RECORD AND WE FI ND THAT THE STAND TAKEN BY THE ASSESSEE IS CORRECT AND THEREFORE THE CONCLUSION OF THE TRIBUNAL THAT ASSESSEE DID NOT RAISE THE ISSUE OF E XCLUDING INVESTMENTS WHICH DID NOT YIELD ANY DIVIDEND INCOME WHILE COMPU TING THE AVERAGE VALUE OF INVESTMENTS IS INCORRECT AND CONTRARY TO MATERIA L ON RECORD. WE M.P. NO.38/BANG/2019 PAGE 5 OF 8 THEREFORE RECALL THE ORDER OF TRIBUNAL FOR THE LIMI TED PURPOSE OF ADJUDICATING THE ISSUE WITH REGARD TO COMPUTATION OF AVERAGE VAL UE OF INVESTMENT WHILE MAKING DISALLOWANCE UNDER RULE 8D R.W.S. 14A OF THE ACT. 9. THE NEXT ASPECT POINTED OUT IN THIS MP IS WITH R EGARD TO THE TRIBUNALS ORDER IN EXCLUDING ROYALTY INCOME FROM T HE BUSINESS INCOME FOR THE PURPOSE OF ALLOWING DEDUCTION U/S. 10A OF THE A CT. IT HAS BEEN POINTED OUT THAT THE TRIBUNAL IN ITS ORDER IN PARA 15.5 & 1 5.6 HAD COME TO THE CONCLUSION THAT ROYALTY INCOME HAD NO DIRECT NEXUS WITH INDUSTRIAL UNDERTAKING, THE PROFITS OF WHICH WERE ELIGIBLE FOR DEDUCTION U/S. 10A AND THEREFORE THEY WERE NOT TO BE INCLUDED AS PART OF T HE BUSINESS INCOME WHILE ALLOWING DEDUCTION U/S. 10A OF THE ACT. IT WAS THE CONCLUSION OF THE TRIBUNAL IN THE ORDER THAT THERE IS NO MATERIAL BRO UGHT ON RECORD SHOWING THAT THE IPRS, THE USE FOR WHICH ROYALTY INCOME WAS GENERATED, WERE IPRS DEVELOPED BY INDUSTRIAL UNDERTAKING WHICH CLAIMED D EDUCTION U/S. 10A OF THE ACT. IN THE MP, THE ASSESSEE HAS POINTED OUT T HAT EVEN THE AO IN THE ORDER OF ASSESSMENT HAS TREATED THE ROYALTY INCOME AS BUSINESS INCOME AND NOT INCOME FROM OTHER SOURCES. IT WAS ALSO SUB MITTED THAT NEITHER THE AO NOR THE DRP DISPUTED THIS POSITION. IT WAS THE ONLY CASE OF REVENUE THAT ROYALTY INCOME WAS NOT DIRECTLY DERIVED FROM EXPORT BUSINESS OF STPI/SEZ UNIT AND HENCE IT WAS EXCLUDED FROM THE BUSINESS INCOME WHILE COMPUTING DEDUCTION U/S. 10A/10AA OF THE ACT. IN T HE LIGHT OF SUCH UNDISPUTED POSITION, THE TRIBUNAL OUGHT NOT TO HAVE REJECTED THE PLEA OF ASSESSEE IN THIS REGARD. 10. WE HAVE CONSIDERED THE SUBMISSION OF THE LD. CO UNSEL FOR THE ASSESSEE, WHO REITERATED THE STAND OF THE ASSESSEE AS CONTAINED IN THE MP. AS RIGHTLY SUBMITTED BY THE LD. COUNSEL FOR TH E ASSESSEE, THE TRIBUNAL HAS PROCEEDED ON AN ERRONEOUS ASSUMPTION THAT ROYAL TY INCOME WAS NOT IN RESPECT OF IPRS GENERATED BY INDUSTRIAL UNDERTAKING , WHEREAS THE REVENUE M.P. NO.38/BANG/2019 PAGE 6 OF 8 AUTHORITIES DID NOT DISPUTE THIS POSITION; NOR WAS THIS THE BASIS OF THEIR REFUSING TO TREAT ROYALTY INCOME FORMING PART OF BU SINESS INCOME. THE REVENUE AUTHORITIES PROCEEDED ON THE BASIS THAT THI S WAS NOT PART OF EXPORT INCOME AND THEREFORE EXCLUDED THE SAME FROM THE BUS INESS INCOME. THERE IS, THEREFORE, A MISTAKE APPARENT ON THE FACE OF RECORD CALLING FOR INTERFERENCE U/S. 254(2) OF THE ACT. WE THEREFORE RECALL THE ORDER OF TRIBUNAL FOR THE LIMITED PURPOSE OF ADJUDICATING GROUND NO.1 4 OF THE GROUNDS OF APPEAL OF THE ASSESSEE. 