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Income Tax Appellate Tribunal, “A’’ BENCH: BANGALORE
Before: SHRI CHANDRA POOJARI & Shri GEORGE K. GEORGE
PER CHANDRA POOJARI, ACCOUNTANT MEMBER:
This appeal by assessee is directed against the assessment order dated 25.10.2019 passed u/s 143(3) r.w.s. 144C(13) and 144C(5) of the Income-tax Act,1961 ['the Act' for short] consequent to the direction of Ld. Dispute Resolution Panel (“DRP”) dated 3.9.2019. The assessee has raised followings grounds of appeal:- Grounds:-
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The grounds mentioned herein by the Appellant are without prejudice to one another. 1. That the order passed by the Learned Deputy Commissioner of Income-tax, Circle 3(1)(2), Bangalore (`Assessing Office or 'AO') and the directions passed by the learned Dispute Resolution Panel (`DRP' or `the Panel'), to the extent prejudicial to the Appellant, is bad in law and liable to be quashed. 2. That on the facts and in the circumstances of the case and in law, the learned DRP erred in partly confirming the action of the learned Assessing Officer (learned AO') / learned Transfer Pricing Officer (learned TPO') in making an adjustment of INR 17,288,156/- to the international transactions relating to the Engineering Design services segment (`Services segment') of the Appellant. Grounds relating to transfer pricing matters 3. That on the facts and circumstances of the case, the learned DRP erred in upholding the action of the Ld. AO/TPO of partially rejecting the Transfer Pricing (`TP') documentation maintained by the Appellant, in good faith, as required under section 92D of the Income-tax Act, 1961 (`the Act') read with rule ioD of the Income-tax Rules, 1962 (`the Rules') in respect of the Service segment and selectively rejecting certain comparables. 4. That on the facts and circumstances of the case, the learned DRP erred in upholding the action of the learned AO/ learned TPO in not allowing the working capital adjustment for determining the arm's length price. 5. That on the facts and circumstances of the case, the learned DRP erred in upholding the action of the learned AO/ learned TPO of ignoring the limited risk nature of the Services segment of the Appellant and thereafter selecting high profit-making entrepreneurial companies as comparables. In doing so, • the learned AO/learned TPO has erred in not providing an appropriate adjustment towards the risk differential, even when the full- fledged entrepreneurial companies have been selected by the learned TPO as comparables. 6. That on the facts and circumstances of the case, the learned AO/ learned TPO erred in law and on facts in the computation of operating mark-up on cost for companies while performing the comparability analysis in relation to the Services segment of the Appellant. 7. That on the facts and circumstances of the case, the learned Panel erred in upholding the action of the learned AO/TPO in proceeding to exclude companies which are functionally comparable to the Services segment of the Appellant and were also a part of the TP documentation maintained by the Appellant.
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That on the facts and circumstances of the case, the learned Panel erred in upholding the action of the learned AO/TPO in including companies as comparable that are functionally different to the Services segment of the Appellant and otherwise fails the test of comparability.
That on the facts and circumstances of the case, the learned Panel erred in upholding the action of the learned AO/TPO in rejecting the additional companies proposed by the Appellant which are functionally comparable to the Services segment of the Appellant. 10. That on the facts and circumstances of the case, the learned Panel erred in upholding the action of the learned AO/TPO in including Mindtree Limited in the final list of comparables. ii. That on the facts and circumstances of the case, the learned Panel erred in upholding the action of the learned AO/TPO in including Larsen & Tourbo Infotech Limited in the final list of comparables. 12. That on the facts•;nd circumstances of the case, the learned Panel erred in upholding the action of the learned AO/TPO iti including Nihilent Technologies Limited in the final list of comparables. 13. That on the facts and circumstances of the case, the learned Panel erred in upholding the action of the learned AO/TPO in including Persistent Systems Limited in the final list of comparables. 14. That on the facts and circumstances of the case, the learned Panel erred in upholding the action of the learned AO/TPO in including Infosys Limited in the final list of comparables. 15. That on the facts and circumstances of the case, the learned Panel erred in upholding the action of the learned AO/TPO in excluding Akshay Software Technologies Ltd. as a comparable to the Appellant. 16. That on the facts and circumstances of the case, the learned Panel erred in upholding the action of the learned AO/TPO in excluding CAT Technologies Ltd. as a comparable to the Appellant. 17. That on the facts and circumstances of the case, the learned Panel erred in upholding the action of the learned AO/TPO in excluding I2T2 India Limited as a comparable to the Appellant. 18. That on the facts and circumstances of the case, the learned Panel erred in upholding the action. of the learned AO/TPO in excluding Infomile Technologies Limited as a comparable to the Appellant.
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That on the facts and circumstances of the case, the learned Panel erred in upholding the action of the learned AO/TPO in excluding Celstream Technologies Private Limited as a comparable to the Appellant.
