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Income Tax Appellate Tribunal, BANGALORE BENCH ‘A’, BANGALORE
Before: SHRI A. K. GARODIA & SHRI VIJAY PAL RAO
PER SHRI A. K. GARODIA, AM:
These are cross appeals filed by the assessee and the revenue which are directed against the directions of the learned DRP, Bangalore dated 21-08-2011 and 10-12- 2014 for the assessment years : 2007-08 and 2010-11 respectively.
First we take up assessee’s appeal for the assessment year 2007-08 in IT(TP)A No.1033(B)/2011. The grounds raised by the assessee are as under;
“ Based on the facts and circumstances of the case, Marvell India Private Limited (hereinafter referred to as "the Appellant"), respectfully submits in respect of the order passed by the learned Assessing Officer ("AO"), Assistant Commissioner of Income -tax, Circle 12(1), Bangalore under section 143(3) read with section 144C of the Income-tax Act, 1961 (hereinafter referred to as the "Act") on the following grounds:
TRANSFER PRICING 1.The learned AO based on the directions received from Hon'ble Dispute Resolution Panel ("DRP") erred in law and on facts, in upholding the adjustment to the transfer price proposed by the learned Transfer Pricing Officer ("TPO").
2.The learned AO/DRP/TPO erred in law and on facts by making an addition of Rs 10,624,431 to the taxable income of the Appellant and in holding that the transactions between the Appellant and its associated enterprise with respect to software research and development services were not at arm's length.
3.The learned AO/DRP/TPO erred in law and on facts by failing to appreciate the fact that associated enterprise of the Appellant incurred losses during the year under contention. This further substantiates the fact that the Appellant has not shifted profits outside India.
4.The learned AO/DRP/TPO erred in law and on facts by failing to appreciate the Appellant's commercial judgment about the application if arm's length principle which is tied to the business realities.
5.The learned AO/DRPITPO erred in law and on facts by failing to appreciate that Transfer Pricing is an anti avoidance mechanism. In the instant case, the Appellant is registered under the Software Technology Parks of India ("STPI") scheme and has availed tax benefits under section 1 OA of the Act 6.The learned AO/DRP/TPO erred in law and on facts by failing to appreciate that the Appellant has no incentive to shift profits outside India.
7.The learned AO/DRP/TPO erred in law and on facts by not appreciating that the Appellant is a captive service provider, carrying out limited functions and assuming limited risks.
8.The learned AOIDRPITPO erred in law and on facts by rejecting the Transfer Pricing documentation prepared by the Appellant in the manner as required under the provisions of the Act and Income-tax Rules, 1962 ("the Rules").
9.The learned AO/DRPITPO erred in law by conducting a fresh search for comparable companies and by rejecting the search process carried out by the Appellant, without giving adequate reasons for the rejection.
10.The learned AO/DRP/TPO erred in law and on facts by rejecting the filters adopted by the assessee with new filters based on TPO’s own judgment and perception.
11. The learned AOIDRPITPO erred in law and on facts by rejecting certain comparables considered by the Appellant, on grounds of functional dissimilarity and by applying filters such as onsite revenue, employee cost, export revenue, different year ending, declining revenue, turnover, revenue from relevant segment less than 75 percent of total revenue.
12. The learned AOIDRPITPO erred in law and on facts by rejecting certain comparables considered by the Appellant, on grounds of functional dissimilarity and by applying filters such as onsite revenue, employee cost, export revenue, different year ending, declining revenue, turnover, revenue from relevant segment less than 75 percent of total revenue.
12. The learned AO/DRPITPO erred in law and on facts by not following a consistent approach while applying said filters and adding certain companies as comparables, which fail qualitative and I or quantitative filters, adopted by TPO himself.
13. The learned AO/DRPITPO erred in law and on facts in not accepting consolidated financial statements for potentially comparable companies.
14. The learned AO/DRP/TPO erred in law and on facts by including large companies such as Infosys Technologies Limited and Wipro Limited as comparables. ITPO ered in law and on fa
15. The learned AO/DRPITPO erred by concluding that the data used by the Appellant for the Transfer Pricing study was not contemporaneous.
16 The learned AO/DRPITPO erred in law and on facts by rejecting usage of multiple year data by the Appellant and using only the current year (i.e. financial year 2006-07) data for computation of arm's length price.
