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Income Tax Appellate Tribunal, BANGALORE BENCH ‘A’, BANGALORE
Before: SHRI A. K. GARODIA & SHRI VIJAY PAL RAO
which are directed against the order of the ld. CIT(A)-IV, Bangalore dated 09-10-2013 for the assessment years : 2004-05 respectively. & 1661(B)/2012 2. First we take up the appeal of the revenue. 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 is prejudicial to the interest of revenue, is opposed to law and facts and circumstances of the case.
2 The CIT(A) erred in directing the Assessing Officer to follow the ratio laid down by the Hon’ble Court in the case of Yokogawa India Ltd., 341 ITR 385(Kar.) and allow the claim of the assessee of the deduction u/s 10A without setting off the losses of Rs.59,43,230/- of undertaking no.2 with the profits of the undertaking no.1 without appreciating the fact that the decision of the Karnataka High Court has not reached finality as an SLP has been preferred against the said decision.
3. The CIT(A) erred in directing the AO to allow the claim of the assessee u/s 10A without setting off the current year loss of the other units and the brought forward losses by relying on the decision of the jurisdictional High Court in the case of Yokogawa India Ltd., without appreciating the fact that the relief allowed is a deduction and not an exclusion from the total income which is also claimed by the Board’s Circular No.7/DV/2013?.
4. For these and other grounds that may be urged at the time of hearing, it is humbly prayed that the order of the CIT(A) be reversed and that of the Assessing Officer may be restored.
Learned DR of the revenue supported the assessment order, whereas the ld. AR of the assessee supported the order of the ld. CIT(A).
He also submitted that this issue is covered in favour of the assessee by the judgment of the Hon’ble Karnataka High Court rendered in the case of CIT Vs Yokogawa India Ltd., 341 ITR 385(Kar.). He has also submitted that on pages 430 to 446 is a Tribunal order rendered in the case of M/s Mindteck (India) Ltd. in dated 04- & 1661(B)/2012 07-2014 and in this case, the Tribunal had followed the judgment of the Hon’ble Karnataka High Court rendered in the case of M/s Yokogawa India Ltd., (Supra) and therefore, in the present case also, this issue should be decided in favour of the assessee.
We have considered rival submissions. We find that the issue involved in the appeal of the revenue is whether deduction u/s 10A of the IT Act, should be computed without setting off the losses of undertaking no.2 with the profits of undertaking no.1. In the case of M/s Yokogawa India Ltd., (Supra) also, the issue involved was similar.
In that case, it was held by the Hon’ble Karnataka High Court that deduction/exemption u/s 10A has to be allowed without setting off of brought forward unabsorbed losses and depreciation from earlier assessment year or current assessment year either in the case of non STP units or in the case of very same undertaking. Since no difference in facts could be pointed out by the learned DR of the revenue, we decline to interfere with the order of the ld. CIT(A) on this issue by respectfully following this judgment of the Hon’ble Karnataka High Court rendered in the case of CIT Vs M/s Yokogawa India Ltd., (Supra).
In the result, the appeal of the revenue is dismissed.
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.
& 1661(B)/2012 2.The learned Deputy Commissioner of Income Tax, Circle-I 1(3), Bangalore (herein after referred as "Assessing Officer"), learned Additional Director of Income Tax (Transfer Pricing) - I (herein after referred as "Transfer Pricing Officer"), Bangalore and the learned Commissioner of Income Tax (Appeals) - IV (collectively referred as "lower authorities") have erred in passing the Orders in the manner passed by them. The Orders being bad in law are liable to be quashed.
3. 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 or how it was necessary and expedient to do so. The learned Commissioner of Income Tax (Appeals) - IV has erred in confirming the action of the Assessing officer.
4. The lower authorities have 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 the addition made under Chapter X is bad in law.
5. The lower authorities have erred in a. Computing the arm's length price based on the data for the Financial Year 2003-04 of the comparables, which was not available when the appellant undertook transfer pricing documentation and reporting obligations;
b. Rejecting the cost plus method adopted by the appellant and adopting transactional net margin method as the most appropriate method. c. Rejecting the comparables selected by the appellant on unjustifiable grounds; d. Ignoring the additional comparables proposed by the appellant during the course of appeal proceedings; and e. Rejecting the transfer pricing analysis undertaken by the appellant on unjustifiable grounds.
