Satyam Venture Engineering Services Private Limited Hyderabad v. Dy Cit Central Circle 9 Hyderabad

ITA 1464/HYD/2014 | 2009-2010
Pronouncement Date: 29-12-2017 | Result: Partly Allowed

Appeal Details

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RSA Number 146422514 RSA 2014
Assessee PAN xxxxxxxxxxx
Bench xxxxxxxxxxx
Appeal Number xxxxxxxxxxx
Duration Of Justice 3 year(s) 3 month(s) 23 day(s)
Appellant xxxxxxxxxxx
Respondent xxxxxxxxxxx
Appeal Type Income Tax Appeal
Pronouncement Date 29-12-2017
Appeal Filed By Assessee
Tags No record found
Order Result Partly Allowed
Bench Allotted B
Tribunal Order Date 29-12-2017
Last Hearing Date 07-12-2017
First Hearing Date 07-12-2017
Assessment Year 2009-2010
Appeal Filed On 05-09-2014
Judgment Text
Ita No 1464 Of 2 014 Satyam Venture Engg Hyderabad Page 1 Of 10 In The Income Tax Appellate Tribunal Hyderabad B Bench Hyderabad Before Smt P Madhavi Devi Judicial Member And Shri S Rifaur Rahman Accountant Member Ita No 1464 Hyd 2014 Assessment Year 2009 10 M S Satyam Venture Engg Services P Ltd Secunderabad Pan Aafcs 3287 D Vs Dy Commissioner Of Income Tax Central Circle 9 Hyderabad Appellant Respondent For Assessee Shri C S Subrahmanyam For Revenue Shri P Soma Sekhar Reddy Cit Dr O R D E R Per Smt P Madhavi Devi J M This Is Assessees Appeal For The A Y 2009 10 Again St The Assessment Order Passed U S 143 3 R W S 144 C Of The Act Dated 27 06 2014 In This Appeal The Assessee Is A Ggrieved By I The Tp Adjustment Made By The Ao On Confirmation Of Transfer Pricing Order By The Drp Ii In Selecting The Com Parable Companies Iii In Denying The Deduction U S 10 A F Or The Reason That Form No 56 F Was Not Filed Along With The Retur N Of Income And Iv By The Disallowance Of Rs 21 29 578 As Pri Or Period Expenditure 2 The Assessee Has Also Raised A Ground Against Th E Reference To A Special Audit U S 142 2 A Dated 26 3 2013 But At Date Of Hearing 07 12 2017 Date Of Pronouncement 29 12 2017 Ita No 1464 Of 2 014 Satyam Venture Engg Hyderabad Page 2 Of 10 The Time Of Hearing The Learned Counsel For The As Sessee Submitted That The Assessee Does Not Wish To Press Ground Of Appeal No 2 Against The Reference To The Special Au Dit Since The Assessee Did Not Raise Any Such Objection Before Th E Ao Ground Of Appeal No 2 Is Accordingly Rejected 3 In Addition To The Above The Assessee Has Also Raised An Additional Ground Of Appeal Against The Ao Drp T Reating The Amount Of Rs 14 98 43 680 Incurred At The Overseas Branches Towards Salaries Allowances As Covered By Explana Tion 2 Iv Of Section 10 A And Reducing The Same From Export Turno Ver Only For The Purpose Of Computation Of Deduction U S 10 A Of The Act In Addition To The Above The Assessee Also Filed An A Pplication For Admission Of Additional Evidence In The Form Of Aud Ited Segmental Results For The Purpose Of T P Adjustment 4 Brief Facts Of The Case Are That The Assessee Co Mpany Engaged In Rendering Of Engineering Consulting Se Rvices E Filed Its Return Of Income For The A Y 2009 10 On 30 09 2 009 On The Basis Of Pre Audited Books Declaring A Total Income Of Rs 2 89 85 608 Subsequently After Getting Its Acc Ounts Audited The Assessee Filed The Revised Return Of Income On 30 03 2010 Declaring A Total Income Of Rs 3 15 81 760 5 During The Assessment Proceedings U S 143 3 Of The Act The Ao Noticed That The Assessee Has Entered I Nto International Transactions With Its Aes He Observe D That The Assessee Is A Joint Venture Between M S Satyam Com Puter Ita No 1464 Of 2 014 Satyam Venture Engg Hyderabad Page 3 Of 10 Services Ltd India And M S Venture Global Engine Ering Llc Usa With 50 Shareholding Each And That The Assesse E Has Entered Into Various International Transactions Th E Total Value Of Which Is