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Income Tax Appellate Tribunal, ‘ D’ BENCH : CHENNAI
Before: SHRI N.R.S. GANESAN & SHRI D. KARUNAKARA RAO]
आदेश / O R D E R
PER N.R.S.GANESAN, JUDICIAL MEMBER
This appeal of the assessee is directed against the order of the Assessing Officer consequent to the direction of the Dispute Resolution Panel(DRP) for the assessment year 2009-10.
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The first issue arises for consideration is disallowance of deduction claimed u/s 10A of the Act.
Shri Vikram Vijayaraghavan, ld. Counsel for the assessee 3. submitted that the DRP by following the order of this Tribunal for assessment year 2007-08, directed the Assessing Officer to consider the claim of the assessee u/s 10A of the Act in the light of the CBDT Circular. The ld. Counsel further submitted that the entire undertaking was acquired by slump sale from the transferor company, therefore, the undertaking cannot be held to be formed by reconstruction of the existing business. Consequent to the direction of this Tribunal for assessment year 2007-08, though the Assessing Officer rejected the claim of the assessee for assessment year 2007-08, the CIT(A) in fact allowed the claim of the assessee. For the assessment year 2007-08, the CIT(A) found that the entire undertaking was found to have been transferred to the assessee on lock, stock and barrel basis, therefore, there is no case for splitting up or reconstruction as advocated by the Assessing Officer. In view of this order of the CIT(A), according to the ld. Counsel, the assessee is eligible for deduction u/s 10A of the Act.
On the contrary, Shri Joe Sebastian, ld. Departmental Representative submitted that the DRP directed the Assessing Officer to consider the claim of the assessee in the light of the CBDT Circular
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No.1 of 2013 dated 17.1.2013. Therefore, the assessee may not have any grievance.
We have considered the rival submissions on either side and 5. also perused the material available on record. As rightly submitted by the ld. Counsel for the assessee and the ld. DR, the DRP directed the Assessing Officer to consider the claim of the assessee in the light of the CBDT Circular No.1 of 2013 dated 17.1.2013. A similar direction was given by this Tribunal in assessee’s own case for assessment year 2007-08. The CIT(A), for the assessment year 2007-08, in fact, examined this issue and found that there was no case for splitting up or reconstruction, and accordingly, allowed the claim of the assessee u/s 10A of the Act. The order of the CIT(A) for the assessment year 2007-08 is dated 3.2.2016. It is not known whether the Revenue has filed any appeal before this Tribunal against the order of the CIT(A) for assessment year 2007-08. However, for the sake of consistency, this Tribunal is of the considered opinion that the DRP has rightly directed the Assessing Officer to consider CBDT Circular No.1 of 2013 and adjudicate the claim of the assessee u/s 10A of the Act.
Therefore, this Tribunal do not find any infirmity in the order of the lower authority and accordingly the same is confirmed.
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The next issue is with regard to transfer pricing adjustment made by the DRP.
Shri Vikram Vijayaraghavan, ld. Counsel for the assessee 7. submitted that the assessee-company do not have any controlling interest in respect of the so called concern with which the assessee entered into international transaction. According to the ld. Counsel, the assessee was holding only 24.5% interest in the non-resident company. For the purpose of considering the Associated Enterprise, the assessee needs to have a minimum of 26% holding. Since the holding of the assessee is 24.5% which is less than 26%, the non- resident company cannot be considered to be an associated concern of the assessee. However, the DRP proceeded on the presumption that the assessee is pricing the sale of the material, therefore, the assessee is deemed to have control over the Associated Enterprise.
An agreement for sale/service, according to the ld. Counsel, cannot be considered to be having controlling interest over the Associated Enterprise. Unless and until the assessee has control over the management, finance etc. in respect of the Associated Enterprise, there is no question of any deeming control over the Associated Enterprise. Even though this fact was brought to the notice of the DRP, there was no finding recorded by the DRP, therefore, the matter may be remitted back to the Assessing Officer.
