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Income Tax Appellate Tribunal, DELHI BENCH ‘I-1’, NEW DELHI
Before: Smt. Diva Singh, JM & Sh. N. K. Saini, AM
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘I-1’, NEW DELHI Before Smt. Diva Singh, JM And Sh. N. K. Saini, AM Asstt. Year : 2006-07 Adobe Software India Pvt. Ltd. Vs Joint Commissioner of Income (now amalgamated with Adobe Tax, Range-1, Systems India Pvt. Ltd.), Plot No. Noida 1-1A, City Centre, Sector-25A, Noida (U.P)-201301 (APPELLANT) (RESPONDENT) PAN No. AACCA2982J Assessee by : Sh. Deepak Chopra & Rohan Khare, Advs. Revenue by : Sh. Amrendra Kumar, CIT DR Date of Hearing : 27.10.2015 Date of Pronouncement : 20.01.2016 ORDER Per N. K. Saini, AM:
This is an appeal by the assessee against the order dated 28.03.2013 passed by the AO u/s 143(3)/144C of the Income Tax Act, 1961 (hereinafter referred to as the Act).
2. Following grounds have been raised in this appeal:
“1. The order passed by the Joint Commissioner of Income Tax, Range-1, Noida (“AO”) is bad in law and void ab-initio.
2 Adobe Software India Pvt. Ltd.
The order of the AO is beyond the limitation vested in the AO under section 153(2A) of the Act and hence barred by limitation.
That without prejudice the directions of the Dispute Resolution Panel are also barred by limitation since the same were not passed within the period prescribed under section 144C of the Act and consequently the final assessment order passed is bad in law on this count also.
4. The AO grossly erred in making the assessment on the basis of return of income (“ROI”) of Adobe Systems India Pvt. Ltd. and not on the basis of ROI of Adobe Software India Pvt. Ltd. (now amalgamated with Adobe Systems India Pvt. Ltd.) in gross violation of the provisions of section 170 of the Act.
5. That the orders of the AO and the DRP are also erroneous since the original assessment had been made on a company, which was no longer in existence and such defect is not curable under the provisions of section 292B of the Act.
6. The learned AO and TPO have erred in not following the directions issued by the Hon’ble DRP.
The order passed by the learned TPO is bad in law and void ab-initio as the learned TPO has violated the principal of natural justice by not providing the appellant an opportunity of being heard before giving effect to the DRP’s directions.
The learned AO/DRP has erred in making an addition of Rs.91,728,060 to the total income of the Appellant on account of adjustment in the arm’s 3 Adobe Software India Pvt. Ltd. length price (“ALP”) of the international transaction related to software development services entered into by the Appellant with its associated enterprises.
9. The learned AO/DRP has erred by not accepting the economic analysis undertaken by the Appellant in accordance with the provisions of the Act read with the Income Tax Rules, 1961.
The learned AO/DRP has erred in: a. Using data for single year i.e. for FY 2005-06 only instead of multiple year data; and b. Determining the arm’s length margin/price using data pertaining only to financial year 2005-06 which was not available to the assessee at the time of complying with the Transfer Pricing documentation requirements.
The learned AO/DRP has erred by rejecting certain comparable companies identified by the assessee using turnover less than Rs. 1 Crore as a comparability criterion. 12a. The learned AO/DRP has erred by rejecting certain comparable companies identified by the assessee for having different accounting year (i.e. companies having accounting year other than March 31 or companies whose financial statements were for a period other than 12 months). 12b. Without prejudice, certain companies proposed as comparable by the learned AO do not pass the different financial year end filter proposed by the learned AO.
4 Adobe Software India Pvt. Ltd. 13a. The learned AO/DRP has erred in rejecting certain comparable companies identified by the Appellant on the ground that they do not meet the filter of employee cost greater than 25 per cent of the total cost. 14a. The learned AO/DRP has erred by rejecting certain comparable companies identified by the assessee as having economic performance contrary to the industry behavior (e.g companies which showed a diminishing revenue trend). 14b. Without prejudice, certain companies proposed as comparable by the learned AO do not pass the diminishing revenue filter proposed by the learned AO. 15a. The learned AO/DRP has erred by rejecting certain comparable companies identified by the assessee using onsite revenues greater than 75 per cent of the onsite revenues as a comparability criterion. 15b. Without prejudice, certain companies proposed as comparable by the learned AO do not pass the onsite revenue filter proposed by the learned AO.
