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Income Tax Appellate Tribunal, DELHI BENCH: ‘I-1’ NEW DELHI
PER SUCHITRA KAMBLE, JM
This appeal is filed by the assessee against the order dated 27/02/2019 order passed by 144C(1)(3) read with Section 143 (3) of the Income Tax Act, 1961 for Assessment Year 2008-09.
The grounds of appeal are as under:-
1. That on the facts and circumstances of the case and in law, the Assessing Officer (‘AO’) erred in assessing the total income of the Appellant at Rs. 2,26,59,394/- (after making a transfer pricing addition of Rs. 2,26,59,394/-) pursuant to the directions passed by the Hon’ble Dispute Resolution Panel (‘DRP’) as against the nil income returned by the Appellant.
2. That on the facts and circumstances of the case and in law, the AO and DRP erred in upholding the inclusion of Kals Information Systems Ltd. and Bodhtree Consulting Ltd. as comparables without recording any finding whatsoever on merits qua the objections filed by the Appellant in this respect.
3. That on the facts and circumstances of the case and in law, the AO and DRP erred in continuing to rely on the information received from two companies (i.e. Kals Information Systems and Bodhtree Consulting Ltd.) to include them as comparables even though the cross- examination of the said information clearly revealed that the said companies were wholly incomparable to the Appellant and that the information obtained (by the TPO) under Section 133(6) of the Act was completely unreliable. 4. That on the facts and circumstances of the case and in law, the AO and DRP erred in taking margin of Softsol India Ltd. as 42.15% without appreciating that the said margin was taken as 21.29% (after excluding rental income and rental expenses) in the final assessment order (dated 30.10.2012) passed pursuant to the DRP directions (dated 26.09.2012) in the 1st round of appellate proceedings and that such directions were not challenged by the Revenue in appeal and have consequently attained finality. 5. That on the facts and circumstances of the case and in law, the AO erred in levying interest under Section 234B (at Rs. 77,72,864/-) as well as Section 234C (at Rs. 1,10,304/-) of the Act.”
3. Assessment in this case was completed on 30.10.2012, thereby assessing total income at Rs. 3,95,85,310/- against the NIL return income. The Assessing Officer made addition of Rs. 1,91,73,074/- on account of proposed adjustment in ALP given by the TPO in compliance of the order u/s. 144C(5) dated 26.09.2012 of DRP-I, New Delhi. Further, the assessee’s claim of exemption u/s. 10A of the Act of Rs. 2,04,12,238/- was also disallowed by the Assessing Officer. Against the assessment order, the assessee filed appeal before the Tribunal. Vide order dated 12.04.2014 in the Tribunal allowed the claim of exemption u/s. 10A of the Act and the issue of adjustment in ALP was restored back to the file of the TPO. In compliance of the directions contained in the order of the Tribunal, the TPO vide order dated 29.03.2016 proposed the adjustment of Rs. 2,71,59,915/- in ALP after excluding the comparables having turnover exceeding Rs. 200 crores and making the data available to the assessee’s representative in respect of other comparables. However, against the order dated 29.03.2016 passed by the TPO wherein the ALP adjustment was increased from Rs. 1,91,73,074/- to Rs. 2,71,59.915/-, the assessee filed writ petition before the Hon’ble Delhi High Court on the following two issues: a. The TPO had utilized purported segmental data of several companies for the purpose of arriving at the arms length price, as indicated in the impugned order, the grievance is that despite the petitioner seeking an opportunity to cross- examine the authorized personnel of the said companies, whose data has been relied upon, the opportunity had not been granted to the petitioner. b. The Assessing Officer shall not pass the assessment order based on the TPO’s order.
