Aircom International (India) Pvt. Ltd., New Delhi v. DCIT, New Delhi

ITA 3934/DEL/2010 | 2006-2007
Pronouncement Date: 07-01-2011 | Result: Allowed

Appeal Details

RSA Number 393420114 RSA 2010
Bench Delhi
Appeal Number ITA 3934/DEL/2010
Duration Of Justice 4 month(s) 18 day(s)
Appellant Aircom International (India) Pvt. Ltd., New Delhi
Respondent DCIT, New Delhi
Appeal Type Income Tax Appeal
Pronouncement Date 07-01-2011
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted A
Tribunal Order Date 07-01-2011
Date Of Final Hearing 21-12-2010
Next Hearing Date 21-12-2010
Assessment Year 2006-2007
Appeal Filed On 20-08-2010
Judgment Text
I.T.A. NO.3934 /DEL/10 1/7 IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH A NEW DELHI) BEFORE SHRI I.P. BANSAL JUDICIAL MEMBER AND SHRI A.K. GARODIA ACCOUNTANT MEMBER I.T.A. NO.3934 /DEL/2010 ASSESSMENT YEAR : 2006-07 AIRCON INTERNATIONAL (INDIA) DCIT PVT. LTD. M-12 BALRAMA HOUSE CIRCIE-1(1) KARAMPURA COMPLEX NEW DELHI. NEW DELHI. V. (APPELLANT) (RESPONDENT) PAN /GIR/NO. PAN /GIR/NO. PAN /GIR/NO. PAN /GIR/NO.AADCA AADCA AADCA AADCA- -- -0915 0915 0915 0915- -- -A AA A APPELLANT BY : SHRI M.P. LOHIA & SHRI MANMEET DALAL C.AS. RESPONDENT BY :SHRI N.K. CHAND SR. DR ORDER PER A.K. GARODIA AM: THIS IS AN ASSESSEE'S APPEAL WHICH IS DIRECTED AGAINST THE O RDER OF DISPUTE RESOLUTION PANEL (DRP) NEW DELHI DATED 31 .5.2010 PASSED U/S 144C OF THE INCOME TAX ACT 1961. 2. THE GROUNDS RAISED BY THE ASSESSEE ARE AS UNDER:- THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD ASSESSING OFFICER HAS ERRED IN PASSING THE ASSESSMENT ORDER U/S 143(3) R.W.S. 144C OF THE INCOME TAX ACT 1961 AFTER CONSIDERING THE ADJUSTMENTS PROPOSED BY THE LD . I.T.A. NO.3934/DEL/10 2/7 TRANSFER PRICING OFFICER (TPO) IN HIS ORDER PASSED U/S 9 2CA(3) AND THEREBY APPROVED BY THE HON'BLE DISPUTE RESOLUTION PA NEL (DRP) . EACH OF THE GROUND IS REFERRED TO SEPARATELY WHICH M AY KINDLY BE CONSIDERED INDEPENDENT OF EACH OTHER. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW: 1. THAT ASSESSING OFFICER/DRP HAVE ERRED IN CONFIRMING THE ORDER PASSED U/S 92CA(3) OF THE ACT MAKING AN ADDITION OF `.68 80 621/- TO THE TOTAL INCOME OF THE APPELLANT ON ACCOUNT OF ADJUSTMENT IN THE ARMS LENGTH PRICE OF THE INTERN ATIONAL TRANSACTION ENTERED BY THE APPELLANT WITH ITS ASSOCIATE D ENTERPRISES. 2. THE DRP HAS ERRED IN CONCURRING WITH FINDINGS OF THE ASSESSING OFFICER/TPO AND DISREGARDING THE ECONOMIC ANALYSIS UNDERTAKEN BY THE APPELLANT FOR ESTABLISHING THE ARM S LENGTH PRICE OF THE INTERNATIONAL TRANSACTIONS RELATED TO SOF TWARE DEVELOPMENT WITHOUT APPROPRIATE JUSTIFICATION. 3. THE TPO/ASSESSING OFFICER HAS ERRED IN MODIFYING THE SEAR CH STRATEGY AND ERRONEOUSLY DISREGARDED THE COMPARABLE ADOPTED BY THE APPELLANT USING INAPPROPRIATE FILTERS AND ARRIVING AT COMPARABLE COMPANIES WITHOUT VALID AND SU FFICIENT REASON. 