Grounds relating to other than transfer pricing matters 20. The learned AO and the learned Panel has erred in not allowing an amount of INR 3,34,92,043 under section 40(a)(ia) of the Act towards the disallowance of year end provisions pertaining to AY 14-15 for non-deduction of taxes, without appreciating the fact that the provisions were-reversed during AY 2015-16 and the taxes has been duly deducted and deposited at the time of actual payment made during AY 2015-16. 21. That on the facts and in circumstances of the case, the learned AO has erred in not considering the submissions made by the Company during the assessment proceedings for AY 2015-16 highlighting that taxes were duly deducted and deposited at the time of actual payment in AY 2015-16 with respect to provisions earlier disallowed in AY 2014-15 for non-deduction of taxes under section 40(a)(ia) of the Act.
That on the facts and in the circumstances of the case, the learned AO erred in not allowing deduction under section 37(1) of the Income Tax Act, 1961, on account of Education Cesses paid by the Appellate while arriving at the assessed income for the year under appeal. 23. That on the facts and in the circumstances (Attie case, the learned AO ought to have restricted the levy of the dividend distribution tax on the dividend distributed to GE Mauritius Ltd to 5% in terms of Article 10 of Double Taxation Avoidance Agreement (`DTAA') between India and Mauritius instead of 16.995% charged in terms of section 115-0 of the Act. 24. That on the facts and in the circumstances of the case, the learned AO has erred in computation of interest under section 234D. That the Appellant craves leave to add to and/or to alter, amend, rescind, modify the grounds herein below or produce further documents before or at the time of hearing of this Appeal.
Ground Nos.1 to 3 are general in nature which do not require any adjudication.
Ground No.4 is with regard to allowing working capital adjustment while determining the ALP. After hearing both the
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parties, we are of the opinion that similar issue came up for consideration before this Tribunal in assessee’s own case in IT (TP)A No.3263/Bang/2018 dated 31.8.2021 for the assessment year 2014- 15 in which the Tribunal has held as under:- 6.2. We have perused the submissions advanced by both sides in the light of records placed before us.
6.3. The Ld.Counsel argued that this company has supernormal profits and is an aberration from the operating margins of other companies and hence cannot be considered as the representative of the industry. It has also been submitted that this company has high cost of working capital and diminishing revenue. He thus supported for exclusion of this comparable from the finalist.
6.4. We note that assessee is into manufacture of components/devices used is medical diagnostic imaging equipment’s and is not the manufacturer and seller of medical equipment machines. On the other hand the company Opto Circuits is into manufacture of electron tubes, diodes, transistors and related discrete devices which is used in medical devices/equipments. The group to which this company belongs manufactures emergency cardiac care equipment, vascular treatments and sensing technologies, vital sign monitors etc which are an equipment as a whole in itself. We note that both assessee as well as this company cater to medical industry however the products manufactured by assessee and this company are different. 6.5. As noticed hereinabove, assessee is a contract service provider manufacturing components that is used in medical imaging equipments whereas this company manufactures the equipments/devices as a whole which is used in cardiac care system. At this juncture we observes that, is very difficult to identify an identical kind of comparable that has functions similar to that of assessee. It is for this reason that assessee adopted TNM as the most appropriate method, which provides comparability of net profits that comparable independent business earn from their trading activities in comparable markets with other third parties. Which is why, this method has become a default method for all the taxpayers. The comparability standard for the purpose of the Transactional Net Margin Method Page 19 of 33 ITA No.3263/Bang/2018 has to be maintained higher than other methods as the method directly deals with the Net Profit Margin. However, unlike traditional methods,
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Transactional Net Margin Method does not depend on product comparability or functional comparability. 6.6. We note that, in case of the comparable, the average receivables for the year ending 31/03/2014 are 599.63 crores, whereas the sales during the year were 262.78 crores. This shows that this company has huge turnover. However, we also note that, while comparing it with the assessee, appropriate working capital adjustment must be allowed to assessee in respect of this company. 6.7. We therefore do not find any infirmity in retaining this comparable in the finalist however appropriate working capital adjustment is to be granted to ascertain the margin to be compared with that of assessee. Accordingly we direct the Ld.AO/TPO to recompute the margin of this comparable by taking the working capital adjustment into consideration. In the result this comparable raised by assessee for exclusion is remanded to the Ld.TPO for recomputing the margins in accordance with directions hereinabove. Accordingly ground No. 8 raised by assessee stands allowed for statistical purposes.”
In view of the above findings of the Tribunal, we direct the AO/TPO to recompute the ALP of transactions by taking actual working capital adjustment into consideration. This ground of the assessee is partly allowed for statistical purposes.
Ground Nos.5 to 9 are general in nature which do not require any adjudication.