The learned AO/DRP has erred by selecting certain companies which are earning supernormal profits as comparable to the assessee.
The learned AO/DRP has held that the companies with related party transactions (“RPT”) greater than 25 per cent of the operating revenues should not be accepted as comparable companies. However, the 5 Adobe Software India Pvt. Ltd. learned AO/DRP has erred by including such companies as comparables.
The learned AO/DRP has erred by exercising powers under Section 133(6) of the Act to obtain information which was not available in public domain and relying on the same for comparability purposes.
The learned AO/DRP has erred in rejecting certain companies which are comparable to the Appellant and adding certain functionally dissimilar companies to the final set of comparable companies.
The learned AO/DRP has erred by not taking into consideration foreign exchange fluctuation gain/loss while computing the operating margins of the comparable companies.
The learned AO has erred by passing an order which has computational errors in the margins of comparable companies used in determination of ALP.
The learned AO has erred in considering the wrong cost base and revenue while computing the operating margins of the assessee.
The learned AO/DRP has erred by not allowing adjustment for working capital adjustment even though the same was allowed by the learned TPO in the transfer pricing assessment order.
The learned AO/DRP has erred by not allowing suitable adjustments to account for differences in the risk profile of the Appellant vis-à-vis the comparables.
6 Adobe Software India Pvt. Ltd. 25. The learned AO/DRP has erred in not providing the benefit of the arm’s length range as provided under proviso to Section 92C of Act for purposes of computing the arm’s length price under Section 92F of the Act. The above grounds of appeal are mutually exclusive & without prejudice to each other. The Appellant craves leave to add, amend, vary omit or substitute any of the aforesaid grounds of appeal at any time before or at the time of hearing of the appeal. The Appellant prays for appropriate relief based on the said grounds of appeal and the facts and circumstances of the case.”
3. At the first instance the ld. Counsel for the assessee argued the Ground Nos. 4 & 5 which relates to the validity of the assessment order.
Facts of the case in brief are that the assessee filed e-return of income on 23.11.2006 declaring a loss of Rs.2,76,01,310/-. The assessee claimed exemption u/s 10A of the Income Tax Act, 1961 (hereinafter referred to as the Act) amounting to Rs.14,27,69,643/- and the book profit u/s 115JB of the Act was declared at Rs.59,60,254/-. The AO referred the matter to the TPO and after receipt of his order u/s 92CA(3) of the Act, passed the draft assessment order on 30.12.2009 u/s 143(3) r.w.s. 144C of the Act at an income of Rs.7,64,74,420/-. Against the said draft assessment order the assessee filed objections before the Dispute Resolution Panel, New Delhi (DRP) who issued directions u/s 144C of 7 Adobe Software India Pvt. Ltd. the Act vide order dated 30.08.2010. The AO after receipt of direction from the DRP, framed the assessment on 05.10.2010 at an income of Rs.7,64,74,420/- i.e. the same figure which was worked out in the draft assessment order. The assessed income included upward adjustment of Rs.10,40,75,727/-. Against the said order dated 05.10.2010 of the AO, the assessee preferred an appeal before the ITAT Bench ‘A’, New Delhi wherein vide order dated 21.01.2011 the assessment order was set aside since the DRP had not considered the voluminous submissions furnished by the assessee. In compliance to the order of the ITAT, the DRP issued the directions u/s 144C(5) vide order dated 25.03.2013. The TPO determined the adjustment on accounted arm’s length price at Rs.9,17,28,060/-. Accordingly, the AO framed the assessment at an income of Rs.6,41,26,750/-.
Now the assessee is in appeal. The ld. Counsel for the assessee submitted that the assessee M/s Adobe Software India Pvt. Ltd., amalgamated w.e.f. 01.04.2006 with M/s Adobe Systems India Pvt. Ltd. vide order dated 06.09.2007 of the Hon’ble Jurisdictional High Court. It was further stated that the assessee intimated the AO vide letter dated 18.09.2008 that the assessee company i.e. M/s Adobe Software India Pvt. Ltd. merged with M/s Adobe Systems India Pvt. Ltd. and also requested to transfer the relevant records of M/s Adobe Software India Pvt. Ltd. to the Assistant Commissioner of Income Tax, Circle, Noida, 8 Adobe Software India Pvt. Ltd. who had the jurisdiction. The ld. Counsel for the assessee also furnished the sequence of events as under:
S.No. PARTICULARS DATE PAGE NO.