4. THE TPO FAILED TO MAKE APPROPRIATE ADJUSTMENTS TO ACC OUNT FOR DIFFERENCES IN FUNCTIONS PERFORMED AND RISKS ASSUMED AND ASSETS EMPLOYED BY THE APPELLANT VIS-A-VIS COMPARABLE COMPANIES IDENTIFIED BY THE LD TPO. 5. THE TPO/ASSESSING OFFICER HAS ERRED IN SELECTING THE COMPARABLE COMPANIES HAVING RELATED PARTY TRANSACTION S . I.T.A. NO.3934/DEL/10 3/7 WHICH WERE NOT CONSIDERED BY THE APPELLANT AT THE TI ME OF TRANSFER PRICING STUDY. 6. THE TPO/ASSESSING OFFICER HAS ERRED BY NOT FOLLOWING AN ACCURATE DEFINITION IN COMPUTING THE OPERATING PROF IT/TOTAL COST FOR THE COMPARABLE COMPANIES AND CONSEQUENTLY TREATIN G FOREIGN EXCHANGE FLUCTUATION AND MISC. INCOME AS OPER ATING ITEM AND AMORTIZED EXPENSES AS NON OPERATING ITEM. 7. THE TPO/ASSESSING OFFICER HAS ERRED IN CONFIRMING THE DE NIAL OF WORKING CAPITAL ADJUSTMENTS AND RISK ADJUSTMENT TO T HE APPELLANT. 8. THE TPO/ASSESSING OFFICER HAS ERRED IN NOT PROVIDING THE BENEFIT OF THE ARMS LENGTH RANGE AS PROVIDED UNDER P ROVISO TO SEC.92C OF THE ACT FOR PURPOSES OF COMPUTING THE ARMS LENGTH PRICE UNDER SECTION 92F OF THE ACT. 3. BRIEF FACTS OF THE CASE ARE THAT THE DRAFT ASSESSMENT ORDER WAS PASSED BY THE ASSESSING OFFICER ON 31ST DECEMBER 2009 U/S 144C/143(3) OF THE INCOME TAX ACT 1961. DRP HAS PASSE D DIRECTIONS U/S 144C ON 30.4.2010 AGAINST WHICH THE ASSESSEE IS IN APP EAL BEFORE US. AS PER COPY OF OBJECTIONS FILED BY THE ASSESSEE BEFORE DRP WHICH IS RUNNING INTO THREE PAGES AS AVAILABLE ON RECORD IT IS SEEN THAT EIGHT OBJECTIONS WERE RAISED BY THE ASSESSEE AGAINST THE DRAFT O RDER DATED 31.12.2009 BUT THERE IS NO FINDING GIVEN BY THE DRP REGARDING THESE OBJECTIONS RAISED BY THE ASSESSEE BEFORE IT. 4. AT THE VERY OUTSET IT WAS SUBMITTED BY THE LD AR O F THE ASSESSEE THAT DRP HAS NOT AT ALL CONSIDERED THE ASSESSEES OBJECTIO NS AND PASSED A VERY CRYPTIC AND NON SPEAKING ORDER AND THERE FORE THIS ORDER OF DRP IS NOT SUSTAINABLE. IT IS ALSO SUBMITTED THAT THESE OBJECTIONS OF THE ASSESSEE ARE RUNNING INTO 3 PAGES BUT THE SAME WAS BRU SHED ASIDE BY DRP WITHOUT ANY COMMENT OR FINDING WITH REGARD T O THESE . I.T.A. NO.3934/DEL/10 4/7 OBJECTIONS. HE ALSO SUBMITTED A COPY OF THE TRIBUNAL D ECISION IN THE CASE OF GAP INTERNATIONAL SOURCING INDIA PVT. LTD. V . DCIT IN I.T.A. NO.4073/DEL/2010 DATED 10.12.2010 AS PER WHICH THE MATTER WAS RESTORED BACK TO THE FILE OF THE DRP FOR FRESH DECISIO N AND FOR PASSING A PROPER AND SPEAKING DIRECTION U/S 144C OF THE INCOME TAX ACT 1961. HE ALSO SUBMITTED A COPY OF THE JUDGMENT OF HON'BLE D ELHI HIGH COURT RENDERED IN THE CASE OF VODAFONE ESSAR LTD. V. DRP DAT ED 2.12.2010 AS REPORTED IN 2010-TII-22-HC-DEL-INTL AND SUBMITTED TH AT IN THAT CASE ALSO IT WAS HELD BY THE HON'BLE DELHI HIGH COURT THA T IT IS OBLIGATORY ON THE PART OF QUASI JUDICIAL AUTHORITY TO ASCRIBE COGEN T AND GERMANE REASONS AS THE SAME IS THE HEART AND SOUL OF THE MATTER AND FURTHER THE SAME ALSO FACILITATES APPRECIATION WHEN THE ORDER IS CALLED IN QUESTION BEFORE THE SUPERIOR FORUM. 