ACTIS Advisers Private Limited, New Delhi v. DCIT, New Delhi

ITA 4654/DEL/2010 | 2006-2007
Pronouncement Date: 07-01-2011 | Result: Allowed

Appeal Details

RSA Number 465420114 RSA 2010
Bench Delhi
Appeal Number ITA 4654/DEL/2010
Duration Of Justice 2 month(s) 16 day(s)
Appellant ACTIS Advisers Private Limited, 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
Assessment Year 2006-2007
Appeal Filed On 22-10-2010
Judgment Text
I.T.A. NO. /DEL/ 1/9 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.4654 /DEL/2010 ASSESSMENT YEAR : 2006-07 ACTIS ADVISERS PVT. LTD. DCIT MIRA THE CORPORATE SUITES CIRCLE-1(1) BLOCK D GF 1&2 ISHWAR NAGAR NEW DELHI. NEW DELHI. V. (APPELLANT) (RESPONDENT) PAN /GIR/NO. PAN /GIR/NO. PAN /GIR/NO. PAN /GIR/NO.AAACC AAACC AAACC AAACC- -- -5281 5281 5281 5281- -- -G GG G APPELLANT BY : S/SHRI RAHUL KISHAN & AMIT JUGIA C.AS. & ASHUTOSH RUSTOGI ADVOCATE RESPONDENT BY : SHRI ASHOK PANDEY CIT-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 30 .8.2010 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: . I.T.A. NO.310308/DEL/ 2/9 1. THE ASSESSMENT ORDER PASSED BY THE LD ASSESSING OFFICER PURSUANT TO THE DIRECTIONS OF THE LD DRP IS BAD IN LAW AND VOID AB INITIO. 2. THE REFERENCE MADE BY THE LD ASSESSING OFFICER SUFFERS FR OM JURISDICTIONAL ERROR AS THE LD ASSESSING OFFICER HAS NOT RECORDED ANY REASONS BASED ON WHICH HE REACHED THE CONCLUSION THAT IT WAS NECESSARY OR EXPEDIENT TO REFER THE MATTER TO THE ADDITIONAL CIT TRANSFER PRICING (TP) FOR COMPUTATION OF THE ARMS LENGTH PRICE AS IS REQUIRED U /S 92CA(1) OF THE ACT. 3. THE LD DRP AND THE LD ASSESSING OFFICER ERRED BOTH ON F ACTS AND IN LAW IN CONFIRMING THE ADDITION OF `.3 71 89 793/- TO THE INCOME OF THE APPELLANT PROPOSED BY THE LD TPO BY HO LDING THAT ITS INTERNATIONAL TRANSACTIONS DO NOT SATISFY THE A RMS LENGTH PRINCIPLE ENVISAGED UNDER THE ACT. IN DOING SO THE LD DRP AND THE LD ASSESSING OFFICER HAS GROSSLY ERRED IN AGREEING WITH AND UPHOLDING THE LD TPOS ACTION OF. 3.1. NOT APPRECIATING THAT NONE OF THE CONDITIONS SET OUT IN SECTION 92C(3) OF THE ACT ARE SATISFIED IN THE PRESENT CASE. 3.2. DISREGARDING THE ALP AS DETERMINED BY THE APPELLANT IN THE TP DOCUMENTATION MAINTAINED BY IT IN TERMS OF SEC TION 92D OF THE ACT READ WITH RULE 10D OF THE RULES. 3.3. DISREGARDING MULTIPLE YEAR/PRIOR YEARS DATA AS USED BY THE APPELLANT IN THE TP DOCUMENTATION AND HOLDING THAT5 CURRENT YEAR (I.E. FY 2005-06) DATA FOR COMPARABLE COMPANIES SHOULD BE USED DESPITE THE FACT THAT THE SAME WAS NOT NECESSARILY AVAILABLE TO THE APPELLANT AT THE TIME OF PREPARING ITS TP DOCUMENTATION AND IN DOING SO HA VE GROSSLY ERRED IN; . I.T.A. NO.310308/DEL/ 3/9 3.3.1. INTERPRETING THE REQUIREMENT OF COTEMPORANEOUS DATA IN THE RULES TO NECESSARILY IMPLY CURRENT/SINGLE YEAR I.E. (FY 2005-06) DATA; AND 3.3.2. HOLDING THAT AT THE TIME OF CREATING MAINTAINING TH E TP DOCUMENTATION THE ASSESSEE COULD HAVE PROCURED CURRENT/SINGLE YEAR DATA (I.E. FY 2005-06) DATA FROM SOURCES OTHER THAN THE ELECTRONIC DATABASES WHEN IN FACT PRACTICALLY NO SUCH OTHER SOURCES WERE AVAILABLE IN CASE OF MOST COMPANIES. 