By way of ground Nos.10 to 14, the assessee wants exclusion of following comparables:- 1. Mind Tree Limited 2. Larsen & Toubro Infotech Limited 3. Nihilent Technologies Limited 4. Persistent Systems Limited
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Infosys Limited 6.1 1) Mind Tree Limited 2) Larsen & Toubro Infotech Limited 3) Persistent Systems Limited These comparables are considered by Tribunal in assessment year 2014-15 in ITA No.3263/Bang/2018 (supra) in which with regard to Mind Tree Ltd., Larsen & Toubro Ltd. & Persistent Systems Ltd. the Tribunal has decided as follows:-
“14. We have perused submissions advanced by both sides in the light of records placed before us.
In these grounds assessee seeks exclusion of following comparables: Larsen and Toubro Infotech Ltd. Persistent Systems Ltd. Mindtree Ltd.
14.1. The Ld. Counse I submitted that assessee provides engineering design services including providing engineering drawings/designs both 2D and 3D models by using software like CAD, CAA except rack for medical products and solving global GE Healthcare customer related design problems and issues. He submitted that these comparables sought for exclusion are product based engineering services. It is submitted that these comparables are basically into product services and technology innovation. The Assessee did not object for inclusion of these comparables before the DRP, however it is before this Tribunal that they have been sought for exclusion. Their were other comparables sought by assessee for inclusion under this segment which are also into engineering design services and we have remanded those comparables to the Ld.TPO to consider it afresh in the light of FAR analysis in accordance with law.
14.2. We remand these comparables also back to Ld.TPO to readjudicate in it based on FAR analysis. The Ld. TPO shall consider all the objections raised by assessee in respect of these comparables in the light of far analysis and to consider
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the claim in accordance with law. Needless to say that proper opportunity of being heard must be granted to assessee.
Accordingly, these grounds raised by assessee stands allowed for statistical purposes. In the result appeal filed by assessee stands allowed partly as indicated hereinabove.”
In view of the above, we remit the issue to file of AO/TPO for fresh consideration.
6.2. With regard to Nihilent Technologies Limited it is submitted that this comparable company is not comparable to the assessee’s case since it is functionally dissimilar as it is engaged in rendering high end services in the nature of technology science, providing solutions related to data science, block chain, business intelligence, etc. Further, it is submitted that the assessee company is engaged in contract manufacturing of X-Ray and CT tubes, HV tanks, detectors, parts and accessories (medical equipment components) for medical diagnostic imaging equipment and provides engineering design services as such Nihilent Technologies Ltd. cannot be compared with assessee company. He relied on the order of coordinate bench in the case of Electronic Imaging (India) Pvt. Ltd. In IT (TP)A No.1506/18/2015 dated 14.5.2017, wherein it was held that on the basis of functional dissimilarity, the comparable to be excluded. The same view was taken by the Tribunal in the case of Metricstream Infotech India Pvt. Ltd. In IT(TP)A No.493/Bang/2016 dated 20.7.2018.
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6.3 We have heard the rival submissions and perused the record. In our opinion, the AO/TPO is required to examine functional similarity between the assessee company and Nihilent Technologies Ltd. If they are functionally similar, then only Nihilent Technologies Ltd. to be considered as a comparable. In our opinion, if the bifurcation of revenue from KPO & SWD services is available then segmented data to be considered in respect of SWD, then only it is to be considered as comparable. If the segmented data of the SWD is not available then it cannot be comparable with the assessee’s case. Accordingly, the issue is remitted back to the file of the AO/TPO for fresh consideration.
With regard to Infosys Ltd. it is submitted that it has been rejected by Tribunal in assessee’s own case in assessment year 2008- 09 in IT(TP)A No.1291/Bang/2012 dated 13.4.2017 in which it was held as under:- “12. Having considered the rival submissions and relevant material on record, at the outset we note that the functional comparability of these two companies has been examined by the co-ordinate bench in the case of Symphony Marketing Solutions India Pvt. Ltd. Vs. ITO (supra) for the same assessment year in paras 24 & 26 as under “ (7) Infosys BPO Ltd. 24. This company is listed at Sl.13 in the list of comparable companies chosen by the TPO. As far as this company is concerned, it is the submission of the ld. counsel for the assessee that this company has a brand value and therefore there would be significant influence in the pricing policy which will impact the margins. Schedule 13 to the profit & loss account of this company for the F.Y. 2007-08 shows that this company incurred huge selling and marketing expenses. Page 133 of the annual report of this company for the F.Y. 2007-08 shows that this company realizing its brand value has chosen to value the same on the basis of its earnings and that of Infosys. The brand value of the Assessee and Infosys has been valued at Rs.31,863 Crores. Infosys BPO, being a subsidiary of Infosys, has an element of brand value associated with it. This is also clear from the presence of brand related expenses incurred by this company. Presence of a brand commands premium price and the
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customers would be willing to pay, for the services/products of the company. Infosys BPO is an established player who is not only a market leader but also a company employing sheer breadth in terms of economies of scale and diversity and geographical dispersion of customers. The presence of the aforesaid factors will take this company out of the list of comaparables. We therefore accept the contention of the assessee that this company cannot be regarded as a comparable. 25…… (8) Wipro Ltd. 26. This company is listed at Sl.No.18 in the list of comparable companies chosen by the TPO. As far as this company is concerned, the discussion made while deciding Infosys BPO Ltd. as a comparable will equally apply to this company also. This company owns substantial intellectual property on software products. This company cannot therefore be regarded as a comparable. For the reasons given while disregarding Infosys BPO Ltd. as a comparable, this company is also directed to be excluded from the list of comparables.” There is no dispute that these companies are carrying a huge brand value as well as market leader in their fields therefore these companies are having the advantage of their brand value and bargaining power to increase the price from time to time prices. This view has been upheld by the Hon'ble Delhi High Court in the case of CIT Vs. Agnity India Technologies Pvt. Ltd. 36 taxmann.com 289. In view of the above facts and circumstances as well as the binding precedent, we direct the TPO/A.O. to exclude these two companies viz. Infosys BPO Limited and Wirpo Limited (BPO Divn.) from the set of comparables and then recomputed the ALP. Needless to say that the benefit of second proviso to Section 92CA(2) also be considered.”
