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Income Tax Appellate Tribunal, “J”, BENCH
Before: SHRI M.BALAGANESH, AM & SHRI RAM LAL NEGI, JM
आदेश / O R D E R PER M. BALAGANESH (A.M):
This appeal in A.Y.2010-11 arises out of the order by the ld. Commissioner of Income Tax (Appeals)-38, New Delhi in appeal No.60/2015-16 dated 26/12/2016 (ld. CIT(A) in short) against the order of assessment passed u/s.143(3)of the Income Tax Act, 1961 (hereinafter referred to as Act) dated by the ld. Dy. Commissioner of Income Tax, New Delhi (hereinafter referred to as ld. AO). 2. The assessee has raised the following grounds of appeal:-
M/s. WD Partners (India) Pvt. Ltd., 1. On the facts of the case and in law, the Learned CIT(A)-38 New Delhi, erred in not giving a sufficient opportunity to be heard and passing an ex-parte order even after the appellant attended the matter from time to time and informed the CIT(A) that the registered office and PAN had been shifted to Mumbai and requested for transfer of Jurisdiction to Mumbai.
On the facts of the case and in law, the Learned CIT(A) erred in confirming the addition of Rs. 77,23,796 made by the AO on an ad- hoc basis by computing the net profit rate after depreciation as 24.72%.
3. The Appellant craves leave to add to, amend or alter the above ground of appeal.
2.1. We find that assessee had raised a preliminary ground before us, one ground No.1 above that sufficient opportunity of hearing was not granted by the ld. CIT(A) to the assessee. In this regard, we find the facts noted by the ld. CIT(A) in his order as under:- “2.1 The first notice u/s 250 in ITNS 37 was given to appellant on 15/21.05.2014 by CIT (A)-XXI, New Delhi fixing hearing on 28.05.2014 at 11:30 AM, on which date no one appeared on behalf of appellant. Letter dated 27.05.2014 was received in office of CIT(A)-XXI, New Delhi on 29.05.2014 by which appellant sought an adjournment. By notice u/s 250 of CIT(A)-XI- New Delhi, the case was refixed on 17.10.2014 at 10:30 AM. By letter dated 20.10.2014 the case was transferred to CIT-(A) XX, New Delhi since the AO has applied provisions of Transfer Pricing. By notice u/s 250 dated 28.11.2014 CIT(A)-44, New Delhi fixed hearing on 22.01.2015 at 10:30 AM on which date case was partly heard and adjourned to 19.02.2015. There was no compliance on 19.02.2015. Notice u/s 250 dated 23.02.2015 was issued fixing hearing on 25.3.2015 at 10:30 AM, on which date notice u/s 250 was issued fixing hearing on 12.06,2015 at 10:30 AM. No one attended on 12.06.2015 and notice u/s 250 dated 07.07.2015 was issued for hearing on 17.07.2015 at 3:50 PM. Appellant again sought adjournment by letter dated 15.07.2015, received on 20.07.2015 and case was adjourned and the request of appellant to 19.08.2015 at 11:30 AM. No one attended on behalf of appellant on 19,08.2015. Notice u/s 250 was issued on 11.09.2015 for hearing on 24.09.2015 at 10:30 AM, on which date no one appeared on behalf of Appellant. On 06.11.2015 another notice u/s 250 was issued fixing hearing on 19.11.2015 at 10:30 AM in response to which an adjournment petition was filed by appellant. At the request of appellant case was adjourned by notice u/s 250 dated 27.01.2016 to M/s. WD Partners (India) Pvt. Ltd., 28.03.2016 at 10:30 AM. In the mean time, the case was transferred to CIT (A)-38 as stated in Para-1 above. This case was received in the office of the undersigned on 09.03.2016. Notice u/s 250(1) dated 23.03.2016 was issued by this office fixing hearing on 28.03.2016 at 11:00 AM on which date submission regarding transfer of PAN of appellant filed before CIT-9, New Delhi on 24.09.20.15 and before AO ITO Ward 27(2), New Delhi requesting PAN migration to Mumbai was filed. Letter dated 22.04.2016 received in this office on 28.04.2016 from appellant intimated this office that the appellant company has officially changed its Registered Office from New Delhi to Mumbai, Maharashtra with the Registrar of Companies enclosing a copy of said certificate and requesting to expedite the process of PAN migration to Mumbai. By letter dated 23.05.2016 this office informed appellant that any request for transfer of jurisdiction should be made to the administrative Principal Commissioner/Chief Commissioner of Income Tax as per relevant provisions of the IT Act 1961. Letter dated 27.09.2016 was issued by this office informing appellant that any request for transfer of jurisdiction should be made to the administrative