SAKSOFT LTD.,CHENNAI vs. DCIT, CHENNAI

आदेश / O R D E R PER G. PAVAN KUMAR, JUDICIAL MEMBER:

ITA No.517/Mds/2015. :- 2 -:

2010 passed u/s.143(3) r.w.s. 144C (3) and 250 of the Income Tax Act, 1961 (herein after referred to as ‘the Act’).

The assessee has raised the following grounds of appeal:- 2.

‘’For that that the order of the Commissioner of 1. Income Tax (Appeals) is contrary to law. facts and circumstances of the case to the extent prejudicial to the interest of the appellant and at any rate is opposed to the principles of equity., natural justice and fair play.

4. For that the Commissioner of Income Tax (Appeals) erred in upholding tile transfer Pricing addition of Rs.5, 15, 11,202/-

ITA No.517/Mds/2015. :- 3 -: failed appreciate that the fees paid towards professional services rendered by M/s.Acuma Solutions. UK was not chargeable to tax in India. 10. -For that Without prejudice to our contention that disallowance u/s 40(a)(l) is not warranted, the same ought be considered while computing the deduction u/s.l0A. 11. For that the Commissioner of Income Tax (Appeals) erred in confirming the disallowance u/s.14A read with Rule 8D’’..

The Brief facts of the case are that the assessee company is 3. in business of Software Solutions including consulting Design, Development, re-engineering, systems implementation testing and placement services and filed Return of income on 28.09.2009 disclosing total income of �73,35,240/- and the Return of income was processed u/s.143(1) of the Act. Subsequently the case for selected for scrutiny and notice u/sec. 143(2) of the Act was issued. In compliance to notice, the ld. Authorised Representative of assessee appeared from time to time and furnished information. The ld. Assessing Officer found that the assessee has international transactions and reference was made to Transfer Pricing Officer for determining Arms Length Price. The ld. TPO issued notice u/s.92CA of the Act for determination of Arms Length Price in relation to international transactions. The ld. TPO on the basis of the transactions reported in Audit form under 3CEB, found the assessee company has international transaction, on segment wise aggregating to ITA No.517/Mds/2015. :- 4 -:

�40,26,63,930/-. The assessee company has adopted Transactional Net Margin Method (TNMM) and CUP method as most appropriate method and having 15 comparables whose Arithmetic Mean of PLI (Operating Profit /Operating Cost) is 12.30% as against the assessee’s PLI at 12.58%. The ld. TPO has issued show cause notice in respect of professional services paid to Acuma Solutions, UK. During the financial year 2008-09, the assessee company paid �5.65 Crores to its Associated Enterprise Acuma Solutions, UK as professional charges.

The ld. Authorised Representative explained that Acuma Solutions was acquired by Saksoft in September, 2006 as Acuma Solutions is leading Business Intelligence Company in UK. The business connection of Acuma Solutions with other areas have Value Added Reseller (VAR) and Acuma is a educational partner to provide training for business objects and runs number of business courses. The basic object of acquiring Acuma Solutions to gain and promote training and expertise in the field of Business intelligence and imparting Business Objects. The ld. TPO found that the assessee’s employees upon training in Business objects and business skills could obtain new business order from Citibank to the extent of �1.22 crores in Financial Year 2008-09 and �2.10 crores in Financial year 2009-2010. The assessee company trained 120 employees in the said financial year relating to Business objects and web based learning. The ld.TPO

ITA No.517/Mds/2015. :- 5 -: having considered the submissions has called for the details. The ld. Authorised Representative explained that the assessee company is in the existence from the year 2001 and ld. TPO observed that the company got orders from Citibank only to the extent of �1.25 crores which does not commensurate with the returns. The UK based company M/s. Acuma Solutions Ltd, was functioning with loss and company turned into profits by infusing funds. The assessee company is making attempts in shifting profits outside the country as the training was provided to the said set of employees and the beneficiary is the Associated Enterprise. The assessee company incurred �12 crores expenses in two years for training their employees but project obtained was only �1.25 crores. The ld. TPO relied on the decision of Gemplus India Private Limited, the Bangalore Bench of the Tribunal were held that the assessee company has adopted the TNMM method as MAM which is not appropriate and rejected Arms Length Price determined by the TNMM method. The ld. Authorised Representative filed submissions were the ld. TPO determined Arms Length Price of professional fees as �50 lakhs as against �5.7 crores paid by the assessee company. The ld. Authorised Representative filed detailed explanations and submissions alongwith the margins and the transactions between parties. But subsequently, the ld. TPO determined the Arms Length Price of professional services as �50 lakhs