7.1 In view of the above order of the Tribunal in assessee’s own case for the assessment year 2008-09 (supra), we direct the AO/TPO to exclude this company from the list of comparables.
The assessee wants inclusion of following comparables by way of Ground Nos.15 to 19:- 1. Akshay Software Technologies Ltd. 2. CAT Technologies Ltd. 3. I2T2 India Ltd. 4. Infomile Technologies Ltd.
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Celstream Technologies Pvt. Ltd.
With regard to Akshay Software Technologies Ltd. the coordinate bench of the Tribunal in A.Y. 2014-15 in ITA No.3263/Bang/2018 (supra) has decided as under:- Akshaya Software Technologies Ltd.
“9.2. It is submitted that, this comparable is functionally similar to that of assessee and is engaged in procurement, installation, implementation, support and maintenance of ERP products and services. It has been submitted that this company earns revenue from software services. It is also seen that majority of the income is earned by this company from software related services. He submitted by the Ld.Counsel that this view rejected this comparable as it was providing professional services, procurement installation implementation support and maintenance of ERP products and services in India arld overseas. Whereas, the DRP upheld the rejection of this comparable as this was having a different model and therefore functionally not similar. The DRP observed that 85% of the total expenditure in case of this company pertains to foreign branch expenditure and substantial part of such expenditure was incurred towards employee benefit.
9.3. It has thus been submitted by the Ld.Counsel that the reasoning- behind exclusion of this comparable by the Ld.TPO as well as the DRP is different. Both the DRP as well as the Ld.TPO has not established how this comparable is functionally not similar with that of assessee.
9.4. On the contrary, the Ld.Sr.DR submitted that, this comparable was excluded by the Ld.TPO in preceding assessment year, which has not been contested by assessee before this Tribunal.
9.5. We have perused submissions advanced by both sides in light of records placed before us.
We note that the employee cost filter is more than 75%. This has been observed by the Ld.TPO as well as DRP. Admittedly this comparable has not been contested by assessee in the preceding assessment year being assessment year 2011-12. An
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order passed by coordinate bench of this Tribunal for assessment year 2011-12 is placed in the paper book at page 44 along with written submissions. We accordingly do not find any infirmity in this comparable being excluded from the finalist.”
9.1 In view of the above order of Tribunal, we do not find any infirmity in the comparable being excluded from the list of comparables.
9.2. With regard to CAT Technologies Ltd. It is submitted that this company is functionally comparable to assessee’s case since CAT Technologies Ltd. is primarily engaged in software development and consultancy services and it passes all filters proposed by TPO. The Ld. DR submitted that this company has been rejected by lower authorities on the reason that the CAT Technologies Ltd. was making persistent losses.
9.3 We have heard the rival submissions and perused the record. The argument of the Ld. A.R. is that if high margin companies are included, then functionally comparable companies with low margin must also be included. But we find that this company is making persistent losses over the year as seen from the annual accounts for financial year 2012-13, 2013-14 and 2014-15. Being so as held by Hyderabad bench of Tribunal in the case of Brigade Global Services Pvt. Ltd. in ITA No.1494/Hyd/2010 dated 26.11.2012 (wherein present author is the author of that order) wherein it was held that persistent loss of the company making cannot be included as comparable. Accordingly, the rejection is justified. This ground of the appeal of the assessee is rejected.
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9.4 With regard to I2T2 India Ltd., the coordinate bench of the Tribunal in ITA No.3263/Bang/2018 (supra) has decided as under:- “9.10. We have heard the submissions advanced by both sides in light of records placed before us in respect of these comparables.