17. The learned AO/DRPITPO erred by ignoring the provisions of Rule 10 of the Rules, international commentaries and judicial pronouncements, which advocate usage of multiple year data of comparable companies for the purpose of determination of the arm's length price.
18. The learned AO/DRPITPO erred in law and on facts by not taking into consideration foreign exchange fluctuation gain/loss and provision for doubtful debts while computing the operating margin of the comparable companies and the Appellant.
19 The learned AO/DRPITPO erred in law and on facts by not providing a relief on account of differences in risk profile of the Appellant and the potential comparables.
20. The learned AO/DRP/TPO erred in law and on facts by including certain companies as comparable and in rejecting certain comparables considered by Appellant, based on the information gathered under section 133(6) of the Act, though such information was not available in public domain to the Appellant at the time of conducting its own Transfer Pricing study.
21. The learned AO/DRPITPO erred in law and on facts, in making several observations and findings which are based on. incorrect interpretation of law and contrary to facts of the case.
22. The learned AO/DRPITPO erred, in law and on facts, by not providing the benefit of 5 percent range to the Appellant as envisaged under proviso to Section 92C(2) of the Act.
The learned collegium of Commissioners comprising the DRP erred in law and on facts, by not adhering to the procedure laid down in section 144C(5), 144C(6) and 144C(7) of the Act.
The learned AO erred in initiating penalty proceedings under section 271 (1 )(c) of the Act.
CORPORATE TAX
The learned AO/DRP erred in re-computing the relief under section 10A at Rs 2,057,394 as against Rs 2,124,078 claimed by Appellant in its return of income for its STPI Unit in Pune , thereby making an addition of Rs 66,684 to the returned income.
The learned AO/DRP erred in law in reducing an amount of INR 357,922 pertaining to 5 IT(TP)A Nos.1033(B)/11, 536(B)2015 and 431(B)/15 telecommunication expenses from the export turnover for the purposes of computing section 10A relief on the basis that Appellant had included the same in the "export turnover" and that the same represents expenses attributable to delivery of computer software outside India as envisaged in the proviso to Explanation 2(iv) of section 10A of the Act.
Without prejudice to the above ground, that the telecommunication expenses ought not to be excluded from the export turnover, the learned AO erred in fact and in law in reducing the entire telecommunication expenses, when said expenses were incurred by Appellant for its entire operations including for downloading data, uploading data.
The learned AO/DRP erred in law and on facts in not appreciating that the assessee does not provide any technical services outside India and instead holding that delivery of computer software is in the nature of rendering "technical services" as defined in Explanation 2 to Section 9(1 )(vii) of the Act, thereby disregarding various jurisdictional Tribunal decisions on the issue.
Without prejudice, the learned AOIDRP erred in law and on facts in reducing the abovementioned expenses of Rs 357,922 only from the export turnover and not from the total turnover for the purposes of computing section 10A relief, thereby disregarding various jurisdictional Tribunal and other decisions on the issue.
The learned AO/DRP also erred in not relying on the decision of the Special Bench of the Chennai Tribunal in the case of Sak Soft Limited v. ITO (ITA No. 691 & 1953/Mds/2007) wherein it has been held that if the telecommunication, freight and insurance expenses are reduced from the export turnover then the same would also have to be reduced from the total turnover in order to compute the deduction under section 10A.
The learned AO has erred, in law and on facts, in charging interest under section 234B and 234C of the Act.
The above grounds are independent and without prejudice to each other.
For the above and any other grounds, which may be advanced at the time of hearing, your Appellant prays that the order of the learned AO may be please set aside .
The Appellant prays for leave to add, alter, amend and / or modify any of the grounds of appeal at or before the hearing of the appeal.
4. It was submitted by the ld. AR of the assessee that on TP issue, the assessee has raised 24 grounds, but the assessee is pressing only ground 6 IT(TP)A Nos.1033(B)/11, 536(B)2015 and 431(B)/15 nos.9,12,14 and 22 and the remaining grounds are not pressed.
Accordingly, the remaining grounds are rejected, as not pressed.