Return filed by assessee 23.11.2006 - 2. Merger Order 06.09.2007 - 3. Transfer Pricing Report 23.10.2007 - 4. Order passed by the Transfer 26.10.2009 183 of the Pricing Officer under section appeal set 92CA(3) 5. Draft Assessment Order under 30.12.2009 Page 178 of the section 144C appeal set in the name of the erstwhile 6. Original directions passed by 17.06.2010 Page 76 of the the Dispute Resolution Panel appeal set 7. Final Assessment Order under 12.07.2010 72 of the section 143(3)/144C appeal set 8. Order of the Hon’ble ITAT 27.12.2010 Page 58 of the remanding the matter to the file appeal set of the DRP 9. Fresh Directions issued by the 25.03.2013 Page 8 of the DRP appeal set 10. Fresh Assessment Order 28.03.2013 Page 4 of the culminating from DRP’s fresh appeal set direction.
The ld. Counsel for the assessee contended that the AO passed the assessment order u/s 143(3)/144C of the Act dated 12.07.2010 on the erstwhile company which is no longer in existence, a reference was made to page no. 42 of the appeal set which is a copy of the letter dated 26.10.2009 written to the AO for withdrawing of the notice issued u/s 142(1) on M/s Adobe Software India Pvt. Ltd. who merged with M/s 9 Adobe Software India Pvt. Ltd. Adobe System India Pvt. Ltd. w.e.f 01.04.2006. It was contented that the final assessment order was passed on a company which was no longer in existence, therefore, the assessment framed by the AO was void. The reliance was placed on the following case laws:
� ACIT Vs Micra India Pvt. Ltd. (ITA No. 1060 to 1065/Del/2012) order dated 21.09.2012 � M/s Mevron Projects Pvt. Ltd. Vs ACIT (ITA No. 4938/Del/2013) order dated 20.02.2015 � M/s Roopali Marketing Ltd. Vs ITO (ITA No. 98/Del/2011) order dated 21.11.2014 � Spice Infotainment Ltd. Vs CIT (247 CTR 500) (Del) � CIT Vs Dimension Apparels (ITA 327 of 2014 dated 8.7.2014) (Delhi HC) � Saraswati Industrial Syndicate Vs CIT (186 ITR 278) (SC) 7. In her rival submissions the ld. DR submitted that the assessee filed its e-return in Bangalore on 23.11.2006, the notice u/s 143(2) of the Act dated 16.10.2007 was issued to the assessee i.e. M/s Adobe Software India Pvt. Ltd. and at that time no proof of intimation of scheme of merger was available to the then jurisdictional Assessing Officer. It was also stated that the file was transferred to Noida vide letter No. Tranf/DCIT-11(1)/09-10 dated 07.10.2009 by DCIT Bangalore pursuant to merger and another notice u/s 142(1) of the Act dated 14.07.2009 had been issued to the assessee. It was stated that the assessee vide letter dated 26.10.2009 informed the Additional CIT, Noida that notice u/s 142(1) dated 08.10-.2009 issued by her on M/s 10 Adobe Software India Pvt. Ltd. Adobe Software India Pvt. Ltd. may be withdrawn as DCIT Bangalore was seized of assessment proceedings for the assessment year 2006-07 for a period prior to merger. It was further stated that the second round of letter was addressed by the AO in March 2013 to the assessee i.e. Amalgamating Company M/s Adobe Systems India Pvt. Ltd. who responded, therefore, the matter stands fortified with provisions of Section 292B of the Act, particularly when the second round and first round of DRP order was in the name of M/s Adobe Systems India Pvt. Ltd. i.e. Amalgamating Company. It was further stated that the notices issued by the AO having the jurisdiction of M/s Adobe Systems India Pvt. Ltd. were responded and the said assessee participated in the proceedings before the AO in respect of tax liability of the Amalgamated Company i.e. M/s Adobe Software India Pvt. Ltd.. It was further stated that the AO specifically mentioned about the fact of amalgamation of M/s Adobe Software India Pvt. Ltd. with M/s Adobe Systems India Pvt. Ltd. at page no. 1 of the draft assessment order dated 30.12.2009 passed u/s 144C of the Act. It was contended that mentioning of words ‘now amalgamated with Adobe Systems India Pvt. Ltd.’ in order dated 30.12.2009 was procedural irregularities and the assessment framed by the AO was valid assessment. The reliance was placed on the following case laws:
� Guduthur Bothers Vs ITO 40 ITR 298 (SC) � CIT Vs Jai Prakash Singh 219 ITR 737 (SC)
11 Adobe Software India Pvt. Ltd. � Bhagwan Dass Chopra Vs United Bank of India & Ors order dated 17.11.1987 1988 AIR 215 � Yapi Kredi Bank (Deutschland) Ag Vs Mr. Ahok K. Chauhan & Ors. order dated 17.01.2013 (Delhi HC) 8. The ld. DR submitted that the scheme of amalgamation as approved by Jurisdictional Allahabad High Court between Adobe Software India Pvt. Ltd. and Adobe Systems India Pvt. Ltd. categorically provided in para 4.1(b) that- the liabilities shall include but not limited to debts, liabilities, contingent liabilities, charges, liens, mortgages, taxes, duties and obligations of the transferor company as on the appointed date and thereafter whether or not provided in the books of transferor company which shall be deemed to be the debts, liabilities, contingent liabilities, charges, liens, mortgages, taxes, duties and obligations of the transferee….
