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Income Tax Appellate Tribunal, BANGALORE BENCH ‘A’, BANGALORE
Before: SHRI A. K. GARODIA & SHRI VIJAY PAL RAO
O R D E R PER SHRI A.K.GARODIA, AM These are cross appeals filed by the assessee and the revenue which are directed against the order of the ld. CIT(A)-IV, Bangalore dated 31-01- 2012 for the assessment years : 2007-08.
The grounds raised by the assessee are as under
The Order of the learned Commissioner of Income Tax (Appeals) - IV to the extent prejudicial to the appellant is bad in law.
2. The learned Assessing Officer has erred in making a reference to Transfer Pricing Officer for determining arm's length price without demonstrating as to why it was necessary and expedient to do so. The learned Commissioner
2 IT(TP)A Nos.436 & 460(B)2012 of Income Tax (Appeals) - IV has erred in confirming the action of the Assessing officer.
3. The learned Assessing Officer, learned Transfer Pricing Officer and Commissioner of Income Tax (Appeals) IV - erred in a. passing the order without demonstrating that appellant had motive of tax evasion. b. not appreciating that the charging or computation provision relating to income under the head "Profits & Gains of Business or Profession" do not refer to or include the amounts computed under Chapter X and therefore addition made under Chapter X is bad in law. c. adopting a flawed process for issuing notices u1s 133(6) and relying on the same without providing complete information or an opportunity to cross examine the companies concerned.
4. The learned Assessing Officer, learned Transfer Pricing Officer and Commissioner of Income Tax (Appeals) - IV have erred in a. computing the arm's length price based on the data for the Financial Year 2006-07 of the comparables, which was not available when the appellant undertook transfer pricing documentation and reporting obligations; b. rejecting the comparables selected by the appellant on unjustifiable grounds; c. ignoring the additional comparables proposed by the appellant without giving any cogent reasons and on unjustifiable grounds; and d. rejecting the transfer pricing analysis undertaken by the appellant on unjustifiable grounds.
5. The learned Assessing Officer, learned Transfer Pricing Officer and Commissioner of Income Tax (Appeals) - IV have erred in: a. Performing fresh transfer pricing analysis and adopting inappropriate filters in doing fresh transfer pricing analysis. b. adopting companies as comparables even though they are not comparable to the appellant. c. Not appreciating that the law does not compel adopting many (or any minimum) companies as comparables and that the appellant could justify the price paid/charged on the basis of anyone comparable only.
d. not making proper adjustment for enterprise level and transactional level differences between the appellant and the comparable companies.
6. The learned Commissioner of Income Tax (Appeals) - IV
3 IT(TP)A Nos.436 & 460(B)2012 has erred in a. enhancing the average working capital adjusted operating margin from 25.40% to 27.40 without giving an opportunity of showing cause against such enhancement to the appellant. b. changing the filters applied by the TPO without giving an opportunity of being heard to the appellant. c. rejecting the companies having offshore revenues less than 75% of the total software development revenues without giving an opportunity to the appellant and without demonstrating the appropriateness of this filter. d. Rejecting companies having related party transactions without appreciating that insignificant related party transaction cannot have significant influence on profitability of comparable companies and that such companies at least ought to be retained as comparables. e. confirming companies as comparables ignoring the submissions of the appellant. f. rejecting companies as comparables on the ground that margin of these companies is abnormally low, although such companies satisfied all the chosen filters.
PRAYER 7. On an overall consideration of the facts of the case, and the law applicable, the ALP as determined by the Transfer Pricing Officer, as adopted by the Assessing Officer and as modified by the CIT(A) being not correct is to be quashed and the figures as determined and returned by the appellant being correct are to be accepted The appellant submits that each of the above grounds/ sub-grounds are independent and without prejudice to one another.
The appellant craves leave to add, alter, vary, omit, substitute or amend the above grounds of appeal, at any time before or at, the time of hearing, of the appeal, so as to enable the Income-tax Appellate Tribunal to decide the appeals according to law.
The learned Assessing Officer has erred in levying interest under section 234B and under section 234D”.
The grounds raised by the revenue in its appeal are as under;
“1.The order of the Learned CIT(A) in so far as it relates to the following grounds is opposed to law and facts of the case.