Regarding these four grounds which are being pressed by the ld. AR of the assessee, it was submitted that that out of 28 comparables which are considered by the TPO as can be seen on pages 157 to 158 of the paper book, i.e. page no.2 & 3 of the TPO’s order, it was pointed out that the international transaction in dispute is mainly regarding software development services of Rs.15,03,62,370/-and the percentage of operating profit on operating cost of the assessee is noted by the TPO at 14.64% and the mean margin of 26 comparables is noted by the TPO at 25.14% before working capital adjustment and 22.74% after working capital adjustment.
Thereafter, he submitted that in case of Hewlett Packard (Ind.) Software Operation Ltd., in dated 09-03-2016 for the same assessment year, copy available in compilation of Case Laws paper book also, the same 26 comparables were adopted by the TPO and as per para 14 of the Tribunal’s order rendered in the case of M/s Hewlet Packard (Ind.) Software Operation Ltd., (Supra), the Tribunal has directed to exclude 12 comparables i.e. 1) M/s Avani Cimcon Tech.Ltd., 2) M/s Celestial Labs Ltd., 3)E-Zest Solutions Ltd., 4)Flextronics Software Systems Ltd (Seg.) 5)M/s Helios & Mathesaon Inf.Tech.Ltd.,6) M/s Infosys Tech.Ltd., 7) M/s Ishir Infotech Ltd., 8) M/s Kals Information Systems Ltd (Seg.) 9) Lucid Software Ltd.,10) M/s Megasoft Ltd., 11) M/s Persistent Systems Ltd., and 12) M/s Wipro Ltd.,(Seg.) He further submitted that as
per the Tribunal’s order rendered in the case of M/s Meritor LVS India (P)
7 IT(TP)A Nos.1033(B)/11, 536(B)2015 and 431(B)/15 Ltd., in IT(TP)A No.1231(Bang)/2011 for the same assessment year, copy available in compilation of case laws also, the same 26 comparables were considered by the TPO and in addition to these 12 comparables which are excluded as per the Tribunal’s order in the case of M/s Hewlet Packard (Ind.) Software Operation Ltd., (Supra), three more comparables were directed to be excluded in this case, i.e. 1) M/s Acel Transmatics Ltd (Seg.)
2) M/s Tata Elxsi Ltd.,(Seg.) and 3) Thirdware Solutions Ltd. He submitted that in these two cases also, the assessee company was engaged in the software development services as in the present case and therefore, these two Tribunal orders are squarely applicable to the present case and hence, these 15 comparables, as per these two Tribunal orders should be excluded in the present case.
The ld. DR of the revenue supported the orders of the authorities below.
We have considered the rival submissions. We find that in the present case, it is noted by the TPO on page no.2 & 3 of his order that the assessee company is engaged in rendering services to the AE relating to designing of integrated circuits and the testing of integrated circuits along with customer support. It is also noted by the TPO that the international transactions are mainly of Rs.15,03,62,370/-for software services apart from re-imbursement of expenses of Rs.21.45 lacs and 22.61 lacs. In the case of M/s Hewlet Packard (Ind.) Software Operation Ltd.(Supra) also, the international transaction included mainly the services rendered as software
8 IT(TP)A Nos.1033(B)/11, 536(B)2015 and 431(B)/15 development services of Rs.5854.51 lacks. Similarly, in the case of M/s Meritor LVS India (P) Ltd., (Supra) also, it was noted by the Tribunal in para-5 of the Tribunal’s order that final TP adjustment recommended by the TPO was only on the software development services(Seg.). Hence, in our considered opinion, these two Tribunal orders are squarely applicable in the present case because ld. DR of the revenue failed to point out any difference in facts in the present case and in these two cases. As per para-14 of the Tribunal order in the case of M/s Hewlet Packard (Ind.)