It has further submitted that clause 7.1 of the amalgamation scheme provided that- “If any suit, appeal or other proceeding of whatever nature by or against the transferor company be pending, the same shall not abate or be discontinued or be in any way prejudicially affected by reason of amalgamation by anything contained in this scheme but the said suit, appeal or other legal proceedings may be continued prosecuted and enforced by or against the transferee company in the same manner and to same extent as it would or might have been continued, prosecuted and enforced by or against the transferor company as if this scheme had not been made……”
12 Adobe Software India Pvt. Ltd. 10. It was contended that at the best any procedural error could not render the assessment, a nullity, therefore, the assessment order passed by the AO was valid. The reliance was placed on the following case laws:
� Deoria Oxygen Company Vs CIT 210 CTR 509 (All) � Birla Cotton Spg. & Wvg. Mills Ltd. Vs ITO 209 ITR 434 (Raj.) � CIT Vs Jagat Novel Exhibitors 356 ITR 559 (Del) � Century Enka Vs DCIT 303 ITR (AT) 1 (Mum) � Venad Properties (P.) Ltd. Vs CIT 340 ITR 463 (Del) � CIT Vs TVS Sundram Iyengar 238 ITR 328 (Mad) 11. The ld. DR submitted that there was no evidence furnished by the assessee of this germane aspect as to when the intimation of scheme of amalgamation was given by the assessee i.e. M/s Adobe Software India Pvt. Ltd. to its Jurisdictional Assessing Officer at Bangalore. It was further submitted that the transferee assessee i.e. the Amalgamating Company M/s Adobe Systems India Pvt. Ltd. participated in the assessment proceedings and persuade the appeal in ITAT and raised the objection before the DRP, therefore, it can safely be held that the assessment framed by the AO was valid. It was also submitted that the cases relied by the ld. Counsel for the assessee are distinguishable on facts.
We have considered the submissions of both the parties and carefully gone through the material available on the record. In the 13 Adobe Software India Pvt. Ltd. present case, it is an admitted fact that the assessee company i.e. M/s Adobe Software India Pvt. Ltd. amalgamated with M/s Adobe Systems India Pvt. Ltd. w.e.f 01.04.2006 vide order dated 06.09.2007 of the Hon’ble Allahabad High Court. In the present case, this was the contention of the ld. Counsel for the assessee that the intimation of amalgamation was sent to the AO vide letter dated 18.09.2008. However, the contention of the ld. DR was that no evidence was furnished by the assessee as to whom the intimation of amalgamation was given by the assessee. In the present case, it is not clear as to whether, this fact that M/s Adobe Software India Pvt. Ltd. was not in existence was considered at the time of passing the order u/s 92CA(3) of the Act dated 26.10.2009 by the TPO or the draft assessment order dated 30.12.2009 u/s 144C of the Act by the AO. In the present case, it is true that this issue was not raised before the DRP, as such no findings have been given by the DRP. However, being a legal issue, it can be raised at any stage but the opportunity is required to be given to the department also. Since the facts need verification, we therefore, deem it appropriate to set aside this issue back to the file of the DRP to be adjudicated afresh in accordance with law after providing due and reasonable opportunity of being heard to the assessee, the cases relied by the ld. Counsel for the assessee are also to be considered.
No other ground of appeal was argued before us.
14 Adobe Software India Pvt. Ltd. 14. In the result, the appeal of the assessee is partly allowed. (Order Pronounced in the Court on 20/01/2016)