Rs 49 20 43 166 Therefore The Ao Referre D The Determination Of The Arms Length Price To The Tpo U S 92 Ca Of The Act 6 The Tpo Rejected The T P Documentation Of The Assessee And Conducted A Fresh Search He Arrived A T 14 Companies As Comparable To The Assessee And Under T Nmm Arrived At Their Average Margin At 46 5 The Asses See Objected To The Proposed Adjustment The Tpo However Observed That The Assessee Did Not File Any Specific Comments On The Comparables Other Than The General Remark That None Of The Com Parable Are Functionally Comparable As They Are Into Different Functions And The Taxpayer Is In Engineering Function Of Ites Th E Tpo Therefore Rejected The Assessees Objection And Ad Opted 12 Companies As The Final Comparables And Arrived At T He Alp Margin Of 27 49 And After Allowing The Working Cap Ital Adjustment Arrived At The Average Margin Of 23 8 As Against The Margin Of 12 93 Reported By The Assessee Accordin Gly An Adjustment Was Proposed By The Tpo And In Accordanc E With The Said Proposal The Draft Assessment Order Was Passe D Against The Said Draft Assessment Order The Assessee Preferred Its Objections Before The Drp 7 The First Objection Taken By The Assessee Before The Drp Is That The Tpo Had Erred In Arriving At Alp By Applying The Ita No 1464 Of 2 014 Satyam Venture Engg Hyderabad Page 4 Of 10 Profit Level Indicator Pli On The Total Cost Whic H Includes Cost Attributable To Non Aes Also And The Total Receipts From Both Aes And Non Aes The Drp However Rejected The Assesse Es Objection By Observing That The Assessee Did Not Furnish Any Tp Document Before The Tpo And Also Did Not Submit The Segmenta L Results Before The Tpo To Consider The Same Further The D Rp Also Rejected The Assessees Contention Of Internal Tnmm Because The Assessee Did Not Submit The Segmental Results Befor E The Tpo Or Drp The Ao Passed The Final Assessment Order Again St Which The Assessee Is In Appeal Before Us 8 The Learned Counsel For The Assessee Submitted Before Us That For Determination Of Alp Adjustment It Is Only Ae Transactions Which Have To Be Taken Into Considerat Ion And Not The Transactions With Non Aes Also He Submitted Th At The Assessee Had Transactions With The Aes As Well As N On Aes And Therefore The Transaction With The Non Aes Provide D Good Comparables For Arriving At The Alp Of The Similar Transaction With Aes And Therefore The Learned Counsel For The Ass Essee Prayed That The Ao Tpo May Be Directed To Consider The Inc Ome And The Operating Profit Operating Cost Of The Ae Transacti Ons Only For The Purpose Of Alp Determination And Also To Consider T He Internal Tnmm As The Most Appropriate Method In Support O F His Contention The Learned Counsel For The Assessee Pl Aced Reliance Upon Various Decisions Particularly Of Mumbai Benc H Of The Tribunal In The Case Of Twinkle Diamonds Ita No 81 07 8358 Mum 2011 Dated 6 Th May 2013 Wherein It Was Observed That The Tp Adjustment Is Required To Be Made Only With Respect To Ae Transactions And Therefore The Computation Was Required To Ita No 1464 Of 2 014 Satyam Venture Engg Hyderabad Page 5 Of 10 Be Made Only With Respect To The Operating Expenses Attributable To The Sales To The Aes Further The Learned Couns El For The Assessee Also Placed Reliance Upon The Decision Of The Tribunal At Bangalore In The Case Of Genisys Integrating System India P Ltd 2013 31 Taxmann Com 235 Bang Wherein The Asses See Company Therein Had Transactions With Both The Ae A S Well As Non Aes And There Were Functional Similarities As W Ell As Methodology Of Apportionment Of Expenses And It Was Held That The Ao Tpo Ought To Have Adopted The Internal Tnmm For Arriving At The Alp 9 The Learned Dr However Relied Upon The Order O F The Drp 10 Having Regard