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We heard Shri Joe Sebastian, ld. DR also. The ld. DR very fairly submitted that the DRP has not recorded how the assessee was having control over the Associated Enterprise. Therefore, he may not have any serious objection for remitting the matter back to the file of the Assessing Officer for reconsideration.
Having heard the ld. Counsel for the assessee and the ld. 9.
DR, this Tribunal is of the considered opinion that since the assessee claims to have less than 26% interest in the Associated Enterprise and not holding any controlling interest in the management and finance, the matter needs to be reexamined by the Assessing Officer. In other words, whether the non-resident company to which the assessee has transaction is an Associated Enterprise within the parameters of law needs to be examined. Since such an exercise was not done either by the TPO or DRP, this Tribunal is of the considered opinion that the matter needs to be reexamined. Accordingly, the orders of the lower authorities are set aside and the entire issue is remitted back to the file of the Assessing Officer. The Assessing Officer shall reexamine the issue afresh after referring the matter once again to the TPO and thereafter decide the same in accordance with law after giving a reasonable opportunity to the assessee.
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The next grievance of the assessee is that the DRP has taken into consideration the domestic transaction entered into by one of the comparable company viz. Dun & Bradstreet Information Services India Pvt. Ltd (DB India).
According to the ld. Counsel, for the purpose of transfer 11. pricing adjustment, the TPO as well as DRP are expected to take only international transaction and not domestic transaction. In the case before us, according to the ld. Counsel, DB India which was taken as one of the comparable companies by the TPO and DRP has only domestic transaction, therefore, DB India cannot be a comparable company in the case of the assessee. Therefore, the domestic transaction entered into by DB India with its non-Associated Enterprises has to be excluded.
We heard Shri Joe Sebastian, ld. DR also. The ld. DR very 12. fairly submitted that the domestic transaction has to be excluded while comparing the transaction of the assessee with Associated Enterprise situated outside the country. Therefore, the ld. DR submitted that the matter may be remitted back to the Assessing Officer for reconsideration.
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We have considered the rival submissions on either side and also perused the material available on record. The assessee claims that both the TPO and DRP have considered the domestic transaction entered into by DB India which is taken as comparable company by the TPO and DRP for the purpose of making transfer pricing adjustment. As rightly submitted by the ld. Counsel and the ld. DR, when transfer pricing adjustments were made in respect of the international transaction, the domestic transaction has to be excluded.
However, the matter needs to be verified whether DB India has any transaction in the domestic market as claimed by the assessee. Since nobody has examined the transaction of DB India with its non- Associated Enterprise, this Tribunal is of the considered opinion that the matter needs to be reexamined as claimed by the ld. DR. Accordingly, the orders of the lower authorities are set aside and the issue with regard to transfer pricing adjustment is remitted back to the file of the Assessing Officer. The Assessing Officer shall refer the matter once again to the TPO for the purpose of determination of the Arm’s Length Price. The TPO while reconsidering the matter shall exclude the domestic transaction, if any, carried out by the comparable company. Thereafter, the Assessing Officer shall decide the matter in accordance with law after giving a reasonable opportunity to the assessee.
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The assessee has also raised issues with regard to reimbursement in the cost and revenue base while computing the entity level margins and also TDS credit.
No arguments were advanced during the course of hearing 15. with regard to these two issues. However, this Tribunal is of the considered opinion that when the tax was deducted, credit shall be given while computing the tax liability of the assessee. Therefore, the Assessing Officer shall verify the TDS credit in respect of the assessee and give necessary credit while determining the tax liability of the assessee.
The assessee has also raised one more issue with regard to 16. interest levied u/s 234B and 234C of the Act.
This Tribunal is of the considered opinion that while giving 17. effect to the order of this Tribunal the Assessing Officer shall reexamine the matter with regard to levy of interest u/s 234B and 234C and decide the same in accordance with law after giving a reasonable opportunity to the assessee.
In the result, the appeal of the assessee is partly allowed 18. for statistical purposes.
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