ACIT, Hyderabad v. M/s Trinity Advanced fSoftware Labs (P) Ltd., Secunderabad

ITA 19/HYD/2006 | 2002-2003
Pronouncement Date: 15-07-2011 | Result: Allowed

Appeal Details

RSA Number 1922514 RSA 2006
Assessee PAN AAACE7968E
Bench Hyderabad
Appeal Number ITA 19/HYD/2006
Duration Of Justice 5 year(s) 6 month(s) 10 day(s)
Appellant ACIT, Hyderabad
Respondent M/s Trinity Advanced fSoftware Labs (P) Ltd., Secunderabad
Appeal Type Income Tax Appeal
Pronouncement Date 15-07-2011
Appeal Filed By Department
Order Result Allowed
Bench Allotted A
Tribunal Order Date 15-07-2011
Date Of Final Hearing 11-07-2011
Next Hearing Date 11-07-2011
Assessment Year 2002-2003
Appeal Filed On 05-01-2006
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD B BENCH HYDERABAD BEFORE SHRI G.C. GUPTA VICE PRESIDENT AND SHRI CHANDRA POOJARI ACCOUNTANT MEMBER ITA NO.1129/HYD/2005 ASSESSMENT YEAR 2002-03 M/S TRINITI ADVANCED SOFTWARE LABS (P) LTD. (PAN AAA CE 7968 E) VS THE ACIT 2(3) HYDERABAD APPELLANT RESPONDENT ITA NO.19/HYD/2006 ASSESSMENT YEAR 2002-03 THE ACIT 2(3) HYDERABAD VS M/S TRINITI ADVANCED SOFTWARE LABS (P) LTD. (PAN AAA CE 7968 E) APPELLANT RESPONDENT APPELLANT BY : SHRI S.A. SAI PRASAD RESPONDENT BY : SHRI SATHUPATI ORDER PER CHANDRA POOJARI A.M. THESE TWO CROSS APPEALS FILED BY THE ASSESSEE AS WELL AS THE REVENUE ARE DIRECTED AGAINST THE ORDER PASSED BY THE CIT(A) III HYDERABAD DATED 13.10.2005 AND PERTAINS TO THE ASSESSMENT YEAR 2002-03. 2. THE ASSESSEE IS IN APPEAL BEFORE US AGAINST LIM ITING THE DELETION AT RS.52 03 377/- OUT OF RS.464 98 586 /- MADE BY THE ASSESSING OFFICER TOWARDS ARMS LENGTH CONSIDERATION. THE ASSESSEE IS ALSO HAVING GRIEVAN CE AGAINST NON ADMISSION OF ADDITIONAL EVIDENCE BY THE CIT(A). ITA NO.1129 & 19/H/2005-06 TRINITY ADVANCED SOFTWARE LABS. P LTD. HYD. 2 3. THE REVENUE IS IN APPEAL BEFORE US WITH REGARD T O GRANTING OF RELIEF BY CIT(A) AT 5% AFTER CATEGORICA LLY FINDING THAT THE RATE OF 18 US$ PER MAN HOUR ADOPTE D BY THE ASSESSING OFFICER IS APPROPRIATE. 4. BRIEF FACTS OF THE ISSUE THAT THE TPO (TRANSFER PRICING) U/S 92CA(3) OF THE INCOME TAX ACT ANALYSI NG THE INTERNATIONAL TRANSACTIONS ENTERED INTO BY THE ASSE SSEE WITH THE ASSOCIATE ENTERPRISE IN USA AND CONCLUDED THAT THE PAYMENTS @ USD 10 PER MAN HOUR FOR SERVICES RENDERED TO THE USA COMPANY WERE NOT AT ARMS LENGT H. WHILE THE USA COMPANY MADE PAYMENTS @ USD 22 PER MAN HOUR TO M/S WIPRO INDIA IT PAID @ USD 10 PER MAN HOUR TO THE ASSESSEE COMPANY WHICH WAS WORKING SOLELY FOR THE USA COMPANY. AFTER CONSIDERING VARI OUS SUBMISSIONS MADE BY THE ASSESSEE THE TPO HAS FIXED THE RATE OF USD 18 PER MAN HOUR AS REASONABLE AND WORKE D OUT A DIFFERENCE IN PRICING OF SERVICES AT RS.4 64 98 586/- BY TAKING THE ARMS LENGTH PRICE AT RS.10 40 67 504 /- AGAINST THE ASSESSEES PRICE OF RS.5 75 68 918. TH E ASSESSING OFFICER HAS ALSO ADOPTED THE SAME VALUE I N THE ASSESSMENT ORDER AS INCOME OF THE ASSESSEE AFTER GI VING REASONABLE OPPORTUNITY OF HEARING. 