Software Operation Ltd. (Supra), the Tribunal held that 11 comparables i.e. M/s Avani Cimcon Technologies Ltd., 2) M/s Celestial Labs Ltd., 3) M/s E- Zest Solutions Ltd., 4) M/s Flextronics Software Systems Ltd.,(Seg.) 5)M/s Helios & Matheson Information Technology Ltd.,6) M/s Infosys Technologies Ltd., 7) M/s Ishir Infotech Ltd., 8) M/s Kals Information Systems Ltd., 9) M/s Lucid Software Ltd;, 10) Persistent Systems Ltd., and 11)M/s Wipro Ltd., (Seg.) are to be excluded. Regarding M/s Megasoft Ltd., it was held by the Tribunal that M/s Megasoft Ltd can be considered for inclusion only after segmentation of its results. For the sake of ready reference, we reproduce para-14 of this Tribunal order is reproduced. In the tribunal order rendered in the case of M/s Meritor LVS India (P) Ltd., (Supra) also, para-14 of the Tribunal order is relevant which is also re- produced hereunder;
“ 14. Accordingly, following the above order, we direct exclusion of Celestial Labs Ltd., E Zest Solutions Ltd., Infosys Technologies Ltd., Kals Information Systems Ltd. (Seg.) Lucid
9 IT(TP)A Nos.1033(B)/11, 536(B)2015 and 431(B)/15 Software Ltd., Wipro Ltd (Seg.) Accel Transmatic Ltd.,(Seg.), Helios & Math4eson Information Technology Ltd., Ishir InfotechLtd., Persistent Systems Ltd., Sasken Communication Technologies Ltd (Seg.), Tata Elxsi Ltd., (Seg.) and Thirdware Solutions Ltd. In sofar as Megasoft Solutions Ltd., is concerned, we direct the AO/TPO to rework its segmental results and consider its comparability only with regard to the software development services segment. Ordered accordingly”.
It can be seen that as per this Tribunal order also, it was held by the Tribunal that in respect of M/s Megasoft Ltd.,, the AO/TPO were directed to re-work its segmental results and consider its comparability only with regard to software development services (Seg.). It was directed that M/s Accel Transmatic Ltd., (Seg.) M./s Tata Elxsi Ltd., and M/s Thirdware Solutions Ltd., should be excluded in addition to other 11 comparables, which were directed to be excluded as per Tribunal order in the case of M/s Hewlet Packard (Ind.) Software Operation Ltd., (Supra). We therefore, direct the AO/TPO to exclude 14 comparables including 11 comparables as per Tribunal order in the case of M/s Hewlet Packard (Ind.) Software Operation Ltd., (Supra) and three comparables as per Tribunal order in the case of M/s Meritor LVS India (P) Ltd., (Supra), as noted above. One comparable M/s Megasoft Ltd., should be considered for inclusion as per its segmental results only. The AO/TPO should pass necessary order as per law and as
per above discussion after providing an opportunity of being heard to the assessee. These four grounds are disposed of in this manner.
10 IT(TP)A Nos.1033(B)/11, 536(B)2015 and 431(B)/15
Regarding Corporate Tax issue raised by the assessee as per ground No.25 to 30, it was submitted that this issue is covered in favour of the assessee by the judgment of the Hon’ble jurisdictional High Court rendered in the case of M/s Tata Elxsi Ltd., (349 ITR 98).
The ld. DR of the revenue supported the orders of authorities below on this issue.
We have considered the rival submissions. We find that in this ground of appeal, the issue involved is regarding reduction of Rs.3,57,922/- pertaining to Telephone expenses from the total turnover.
The AO/TPO had reduced the same from the export turnover but not from the total turnover for the purpose of computing deduction allowable to the assessee u/s 10A of the IT Act, 1961. It was held by the Hon’ble jurisdictional High Court in the case of M/s Tata Elxsi ltd. (Supra) that total turnover is sum total of domestic turnover and export turnover and therefore, if an amount is excluded from the export turnover, the same gets automatically reduced from the total turnover. Respectfully following this judgment of the Hon’ble jurisdictional High Court, we direct the AO/TPO to reduce this amount which was reduced from the export turnover from the total turnover also for the purpose of computing deduction allowable to the assessee u/s 10A of the IT Act, 1961. Accordingly, ground no.25 to 30 of the assessee’s appeal are allowed.
Ground no.31 is consequential which is in respect of interest charged u/s 234B and 2345C of the IT Act, 1961
11 IT(TP)A Nos.1033(B)/11, 536(B)2015 and 431(B)/15
Now we take up cross appeals for the assessment year 2010-11 in IT(TP)A No.536(B)/2015, assessee’s appeal and IT(TP)A No.431()B)/2015 being revenue’s appeal. Grounds raised in these two appeals are as under; IT(TP)A No.536(Bang)/2015 ( Assessment year :2010-11)
“1. That on the facts and circumstances of the case and in law, the AO has erred in assessing the total income of the appellant for the relevant AY: at INR 7,61,21,130/- as against revised returned income of INR 3,31,46,375/-.