We have also perused the annual reports placed in the paper book. We note that Daffodil software Ltd., I2T2 Ltd., Exilant Technologies Pvt.Ltd., Celstream Technologies Ltd., and Maveric Systems Ltd., are engaged in software engineering products. We note that these comparables have not been verified by the Ld.TPO in terms of FAR analysis with that of assessee and has rejected by applying one or other filter on quantitative basis. As assessee is using TNM as most appropriate method, the functions performed assets owned and risk assumed by the comparables vis-a-vis assessee. Accordingly we remand these comparables back to Ld.TPO for de novo verification.”
Accordingly, we remit the matter to the file of AO/TPO for fresh consideration.
9.5 With regard to Infomile Technologies Ltd. the Ld. A.R. submitted that the lower authority rejected this comparable on the reason that related party transactions are not available. The Ld. A.R. submitted that there are no RPT transactions in the assessment year 2015-16. Being so, it should be included as comparable.
9.6 We have heard the rival submissions and perused the record. In this issue, in our opinion, the AO/TPO has to go through the annual accounts and find out whether there are RPT transactions ore not? If there is no RPT transactions, this company Infomile Technologies Ltd. to be included as comparable while computing the ALP of international transaction. This ground of appeal of the assessee is remitted back to the file of AO/TPO for fresh consideration.
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9.7. With regard to Celstream Technologies Pvt. Ltd., the coordinate bench of the Tribunal in ITA No.3263/Bang/2018 (supra) has decided as under:- “9.10. We have heard the submissions advanced by both sides in light of records placed before us in respect of these comparables. We have also perused the annual reports placed in the paper book.
We note that Daffodil software Ltd., I2T2 Ltd., Exilant Technologies Pvt.Ltd., Celstream Technologies Ltd., and Maveric Systems Ltd., are engaged in software engineering products.
We note that these comparables have not been verified by the Ld.TPO in terms of FAR analysis with that of assessee and has rejected by applying one or other filter on quantitative basis. As assessee is using TNM as most appropriate method, the functions performed assets owned and risk assumed by the comparables vis-à-vis assessee. Accordingly we remand these comparables back to Ld.TPO for de novo verification.”
9.8 In view of the above order of the Tribunal this issue is remitted to AO/TPO for fresh consideration.
Issue in Ground Nos.20 & 21 for the assessment year 2014-15 of the appeal was decided by the coordinate bench of the Tribunal in IT(TP)A No.3263/Bang/2018 (supra) in which the Tribunal has observed as under:- “11. Ground No.23 is in respect of disallowance of provision of expenses under section 40(a)(ia) of the Act being the year-end provision. 11.1. It has been submitted that the decision relied by the authorities below has been reversed by Hon’ble Karnataka High Court. 11.2. The Ld.Sr.DR relied on the orders passed by authorities below.
11.3. We have perused submissions advanced by both sides in light of records placed before us. We note that authorities below relied on decision of coordinate bench of this Tribunal in case of Toyota Kirloskar motors private limited in ITA No. 1185/B
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a NG/2014 for assessment year 2012- 13 dated 31/10/2017. The said decision has been reversed by the Hon’ble Karnataka High Court in ITA No. 245/2018 by order dated 24/03/2021. We note that Hon’ble Karnataka High Court discussed the issue in detail and has held that in the absence of income accruing to anyone under the act the liability to deduct TDS on the assessee could not have been fastened. Hon’ble Court held as under:
“11. In the light of aforesaid well-settled legal position, we met were to the facts of the case on hand. In the instant case Page 29 of 33 ITA No.3263/Bang/2018 the provision was created during the course of the year reversal of entry was also made in the same accounting year. The assessing officer erred in law in holding that assessee should have deducted tax as per the rate applicable along with interest. The authorities under the act ought to have appreciated that the absence of any income accruing to anyone under the act, the liability to deduct TDS on the assessee could not have been fastened and consequently, the proceedings under section 201 and 201(1A) could not have been initiated. For the aforementioned reason the substantial question of law is answered in favour of assessee and against the revenue. 11.4. The basis on which the disallowance was made has been reversed by Hon’ble Karnataka High Court. Accordingly, we direct the Ld.AO to grant the claim of assessee upon verification in accordance with law and the principle laid down by Hon’ble Karnataka High Court. Accordingly, this ground raised by assessee stands allowed for statistical purposes.”
10.1 In view of the above order of Tribunal, this is consequential in this assessment year and the claim of the assessee has already been allowed in AY 2014-15 by placing reliance on the judgement of Hon’ble Karnataka High Court in the case of Toyota Kirloskar Motors Pvt. Ltd. in ITA No.245/2018 dated 24.3.2021. Being so, the AO is justified in disallowing this claim in this assessment year 2015-16. As the relief was already granted on this issue in this assessment year 2014-15, accordingly, these grounds are dismissed.
