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Income Tax Appellate Tribunal, BANGALORE BENCH ‘B’, BANGALORE
Before: SHRI A. K. GARODIA & SMT ASHA VIJAYARAGHAVAN
O R D E R PER SHRI A.K.GARODIA, AM
This appeal is filed by the assessee and it is directed against the assessment order passed on 01.10.2010 u/s 143 (3) r.w.s. 144 C of the IT Act, 1961 for A. Y. 2006-07.
The Grounds raised by the assessee are as under:-
“The grounds mentioned herein are without prejudice to one another. General grounds 1.That the order of the learned Deputy Commissioner of Income Tax, Large Tax Payers Unit, Bangalore ('Assessing Officer' or 'AO') to the extent prejudicial to the Appellant, is bad in law and liable to be quashed. 2.That the Appellant craves leave to add to and/or to alter, amend, rescind, modify the grounds herein above or produce further documents before or at the time of hearing of this Appeal.
Transfer Pricing Related 3.That the learned DRP erred in not appreciating the fact that the Appellant had prepared the TP documentation bona fide and in good faith in compliance with the Act and Income tax Rules, 1962 ('the Rules') and selected the comparable uncontrolled companies based on the detailed Functional Asset and Risk ('FAR') analysis performed with due diligence, following a methodical and consistent benchmarking process in respect of various international transactions with associated enterprises. 4.That the learned DRP erred both in facts and law in making an adjustment (enhancement in the manufacturing segment) to the transfer price of the Appellant by Rs. 262,599,834 holding that the international transactions do not satisfy the arm's length principle envisaged under the Act and in doing so, grossly erred in: (a) Not considering the Appellant's contentions/arguments/evidentiary data put forward during the course of the assessment proceedings, and in not appreciating the fact that the reasons for the low profitability in the manufacturing segment were due to business reasons and not arising from the international transactions undertaken by the Appellant with its Associated Enterprises. (b) Rejecting the profit level indicator, as selected by the Appellant under the Transactional Net Margin Method, for arbitrary reasons, and thereby going against general Transfer Pricing principles. (c) Applying multiple year/prior year data for comparable companies while determining arm's length price. (d) Using data of com parables as at the time of assessment proceedings, instead of that available as on the date of preparing the TP documentation for comparable companies while determining arm's length price. (e) That the learned DRP erred in including companies in the comparability analysis which are different from the Appellant in functions, asset base and risk profile. (f) That the learned DRP erred in rejecting companies similar to the Appellant in functions, asset base and risk profile while performing comparability analysis. 5.That the learned DRP erred in arbitrarily adopting and imposing filters for arriving at the 9 comparable companies in the manufacturing segment.
6. That the learned DRP erred in making an adjustment to the appellant’s entire sales, which included even third party sales and thereby going against settled principles of transfer pricing that an analysis of determining the arm’s length price should be restricted to the related party transactions undertaken by the appellant with its Associated Enterprises and not to the company as a whole.
7. That the ld.DRP erred in concluding that the amended proviso to sec.92C(2) of the Act under Finance (No.2) Act, 2009 would be applicable for assessment year 2006-07 and in not appreciating that even if the arm’s length price fails outside the 5% tolerance aband the adjustment would have to be reckoned after allowing the benefit of +/-5% variation as provided in proviso to Sec.92C(2) of the Act, while determining the arm’s length price. Other than Transfer pricing related 8. (a) That the ld.AO erred in treating software expenses amounting to Rs.4,116,495/- as capital in nature. (b) That the ld. AO erred in proposing to disallow software expenditure amounting to Rs.1,646,598/- (after allowing depreciation at the rate of 60% of Rs.2,469.897 on total expenses of Rs.4,116,495/-) in the computation of total income 9. That the ld., AO erred in not allowing the deduction claimed under Chapter VIA amounting to Rs.100.000 10. (a) That the learned AO erred in computing the interest under section 234B without considering the provisions of this section. (b) That the AO erred in adjusting the interest due under section 234C against the self assessment tax in arriving at the tax liability on which interest is to be computed under section 234B.
The ld. AO erred in not considering the extension in due for payment of the fourth instalment of advance tax and consequently, computing higher interest under section 234C”.
It is submitted by the ld.AR of the assessee that ground no.1,2,3,4c,4d and 7 are general and ground no.4b is not pressed and ground no.11 is consequential. Accordingly, ground no.4b is rejected as not pressed and it is held that no separate adjudication is called for regarding general and consequential grounds noted above.
Regarding remaining ground no.4a,4e,4f and 5 to 7 in respect of TP issues and ground no.8 & 9 in respect of Corporate Tax issues, it is submitted by the ld. AR of the assessee that these issues should be restored back to the file of the AO/TPO/DRP because the order of DRP is very cryptic and without any reasoning.
The ld. DR of the revenue supported the orders of the authorities below.
We have considered the rival submissions. We find that on page-6 & 7 of DRP’ order, the DRP has noted various facts and various objections of the assessee and thereafter, the issue was decided by the DRP in one line which is re-produced herein below;
“ The panel is of the view that the filters adopted by the TPO are very reasonable and the objections of the assessee cannot be accepted”.
From the above finding of the DRP, it is very clear that the order of the DRP is very cryptic and without any reasoning and therefore, we find force in the submissions of the ld. AR of the assessee that the entire issue should be restored back to the file of the AO/TPO/DRP for fresh decision.
Hence, we set aside the order of the AO and restore the matter back to his file for a fresh decision after allowing adequate opportunity of being heard to the assessee.
In view of our above decision, no adjudication is called for on merit of any of the issues involved in this appeal.
In the result, the appeal of the assessee is partly allowed for statistical purposes.
Order pronounced in the open court on the date mentioned on the caption page.