That on the facts and circumstances of the case and in law, the order passed by the AO being not in conformity with the directions issued by the DRP issued under sec.144C(5) of the Act, is bad in law.
3. That on the facts and circumstances of the case and in law, the AO/TPO have erred in not completing the assessment for the subject assessment year in conformity with the directions issued by the DRP, whereby the DRP directed for exclusion/inclusion of certain comparable companies for computing the arm’s length price of the international transaction related to provision of software development services to the Associated Enterprises (AE).
4. That on the facts and circumstances of the case and in law, the AO/TPO have erred in not providing working capital adjustment and have further erred in not adopting the correct operating margin of the final comparable companies pursuant to the directions issued by the DRP to verify and carry out necessary rectification in relation to the above.
5.That on the facts and circumstances of the case and in law, the AO/TPO have erred in arbitrarily rejecting certain comparable companies considered by the appellant for benchmarking its 12 IT(TP)A Nos.1033(B)/11, 536(B)2015 and 431(B)/15 international transaction relating to software development services and have further erred in not including the said comparable companies in conformity with the directions issued by the DRP.
6. That on the facts and circumstances of the case and in law, the AO/TPO have erred in arbitrarily including certain comparable companies for computing the arm’s length price in relation to the software development services and have further erred in not excluding the said comparable companies in conformity with the directions issued by the DRP.
7. That on the facts and circumstances of the case and in law, the AO has erred in holding that the broadband charges are attributable to the delivery of computer software outside India and should be reduced from the export turnover while computing the deduction under sec.10A of the Act.
8. That on the facts and circumstances of the case and in law, the AO has erred in holding that the foreign currency travel expenses are towards technical services rendered outside India and should be reduced from the export turnover while computing the deduction under sec.10A of the Act.
9. That on facts and circumstances of the case and in law, the AO has erred in levying interest under section 234B and 234C of the Act.
10. That on facts and circumstances of the case and in law the AO has erred in initiating penalty proceedings under section 271(1)(c ) of the Act. Each of the above grounds are independent and without prejudice to the other grounds of appeal preferred by the assessee. The assessee prays for leave to add, alter, vary, omit, substitute or amend the above rounds of appeal, at any time before or at the time of hearing of the appeal”.
13 IT(TP)A Nos.1033(B)/11, 536(B)2015 and 431(B)/15 IT(TPA No.431(B)/2015 ( Assessment Year: 2010-11)
The revenue has raised the following grounds in its appeal; “1.On the facts and in the circumstances of the case the DRP erred in holding that the size and turnover of the company are deciding factors for treating the company as a comparable and accordingly, erred in excluding M/s Kals Information Systems Ltd., M/s Persistent Systems & Solutions Ltd. M/s Tata Elxsi Ltd., M/s Evoke Technologies Ltd and M/s Infosys Ltd as comparables.
2. The Ld. DRP Member has erred in excluding the comparables on the basis of different function while the comparable is qualifying all the qualitative and quantitative filters applied by the TPO.
3. The Ld. DRP Member has erred in holding that persistent losses of the companies i.e. M/s Quintegra Solutions Ltd M/s TVS Infotech Ltd., M/s Helios & Matheson Information Tech.Ltd., and M/s SIP Technologies & Exports Ltd does not qualify for being treated as a comparable ignoring the fundamental principle applied by the TPO that the same is designed to eliminate companies which are not in line with the rend of growth witnessed in the software industry.
The Ld. DRP Member has failed to appreciate that there is decline in the rate of growth of export revenue because industries were facing recession.
5. The ld. DRP Member has failed to appreciate that there are so many companies having the same financial year ending which are available for comparison purpose. 6. The ld.DRP Member erred in not considering the companies whose sales is less than 1 Crore by stating that they may not lead to a proper comparability as these companies may not be representing the industry trend.