ITA No.517/Mds/2015. :- 6 -: and directed to reduce �5,15,11,202/- from professional services paid to Acuma, UK. The ld. Assessing Officer passed order u/s.143(3) r.w.s. 144C(3) of the Act dated 28.05.2013. Considering the direction of ld. TPO and with other corporate additions. Aggrieved by the order, the assessee filed an appeal before Commissioner of Income Tax (Appeals).

assessee No. 3, 4 & 5 applying the provisions of Sec. 40(a)(ia) of the Act were the ld. Assessing Officer made an addition of �50 lakhs for non deduction of TDS of professional payments and confirmed the same. Further, the ld. Commissioner of Income Tax (Appeals) granted partial relief in respect of deduction u/s.10B of the Act in determination of export turnover following the assessee’s own case for the assessment years 2002-2003 & 2003-2004 in 313 ITR 353 and directed the ld. Assessing Officer to recompute the deduction u/s.10B of the Act and on the last ground of disallowance u/s.14A of the Act, the ld. Commissioner of Income Tax (Appeals) considered the provisions and applicability of Rue 8D and Judicial decisions concluded that the action of the ld. Assessing Officer is right irrespective of the fact that when there is no income is received but disallowance u/s. 14A of the Act is confirmed and partly allowed the appeal. Aggrieved by the Commissioner of Income Tax (Appeals) order, the assessee has assailed an appeal before Tribunal.

Before us, the ld. Authorised Representative reiterated the 5. submissions made before the ld. Assessing Officer, ld. TPO and ld. Commissioner of Income Tax (Appeals) and argued the grounds that the order of the Commissioner of Income Tax (Appeals) was passed after fourteen months of hearing and opposed to equity, natural

ITA No.517/Mds/2015. :- 8 -: justice and confirming the action of the ld. Assessing Officer without giving proper clarifications and also non adjudication on material filed on the action of the ld. TPO in determining Arms Length Price of international transactions without mentioning the nature of upward adjustment and the method applied and directed the ld. Assessing Officer to reduce �5,15,11,202/- from Professional Services. The ld. TPO overlooked the details of international transactions i.e. Information technology services and support services, Professional Services, Inter-corporate advances, Recovery of expenses and Reimbursement of expenses aggregating to �40,26,63,930/-. Further, there is no proper findings by the ld. Commissioner of Income Tax (Appeals) in adjudicating the grounds raised before and prayed for allowing the appeal.

Contra, ld. Departmental Representative relied on the orders 6. of Commissioner of Income Tax (Appeals) and vehemently opposed to the grounds.

We heard the rival submissions, perused the material on 7. records, judicial decisions cited and paper book filed. The ld. Commissioner of Income Tax (Appeals) has passed order overlooking voluminous information filed in the appellate proceedings against the order passed by the ld. Assessing Officer.

ITA No.517/Mds/2015. :- 9 -:

The Commissioner of Income Tax (Appeals) has to consider every point of dispute of assessee and pass a speaking order. But, the order passed by the Commissioner of Income Tax (Appeals) is cryptic and was not properly adjudicated. Therefore, we are not in a position to uphold the order of the Commissioner of Income Tax (Appeals) being inconsistent with Transfer Pricing Provisions. We rely on the decision of Supreme Court in the case of Sahara India vs. CIT & Anr. (300 ITR 403) were held that "an administrative order has to be consistent with the rules of natural justice" and similar view was considered by the Delhi Bench of the Tribunal in the case of GAP International Sourcing India (P) Ltd. vs. DCIT (8 ITR 0177) and M/s. Adobe Systems India Private Ltd. v. Addl. CIT in dated 21.01.2011, the order passed by the Commissioner of Income Tax (Appeals) is without going into the details of the submissions and should be decided afresh. Considering apparent facts, material evidence and judicial decisions, we are inclined to the remit the disputed issues back to the file of Commissioner of Income Tax (Appeals) to pass a speaking order on merits and assessee shall be provided with adequate opportunity of being heard before passing the order.

Since we remitted the disputed issue to the file of Commissioner of Income Tax (Appeals), we are not adjudicating ground nos. 3 to 11

ITA No.517/Mds/2015. :- 10 -: of grounds of appeal filed by the assessee and the appeal of the assessee is allowed for statistical purpose.

In the result, the appeal of the assessee is allowed for 8. statistical purpose.

Order pronounced on Wednesday, the 10th day of August, 2016, at Chennai.