Ground No.22 is not pressed and hence this ground of the appeal is dismissed as not pressed.
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With regard to ground No.23: Additional Ground relating to dividend distribution tax ("DDT") raised by the Appellant vide application dated 23.11.2021: 23. That on the facts and in the circumstances of the case, the learned AO ought to have restricted the levy of the dividend distribution tax on the dividend distributed to GE Mauritius Ltd to 5% in terms of Article 10 of Double Taxation Avoidance Agreement CDTAA between India and Mauritius instead of 16.995% charged in terms of section 115-0 of the Act."
12.1 In this regard, it is submitted that the additional ground raised by the Appellant is a legal issue, in respect of which all the facts are on record and no new facts needs to be placed on record. For the sake of completeness, it is submitted that in the audited annual accounts as well as the return of income filed by the Appellant, it is evident that the Appellant had declared and distributed dividend to its equity shareholders after deducting DDT at the rate of 16.995% under section 115-0 of the Income Tax Act, 1961 ("Act"). Since the shareholder is a Mauritian tax resident, therefore, DDT paid by the Appellant would be subjected to the India-Mauritius Double Taxation Avoidance Agreement which prescribed a lower rate of tax on dividend i.e., 5% as against 16.995% as per the Act. In view of the same, the Appellant had the above additional ground pleaded that the AO should have applied the lower rate of 5% and should have refunded the excess DDT paid.
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It is submitted that the said decision in the case of Texas Instruments is clearly distinguishable on the facts of the case, and hence not applicable for the following reasons:
12.2 Dissimilarity in the facts of Appellant vis-a-vis Genpact India, Texas Instruments o In case of Genpact India, as well as in the case of Texas Instruments (supra), the taxpayer(s) had first appealed to the CIT(A) against the assessment order u/s 143(3) of the Act. Therefore, the CIT(A) was the first appellate authority to adjudicate any issue arising out of the regular assessment order. o In case of the Appellant, however, against the draft assessment order, the objections were filed before the Dispute Resolution Panel ("DRP"), whereafter the final assessment order has been passed, which is the subject matter of the present appeal before this Hon'ble Tribunal. From that perspective, clearly this Hon'ble Tribunal is the first appellate authority for the Appellant. Needless to mention, that the DRP is not an appellate authority as it is only an extended arm for completion of assessment proceedings. Therefore, in case of the Appellant, since the first appeal lies with this Hon'ble Tribunal, therefore, the additional ground is raised before in the present appeal.
12.3 Applicability of Hon'ble Delhi High Court in case of Maruti Suzuki o Appellant submits that the Hon'ble Delhi High Court in the case of Maruti Suzuki India Ltd. in WP(C) 1324/2019
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dismissed the writ petition of the revenue against the order of the Hon'ble Delhi ITAT which had admitted a similar additional ground of appeal relating to DDT. o Similar additional ground has also been admitted by the Hon'ble Delhi Tribunal in the case of Giesecke & Devrient (India) Pvt Ltd v. Add. CIT [ITA No. 7075 (Delhi) of 2017]. o In view of the aforesaid, considering that there were already decisions of the coordinate benches of the Tribunal as well as decision of the Hon'ble Delhi High Court which have taken the view favorable to the taxpayer, it was, therefore, with utmost respect, clearly desirable that the said decision should have been followed in the case of Texas Instruments (supra); It is trite law that in the absence of any jurisdictional High Court decision, the decision of non-jurisdictional High Court should be followed by the Tribunal in its letter and spirit.
p12.4 Non-applicability of the decision of Texas Instruments
o Without prejudice to the aforesaid submission, as regards the applicability of the decision of the Texas Instruments (supra) is concerned, the Appellant most humbly submits that the said order is per incurium as
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it does not take into account the order of the hon'ble Mumbai Bench of ITAT in the case of Total Oil India Pvt Ltd bearing ITA No. 6997/Mum/2019, where the cross objections of the taxpayer have been accepted and a reference has been made to constitute a Special Bench in relation to the issue of DDT.
12.5 Misreading of the decision of Hon'ble Supreme Court in the case of Genpact India Pvt Ltd o The reading of the decision of the Hon'ble Apex Court in case of Genpact India, bearing Civil Appeal No. 8945 of 2019 (arising out of Special Leave Petition (Civil) No.20728 of 2019) to hold that the additional ground cannot be raised before the ITAT is, with utmost respect, erroneous. o In the case of Genpact India, the computation of tax u/s 155QA of the Act formed part of the assessment order along with additional nine items. Genpact India appealed to the CIT(A) only against the additional nine items and did not appeal against the computation of tax u/s 115QA of the Act. In this regard, the Hon'ble Delhi High Court and the Hon'ble Supreme Court, directed the taxpayer, i.e., Genpact India to appeal against the assessment order before the CIT(A) invoking clause (a) of sub-section 1 of section 246A of the Act. The Hon’ble Supreme Court has nowhere held that the additional ground cannot be admitted by the ITAT. Therefore, the decision of Hon'ble Supreme Court in
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case of Genpact India has been misinterpreted in the case of Texas Instruments(supra).