2 The CIT(A) erred in directing the Assessing Officer to exclude expenditure on communication and travelling expenses of Rs.7,42,287/- from total turnover as well whereas such exclusion is permitted to arrive at the 4 IT(TP)A Nos.436 & 460(B)2012 export turnover only as per the definitions given in Sec.10A of the Act and total turnover has not been defined in the section.
3. The learned CIT(A) erred in holding that the size & turnover of the company are deciding factors for treating a company as a comparable, and accordingly erred in excluding iGate Global Solutions Ltd., Flextronics Software System Ltd., M/s Infosys Technologies Ltd., Mindtree Ltd., Persistent Systems Ltd., Sasken Communication Technologies Ltd., Tata Elxsi and Wipro Ltd., as comparables.
4. On the facts and in the circumstances of the case, the Id. CIT(A) erred in holding that the TPO erred in not excluding com parables having any related party transactions not only those with more than 25% related party transactions on sales.
5. The learned CIT(A) erred in law by excluding companies which have profit margins less than the profit margin of the tested party.
6. On the fact and in the circumstances of the case, the Id. CIT(A) erred in holding that M/s Celestial Labs and Flextronics Software Systems Ltd., cannot be taken as comparable, being functionally different.
7. The learned CIT(A) erred in holding that the assessee is eligible for a standard deduction of 5% from the Arm's Length Price (ALP) under the proviso to Section 92C(2) of the IT.Act, 1961.
For these and other grounds that may be urged at the time of hearing, it is prayed that the order of the CIT(A) in so far as it relates to the above grounds may be reversed and that of the Assessing Officer may be restored.
The appellant craves leave to add, alter, amend and/or delete any of the grounds mentioned above”.
These appeals were fixed for hearing on several occasions i.e. on 17/03/2015,13/07/2015 and 28/07/2015 but none appeared on behalf of the assessee on any of these dates. Since one appeal has been filed by the 5 IT(TP)A Nos.436 & 460(B)2012 revenue, the Bench directed on 28/07/2016 that the notice of hearing for the next date should be served on the assessee through the ld. DR of the revenue and the date of hearing was fixed on 09/06/2016. On this date also, none appeared on behalf of the assessee and the ld. DR of the revenue also could not furnish any evidence regarding service of the notice on the assessee. However, for the purpose of granting one more opportunity to the ld. DR for service of notice, hearing was adjourned. The next date of hearing was fixed on 12-07-2016 and the notice of hearing was again issued through ld. DR of the revenue. On 12-07-2016 also, none appeared on behalf of the assessee and the ld. DR of the revenue also could not produce any evidence to show that the notice of hearing was served on the assessee.
Since the assessee has not appeared on so many dates and the revenue is not in a position to serve the notice on the assessee, we feel it proper that under these facts, the appeal of the assessee should be decided ex-parte qua-the assessee and regarding revenue’s appeal, we feel it proper that the same should be dismissed because when the revenue is not in a position to trace the assessee and serve the notice on the assessee, even if the appeal of the revenue is allowed, the revenue cannot recover the taxes from the assessee and therefore, it will be a futile exercise. Hence, we dismiss the appeal of the revenue for its failure to serve the notice on the assessee. But if the revenue is in a position to serve the notice on the assessee within the time allowed, as per law for filing M.A. u/s 254(2) of the IT Act, then the revenue may approach the Tribunal for re-call of this order in respect of the revenue’s appeal. With these observations, the appeal of the revenue is dismissed.
6 IT(TP)A Nos.436 & 460(B)2012
Now we take up the appeal of the assessee.
The ld DR of the revenue supported the order of the ld. CIT(A) in respect of issues raised by the assessee in its appeal.
We have considered the submission of the ld. DR of the revenue and have gone through the orders of the authorities below. We find no infirmity in the order of the ld. CIT(A) on any of the issues raised in the appeal of the assessee and hence, we decline to interfere with the order of the ld. CIT(A) on any of these issues which are raised by the assessee in its appeal.
In the result, the appeal of the assessee is also dismissed.
In the combined result, the appeal of the revenue and of the assessee are dismissed.
Order pronounced in the open court on the date mentioned on the caption page.