5. ON APPEAL BEFORE THE CIT(A) THE ASSESSEE HAS FURNISHED CERTAIN ADDITIONAL EVIDENCE BEFORE THE CI T(A) WHICH WAS NOT CONSIDERED BY THE CIT(A) ON THE REASO NS THAT SUCH AN EVIDENCE CAN BE ADMITTED ONLY IN THOSE CASES WHERE THE MATTERS ARE DECIDED WITHOUT AFFORD ING SUFFICIENT OPPORTUNITY OR WHERE THE COURT CONSIDERS THE EVIDENCE AS NECESSARY TO BE ADMITTED FOR A SUBSTANT IAL CAUSE. HE ALSO RELIED ON THE JUDGEMENT OF THE HON BLE AP ITA NO.1129 & 19/H/2005-06 TRINITY ADVANCED SOFTWARE LABS. P LTD. HYD. 3 HIGH COURT IN THE CASE OF BABU KHAN VS. CWT (102 IT R 757) WHEREIN IT WAS HELD THAT: THE EXPRESSION OR FOR ANY OTHER SUBSTANTIAL CAUSE OCCURS IN RULE 27(1) (B) OF ORDER 41 CIVIL PROCEDU RE CODE AND THIS EXPRESSION HAS BEEN THE SUBJECT MATTER OF DECISIONS BY THE PRIVY COUNCIL SUPREME COURT AND HIGH COURTS. IN PARSOTIM THAKUR VS. LAL MOHAR THAKUR IT WAS HELD THAT THE WORDS FOR ANY OTHER SUBSTANTIAL CAUSE MUST BE READ WITH THE WORD REQUIRES IN THE BEGINNING OF THE SENTENCE AND IT IS ONLY WHERE THE ASSESSEE COURT REQUIRES ANY DOCUMENT TO BE PRODUCED OR ANY WITNESS TO BE EXAMINED THAT THIS RULE WILL APPLY. THE DISCRETION TO RECEIVE ADDITIONAL EVIDENCE IS TO BE EXERCISED ONLY WHEN ANY POINT IS REQUIRED TO BE CLEARED UP IN THE INTERESTS OF JUSTICE. THIS POWER GIVEN TO THE TRIB UNAL HAS TO BE EXERCISED CAUTIOUSLY AND SPARINGLY IN ORDER TO ADVANCE THE INTERESTS OF JUSTICE; RULE 29 IS NOT INTENDED TO ALLOW AN ASSESSEE WHO HAS BEEN UNSUCCESSFUL THROUGHOUT TO INTENDED TO ALLOW AN ASSESSEE WHO HAS BEEN UNSUCCESSFUL THROUGHOUT TO PATCH UP THE WEAK PARTS OF HIS CASE OR TO FILL UP OMISSION. IT IS WELL SETTLED THAT A PARTY GUILTY O F REMISSNESS AND GROSS NEGLIGENCE AS IN THIS CASE IS NOT ENTITLED TO INDULGENCE BEING SHOWN TO ADDUCE ADDITIONAL EVIDENCE. THE ASSESSEE HAD AMPLE OPPORTUNITIES AND YEAR AFTER YEAR HE WAS GIVEN OPPORTUNITIES TO PRODUCE MATERIAL SO THAT ASSESSMENT COULD BE MADE ON A CONSIDERATION OF THE MATERIAL PLACED BY HIM. MERELY FOR THE REASON THAT THE LEGAL REPRESENTATIVE OF THE DECEASED ASSESSEE ITA NO.1129 & 19/H/2005-06 TRINITY ADVANCED SOFTWARE LABS. P LTD. HYD. 4 HAS COME ON RECORD AT THE STAGE OF SECOND APPEAL BEFORE THE TRIBUNAL IT WILL NOT ENTITLE HIM TO SAY THAT HE SHOULD