12.6 The Ld. D.R. submitted that the issue is covered against the assessee by the order of the Tribunal in the case of Texas Instruments (India) Pvt. Ltd. in IT(TP)A No.525/Bang/2019 dated 11.3.2022, wherein the Tribunal after considering entire facts of the case has held as under:- “4.8 We heard Ld D.R on this issue and perused the record. The DDT is paid as per the provisions of sec.115-O, which is titled as “Tax on Distributed Profits of Domestic Companies”. The assessment order is passed u/s 143(3) of the Act, wherein the assessing officer is required to make assessment of the “total income or loss” of the assessee. The expression “total income” is defined in sec. 2(45) of the Income tax Act to mean the “total amount of income referred to in section 5, computed in the manner laid down in this Act. It can be noticed from section 5, it talks about the income received or deemed to be received or accrued or deemed to accrue or arise. Thus when the assessing officer is determining “total income” of the assessee, he is required to look into the income received or deemed to be received or accrued or deemed to accrue or arise. On the contrary, it can be noticed that the DDT is a “tax payable on the distribution of dividend” and it is in no way connected to the determination of “total income”. The appeal filed by the assessee before us is related to the “determination of total income” u/s 143(3) of the Act. 4.9 Now the question that arises is whether the assessee can raise the issue relating to payment of DDT in an appellate proceeding relating to determination of total income u/s 143(3) of the Act. We notice that the Hon’ble Delhi Court in the case of Genpact India (P) Ltd vs. DCIT (2019)(108 taxmann.com 340) dealt with a writ petition filed before it by the assessee challenging the demand raised u/s 115QA of the Act, which relates to tax on distributed income by way of buy back of shares. The writ petition was filed on the reasoning that the Income tax Act does not provide appeal remedy for the additional tax demanded u/s 115QA of the Act. However, the revenue submitted that the assessee is having alternative remedy for filing appeal before Ld CIT(A) and accordingly prayed for rejection of Writ petition filed by the assessee. It is pertinent to note that the said assessment order passed by the AO included the demand raised u/s 115QA of the Act also besides the demand raised u/s 143(3) of the Act. The Hon’ble Delhi High Court rejected the writ petition and allowed the assessee to file separate appeal before Ld CIT(A) u/s 246A of the Act against the tax liability raised u/s 115QA of the Act. With regard to the contention of the assessee that the additional tax payable u/s 115QA should not be construed
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as forming part of assessment order, the Hon’ble Delhi High Court answered the same as under:- “16. At the outset, the Court would first like to deal with the submissions of Mr Ganesh that the impugned demand raised under Section 115-QA of the Act should not be construed as forming part of the impugned assessment order and that it is something separate from it. While it is true that the demand under Section 115-QA of the Act would be in addition to the total income, the fact of the matter is that in the present case it forms an integral part of the impugned assessment order under Section 143 (3) of the Act. Reading the assessment order as a whole, it is plain to the Court that this demand under Section 115-QA of the Act is in addition to demands under other issues, all of which form part of the impugned assessment order. In fact, Paragraph 11 of the impugned assessment order, which gives the computation of the total taxable income, includes the demands raised under all heads and it includes the demand under Section 115-QA of the Act. Therefore, it is not possible for this Court to read this part of the order separate from the rest of the assessment order.” 4.10 It is pertinent to note that the M/s Genpact India P Ltd challenged the above said decision rendered by Hon’ble Delhi High Court before Hon’ble Supreme Court and the decision of Hon’ble Supreme Court is reported in (2019)(111 taxmann.com 402). As noticed earlier the Hon’ble Apex Court held that the contention of the assessee that it is not liable to pay tax u/s 115QA would fall under the clause “an order against the assessee where the assessee denies his liability to be assessed under this Act”. mentioned in clause (a) of sub. Section (1) of sec. 246A of the Act. Since the DDT payable u/s 115-O of the Act is an additional tax liability akin to the tax payable u/s 115QA of the Act, there should not be any dispute that the assessee can challenge the liability imposed on it u/s 115-O of the Act as held by Hon’ble Supreme Court in the case of Genpact India P Ltd (supra).
4.11 However, the question that arises is whether the assessee can challenged the liability u/s 115-O of the Act by raising an additional ground in the appeal filed against the assessment order passed u/s 143(3) of the Act. It is pertinent to note that clause (a) of sub. Sec. (1) of sec. 246A contains various types of the orders passed by the tax authorities which, inter alia, includes
(a) an order against the assessee where the assessee denies his liability to be assessed under this Act and (b) any order of assessment under sub-section (3) of section 143.