3.4. RESORTING TO ARBITRARY REJECTION OF LOW-PROFIT/LOSS MA KING COMPANIES BASED ON ERRONEOUS AND INCONSISTENT REASONS; 3.5. INCLUDING HIGH PROFIT MAKING COMP0ANIES IN THE FINAL COMPARABLES SET FOR BENCH MARKING A LOW RISK CAPTIVE U NIT SUCH AS THE APPELLANT (DISREGARDING JUDICIAL PRONOUNCEMENTS ON THE ISSUE) THUS DEMONSTRATING AN INTENTION TO ARRIVE AT A PRE-FORMULATED OPINION WIT HOUT COMPLETE AND ADEQUATE APPLICATION OF MIND WITH THE SINGLE MINDED INTENTION OF MAKING AN ADDITION TO THE RETUR NED INCOME OF THE APPELLANT. 3.6. INCLUDING IN THE FINAL SET OF COMPARABLE CERTAIN COM PANIES THAT ARE NOT COMPARABLE TO THE APPELLANT IN TERMS OF FUNCTIONS PERFORMED ASSETS EMPLOYED AND THE RISKS ASSUMED. 3.7. NOT INCLUDING IN THE FIRST SET OF COMPARABLE CERTAIN COMPANIES WHICH ARE COMPARABLE TO THE APPELLANT IN T ERMS OF FUNCTIONS PERFORMED ASSETS EMPLOYED AND THE RISK ASSUMED. 3.8. VIOLATING THE PRINCIPLES OF NATURAL JUSTICE BY NOT IN CLUDING IN THE FINAL SET OF COMPARABLE ADDITIONAL COMPANIES IDE NTIFIED BY THE APPELLANT (BASED ON LD TPOS FRESH SEARCH . I.T.A. NO.310308/DEL/ 4/9 METHODOLOGY) WITHOUT PROVIDING THE APPELLANT A REASO NABLE OPPORTUNITY OF BEING HEARD. 3.9. DENYING A WORKING CAPITAL ADJUSTMENT TO THE OPERATI NG PROFIT MARGINS OF THE COMPARABLES. 3.10. VIOLATING THE PRINCIPLES OF NATURAL JUSTICE BY NOT SHA RING WITH THE APPELLANT (DESPITE HAVING ADEQUATE TIME AT THEIR DISPOSAL TO DO SO) THE CONCERNS/ISSUES IN REGARD TO THE ALLEGED/PURPORTED SHORT COMINGS/DEFICIENCIES IN THE APPELLANTS CLAIM FOR A WORKING CAPITAL ADJUSTMENT AN D THEREBY DENYING THE APPELLANT A REASONABLE OPPORTUNI TY TO STUDY/EXAMINE THE SAME AND PROVIDE ITS COMMENTS/OBJECTIONS THERETO. 3.11. IGNORING THE BUSINESS/COMMERCIAL REALITY THAT SINCE TH E APPELLANT IS REMUNERATED ON AN ARMS LENGTH COST PLUS BASIS I.E. IT IS COMPENSATED FOR ALL ITS COSTS PLUS A PR E- AGREED MARK UP THE APPELLANT UNDERTAKES MINIMAL BUSINESS RISKS AS AGAINST COMPARABLE COMPANIES THAT ARE FULL FLEDGED RISK TAKING ENTREPRENEURS AND BY NOT ALL OWING A RISK ADJUSTMENT TO THE APPELLANT ON ACCOUNT OF THIS FA CT. 3.12. VIOLATING THE PRINCIPLES OF NATURAL JUSTICE BY NOT SHA RING WITH THE APPELLANT DESPITE HAVING ADEQUATE TIME AT T HEIR DISPOSAL TO DO SO) THE CONCERNS/ISSUES IN REGARD TO THE ALLEGED/PURPORTED SHORTCOMINGS/DEFICIENCIES IN THE APPELLANTS CLAIM FOR A RISK ADJUSTMENT AND THEREBY DENYING THE APPELLANT A REASONABLE OPPORTUNITY TO STUDY/EXAMINE THE SAME AND PROVIDED ITS COMMENTS/OBJECTIONS THERETO. 3.13. DENYING THE BENEFIT OF (+/-) 5 % AS PER PROVISO TO SE CTION 92C(2) OF THE ACT AVAILABLE TO THE APPELLANT. 3.14. DISREGARDING JUDICIAL PRONOUNCEMENTS IN INDIA IN UNDERTAKING THE TP ADJUSTMENT; AND . I.T.A. NO.310308/DEL/ 5/9 4. THE LD ASSESSING OFFICER HAS GROSSLY ERRED IN INITIATIN G PENALTY U/S 271(1)( C) OF THE ACT MECHANICALLY AND WITHOUT R ECORDING ANY SATISFACTION FOR ITS INITIATION. THE ABOVE GROUNDS ARE WITHOUT PREJUDICE TO EACH OTH ER. 3. BRIEF FACTS OF THE CASE ARE THAT THE DRAFT ASSESSMENT ORDER WAS PASSED BY THE ASSESSING OFFICER U/S 144C/143(3) OF THE IN COME TAX ACT 1961. THEREFORE THE ASSESSEE FILED OBJECTIONS BETWEEN D RP HAS PASSED DIRECTIONS U/S 144C ON 30.8.2010 AGAINST WHICH TH E ASSESSEE IS IN APPEAL BEFORE US. VARIOUS FACTUAL AND LEGAL ARGU MENTS WERE RAISED BY THE ASSESSEE BEFORE DRP AS PER ANNEXURE-3 TO FORM NO. 35A. THIS ANNEXURE-3 RUNS INTO 33 PGES AS AVAILABLE ON RECORD BU T THERE IS NO FINDING GIVEN BY THE DRP REGARDING THESE ARGUMENTS RA ISED BY THE ASSESSEE BEFORE IT. NOW THE ASSESSEE IS IN FURTHER APPEAL B EFORE US. 