Principal Commissioner/Chief Commissioner of Income Tax as per relevant provisions of the IT Act 1961. Notice u/s 250 of the IT Act 1961, dated 01.12.2016 was issued fixing hearing on 15.12.2016 at 10:30 AM, in response to which appellant by letter dated 06.12.2016 received in this office on 13.12.2016 intimated this office that its PAN has been transferred by Pr. CIT-9, New Delhi to Circle 11 (3)(2) Mumbai by order u/s 127 of the IT Act 1961 dated 12.09.2016. Final notice u/s 250 dated 15.12.2016 for hearing on 26.12.2016 at A 11:20 AM was issued and served by India Post on 19.12.2016. No one appeared on behalf of the appellant on 26.12,2016. However, no one has appeared till date in compliance to final notice dated 15.12.2016. It should be noted that this office cannot grant inordinately lengthy adjournments on varied pleas and is constrained to decide the appeal without further delay. 2.2 It is to be noted that the appellant has deliberately adopted dilatory tactics while representing this case. Despite being given numerous opportunities to represent its own case, appellant has refused to do so for reasons best known to itself Therefore, this case is being decided ex- parte. Nevertheless, in the interest of natural justice, the appeal is being decided on the basis of the assessment order and the material available on record since appellant has refused to cooperate during the appellate proceedings.”
2.2. From the aforesaid narration of facts, we find that assessee though had taken adjournment on various occasions, had valid reasons for doing so. We also find from the aforesaid narration that the ld. CIT(A) also was M/s. WD Partners (India) Pvt. Ltd., convinced by all the reasons given by the assessee for seeking adjournment on various occasions. Hence, the observation made by the ld. CIT(A) that assessee had deliberately adopted dilatory tactics is unwarranted.
We find that the assessee is engaged in the business of computer aided architecture and designing and drafting services. The assessee company is 100% subsidiary of WD Partners INC located in USA. The total transactions reflected in Form 3CEB towards export sales was Rs.4,24,80,886/-. Since, the total value of international transactions is less than Rs.5 Crores, there was no need for the ld. AO to refer the case to ld. Transfer Pricing Officer for determination of arm’s length price in respect of export sales carried out by the assessee. There is no dispute with regard to the list of international transactions reported by the assessee in the form 3CEB. 3.1. Before the ld. AO, assessee submitted that it had entered into a service agreement with WD Partners Inc. (Associated Enterprise – AE) and as per the terms of this agreement, assessee shall render computer aided design and engineering services to AE at a price which shall be equal to actual costs incurred by the assessee company like man power, depreciation, supplies, services etc., plus an additional amount equal to 10% of such costs. The copy of service agreement entered with AE was also filed before the ld. AO. The assessee also pleaded that its income is M/s. WD Partners (India) Pvt. Ltd., exempt u/s.10A of the Act and therefore, there was no motive to charge price less than the arm’s length price from its AE. 3.2. The ld. AO observed that the entire exports of the assessee was made to its AE and hence, the service agreement cannot be accepted as a concrete basis for arriving at the conclusion that cost plus 10% mark up would be at arm’s length. He observed that the net profit after depreciation declared by the assessee was 24.72%. When the assessee’s own net profit was 24.72%, the mark-up of costs for rendering the services to AE cannot be accepted at 10%. Hence, the ld. AO proceeded to make an adjustment to arm’s length price to the tune of Rs.77,23,796/- by observing as under:- “3.4 The Net Profit (after depreciation) rate being 24.72%, the Arm's Length Pricing of the international transactions with Associate Enterprise, will have to be at a mark-up less than the said NP Rate. Besides, since this NP rate is after accounting for 10% mark on exports which constitute 76% of the total income, the Arm's Length Pricing of international transactions i.e. Export Income is computed by adopting a mark-up of 30% of the costs relating to export sales i.e. Rs. 3,86,18,986/-, which works out to Rs. 1,1S,8S,696/-. Thus the Export Sales should be Rs. 5,02,04,682/- in place of Rs. 4,24,80,886/-. Hence, a TP adjustment of Rs. 77,23,796/- is hereby made to the assessee's international transactions with Associate Enterprise i.e. Exports of Services. As per the provisions of Section 92 C (4) read with its proviso, deduction u/s. IDA will not be available on this adjustment Penalty Proceeding u/s 271(l)(c) read with its explanations is separately initiated on this issue. Further, as the assessee has not conducted Transfer Study Report to determine the Arm's Length Pricing of international transactions with Associate Enterprise, Penalty Proceedings u/s. 271AA is initiated separately. (Addition : Rs. 77,23,796/-)