Thus the grievance of the assessee on DDT liability falls under different class of liabilities mentioned in sec. 246A of the Act. Further, Sec. 246A provides for appellate remedy for different types of tax demands raised upon the assessee and
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there should not be any dispute that the assessees have been filing separate appeals for the demand raised under different sections of the Act.
4.12 In the case of Genpact India P Ltd, the Hon’ble Delhi High Court noticed that the additional tax liability u/s 115QA was raised in the assessment order itself. Hence the Hon’ble Delhi High Court held that “it is not possible for this Court to read this part of the order separate from the rest of the assessment order”. We also notice that M/s Genpact India P Ltd had filed appeal before Ld CIT(A) challenging various additions made by the AO while determining the total income of the assessee and by the time the writ petition was disposed of by Hon’ble Delhi High Court, the Ld CIT(A) had disposed of the appeal filed by the assessee and further the revenue had challenged his order by filing appeal before ITAT. However, the assessee was directed by Hon’ble Delhi High Court to agitate the issue of tax liability u/s 115QA by filing appeal before Ld CIT(A) only. 4.13 In the instant case, first of all, the DDT liability is not forming part of assessment order passed u/s 143(3) of the Act. Further, the liability u/s 115-O can be challenged under the clause “an order against the assessee where the assessee denies his liability to be assessed under this Act” mentioned in sec.246A(1)(a) as held by Hon’ble Supreme Court. The above said clause is a separate clause unconnected with the clause “any order of assessment under sub-section (3) of section 143”. 4.14 Accordingly, we are of the view that the assessee cannot raise the additional ground relating to DDT liability in the present appeal. The assessee, if so advised, may prefer appeal in that regard before Ld CIT(A). Since the assessee had entertained bonafide belief that its grievance on DDT liability can be raised as additional ground before ITAT, it did not file appeal before Ld CIT(A). Accordingly, we direct the Ld CIT(A) to take a lenient view on the matter of condonation of delay, if the assessee prefers appeal before him on DDT liability of the year under consideration.
4.15 In view of the foregoing discussions, we reject the additional ground raised by the assessee on DDT liability.
12.7 We have heard the rival submissions, perused the materials available on record and gone through the orders of the authorities below. There are divergent views on this issue. The main contention of the assessee is that the assessee is in first time appeal before this Tribunal against the order of the assessment and the
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assessee is permitted to raise this as additional ground and issue may be remitted to the file of the A.O. for fresh consideration in view of the binding decision of the Tribunal cited by the assessee. In our opinion, the similar issue came up for consideration before this Tribunal in the case of M/s. Robert Bosch Engineering and Business Solutions Pvt. Ltd. in IT(TP)A No.608 & 445/Bang/2016 dated 2.2.2022. The Tribunal has held as under:- “We note that above admission of additional grounds is necessary for computing the correct income in the hands of assessee. It is also noted that no new facts are required to be looked into for adjudicating the same. These grounds are purely legal in nature. Therefore respectfully the decision of Hon’ble Supreme Court in case of National Thermal Power Co. Ltd. Vs. CIT reported in 229 ITR 383 and Jute Corporation of India report in 187 ITR 688, we admit the above ground.” ………………………………….. ………………………………… “Dividend Distribution Tax: We have already admitted this issue. First time this ground has been raised before us and Ld. AO had no occasion to examine this issue. In the interest of justice, we remit this issue to be decided in accordance with law.”
12.8 Further, the coordinate bench of Tribunal in the case of Texas Instruments (India) Pvt. Ltd. (supra) has failed to consider its earlier decision in the case of M/s. Robert Bosch Engineering and Business Solutions Pvt. Ltd. (supra). In the judgement of Hon’ble Supreme Court in the case of CIT Vs. Vegetable Products Ltd. 88 ITR 192, wherein it was held as follows:- “If two reasonable constructions of a taxing provisions are possible that construction which favour the assessee must be adopted.”
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Hence, we are inclined to follow the earlier order of the Tribunal in the case of M/s. Robert Bosch Engineering and Business Solutions Pvt. Ltd. (supra).
12.9 Accordingly, this ground of the appeal is remitted back to the file of the AO for fresh consideration in accordance with law.
In the result, the appeal filed by the assessee is partly allowed for statistical purposes.
Order pronounced in the open court on 23rd May, 2022
Sd/- Sd/- (George K. George) (Chandra Poojari) Judicial Member Accountant Member
Bangalore, Dated 23rd May, 2022. VG/SPS
Copy to:
The Applicant 2. The Respondent 3. The CIT 4. The CIT(A) 5. The DR, ITAT, Bangalore. 6. Guard file By order
Asst. Registrar, ITAT, Bangalore.