5. AS AGAINST THIS LD DR OF THE REVENUE SUPPORTED THE IMPUGNED ORDER OF DRP. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE GONE TH ROUGH THE ORDER OF ASSESSING OFFICER AS WELL AS THE ORDER OF DRP. BEFORE EXAMINING THE FACTS OF THE PRESENT CASE WE EXAMINE TH E TRIBUNAL DECISION RENDERED IN THE CASE OF GAP INTERNATIONAL SO URCING INDIA PVT. LTD. (SUPRA). IN THAT CASE THE DRAFT ORDER OF THE ASSE SSING OFFICER WAS DATED 24.11.2009 AND DRP PASSED DIRECTIONS U/S 144C ON 31.5.2010. IN THAT CASE THE TRIBUNAL HAS REPRODUCED THE PROVISI ONS OF SUB SECTIONS 5 TO 13 OF SECTION 144C AND THEREAFTER IT HAS BEEN O BSERVED BY THE TRIBUNAL IN THAT CASE THAT THE DIRECTIONS OF THE DRP ARE TOO LACONIC TO BE LEFT UN-COMMENTED. THE TRIBUNAL HAS CONSIDERED THE JUDGMENT OF HON'BLE APEX COURT RENDERED IN THE CASE OF M/S SAHARA INDIA (FARMS) V. CIT AS REPORTED IN 300 ITR 403 IN WHICH IT WAS HELD THAT EVEN AN ADMINISTRATIVE ORDER HAS TO BE CONSISTENT WITH THE RULE S OF NATURAL JUSTICE. IN THAT CASE THE TRIBUNAL HAS RESTORED THE MATTER BACK TO THE . I.T.A. NO.3934/DEL/10 5/7 FILE OF THE DRP TO CONSIDER THE ISSUE ONCE AGAIN AND T O PASS A PROPER AND SPEAKING DIRECTION U/S 144C OF THE INCOME TAX ACT 1961. THE BASIS OF THAT ORDER IS THAT THE TRIBUNAL WAS IN AGREEME NT WITH THE SUBMISSIONS OF THE LD AR OF THE ASSESSEE THAT THE ASSESSEES SUBMISSION HAS BEEN BRUSHED ASIDE WITHOUT GIVING PROPER CONSIDERATION BY THE DRP. 7. NOW WE EXAMINE THE FACTS OF THE PRESENT CASE. IN T HE PRESENT CASE ALSO IT IS ADMITTED POSITION THAT AS MUCH AS EIGHT OBJECTIONS WERE RAISED AGAINST THE ADDITION PROPOSED BY THE ASSESSING OFFI CER WHICH RUN INTO ALMOST THREE PAGES AND IN THE IMPUGNED ORDER THE DRP HAS MADE NO COMMENTS ABOUT THOSE OBJECTIONS OF THE ASSESSEE A ND THE MATTER HAS BEEN DISPOSED OFF BY WAY OF CRYPTIC AND NON SPEAKING ORDER. THE RELEVANT PORTION OF THE IMPUGNED ORDER O F THE DRP U/S 144C IS BEING REPRODUCED BELOW:- ARMS LENGTH PRICE (ALP) U/S 92CA(3): AS PER THE TP ORDER THE ARMS LENGTH PRICE (ALP) OF THE INTERNATIONAL TRANSACTION IS PROPOSED TO BE ADJUSTED IN THE CASE OF SOFTWARE DEVELOPMENT SEGMENT OF THE ASSESSEE. THE DISPU TE RELATES TO THE SEARCH CATEGORY ADOPTED BY THE ASSESSEE VI S-A-VIS THE TPO AND AS A RESULT THE KIND OF COMPARABLE WHICH ARE THROWN UP BY THE SEARCH CRITERIA. THE FUNCTION PERFORMED A SSET EMPLOYED AND RISK UNDERTAKEN BY THE ASSESSEE COMPANY IS VIEWED DIFFERENTLY BY THE TPO