The Hon’ble Delhi High Court vide order dated 11.05.2016 in W.P© 3628/2016 and CM No. 15535/2016(Stay), directed that the Assessing Officer shall not pass the assessment order based on the TPO’s order in respect of assessment year 2008-09. Further vide order dated 24.05.2016 in W.P(C) 3628/2016 and CM No. 15535/2016(Stay), held that “In these circumstances, we set aside the impugned-order dated 29.03.2016 and remit the matter to the TPO for affording an opportunity to the petitioner to cross examine the authorized personnel of the said companies, who submitted the segmental data which has been utilized by the TPO. The TPO may thereafter pass a fresh order in accordance with law. The learned counsel for the petitioner states that the petitioner shall not take up the plea of limitation.” Pursuant to the order of Hon’ble Delhi High Court, the TPO passed a detailed order while giving effect to the directions of the Hon’ble Delhi High Court order in W.P.(C) 3828/2016 dated 30.03.2017. In the concluding para 18 at page 14, the TPO has held as under:- “18. Therefore, even after allowing opportunity of cross examination to the assessee as per the directions of the Hon'ble Delhi High Court, the assessee has not been able to even minutely challenge the veracity of the data collected by the TPO u/s 133(6). Accordingly no change in the adjustment of Rs. 2,71,59,915/- (as per order dated 29.03.2016) is proposed where correct segmental margins had been used. ” Consequently a final assessment order in the case was passed by the Assessing Officer on 31.03.2017 at an assessed income of Rs. 2,71,59,915/-. Further, a writ petition (W.P. (C) 3628/2016) was filed before the Hon’ble Delhi High Court by the assessee challenging the aforesaid order claiming that it had not been given the opportunity to invoke Section 144C of the Act in the case. The Hon’ble High court vide order dated 31.05.2018 held that the said order would be treated as a draft assessment order and the assessee would be at liberty to invoke section 144C of the Act. Therefore, the order was sent before DRP for consideration. The DRP Panel-1, New Delhi vide directions dated 15.01.2019 accepted the objection filed by the assessee on account of TP adjustment. The TPO has passed order dated 25.02.2019 giving effect to the directions dated 15.01.2019 u/s 144C(5) of DRP and made the final Transfer Pricing Adjustment amount thereby reducing the same from Rs. 2,71,59,915/- to Rs. 2,26,59,394/-. The calculation of TP adjustment is as under:- Operational Cost Rs. 21,12,92,098 Arm’s Length Price at a margin of Rs. 25,72,90,388 21.77% Price Received Rs. 23,46,30,994 105% of price received Rs. 24,63,62,544 Adjustment u/s 92CA Rs.2,26,59,394/- Thus, the total income assessed at Rs. 2,26,59,390/- by the Assessing Officer
Being aggrieved by the assessment order, the assessee filed present appeal before us.
As regards Ground No. 1, the Ld. AR submitted that the same is general in nature. As regards to Ground Nos. 2 and 3, the Ld. AR submitted that the inclusion of two companies i.e. KALs Information Systems Ltd. and Bodhtree Consulting Ltd. as comparables, both these companies are not proper comparable as the said Companies are functionally not similar to that of assessee company as well as no proper data was available of these two Companies. As regards Ground No. 4, the Ld. AR submitted that the Assessing Officer as well as the DRP erred in taking margin of Softsol India Ltd. as 42.15% without appreciating that the said margin was taken as 21.29% (after excluding rental income and rental expenses) in the final assessment order (dated 30.10.2012) passed pursuant to the DRP directions (dated 26.09.2012) in the 1st round of appellate proceedings and such directions were not challenged by the Revenue in appeal and have consequently attained finality. As regards Ground No. 5, interest u/s 234B as well as Section 234C are consequential.
The Ld. DR relied upon the assessment order, order of the TPO and directions given by the Hon'ble High Court.
We have heard both the parties and perused the material available on record. As regards to Ground No. 1, the same is general hence dismissed. As regards to Ground No. 2 and 3, both the comparable companies i.e. KALs Information Systems Ltd. and Bodhtree Consulting Ltd. selected by the TPO are not at all comparable as both are functionally different from that of assessee company. From the perusal of the records, it seems that these companies are having different functional activities than that of assessee companies. Besides this, in respect of both the comparable companies, there is no data available. Thus, KALs Information Systems Ltd. and Bodhtree Consulting Ltd. are not comparable to the assessee company and we direct the TPO/AO to exclude these to comparables from the final list of comparables. Ground Nos. 2 and 3 are partly allowed. As regards to Ground No. 4 relating to margin of Softsol India Ltd., the contention of the Ld. AR that taking margin of Softsol India Ltd. as 42.15% without appreciating that the said margin was taken as 21.29% (after excluding rental income and rental expenses) in the final assessment order (dated 30.10.2012) passed pursuant to the DRP directions (dated 26.09.2012) in the 1st round of appellate proceedings and such directions were not challenged by the Revenue in appeal and have consequently attained finality, appears to be correct preposition. The margin taken by the TPO/AO as per order dated 30.10.2012 was never challenged by the Revenue in appeal and therefore, there was no necessity to disturb the same. Hence, Ground No. 4 is allowed. As regards to Ground No. 5, the same is consequential, hence not adjudicated at this juncture. Thus, appeal of the assessee is partly allowed.