14 IT(TP)A Nos.1033(B)/11, 536(B)2015 and 431(B)/15
7. The Hon’ble DRP has erred to appreciate that more the comparable low cost/sales base makes their results unreliable.
8. The Hon’ble DRP has erred in relying on the decision of Hon’ble High Court of Karnataka in the case of CIT Vs M/s Tata Elxsi Ltd., wherein the legislature intentionally included the definition of Export Turn Over and did not include definition of Total Turn Over for the purpose of computation of deduction u/s 10A. Moreover, the decision of the Hon’ble High Court has not been accepted by the department and further appeal before Hon’ble Supreme Court has been filed, which is pending for decision. 9. The Hon’ble DRP erred in directing the AO to exclude the expenditure incurred by the assessee towards telecom lease line expenditure and travel expenses from both export turnover and total turnover for the purpose of computation of deduction u/s 10A of the IT Act.
The appellant craves leave to add, alter, amend and/or delete any of the grounds mentioned above”.
At the very outset, it was submitted by the ld. AR of the assessee that in assessee’s appeal, ground no.1s is general and ground no.4,5& 6 are not pressed and the issue involved in ground no.7 & 8 is covered in favour of the assessee by the judgment of the Hon’ble Karnataka High Court rendered in the case of CIT Vs Tata Elxsi Ltd. (349 ITR 98)(Kar.)(Supra) and ground no.9 & 10 are consequential. Accordingly, ground no.4,5& 6 are rejected as not pressed and ground no.7 & 8 are allowed in line with our decision for assessment year 2007-08.
At the very outset, the learned AR submitted that the TPO’s order is dated 30-01-2014 and the Draft Assessment Order (DAO) passed by the AO
15 IT(TP)A Nos.1033(B)/11, 536(B)2015 and 431(B)/15 is dated 25-03-2014, wherein the DAO passed by the AO. As per the TPO’s order, the TPO made an addition of Rs.4,29,74,755/-. Thereafter, he pointed out that order of DRP is dated 10-12-2014 and as per para no.3.9 of DRP order, it was held that five comparables i.e. 1) M/s Kals Information Systems Ltd., 2) Persistent Systems & Solutions Ltd., 3) M/s Tata Elxsi Ltd., 4) M/s Evoke Technologies Ltd., and 5) M/s Infosys Limited., should be excluded.
He also drew our attention to para-3.1 of the DRP order, as per which the TPO was directed to include 8 cases as comparables and thereafter, to recalculate the correct transfer pricing adjustment to be made. Further, he pointed out that as per the final assessment order passed by the AO on 30- 01-2015, the AO has made addition of Rs.4,29,74,705/- without including or excluding any comparable as directed by the DRP. Thereafter, he submitted that as per the provisions of Sec.144C(8), the DRP may confirm reduce or enhance the variation proposed in the draft order. He referred to sub section13 of sec.144C and submitted that as per this sub-section, the AO has to pass assessment order in conformity with the directions of DRP, within one month from the end of the month such direction is received. He submitted that the assessment order passed by the AO is not in conformity with the directions of DRP and therefore, this assessment order is not valid and hence, it should be quashed. In support of his contention, he placed reliance on a judgment of the Hon’ble Bombay High Court rendered in the case of M/s Vodaone India Service Pvt.Ltd., Vs Union of India and Others in W.P.No.488 of 2012 of which copy of relevant portion is made available before us. He also placed reliance on the judgment of the Hon’ble Delhi
16 IT(TP)A Nos.1033(B)/11, 536(B)2015 and 431(B)/15 High Court rendered in the case of M/s ESPN Star Sports Mauritius S.N.C.
ET Compagnie (Now known as Ess Adventuring (Mauritius) S.N.C. ET Compagnie in W.P © 2384/2015 & CM NO.4277/2015 dated 23-03-2016 and submitted a copy of this judgment. He also placed reliance on the Tribunal’s order rendered in the case of M/s Lionbridge Technologies Ltd., Vs DCIT in dated 29-05-2015.
Learned DR of the revenue submitted in reply that this is not a fact that the A.O. in his final order has disregarded the directions of DRP. He pointed out that as per the final assessment order, the A.O. says in para 4.4 that DRP has confirmed the draft assessment order. He submitted that under these facts, it should be held that there is an apparent mistake in the final assessment order and the same is rectifiable u/s 154 and therefore, the matter should be restored to the A.O. for passing the rectification order.