AS AGAINST THE SUBMISSION S OF THE ASSESSEE. BASED ON THESE ANALYSIS THE TPO HAS PROPOSED ADJUSTMENT TO THE ALP. WE HAVE GONE THROUGH THE SUBMISSIONS MADE BY THE ASSESSEE. THE TPO WHILE PASSING THE ORDER HAS CONSIDERED ALL TH E OBJECTIONS RAISED BY THE ASSESSEE AFTER GIVING ENOUGH . I.T.A. NO.3934/DEL/10 6/7 OPPORTUNITY OF BEING HEARD. THE BUSINESS MODEL OF THE ASSESSEE HAS NOT CHANGED OVER THE YEARS. THE TP ORDER IS BASED ON SOUND REASONS. THE DENIAL OF WORKING CAPITAL ADJUSTMENT TO THE ASSESSEE SEEMS TO BE REASONABLE AS THE ASSESSEE HAS NOT JUSTIFIED THE REASONABLENESS AND ACCURACY OF SUCH ADJUSTM ENTS. THEREFORE WE DO NOT SEE ANY MERIT IN THE CASE OF THE ASSESSEE AND WE DO NOT INTEND TO INTERFERE IN THE ORDER OF T HE TPO. 8. FROM THE ABOVE ORDER OF DRP IT IS APPARENT THAT THE SAME IS WITHOUT CONSIDERING VARIOUS OBJECTIONS RAISED BY THE A SSESSEE BEFORE DRP AND HENCE WE ARE IN AGREEMENT WITH LD AR OF TH E ASSESSEE THAT THE ASSESSEES SUBMISSIONS HAD BEEN BRUSHED ASIDE WITHOUT GIVI NG PROPER CONSIDERATION BY DRP. 9. UNDER THIS FACTUAL POSITION AS DISCUSSED ABOVE WE RE SPECTFULLY FOLLOW THE JUDGMENT OF HON'BLE DELHI HIGH COURT REN DERED IN THE CASE OF VODAFONE ESSAR LTD. (SUPRA) AND THE TRIBUNAL DECISION R ENDERED IN THE CASE OF GAP INTERNATIONAL SOURCING INDIA PVT. LTD. ( SUPRA) AND RESTORE THE ENTIRE MATTER BACK TO THE FILE OF DRP TO CONSIDE R THE ISSUE AGAIN AND TO PASS A PROPER SPEAKING AND REASONED ORDER U/S 14 4C OF THE INCOME TAX ACT 1961 AFTER CONSIDERING ALL OBJECTION S OF THE ASSESSEE. SINCE WE ARE REMITTING THE MATTER TO THE FILES OF DR P FOR PASSING FRESH DIRECTION WE DO NOT MAKE ANY COMMENT ABOUT THE MER ITS OF THE CASE. NEEDLESS TO SAY THE ASSESSEE SHOULD BE GIVEN ADEQUATE OPPO RTUNITY OF BEING HEARD. WE WOULD ALSO LIKE TO OBSERVE THAT AS PER THE JUDGMENT OF HON'BLE DELHI HIGH COURT RENDERED IN THE CASE OF VOD AFONE ESSAR LTD. (SUPRA) IT WAS HELD THAT FOR A QUASI JUDICIAL AUTHORI TY IT IS OBLIGATORY ON ITS PART TO ASCRIBE COGENT AND GERMANE REASONS AS THE SAM E IS THE HEART AND SOUL OF THE MATTER AND FURTHER THE SAME ALS O FACILITATES APPRECIATION WHEN THE ORDER IS CALLED IN QUESTION BEF ORE THE SUPERIOR . I.T.A. NO.3934/DEL/10 7/7 FORUM. THESE OBSERVATIONS OF HON'BLE DELHI HIGH COURT SHOULD BE KEPT IN MIND BY DRP AND SHOULD BE FOLLOWED WHILE DISPOSING OF THE MATTER. 10. IN THE RESULT THE APPEAL OF THE ASSESSEE STANDS ALLO WED FOR STATISTICAL PURPOSES. 11. ORDER PRONOUNCED IN THE OPEN COURT ON 7 TH JANUARY 2011. SD/- SD/- (I.P. BANSAL) (A.K. GARO DIA) JUDICIAL MEMBER ACCOUNTANT MEMBER DT. 7 .1.2011. HMS COPY FORWARDED TO:- 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT (A)- NEW DELHI. 5. THE DR ITAT LOKNAYAK BHAWAN KHAN MARKET NEW DEL HI. TRUE COPY. BY ORDER (ITAT NEW DELHI).