To The Rival Contentions And The Material On Record We Find That Where The Assessee Has Both The Ae As Well As Non Ae Transactions The Operating Profit A Nd Operating Cost Relating To The Ae Transactions Alone Ought To Be Considered For Arriving At The Alp And Thereafter The Fixed Co St Attributable To Both The Transactions Ought To Be Apportioned When The Tpo Has Adopted The Tnmm As The Most Appropriate Method And The Assessee Has Rendered Similar Services To Both The Aes And Non Aes And The Non Ae Transaction Satisfy The Interna L Tnmm The Ao Therefore Ought To Have Considered Them For Ar Riving At The Alp Therefore We Deem It Fit And Proper To Remit This Issue To The File Of The Ao With A Direction To Consider Only Th E Operating Profit Operating Cost Of Ae Transactions And Also T O Consider Internal Tnmm Where The Services Rendered By The As Sessee Are Ita No 1464 Of 2 014 Satyam Venture Engg Hyderabad Page 6 Of 10 Similar Both To Aes And Non Aes Accordingly Groun Ds Of Appeal Nos 3 To 3 4 Are Treated As Allowed For Statistical Purposes 11 Since We Have Directed The Ao Tpo To Adopt The Internal Tnmm The Ground Of Appeal No 3 5 Against The Comparables Adopted By The Tpo Becomes Infructuous And Is Accordingly Rejected 12 As Regards Ground Of Appeal No 4 We Find That It Is Against The Denial Of Deduction U S 10 A On The Grou Nd That Form No 56 F Was Not Filed Along With The Return Of Incom E It Is Seen From The Assessment Order That The Assessee Has Fi Led E Return And There Is No Possibility Of Filing Form No 56 F A Long With The E Return Of Income It Is Also Seen That The Assessee Has Filed Form No 56 F During The Assessment Proceedings And Before Completion Of The Assessment The Honble Karnataka High Court In The Case Of American Data Solutions India P Ltd 2014 45 Taxmann Com 379 Kar Hc Has Held That The Appellate Proceeding S Are The Continuation Of The Assessment Proceedings And If F Orm No 56 F Is Filed During The Course Of Appellate Proceedings T He Same Should Be Considered As The Requirement To File The Form 56 F Along With The Return Of Income Is Only Directory And Not Mand Atory Respectfully Following The Same Ao Is Directed To Consider Form No 56 F And Allow Deduction U S 10 A Of The Act Prov Ided The Assessee Otherwise Fulfills All The Other Conditio Ns Prescribed U S 10 A Of The Act Thus Ground Of Appeal No 4 Is Trea Ted As Allowed For Statistical Purposes Ita No 1464 Of 2 014 Satyam Venture Engg Hyderabad Page 7 Of 10 13 As Regards Ground No 5 The Ao Observed From Th E Special Audit Report That The Assessee Has Debited An Amount Of Rs 14 78 987 Which Pertains To The Accounting Years Ended On 31 03 2004 And 31 03 2005 Relevant To The Financial Years 2003 04 2004 05 Respectively And That The Amount Of Rs 6 50 591 Pertains To The Accounting Year Ended On 31 03 2006 Relevant To The Financial Year 2006 07 Based On These Observat Ions Of The Special Audit The Assessee Was Asked To Show Cause As To Why The Prior Period Expenditure Aggregating To Rs 21 2 9 578 Should Not Be Disallowed The Assessee Vide Letter Dated 20 08 2013 Submitted That Rs 14 78 987 Is The Amount Outstandi Ng In The Account Of Collins Aikman Corporation Which Went Bankrupt During The Year And The Unrecoverable Balance Was W Ritten Off During The Year And Account Was Closed As Regards Rs 6 50 591 Which Was Due From Scsl It Was Submitted That It C Ould Not Be Recovered Till 2008 09 And Due To Fiasco Of Scsl Em Erging During The Year Therefore The Same Was Written Off The Ao Accepted That The Collins Aikman Corporation Appears To Be Bankrupt During The Year But He Observed That The Cheque Fo R Full And Final Settlement Was Received By The Assessee From Colli Ns Aikman Litigation Trust Distribution Account