We have considered the rival submissions, material available on record and various judgments cited by the learned AR of the assessee. There is no dispute that as per the directions of DRP, some comparables were to be excluded and some were to be included but as per the final assessment order, the A.O. has neither included any comparable nor excluded any comparable as had been directed by DRP and therefore, his order is in violation of sub section13 of sec.144C. But this is also true that there is wrong observation in this final assessment order that DRP has confirmed the proposed assessment order. Under these facts, we find force in the 17 IT(TP)A Nos.1033(B)/11, 536(B)2015 and 431(B)/15 submissions of the learned DR of the revenue that this is an apparent mistake in the assessment order rectifiable u/s 154 of the I T Act.
Now we examine the applicability of various judgments cited by the learned AR of the assessee. First judgment cited by him is judgment of the Hon’ble Bombay High Court rendered in the case of M/s Vodaone India Service Pvt.Ltd., Vs Union of India and Others (Supra). Learned AR of the assessee has drawn our attention to that para of this judgment where it is observed by the Hon’ble Bombay High Court that conformity is synonymous to the word “Compliance”. There is no dispute on this aspect. Finally in Para 106 of this judgment, it was held that DRP would have the jurisdiction to rectify the error and issue necessary direction to the AO to complete the assessment in accordance with law. In para 107, it was held that there is no warrant for exercise of writ jurisdiction because the remedy lies in filing objection before DRP. In our considered opinion, as per this judgment, it cannot be said that the present assessment order should be quashed.
Second judgment cited by him is judgment of the Hon’ble Delhi High Court rendered in the case of M/s ESPN Star Sports Mauritius S.N.C. ET Compagnie (Now known as Ess Adventuring (Mauritius) S.N.C. ET Compagnie (Supra). In that case, in Para 31, it is noted by Hon’ble Delhi High Court that the AO has chosen to label the order of DRP to be invalid and that is the justification for not complying with the said order. Thereafter in para 41, it is observed that the AO stated in para 4.2 of the assessment order that “The DRP has not acted in accordance with the provisions of the 18 IT(TP)A Nos.1033(B)/11, 536(B)2015 and 431(B)/15 Act while passing his order which is grossly illegal, against the intent of legislature, without following the basic principle of natural justice and adopting very narrow interpretation of the provisions of the Act.” In the present case, the facts are different because in the present case, it appears to be an apparent mistake committed by the A.O. in understanding the directions of DRP and for that reason with the mistaken understanding that DRP has approved the draft assessment order, the A.O. has not given effect to various directions of DRP to include some comparables and to exclude some comparables. Under these facts, in our considered opinion, by following this judgment also, it cannot be held that the present assessment order should be quashed but in the facts of the present case, proper course is to restore the matter to the A.O. to pass fresh assessment order as per directions of DRP.
Third judgment cited by him is order of the tribunal rendered in the case of M/s Lionbridge Technologies Ltd., Vs DCIT (Supra). In this case, draft assessment order was not forwarded by the AO to the assessee within the time limit prescribed under the third proviso to section 153 (2A). In Para 17 of the tribunal order, it was noted that at the time of issue of corrigendum also on 16.04.2015, the demand raised in the assessment order dated 12.03.2014 was not withdrawn. In the present case, Draft assessment order was issued in time and therefore, in our considered opinion, this tribunal order is not relevant in the present case.
19 IT(TP)A Nos.1033(B)/11, 536(B)2015 and 431(B)/15 As per above discussion, we find that none of the judgments cited by the learned AR of the assessee is supporting his contention that the present assessment order be quashed. In the facts of the present case, we find force in the submissions of the learned DR of the revenue that there is apparent mistake in this final assessment order and since the time limit of 4 years prescribed in section 154 has not elapsed, we feel it proper to restore the entire matter in this year to the AO to pass fresh assessment order as per the directions of DRP and thereafter, both sides are at liberty to file appeal before the tribunal if not satisfied with that order.
In view of this decision, none of the grounds raised by both sides require any adjudication.
In the result, both appeals are allowed for statistical purposes.
In the combined result, appeal of the assessee in Assessment year :
2007-08 is partly allowed and cross appeals in A.Y. 2010 – 11 are allowed for statistical purposes.
Order pronounced in the open court on the date mentioned on the caption page.