We find that the ld. CIT(A) had merely reproduced the submissions of the assessee and the contentions of the ld. AO and upheld the action M/s. WD Partners (India) Pvt. Ltd., of the ld. AO without giving any finding whatsoever on merits from his side. The relevant operating portion of the ld. CIT(A) is reproduced hereunder:- “4.4 The assessee's contentions have been held to be not tenable by the assessing officer on the reasoning stated in the assessment order and hence he has computed the Net Profit (after depreciation) rate at 24.72%. Findings and reasons; for decision 4,1 The only ground of appeal is general in nature, cryptic and is not accompanied by a separate statement of fact. Not only has appellant not prosecuted the appeal, it has deliberately adopted dilatory tactics while representing this case despite being given numerous opportunities to do so. Under the circumstances, this ground of appeal is dismissed.”
4.1. Ld. AR referred to the relevant details of the paper book referring to the written submissions filed during the course of hearing before the ld. CIT(A) wherein the entire facts together with necessary details were duly furnished before the ld. CIT(A). In the said written submissions, the most appropriate method adopted by the assessee i.e., transactional net margin method (TNMM) was also duly mentioned. The ld. AR drew the attention to pages 20 to 32 of the paper book containing month wise details of various costs incurred by the assessee for rendering services to its AE for the period April 2009 to 31/03/2010 together with the mark-up of 10% thereon to arrive at the total export sales of Rs.4,24,80,886/-. He stated that these submissions were not at all considered by the ld. CIT(A) while dismissing the appeal of the assessee. 4.2. We find lot of force in the argument of the ld. AR that the order of the ld. CIT(A) upholding the action of the ld. AO was done without any M/s. WD Partners (India) Pvt. Ltd., finding of merits thereof. We also find that the ld. CIT(A) had made an observation that the assessee had not filed the statement of facts before him while filing the appeal in form No.35. But from the perusal of the documents placed on record, we find that the assessee had indeed enclosed statement of facts and grounds of appeal in brief before the ld. CIT(A). Moreover, we find that the ld. CIT(A) had not issued any defect memo in this regard to the assessee. Hence, the observation of ld. CIT(A) in this regard is totally unwarranted. 4.3. We find from the perusal of the assessment order that there is no mention about examination of most appropriate method adopted by the assessee for benchmarking its international transaction in the form of export sales to its AE. 4.4. In view of the aforesaid findings in the facts and circumstances of the case and with the consent of both the parties before us, we deem it fit and appropriate, in the interest of justice and fair play, to remand this appeal to the file of the ld. AO for denovo adjudication for determination of arm’s length price in respect of international transaction in the form of export sales made to AE by the assessee, in accordance with law. The assessee is at liberty to furnish additional evidences, if any, either in the form of transfer pricing study report or any other evidences, if they so desire, in support of its contentions. Accordingly, the grounds raised by the assessee are allowed for statistical purposes.
M/s. WD Partners (India) Pvt. Ltd., 5. In the result, appeal of the assessee is allowed for statistical purposes. Order pronounced in the open court on this 24/04/2019 Sd/- Sd/- (RAM LAL NEGI) (M.BALAGANESH) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai; Dated 24/04/2019 Karuna Sr.PS Copy of the Order forwarded to :
1. 1. The Appellant 2. The Respondent.
3. The CIT(A), Mumbai.