On 11 10 201 2 Which Does Not Fall In The Financial Year 2008 09 Relevant To The A Y 2009 10 And Therefore The Assessee Could Not Have Conclude D That The Debt Is Irrecoverable Particularly Since It Had Fil Ed A Suit For Recovery And It Could Not Have Known As To What Wou Ld Be The Result Of Its Suit And That In These Circumstances It Was Not Possible To Write Off Bad Debts He Therefore Disa Llowed The Claim Of Bad Debt Similarly With Regard To Rs 6 50 591 The Ao Observed That The Assessee Failed To Prove That The Income Was Ita No 1464 Of 2 014 Satyam Venture Engg Hyderabad Page 8 Of 10 Offered To Tax In The Earlier Years And Therefore The Same Is Not To Be Allowed Aggrieved The Assessee Raised An Objec Tion Before The Drp Who Confirmed The Order Of The Ao And The Asses See Is In Appeal Before Us 14 The Learned Counsel For The Assessee Reiterated The Submissions Made By The Assessee Before The Authori Ties Below 15 The Learned Dr However Supported The Orders Of The Authorities Below 16 Having Regard To The Rival Contentions And The Material On Record We Find That The Amount Of Rs 14 78 987 Is Outstanding From Collins Aikman Litigation Trust Distributio N Account As On 31 03 2004 And Since The Said Company Has Become Bankrupt During The Year The Assessee Has Written It Off As Bad Debt It Is Also Evident From The Cheque Received In The Financ Ial Year 2012 13 From Collins Aikman Litigation Trust Distribut Ion That The Amount Has Been Received In Full And Final Settleme Nt Of The Dispute It Is The Case Of The Assessee That The As Sessee Has Offered It As Income In The Relevant A Y In Which It Has R Eceived The Amount Subject To Verification Of This Fact By The Ao I E Whether The Assessee Has Offered This Income To Tax In The Relevant A Y I E 2013 14 This Issue Is Decided In Favour Of The Ass Essee If The Assessee Has Offered This Income To Tax In The Rele Vant A Y The Claim Of The Assessee For The A Y 2009 10 Shall Be Allowed As It Is Not Disputed That Collins Aikman Corporation Has Become Bankrupt During The Relevant Financial Year As Re Gards The Ita No 1464 Of 2 014 Satyam Venture Engg Hyderabad Page 9 Of 10 Amount Receivable From Scsl And Written Off By The Assessee The Assessee Has Not Been Able To Produce Any Evidence In Support Of The Same Either Before The Authorities Below Or Bef Ore Us Therefore This Addition Is Confirmed Thus Ground Of Appeal No 5 Is Partly Allowed 17 As Regards The Additional Ground Of Appeal We Find That This Is Connected To Ground Of Appeal No 4 Aga Inst The Denial Of Deduction U S 10 A Of The Act On The Ground That Form No 56 F Was Not Filed Along With The Return Of Income Sinc E We Have Already Remitted This Issue To The File Of The Ao F Or Examination Of The Deduction U S 10 A We Deem It Fit And Proper To Admit The Additional Ground As All The Relevant Facts Are On Record And Remand This Issue Also To The File Of The Ao With D Irection To Consider The Same While Examining The Assessees Cl Aim Of Deduction U S 10 A Of The Act In View Of The Same The Additional Ground Of Appeal Is Treated As Allowed For Statisti Cal Purposes 18 In The Result Assessees Appeal Is Treated As Partly Allowed For Statistical Purposes Order Pronounced In The Open Court On 29 Th December 2017 Sd Sd S Rifaur Rahman Accountant Member P Madhavi Devi Judicial Member Hyderabad Dated 29 Th December 2017 Vinodan Sps Ita No 1464 Of 2 014 Satyam Venture Engg Hyderabad Page 10 Of 10 Copy To 1 Satyam Venture Engg Services P Ltd 1 8 301 To 306 Ashoka My Home Chambers Sp Road Secunderabad 500003 2 Asstt Commissioner Of Income Tax Central Circle 3 2 Posnett Bhavan Hyderabad 3 Drp Hyderabad 4 5 Dcit Central Circle 9 Hyderabad Dcit Tpo Ii Hyderabad 6 Th E Dr Itat Hyderabad 7 Guard File By Order