6.The lower authorities have erred in & 1661(B)/2012 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. e. Not granting adjustment towards under utilisation of capacity/manpower.
7.The lower authorities have erred in not appreciating that interest u/s 234B and 234D levied in the assessment order is not so leviable based upon the facts and circumstances of the case.
PRAYER
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 confirmed 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.
9. Interest levied u/s 234B and 234D be deleted.
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 appellant prays accordingly.
It was submitted by the ld. AR of the assessee that as per the order of the TPO, the TP adjustment has been made only in respect of ITES segment. & 1661(B)/2012 He has drawn our attention to para-9.4 of the order passed by the TPO and submitted that only three comparables are selected by the TPO being….1. M/s Vishal Information Tech Ltd., 2. M/s Tricom India Ltd., and 3) M/s Fortune Infotech Ltd. Thereafter, he has drawn our attention to the Tribunal order rendered in the case of M/s 24/7Customer.ComPvt.Ltd., Vs DCIT in dated 09-11-2012, copy available on pages 340 to 372 of the paper book. In particular, our attention was drawn to page no.361 of the paper book being para no.17.3 and it was pointed out that as per this para, it was held by the Tribunal in that case that the first comparable i.e. M/s Vishal Information Technologies Ltd. should be excluded from the list of comparables.
Thereafter, he has drawn our attention to page no.355 of the paper book and in particular para-15.3.3 of the Tribunal order as per which it was held by the Tribunal that M/s Tricom India Ltd. should also be excluded from the list of comparables. Then, he has drawn our attention to para 15.3.4 on page no.356 and pointed out that as per this para, it was held by the Tribunal that this company M/s Fortune InfoTech Ltd., has unique technology and therefore, cannot be taken as a comparable. He submitted that since all the three comparables selected by the TPO are required to be excluded as per this Tribunal order, the TP study undertaken by the assessee should be accepted.
8. In reply, it was submitted by the ld. DR of the revenue that if it is held that all the comparables selected by the TPO are to be excluded then the matter has to be restored back to the file of the TPO for a fresh decision after considering other suitable comparables which may be selected by the TPO or may be brought on record by the assessee because as per the TP study, assessee has adopted cost plus method and the TPO has selected TNMM as most appropriate method. Although, the assessee has furnished a Tribunal & 1661(B)/2012 order based on which the assessee is requesting for exclusion of all the three comparables selected by the TPO but this could not be established by the assessee that cost plus method is most appropriate method as compared to TNMM. In the absence of that, the TP study of the assessee cannot be adopted because the TPO has considered TNMM as the most appropriate method and no defect would be pointed out by the ld. AR of the assessee in the same. He also submitted that the matter should be restored back to the file of the TPO for a fresh decision on all aspects including this aspect as to whether the assessee is satisfying employees cost filter of 25% for this segment i.e. ITES segment.
We have considered rival submissions. We are of the considered opinion, that if the assessee’s claim is accepted that all the three comparables selected by the TPO are to be excluded then the matter has to go back to the file of the TPO for fresh decision because the assessee could not establish that TNMM method is not the most appropriate method in the present case. Hence, we feel it proper that the entire matter involved in the appeal of the assessee should be restored back to the file of the TPO/AO for fresh decision and accordingly, we set aside the order of the ld. CIT(A) on TP issue and restore the entire matter back to the file of the AO/TPO for fresh decision with a direction that he should examine the facts of the present case and also the facts in the case of 24/7 Customer.Com Pvt. Ltd. (Supra) and if the facts in that case and in the present case are similar, then three comparables selected by the TPO in the present case are to be excluded because, it was so held by the Tribunal in the case of 24/7 Customer.Com Pvt. Ltd.(Supra) and in that situation, the TPO has to find out other comparables and the assessee can also bring on record other comparables and the TPO should pass necessary order as per law after providing adequate opportunity of being heard to the assessee. & 1661(B)/2012 10. In the result, appeal of the assessee stands allowed for statistical purposes.
In the combined result, the appeal of the revenue is dismissed and the appeal of the assessee is allowed for statistical purposes.
Order pronounced in the open court on the date mentioned on the caption page.