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 ARGUMENT S AND PASSED A VERY CRYPTIC AND NON SPEAKING ORDER AND THERE FORE THIS ORDER OF DRP IS NOT SUSTAINABLE. IT IS ALSO SUBMITTED THAT THE SE ARGUMENTS OF THE ASSESSEE ARE RUNNING INTO 33 PAGES BUT THE SAME WERE BRUSHED ASIDE BY DRP WITHOUT ANY COMMENT OR FINDING WITH REG ARD TO THESE ARGUMENTS. HE ALSO SUBMITTED A COPY OF THE TRIBUNAL DE CISION 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 . I.T.A. NO.310308/DEL/ 6/9 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 24.9.2009 AND DRP PASSED DIRECTIONS U/S 144C ON 3 0.8.2010. IN THAT CASE THE TRIBUNAL HAS REPRODUCED THE PROVISIONS O F SUB SECTIONS 5 TO 13 OF SECTION 144C AND THEREAFTER IT HAS BEEN OBSE RVED 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 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 VARIOUS ARGUMENT S RUNNING INTO . I.T.A. NO.310308/DEL/ 7/9 33 PAGES WERE RAISED AGAINST THE ADDITION PROPOSED BY THE ASSESSING OFFICER AND IN THE IMPUGNED ORDER THE DRP HAS MADE NO COMMENTS ABOUT THOSE ARGUMENTS THE ASSESSEE AND THE MATTER HAS BE EN DISPOSED OFF BY WAY OF CRYPTIC AND NON SPEAKING ORDER. THE RELEVANT OPERATIVE PORTION OF THE IMPUGNED ORDER OF THE DRP U/S 144C I.E. PARA NO.2.3 IS BEING REPRODUCED BELOW:- THE SUBMISSIONS MADE BY THE ASSESSEE HAVE BEEN CONSIDERED BUT THE SAME ARE NOT CORRECT. DUE PROCESS OF LAW HAS BE EN FOLLOWED WHILE REFERRING THE CASE BY THE ASSESSING OFFIC ER TO THE TPO AS PER PROVISIONS OF SECTION 92CA OF THE INCOME TAX ACT 1961. IN THE MATTER OF USE OF MULTIPLE YEAR DATA/PRI OR YEARS DATA IT IS OBSERVED THAT ONLY THE CURRENT YEARS DATA IS JUST IFIED FOR SELECTING THE COMPARABLE IN THIS ISSUE THE TPO HAS DE ALT IN DETAIL WITH THE OBJECTIONS OF THE ASSESSEE IN THE BODY OF THE TRANSFER PRICING ORDER ITSELF. IN THE MATTER OF WORKI NG CAPITAL ADJUSTMENT/RISK ADJUSTMENT THE ISSUES POINTED OUT BY THE TPO ARE CORRECT AND THERE IS NO SUBSTANTIAL FORCE IN THE A RGUMENT OF THE ASSESSEE TO INTERFERE WITH THE FINDINGS OF THE TPO. IN THE MATTER OF REJECTING THE COMPARABLES AS TAKEN BY THE ASSESSEE AND SELECTING THE NEW COMPARABLES ONLY AFTER DISCUSSING IN DETAIL THE TPO ARRIVED AT THE CONCLUSION OF REJECTI NG/SELECTING THE NEW COMPARABLES. THE REASONINGS GIVEN BY THE TPO A RE SCIENTIFIC HENCE THE OBJECTIONS RAISED BY THE ASSESSEE ARE NOT TENABLE. THUS WE FIND NO COMPELLING REASONS TO INTERF ERE WITH THE ORDER OF THE TPO AND THE ASSESSING OFFICER AND HENC E THE SAME ARE CONFIRMED. 8. FROM THE ABOVE ORDER OF DRP IT IS APPARENT THAT THE SAME IS WITHOUT CONSIDERING VARIOUS ARGUMENTS RAISED BY THE A SSESSEE BEFORE DRP AND HENCE WE ARE IN AGREEMENT WITH LD AR OF TH E ASSESSEE THAT . I.T.A. NO.310308/DEL/ 8/9 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 ARGUMENTS 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 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 7TH JANUA RY 2011. SD/- SD/- (I.P. BANSAL) (A.K. GARO DIA) JUDICIAL MEMBER ACCOUNTANT MEMBER DT. 7 .1.2011. HMS . I.T.A. NO.310308/DEL/ 9/9 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).