BE AFFORDED SUFFICIENT OPPORTUNITY TO DISPUTE THE ASSESSMENTS MADE BY THE WEALTH TAX OFFICER. HE CANNOT PUT HIMSELF IN A BETTER POSITIO N THAN THE ASSESSEE HIMSELF. THE WORDS FOR ANY OTHE R SUBSTANTIAL CAUSE HAVE BEEN CLEARLY BY THE PRIVY COUNCIL IN PARSOTIMS CASE. SATYANARAYANA RAJU J. IN BOBBILI GOWRESU VS. KOTTU SUBHADRAMA WHILE CONSTRUING RULE 27 OF ORDER 41 CIVIL PROCEDURE COD E OBSERVED. THE COURT MUST BE SATISFIED THAT IT IS NECESSARY FO R THE DISPOSAL OF THE CASE THAT THE DOCUMENT SOUGHT T O BE ADMITTED MUST BE RECEIVED IN EVIDENCE OR IN THE ALTERNATIVE THERE MUST BE SUFFICIENT CAUSE. THE SUPREME COURT IN ARJAN SINGH BS. KARTAR SINGH OBSERVED: IF THE ADDITIONAL EVIDENCE IS ALLOWED TO BE ADDUCED CONTRARY TO THE PRINCIPLES GOVERNING THE RECEPTION OF SUCH EVIDENCE IT WILL BE A CASE OF IMPROPER EXERCISE OF DISCRETION AND THE ADDITIONAL EVIDENCE SO BROUGHT ON THE RECORD WILL HAVE TO BE IGNORED AND THE CASE DECIDED AS IF IT IS NONEXISTEN T. 6. ACCORDING TO THE CIT(A) THE PROVISIONS FOR ADMISSION OF ADDITIONAL EVIDENCE ARE NOT INTENDED T O ALLOW AN ASSESSEE WHO HAS BEEN UNSUCCESSFUL TO PAT CH UP THE WEAK PARTS OF HIS CASE. IN THE PRESENT CASE THERE IS NO JUSTIFICATION FOR ADMITTING THE ADDITIONAL EV IDENCE ADDUCED BY THE ASSESSEE WHICH IS AN UNSIGNED WRITI NG STATED TO BE SENT BY SOMEBODY AS E-MAIL FOUR YEARS AGO ITA NO.1129 & 19/H/2005-06 TRINITY ADVANCED SOFTWARE LABS. P LTD. HYD. 5 WITHOUT ANY INDEPENDENT EVIDENCE TO CORROBORATE THE CONTENTS OF THE MESSAGE. ACCORDINGLY THE ASSESSIN G OFFICER HAS REJECTED THE APPEAL OF THE ASSESSEE FOR ADMISSIONS OF ADDITIONAL EVIDENCE BECAUSE NONE OF THE CONDITION MENTIONED IN RULE 46A ARE FULFILLED IN TH IS CASE. 7. FURTHER THOUGH HE CONFIRMED THE RATE ADOPTED B Y THE ASSESSING OFFICER AT 18 USD PER MAN HOUR AFTER CONSIDERING THE RATE ADOPTED FOR PAYMENT TO M/S WIP RO LTD. BY US FOREIGN COMPANY HE OBSERVED THAT AN ADJUSTMENT OF 5% IS TO BE MADE BY WAY OF REDUCTION OF ARMS LENGTH ADOPTED BY TPO AND THEREBY GIVEN DEDUCTION AT RS.52 03 377/-. AGAINST THESE FINDING S BOTH ARE IN APPEAL BEFORE THE TRIBUNAL. 8. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. AT THIS STAGE BEFO RE US ALSO THE ASSESSEES COUNSEL PLEADED TO ADMIT THE ADDITIONAL EVIDENCE WHICH WAS FURNISHED BEFORE THE CIT(A) AND SUBMITTED THAT IN SUBSEQUENT YEARS TRANSACTIONAL NET MARGIN METHOD WAS ADOPTED BY TPO SIMILARLY FOR THIS ASSESSMENT YEAR ALSO TNM METHOD IS TO BE FOLLOWED. HE ALSO SUBMITTED THAT COMPARISON OF ASSESSEES CASE WITH PRICE PAID TO THE M/S WIPRO BY FOREIGN COMPANY IS NOT AT ALL JUSTIFIED AND PRAYED THAT WIPRO IS NOT