11. THE NEXT MISTAKE POINTED OUT IN THE ORDER OF TR IBUNAL IS WITH REGARD TO GROUND NO.15. THE ISSUE IN GROUND NO.15 WAS WIT H REGARD TO EXCLUDING EXPENSES INCURRED IN FOREIGN CURRENCY FROM EXPORT T URNOVER WHILE COMPUTING DEDUCTION U/S. 10A OF THE ACT. THE DRP IN ITS DIRE CTION DIRECTED THE AO TO VERIFY THE EXACT NATURE OF EXPENDITURE INCURRED IN FOREIGN CURRENCY WHICH WAS EXCLUDED FROM THE EXPORT TURNOVER TO FOLLOW THE TRIBUNALS ORDER IN ASSESSEES OWN CASE FOR THE AYS 2004-05, 2006-07 & 2008-09. THE AO WHILE GIVING EFFECT TO THE ORDER OF DRP DID NOT ALL OW THE CLAIM OF ASSESSEE. THE TRIBUNAL, HOWEVER, DECIDED THE AFORESAID GROUND AS FOLLOWS:- 16.3 WE FIND THAT THE HON'BLE DRP HAD SET ASIDE THE ISSUE TO THE AO TO VERIFY EXACT NATURE OF THE EXPENDITURE INCURR ED AND DIRECTED THE AO TO FOLLOW DECISION OF THE TRIBUNAL IN ASSESS EES OWN CASE FOR ASSESSMENT YEARS 2004-05,2006-07 AND 2008-09 AF TER DUE VERIFICATION AND THEREFORE, WE DO NOT FIND ANY GRIE VANCE IN THE DIRECTION OF THE HON'BLE DRP. ACCORDINGLY, WE DISMI SS THIS GROUND OF APPEAL AS INFRUCTUOUS. 12. IT IS THE PLEA OF THE ASSESSEE IN THIS MP THA T THE ASSESSEE WAS IN APPEAL AGAINST THE ORDER OF AO GIVING EFFECT TO THE DIRECTIONS OF THE TRIBUNAL AND NOT AGAINST THE DIRECTION OF THE DRP. THE TRIB UNAL HAS THEREFORE PROCEEDED ON AN ERRONEOUS BASIS. M.P. NO.38/BANG/2019 PAGE 7 OF 8 13. WE HAVE CONSIDERED THE CONTENTION IN THE MP A ND THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE REITERATING THE STAND OF THE ASSESSEE AS CONTAINED IN THE MP AND ARE OF THE VIEW THAT THE TR IBUNAL IN ITS ORDER HAS NOT CONSIDERED THE REAL CONTROVERSY AND PROCEEDED O N A WRONG BASIS AS IF APPEAL WAS AGAINST THE DIRECTIONS OF THE DRP. BY D OING SO, THE GRIEVANCE OF THE ASSESSEE IN GROUND NO.15 HAS NOT BEEN ADJUDI CATED. WE THEREFORE RECALL THE ORDER OF THE TRIBUNAL FOR THE LIMITED PU RPOSE OF ADJUDICATING GROUND NO.15. 14. THE LAST ISSUE ON WHICH THIS MP HAS BEEN FILED IS WITH REGARD TO NON- ADJUDICATION OF GROUND NO.18 & 19 OF THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE. IT IS EVIDENT FROM THE ORDER OF TRIBUNAL THAT THESE GROUNDS WERE NOT ADJUDICATED AND THEREFORE WE RECALL THE ORDER O F THE TRIBUNAL FOR THE LIMITED PURPOSE OF ADJUDICATING GROUND NOS. 18 & 19 . 15. IN THE RESULT, THE MISCELLANEOUS PETITION BY TH E ASSESSEE IS PARTLY ALLOWED, IN THE SENSE THAT THE ORDER OF TRIBUNAL IS RECALLED FOR ADJUDICATING THE GROUND WITH REGARD TO COMPUTATION OF AVERAGE VA LUE OF INVESTMENTS I.E., GROUND NOS.10 TO 13, GROUND NOS.14 & 15 AND GROUND NOS. 18 & 19. PRONOUNCED IN THE OPEN COURT ON THIS 28 TH DAY OF JUNE, 2019. SD/- SD/- ( A.K. GARODIA ) ( N.V. VA SU DEVAN ) ACCOUNTANT MEMBER VICE PRESIDENT BANGALORE, DATED, THE 28 TH JUNE, 2019. / D ESAI S MURTHY / M.P. NO.38/BANG/2019 PAGE 8 OF 8 COPY TO: 1. APPLICAN T 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, ITAT, BANGALORE.