COMPARABLE WITH THE ASSESSEES CASE. ACCORDING TO DEPARTMENTAL REPRESENTATIVE FACTS AND CIRCUMSTANCES OF THE SUBSEQUENT YEARS ARE NOT BROUG HT ON RECORD AND IT CANNOT BE CONSIDERED AS COMPARABLE . FURTHER HE SUBMITTED THAT CUP METHOD HAS ITSELF ADOPTED BY THE ASSESSEE AS SUCH THERE IS NO NECESSI TY FOR DEVIATING FROM THE CUP METHOD. ITA NO.1129 & 19/H/2005-06 TRINITY ADVANCED SOFTWARE LABS. P LTD. HYD. 6 9. FIRSTLY IN OUR OPINION COMPARISON OF ASSESSEE S PRICE WITH THE PRICE OF THE M/S WIPRO IS NOT AT ALL FEASIBLE. AS SUBMITTED BY THE ASSESSEES COUNSEL T HE ASSESSEE IS A NEW ENTRANT IN THE FIELD AND CAME INT O BUSINESS IN MARCH 2000 AND BEING SO THE ASSESSEE I S NOT IN A POSITION TO CHARGE AT 22 USD PER MAN HOUR AS T HAT OF M/S WIPRON IS CHARGING. M/S WIPRO IS A LARGE INDUSTRIAL GIANT UNDERTAKING WORKING INDEPENDENTLY WITH PRINCIPLES TO PRINCIPLE RELATIONSHIP. ON THE OTHER HAND THE ASSESSEE IS DEPENDENT CONTRACTOR. THE ASSESSEE HAS ALSO STATED BEFORE US THAT THE BILLING RATE CHANGES DEPENDING UPON THE VARIOUS FACTORS AS ENUMERATED IN THE REPORT OF NASCOM WHICH HAS BEEN FILED BY THE ASSESS EE BEFORE THE CIT(A) AND NOT CONSIDERED THE SAME AS BE ING ADDITIONAL EVIDENCE. THERE IS A FORCE IN THE ARGUM ENTS OF THE ASSESSEES COUNSEL. AS WE HAVE OBSERVED EARLIE R THE RATE CHARGEABLE BY M/S WIPRO CANNOT BE COMPARABLE T O ASSESSEES CASE. BEING SO IN OUR OPINION THE ASS ESSING OFFICER IS REQUIRED TO BRING ON RECORD THE COMPARAB LE CASE TO DETERMINE THE PRICE. IF THE ASSESSING OFFICER I S UNABLE TO BRING ON RECORD THE COMPARABLE CASE THE ASSESSI NG OFFICER IS AT LIBERTY TO CONSIDER THE RATE ADOPTED BY THE ASSESSEE IMMEDIATE NEXT YEAR AND THEREAFTER HE IS REQUIRED TO DISCOUNT THE SAME AFTER CONSIDERING THE INFLATIONARY RATE. ONCE HE ARRIVED AT THE DISCOUNT ED RATE THERE IS NO QUESTION OF FURTHER GIVING ANY DEDUCTIO N TOWARDS ANY ADJUSTMENTS AT 5%. ACCORDINGLY WE DIR ECT THE ASSESSING OFFICER TO FOLLOW THE CUP METHOD AS ADOPTED BY THE ASSESSEE ITSELF IN THIS ASSESSMENT Y EAR. HOWEVER HE HAS TO RE-DETERMINE THE TPO AS PER THE ABOVE DIRECTIONS. ITA NO.1129 & 19/H/2005-06 TRINITY ADVANCED SOFTWARE LABS. P LTD. HYD. 7 10. IN THE RESULT THE APPEALS OF THE ASSESSEE AS WELL AS THE REVENUE ARE ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT 15. 7.2011 SD/ - G.C. GUPTA SD/ - CHANDRA POOJARI VICE PRESIDENT ACCOUNTANT M EMBER DATED THE 15 TH JULY 2011 COPY FORWARDED TO: 1. M/S TRINITY ADVANCED SOFTWARE LABS (P) LTD. 301 ASHOKA MYHOME CHAMBERS SP ROAD SECUNDERABAD 2. THE ACIT CIRCLE 2(3) HYDERABAD 3. THE CIT(A) -III 4. THE CIT HYDERABAD 5. THE DR ITAT HYDERABAD NP/